The New York metropolitan area will see sharply diminished construction in 2009, with construction starts expected to decline 19%. The financial market crisis is having a negative impact on the region’s economy, as widespread layoffs on Wall Street are cutting into demand for commercial space as well as reducing tax revenues for the city and the state.

This impending downturn will follow a relatively healthy volume of construction starts in 2008, as several large projects (each with a construction value of more than a billion dollars) broke ground.  As a result, the value of total construction starts in the New York metropolitan area climbed 2% in 2008 to an estimated $32.9 billion.  The three key buildings all involve the World Trade Center (WTC).  The largest project is the WTC Tower 2, with a construction start cost at $1.43 billion, followed by the WTC Tower 3 at $1.37 billion and the WTC Tower 4 at $1.13 billion.

In addition to groundbreaking for these buildings, several large water and sewer projects were reported as construction starts in 2008. These include the $1.34 billion Catskill Delaware Ultraviolet Disinfection Facility in Mount Pleasant NY, plus several projects that broke ground at the Newtown Creek Water Pollution Control Plant in Brooklyn, with a combined value of $1.44 billion.

These massive projects added $7.8 billion to the value of construction starts in the New York metropolitan area during 2008. The absence of these projects in 2009, coupled with the tightening of construction loan requirements, will be primary reasons for the 19% total construction decline to $26.7 billion. Nonresidential building will fall 21% in 2009 to $11.6 billion, and nonbuilding construction (public works and electric utilities) will fall 28% to $6.9 billion.  At the same time, residential building will retreat a more moderate 4% to $8.1 billion.

The smaller 2009 shortfall for residential building stems from the fact that it has already registered weaker activity, with 2007 down 20% and 2008 down 15%. In addition, New York has been somewhat sheltered from the sub-prime mortgage storm -- two-thirds of its residential market is multifamily housing, not single family housing as the rest of the nation. The diversity of multifamily housing, including not only condos and townhomes but also rental apartments and “condo hotels”, contributes to the more moderate residential pullback underway.

In terms of nonresidential construction, New York is the nation’s largest market for both office and education construction (when measured by the dollar value of construction starts). Office starts will grow 130% in 2008 to $5.7 billion, due to Towers 2, 3 and 4 of the WTC. However, the office market for the New York metropolitan area is headed down in 2009, with construction starts forecast to plunge 46%. This reflects the comparison to an elevated 2008, as well as decreases in employment and increases in office vacancy rates.

In education, which comprises the second largest share of New York’s nonresidential building market, there is a 12% decline estimated for 2008, bringing the dollar value down to $3.8 billion. With the anticipated decrease in New York City’s elementary and middle school enrollment and budget shortfalls in public schools, further declines are anticipated for 2009, as contracting slides 23%. Despite the overall weakness, there are still pockets where the demand for education construction will stay strong, such as Chelsea, Gramercy Park, and Riverdale.

More in-depth information on the construction outlook for the New York Metropolitan Area can be found in McGraw-Hill Construction’s new Exclusive Report: New York Construction. To order a copy, visit www.analyticsstore.construction.com. For further information about the New York construction market or other MHC forecast information, contact McGraw-Hill Construction’s Research & Analytics Group at 800-591-4462.