Complementing the Building Congress analysis was the release last week of Turner Construction's First Quarter 2010 Turner Building Cost Index. The index, which measures non-residential building construction costs in the US, has decreased by 0.5% from Q4 '09 and 7.74% year over year.
Construction costs have decreased by about 13.1% since their peak at the end of 2008—which also marked the peak year for New York City construction spending at $31.8 billion. The Turner Index value for the current quarter is 799.
"The rate of decline in construction costs is not as dramatic as it was in 2009," says Karl F. Almstead, the Turner VP responsible for the index, in a release. "The reduced volume of work remains the driving force behind the market's downward pressure on costs in the non-residential building construction sector."
Although there are signs that the economy is on the mend, "the construction industry trails the broader economy due to the time required for project planning and design," Almstead says. "As the economic recovery strengthens, increased activity in project planning will provide an indication that the rebound in the construction industry is under way."
Nonetheless, on the local level at least, the final quarter of '09 did suggest some evidence of that rebound. New York City-based projects worth $5.6 billion started in the last three months of the year, according to the Building Congress. Richard T. Anderson, Building Congress president, points out that this was the first time the quarterly construction tally exceeded $5 billion in more than a year.
The fourth quarter was 51% higher than the $3.7 billion started in the fourth quarter of '08, and also higher than both the second ($4.4 billion) and third quarters ($4.1 billion) of '09. It's also 230% more than the $2.4 billion of construction starts that came along in the post-meltdown doldrums of the first quarter of the past year.
That Q4 rebound was most evident in public sector work, as non-building construction starts on projects such as roads and bridges reached $2.9 billion during the quarter. That's more than the tallies for Q2 ($1.3 billion) and Q3 ($947 million) combined, and more than 10 times as much as the $255 million of infrastructure starts in the first three months of '09.
The value of nonresidential construction starts, including hotels, schools, offices, hospitals and other institutional building, has remained consistent over the past three quarters, averaging about $2.5 billion for each quarter. Just $1.3 billion worth of construction projects got under way between January and March '09.
The numbers tell a very different story in residential construction, for which the best quarter of '09 was the first one at $935 million. In this sector, Q4 was the worst at $410 million, compared to Q2 with $668 million and Q3 with $494 million.
"Public construction has been the largest factor in this nascent rebound," Anderson says in the Building Congress report. "The question is whether government will sustain recent levels of funding, given the budgetary woes afflicting City Hall and Albany, as well as transportation agencies such as the Port Authority and the Metropolitan Transportation Authority. If government officials enact significant cuts to major capital programs, a second construction dip is possible, as it seems unlikely that the residential and office construction market will dramatically improve in the short-term."
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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.
