City construction cost growth rates are leveling off after years of sharp increases, thanks in part to lower oil prices and increased competition for bids by area contractors. That’s given developers a comparative respite and cause to believe the city’s building boom can be sustained.
The price hike respite is only a relative piece of good news, but it’s something.
“Last year, clients were looking at 15 to 20 percent increases in construction costs, and that’s probably leveled off somewhere closer to 10 percent,” said Mark Varian, president of John Gallin & Son Inc., a construction firm specializing in interiors. “I don’t see anything getting less expensive, but the numbers are going up at a more controlled pace.”
At least part of this normalization, Varian said, is due to a recent stabilization in the cost of some building materials such as steel and copper after double- and sometimes triple-digit percentage increases in prices during a boom market in commodities.
“We don’t have the panic situation we had maybe a year or a year and a half ago with steel. And the oil impact is obviously going to help us stabilize,” Varian said.
However, Varian, a contractor, also noted a “little bit of a lull” in demand for his services.
According to Ed Baquero, managing partner of real estate developer Coalco, it is this increased availability and flexibility on the part of contractors that has made the market more manageable.
“Lately, what you’re seeing is a little bit more competitive bidding. Schedules have opened up for contractors and [subcontractors],” said Baquero. “A year ago, you’d send out for bid a superstructure contract and you’d get maybe one or two people to respond if you were lucky. Now, it’s a little bit more competitive; you’ll find four or five or six people responding and providing bids and having schedules that are open. It gives developers control back over pricing.”
Baquero said flexibility on the part of contractors is new. He said he expects this will continue into next year as demand for residential construction flags when a host of condo towers are completed.
“I think the market is past its absolute peak. If it were a bell curve, we’re more on the right side of that bell curve,” Baquero said. “You’re finding that there’s just not as much of a demand and you’re seeing it start to trickle down through the construction trades. You already see a change in behavior [on the part of contractors]. They’re not wholesaling themselves, but the fact that they’re coming to the table is a good thing.”
If there has been any drop-off in demand, it’s news to president Richard Anderson of the New York Building Congress, a trade group.
“I had heard that things were still tight and that subcontractors in certain fields were in extremely short supply, and that there’s been an escalation of costs in most, if not all areas. So, if there’s been any easing off, that’s news to me,” he said.
Anderson said that apart from a “very slight” decrease in residential construction, the city’s building business is still booming. According to a recently released report by the Building Congress, members expect “unprecedented construction levels” over the next two years, with annual construction spending to increase from $18.8 billion in 2005 to over $21 billion by 2008. The report also predicts escalating construction costs due to the two factors Varian and Baquero said have kept costs down lately: volatility in the cost of materials and a scarcity of qualified contractors.
Indeed, both Varian and Baquero say the New York construction industry could easily be sent back into a frenzy, especially if the many planned material- and labor-hungry projects — World Trade Center site development, new stadiums, Atlantic Yards, the Number 7 subway extension and others — come on line around the same time.
“If someone said, ‘is this a good time to do construction,’ I’d say do it and do it now, because there could be things that change the market,” said Varian.
Baquero agreed that some of the bigger projects breaking ground will affect construction costs citywide.
“Some of the trades will probably be busy and will be on those big jobs for quite some time. That could have an effect [on prices],” he said. “On the other hand, it will definitely give some stability to the construction industry. Even if the floor comes out on residential, hotel and office, those projects will keep some of the bigger players afloat.”