Construction Outlook

Construction Outlook Update
July 2009

After dismal start to 2009, construction starts rise sharply in may

VALUE OF MAY CONSTRUCTION STARTS EQUALED FIRST FOUR MONTHS OF 2009 COMBINED

A New York Building Congress analysis of McGraw-Hill Construction Dodge construction starts offers a heavy dose of sobering news mixed with one piece of encouragement.

According to the Building Congress analysis, the value of all New York City construction projects initiated during the first four months of 2009 totaled $2.05 billion, for an average of just $513 million per month. This is down approximately 80 percent from the first four months of 2008 when the total value of initiated projects reached $10.3 billion ($2.57 billion per month).

The data encompass all project starts, including new construction as well as alterations and renovations to existing structures, and reflects the value of each initiated project through the entire period of construction.

Despite the dismal start to the year, however, New York City experienced an unexpectedly sharp rise in project starts during the month of May, the most recent month in which Dodge data is available. At $2.04 billion worth of new construction starts, May's total is roughly equal to the first four months of 2009 combined and far greater than the $712 million in construction starts in May 2008.

"The May numbers offer the first sign of encouragement for the construction industry in 2009," said Building Congress President Richard T. Anderson. "Of course, monthly fluctuations naturally occur, so we will be closely monitoring the numbers in the coming months to determine if May represented the first spark of renewal or a short-lived aberration."

For 2009, construction starts totaled $815 million in January, $371 million in February, $320 million in March and $539 million in April before rising above $2 billion in May. For the sake of comparison, monthly starts in 2008 ranged from $712 million to $4.98 billion, with the majority of months easily topping $1 billion in construction starts.

The overall drop in new starts has affected virtually every major sector of the construction industry. For example, in 2008, construction began on an average of 2,700 new residential units per month throughout New York City. For the first four months of 2009, the pace has plunged to 460 units per month (before rising to 671 units in May).

The value of nonresidential building construction starts, including offices, hotels, schools and hospitals, averaged $286 million for the first four months of 2009, down from an average of $1.6 billion in the first months of 2008. In May, the value of nonresidential starts topped $1.1 billion.

The value of non-building sector starts, which mainly encompasses public sector projects, such as roads, bridges, water systems and other infrastructure, averaged $73 million for the first three months of 2009, compared to a monthly average of $504 million during the first quarter of 2008. The value of non-building starts rose to $302.7 million this April, and rose again in May to $710 million.

The alteration and renovation category held up much better than ground-up construction projects during the first months of 2009. Over the last half of 2008, alterations and renovations accounted for approximately 40 percent of apartment and non-residential project starts. Over the first four months of this year, however, alterations accounted for 57 percent of all starts. That number peaked in April at 92 percent. Once again, however, May's numbers bucked the recent trend, as alterations/renovations accounted for just 33 percent of project starts.

"Construction is generally considered a lagging economic indicator, and the initial 2009 data from Dodge demonstrate that this recession is following the historical trend," added Mr. Anderson. "The construction industry is successful when there is a steady stream of new, multi-year projects coming on line to replace those projects that are reaching completion. While the industry has been buoyed by the willingness of owners and tenants to renovate their existing spaces, we will need a string of months similar to May before the industry can expect a fuller, more robust recovery."

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