New York City currently experiences a construction boom with record-breaking investment. The non-residential sector is leading growth, but there is also significant development in the residential and public sectors. The New York Building Congress published a report that analyzes the construction outlook from 2018 to 2020, and the conclusions are very promising:
- According to the NY Building Congress, total construction spending will reach $61.8 billion by the end of 2018. Considering that construction spending for 2017 added up $49.3 billion, this represents a 25% increase.
- The total floor space added in 2018 will exceed 73.7 million gross sq. ft., surpassing the 59.3 million sq. ft. developed in 2017.
Construction will continue steadily through 2019 and 2020. The investment estimates for each year are $59.3 billion and $56.4 billion, equivalent to 66.7 million and 59.8 million square feet. In total, the the NY Building Congress estimates construction investment in excess of $177 billion for the 2018-2020 period.
Another benefit of the NYC construction boom is job creation: as of 2018, the construction workforce exceeds 158,000. This is a significant economic stimulus for the city, considering that local construction wages are among the highest in the world.
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Non-Residential Construction Has Taken the Lead
The largest share of construction investment in NYC currently goes to the non-residential sector, especially offices, hotels, entertainment, sports venues and institutional buildings. Office construction represents the largest share of non-residential construction, followed by education in second place, with culture and tourism in third place.
- Investment in this sector will reach $39 billion by the end of the year, which represents 63% of the total ($61.5 billion).
- For comparison, the non-residential investment in 2017 was $23.5 billion.
- While the overall increase in construction investment is 25%, the specific growth for the non-residential sector is 66%.
In terms of floor space, the non-residential building sector will increase by 39 million square feet by the end of 2018 - a new record for NYC. Growth will continue to be high in 2019 and 2020, with the addition of 30.4 million and 23.4 million square feet, respectively.
Construction Outlook for the Residential and Public Sectors
Although the non-residential sector is drawing more investment in NYC, the outlook is also promising for residential construction. The number of housing units in the city is expected to increase by 60,000 between 2018 and 2020, with an average of 20,000 new units per year. The respective floor space additions for each year are the following:
- 34.6 million sq.ft. in 2018
- 36.2 million sq.ft. in 2019
- 36.4 million sq.ft. in 2020
The NYC Building Congress estimates that residential investment will exceed $14 billion by the end of 2018, surpassing the $13.2 billion from 2017 by 6%. This figure includes both new constructions and modifications in existing properties. Only in the first half of 2018, a total of 12,800 new apartments entered the housing market. The projected investment increases to $15 billion in 2019, before decreasing to $10.6 billion in 2020.
With almost 6,400 new housing units planned for completion by 2020, Long Island City is the neighborhood that will experience the highest growth in the residential sector. Other notable mentions are Williamsburg (>3,400 units), Bushwick (>2,500) and Greenpoint (>2,000).
The housing boom can be attributed to the large number of permits filed in 2015. A 421-a tax abatement was about to expire in 2016, and developers were rushing to file their construction permits while the benefit lasted.
Public sector construction increases from $14.8 billion in 2017 to $19.5 billion in 2018, which represents a leap of almost 32%. The public sector investment is allocated as follows:
- $9.1 billion in city-owned infrastructure projects, focusing on public education, housing, resiliency, transportation and parks.
- $7.2 billion by the Metropolitan Transportation Authority (MTA), focusing on modernization of the NYC subway system.
- $1.9 billion by the Port Authority of New York & New Jersey.
Construction investment in the public sector will be even higher in 2019 and 2020, reaching up to $23 billion and $24 billion, respectively.
A Final Recommendation for Developers
New York City is a thriving real estate market, but the city is also characterized by its high construction costs. However, project costs can be optimized by working with qualified design engineers.
An added benefit of working with professionals is a faster project approval with the NYC Department of Buildings. The process can be challenging for someone who is not familiarized with building codes and other requirements, causing project delays.