http://www.nysun.com/article/57033
Construction Costs Could Rise as Mega-Projects Increase Demand
By ELIOT BROWN
June 21, 2007
Almost 50 million square feet of publicly administered development are scheduled to start in the next few years, increasing the demand, and the cost of building, materials. Above, the Freedom Tower site.
Developers could see construction costs rise at an even faster rate in coming years, as the city's megaprojects substantially increase demand on a sector already flooded with work, industry officials say.
With prices escalating for building materials, this could test the strength of the historic construction boom, which has persevered despite the rising expenses.
"The demand is going to get much greater, and we have to do a lot of work to do everything we possibly can to moderate the effects of increasing levels of construction," Deputy Mayor Daniel Doctoroff said yesterday. "Everywhere, we feel the impact of rising construction costs — that's the big public projects, it's the private sector projects."
Spending on construction has reached all-time highs for the past three years — the New York Building Congress estimates that spending exceeded $24 billion in 2006 — even though the bulk of the city- and state-administered large-scale projects conceived in the past decade have yet to begin, most of which are scheduled to start in the next two to three years.
Between the World Trade Center, Moynihan Station, Atlantic Yards, the Hudson rail yards, and Willets Point in Queens, almost 50 million square feet of publicly administered development are scheduled to start in the next few years — the equivalent of about 20 Empire State Buildings going up at the same time. Add to that the more than $12 billion projected for the no. 7 line subway extension, the first phase of the Second Avenue subway, and the Trans-Hudson Express project for a new NJ Transit tunnel to Pennsylvania Station, and the flurry of activity is sure to drive up the need for construction workers and materials, likely causing prices to jump.
"As you have all this work going on, there's an increased economic pressure on labor," the assistant executive director of the General Building Contractors of New York State, Joseph Hogan, said. Wages of unionized construction workers tend to be steady for years at a time due to bargaining agreements, though Mr. Hogan said the trend in wages will surely be sent upward by the city's big projects in coming years.
The industry is already seeing a shortage of project managers, a problem that will be exacerbated in coming years, according to the president of the Building Trades Employers Association, Louis Coletti. "You can't manufacture a project manager overnight," he said.
The spike in development could send local prices for construction materials such as concrete up as well, the chief economist at the Associated General Contractors of America, Kenneth Simonson, said.
Already, developers and public agencies have been socked with soaring expenses for construction, as demand from rapidly expanding markets in India and China has caused skyrocketing prices of materials such as copper.
Total construction costs have gone up by as much as 1% a month, builders say, pushing developers to move briskly and forcing public agencies to scale back plans for new buildings.
"Every month-delay that we have, we estimate that we have a $9.5 million escalation hit," the chief of administration for the $1.8 billion United Nations Capital Master Plan renovation project, Vivian van de Perre, said.
For private developers, construction officials say, project price tags are sent up even further by the city's rapidly rising land values, which, like raw material costs, show no sign of slowing their growth.
With a mind to future price hikes, a spokesman for the Port Authority of New York and New Jersey, Steven Coleman, said the agency has already handed out about $1 billion in contracts for the $2.8 billion Freedom Tower.
"We're trying to award contracts as early as we can," Mr. Coleman said.
While the towers at the World Trade Center site are generally on budget, plans for the Santiago Calatrava-designed PATH transit hub are estimated to cost as much as $1 billion more than the $2.2 billion planned for the facility, and the Frank Gehry-designed Performing Arts Center has been repeatedly scaled back as its price tag has climbed hundreds of millions over budget.
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