Construction starts of commercial and multifamily developments dropped by 31% in the first half of this year in NYC, compared with the same period last year.
The value of commercial construction starts in H1 2023 was $10.8B, compared to $15.5B in H1 2022, which represented a 22% surge over 2021, according to Dodge Construction Network data.
Despite the supply pipeline slowdown, NYC’s construction starts far outpaced other major urban markets.
Dallas ranked second in commercial construction start values in H1 2023 with $6.7B, a 17% reduction from last year. Miami’s starts totaled $4.7B in H1 2023; Houston $4.7B; Los Angeles ($4.3B) and Chicago ($4.2B).
The dip in construction starts in NYC can be attributed to an adjustment from last year’s frenzy to pour foundations for projects trying to qualify for 421a tax breaks before they expired in June 2022.
Developers are shying away from new multifamily projects in the absence of 421a, which the Legislature declined to extend. Several large office projects are slated for delivery in the fourth quarter, including Brookfield’s Two Manhattan West, Vornado’s 2 Penn and SL Green’s One Madison Avenue.
“Commercial and multifamily construction has suffered thus far into 2023 as tighter lending standards, higher interest rates, slowing demand and societal changes, such as continued remote work, impact the sector,” Dodge said, in a statement.
Gov. Kathy Hochul, who failed to persuade the NY legislature to extend a 2026 deadline for completing multifamily projects that will be eligible for 421a tax abatements that expired in June 2022 announced a workaround that will provide an equivalent of the tax breaks.
The new program initially will be limited to projects in the Gowanus neighborhood of Brooklyn, but Hochul has promised to expand it if developers are receptive to it.
Under the governor’s plan, the state will temporarily take over multifamily development sites and rent them back to developers through long-term ground leases. Property owners will then make payments in lieu of taxes (known as PILOTs) at a discount to what they would pay in property taxes. The developers regain the property at the end of the benefit period.
The projects in Gowanus that will be eligible to participate in the new program must have put their foundations in the ground before the 421a tax breaks expired in June of last year but are not on track to meet the June 2026 delivery deadline.
An 80-block section of Gowanus was rezoned by NYC in 2021, aiming to spur the development of 8,200 apartment units.