Hard construction costs for offices and banks slipped 10% between 2008 and 2009, according to a Building Congress analysis of FW Dodge data on new buildings. For apartments, hard costs declined 9% over that period, while the cost of building public facilities such as schools and libraries is off by 8%.
Further, the Building Cost Index published by Engineering News-Record indicates that construction costs in New York City fell slightly in three consecutive quarters since October 2008. The BCI has fallen 1.1% in the city as of August, according to the Building Congress. ENR uses local prices for portland cement and lumber, the national price for structural steel and local union wages for carpenters, bricklayers and iron workers, to derive the index.
According to the Building Congress, a survey of the New York metropolitan region by Rider Levett Bucknall finds that construction costs in the area have declined approximately 4% since January 2009. Along with the data used to compile the BCI, the RLB survey also includes estimates of bid price changes, including overhead and profit, which tend to decline during down periods, the Building Congress says.
Anecdotally, the report cites a top executive at a major construction firm, who estimates that construction prices in the city have declined an average of 15% overall and 20% in residential building. "While recent cost declines are no match for the run-up in prices during New York's prolonged construction boom, it is encouraging to see prices moderating in response to the economic downturn," says Building Congress president Richard T. Anderson in a release. "Given the current state of the economy, these cost reductions are not likely to make a great deal of difference in the short-term in the housing and office sector, since private developers still are finding it difficult to get financing for new projects."
Anderson adds, "Larger institutions and government agencies, however, stand to benefit to a much greater extent given their need and ability to continue building through all economic cycles. In fact, government should view such periods of lessened demand and decreasing costs as opportunities to get the most bang for the taxpayer buck."
With that said, locally-based Turner Construction Co. announced in late August that its third-quarter Turner Building Cost Index, which measures non-residential building construction costs across the US, decreased by 2.03% from the second quarter. While construction costs have decreased by 10.77% since the beginning of the year, indicators show that that the decline is slowing in Q3. The Turner Building Cost Index number for Q3 is 820.
"With construction starts down in most sectors, market competition continues to drive declines in construction costs," says Karl F. Almstead, the Turner VP responsible for the index, says in a release. "However, global and domestic economies appear to be stabilizing. Countering the cost decline, material and commodity prices have generally remained level with the exception of non-ferrous metals that have been driven up by global demand."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
