CONSTRUCTION OUTLOOK UPDATE: NEW YORK CITY CONSTRUCTION COSTS

CONSTRUCTION OUTLOOK UPDATE:NEW YORK CITYCONSTRUCTION COSTSFEBRUARY 2019New York City’s cost of construction increased at the same rate between 2018 and 2017, roughly five percent.New York City remains the highest cost of construction market in the United States, according to a New YorkBuilding Congress analysis of multiple cost indices.

“As New York’s population and economycontinue to grow, every sector ofthe building industry – commercial,residential, healthcare, education, culturaland infrastructure – remains robust,offering opportunity for both the laborforce and contractors. Furthermore,New York’s building industry is facedwith particularly high costs of land andmaterials and continued burdensomeregulations. These factors were theprimary drivers of cost increases in 2018.While the cost of construction is high, therewards for doing business in New Yorkhave never been greater.”Carlo A. Scissura, Esq.President and CEONew York Building Congress

NEW YORK CITYCONSTRUCTION COSTS CONTINUETREND FROM 2017, INCREASEROUGHLY FIVE PERCENT IN 2018NYC CONSTRUCTION COSTcost increases have occurred in prime office buildings,retail, hotels and multifamily residential buildingsover this period, while K-12 school construction costsbeen lower. Healthcare facility construction costs,which are historically the highest at 700 per squarefoot in 2018, have risen less rapidly.New York City construction cost increased at thesame rate in 2017 and 2018, roughly five percent onaverage. Construction costs in New York City haverisen continually since 2010.The disparity between New York and national costtrends reflects the booming New York constructionmarket which has placed high demand on laborand materials. New York City’s concentration ofconstruction in prime office and luxury multifamilybuildings, as well as public infrastructure work, alsoexplains why cost increases are higher locally thannationally.Viewed from a historical perspective of the change inbuilding costs for different structure types between2007 and 2018, it is evident that steep per-square-footThe Engineering News Record (ENR) ConstructionCost Index for New York suggests that heavyconstruction costs for work such as infrastructure arerunning at a nearly six percent increase in 2018, downfrom nearly eight percent in 2017.Cost acceleration is especially prevalent in the officesector, due in part to a substantial increase in theamount of work underway – including ground-upconstruction, alterations and renovation of existingoffice buildings and production of Class A officespaces in Manhattan, Queens and Brooklyn.NEW YORK CITY CONSTRUCTION COST INDICES, 2007-2018BASE YEAR: 2007, INDEX 100160125NYC CONSUMER PRICE INDEXRLB Construction CostENR Construction 0790ENR Building Cost3

NATIONAL CONSTRUCTION COSTAND MATERIAL COSTConsiderable concurrence among major cost indices at the national level suggest that construction costsincreased in the United States by three to four percent in 2018, comparable to the national trends in 2017.National construction costs, like New York City’s, have risen continually since 2010.140135130125120115110US CONSUMER PRICE INDEX105100ENR CCI ENR BCI RIDER LEVETT BUCKNALL TURNER BUILDING COST INDEX4NATIONAL CONSTRUCTION COST INDICES, 2007-2018BASE YEAR: 2007, INDEX 00795

NATIONAL CONSTRUCTION COSTAND MATERIAL COST CONTINUEDIncreases in material costs are major drivers of overallconstruction costs. The average change in pricescollected by the Bureau of Labor Statistics sheds lighton specific increases in material costs. Nationwide,key material costs like fuel, lumber and steel haverisen since 2016 and more sharply since 2017. In 2018alone, the cost of diesel fuel increased 52 percent,lumber increased 23 percent, copper pipe increased 14percent and structural steel increased nine percent.These increases were either declining or stagnantprices between 2011 and 2016.200186172US CONSUMER PRICE INDEX15814413011610288COPPER PIPELUMBERSTRUCTURAL METALCEMENTNATIONAL CONSTRUCTION COMMODITY COST INDICES, 2007-2018BASE YEAR: 2007, INDEX 01074DIESEL FUEL5

INTERNATIONAL CITY COMPARISONNEW YORKLONDONHONG KONGSYDNEYSINGAPOREBEIJINGDUBAISHANGHAIBERLINNew York City is still the mostexpensive U.S. city in which to build.Compared to other major cities, NewYork’s construction costs for Class Aoffice and retail rank highest, and theaverage cost of construction ranksabove all other U.S. cities. However,in key sectors such as multifamilyresidential, healthcare, K-12 educationand hotel construction, major citiesacross the U.S. either ranked higher orwere consistent with New York City’scosts.For class-A office construction, NewYork’s costs are between 15 and 50percent higher than most other majorU.S. cities. Relative to other globalcities, priced on a comparable U.S.dollar exchange rate, New York City’scosts of constructing premium officespace can be as much as 300 higherper square foot than cities in Asiaand the Middle East. In comparison,New York’s premium office costs areroughly comparable with London.continued on page 7.NEW YORKLONDONHONG NEW YORKLONDONHONG KONGSYDNEYSINGAPOREBEIJINGDUBAISHANGHAIBERLINNEW YORKLONDONHONG E CONSTRUCTION 0 100 200 0 100 200 300 500 600 400 500 600 700 800HOTEL CONSTRUCTION 0 100 200 300 400 500 600MUTLI-FAMILY RESIDENTIALCONSTRUCTION 0 100 200COMPARATIVE INTERNATIONAL CONSTRUCTION COSTS, 2018 - /SQFT - (HIGH ESTIMATE)SOURCE: RLB RIDER LEVETT BUCKNALL 400RETAIL CONSTRUCTIONABOVE, CENTER RIGHT6 300 300 400 500 600

NATIONAL CITY COMPARISONOFFICE CONSTRUCTIONNEW YORKWASHINGTON DCBOSTONCHICAGOSAN FRANSISCOLOS ANGELES 600DENVER 0 300RETAIL CONSTRUCTIONNEW YORKWASHINGTON DCBOSTONCHICAGOSAN FRANSISCOLOS ANGELES 500 300DENVER 0HOTEL CONSTRUCTIONNEW YORKWASHINGTON DCBOSTONCHICAGOSAN FRANSISCOLOS ANGELES 800 300DENVER 0MUTLI-FAMILY RESIDENTIALCONSTRUCTIONNEW YORKWASHINGTON DCHOTELIn terms of retail construction, the greatestprice differential currently exists in Berlinand Dubai, where New York costs per squarefoot are more than 250 percent higher. Muchdepends, however, on the type of retail that’sbeing built – whether it is sting malls, bigbox or integrated into mix-use buildings likein New York. New York’s costs currentlyappear to be lower than London’s and morecomparable to those in Los Angeles and HongKong.With regard to hotel construction, lessof a cost differential exists among globalcities. New York is less comparable to Asiancities like Shanghai and Beijing and morecomparable with other major U.S. cities likeChicago and San Francisco.BOSTONCHICAGOSAN FRANSISCOLOS ANGELES 500 300DENVER 0K-12 EDUCATION CONSTRUCTIONNEW YORKWASHINGTON DCBOSTONCHICAGOSAN FRANSISCOLOS ANGELESDENVER 500 250 0ABOVE, CENTER LEFTCOMPARATIVE NATIONAL CONSTRUCTION COSTS, 2018 - /SQF - (HIGH ESTIMATE)7

SOURCESThe cost indices used by the Building Congress areproduced by ENR, Rider Levett Bucknall (RLB),Turner, and the Bureau of Labor Statistics. Each indexexamines changes in costs of construction over time.Taken together or individually, these indices do notcapture all the factors influencing project costs. Theyonly offer a snapshot of general cost trends.ENR Construction Cost Index measures howmuch it costs to purchase the following hypotheticalpackage of goods: 200 hours of common labor,multiplied by the 20-city average rate for wagesand fringe benefits, 25 cwt of fabricated standardstructural steel at the 20-city average price, 1.128tons of bulk Portland cement priced locally and 1,088board ft of 2x4 lumber priced locally. Compared tothe ENR Building Cost Index, the Construction CostIndex is more applicable where labor costs are a highproportion of total costs.ENR Building Cost Index measures how much itcosts to purchase the following hypothetical packageof goods: 68.38 hours of skilled labor, multiplied bythe 20-city wage- fringe average for three trades–bricklayers, carpenters and structural ironworkers,25 cwt of fabricated standard structural steel at the20-city average price, 1.128 tons of bulk Portlandcement priced locally and 1,088 board ft of 2x4 lumberpriced locally. Compared to ENR Construction CostIndex, the Building Cost Index is more applicable forstructures.Rider Levett Bucknall’s Comparative Cost Indextracks the ‘true’ bid cost of construction, whichincludes, in addition to costs of labor and materials,general contractor and sub-contractor overhead costsand fees (profit). The index also includes applicablesales/use taxes that ‘standard’ construction contractsattract. Values of U.S. locations represent hardconstruction costs based on U.S. dollars per squarefoot of gross floor areaTurner’s Construction Cost Index measures costsin the non-residential building construction marketin the United States and is determined by severalfactors considered on a nationwide basis, includinglabor rates and productivity, material prices and thecompetitive condition of the marketplace.U.S. Bureau of Labor Statistics’ Consumer PriceIndex (CPI) is a measure of the average change overtime in the prices paid by urban consumers for amarket basket of consumer goods and services.NEW YORK BUILDING CONGRESS1040 AVENUE OF THE AMERICAS, 21ST FLOORNEW YORK, NY 10018(212) 481-9230WWW.BUILDINGCONGRESS.COM

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