Forbes | Morgan Brennan | June 20, 2013
At the height of the economic downturn more than 700 construction projects were idled across New York City’s five boroughs, according to the city’s Department of Buildings. Some faced foreclosure while others found creative ways to make use of their vacant space.
Three years later, construction in the Big Apple AAPL -1.42% has surged back to life, and with it, the development of many of those stalled sites. The city clocked $20.5 billion worth of new construction starts in 2012, thanks in part to the groundbreaking of the first office tower at Hudson Yards, the $15 billion mixed-use mega development Related Companies billionaire Stephen Ross plans to roll out over the next decade.
In the first five months of 2013, New York welcomed another $8.5 billion worth of new construction starts, a 16% increase over the same period last year, with a flurry of new residential towers popping up to meet the ever-increasing demand for housing. Among the most anticipated: Manhattan’s The Atelier II, with a projected construction cost of $295 million; a Bjarke Ingels-designed pyramid-shaped building on Manhattan’s 57th Street, with a projected cost of $225 million; and Brooklyn’s Atlantic Yards B2 Residential Tower, the world’s tallest modular tower, with a projected cost of $117 million. (Interestingly, October’s Superstorm Sandy has contributed little to the rise in construction dollars spent, in part because building related to that natural disaster is a drawn out process tied closely to government aid and legislation.)
“Apartment housing has been seeing increases since 2010 and certainly New York City has been a part of the resurgence for multifamily building,” says Robert Murray, vice president of economic affairs at McGraw Hill Construction, a New York City-based construction data firm.
Another factor playing into the Big Apple’s construction figures: mixed-use developments throughout the metro area (which includes the city’s surrounding suburbs in northern New Jersey, Long Island and Westchester). In Queens’ Long Island City neighborhood the $192 million first phase of developer Related’s massive Hunters Point site kicked off in March. In New Jersey, construction began in April on two big projects: the $400 million Prudential Financial PRU +0.21% Office Tower in Newark, and Jersey City’s $191 million 70 Columbus tower (one-half of a dual tower development).
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Sound like a lot of new building? It should: for the second consecutive year the New York metro area tops our list of the U.S. cities with the most new construction.
To compile our list, the folks at McGraw Hill Construction sorted through building data for the nation’s metropolitan statistical areas to find the 20 places where the most money has been spent on new construction from the start of 2013 through May. (MSAs, geographic entities defined by the U.S. Office of Management and Budget, include the cities for which they are named as well as their surrounding suburbs.)
We looked at the dollar amount of new construction starts, or projects where ground has been broken and work begun, for structures that fall under the “Total Building” umbrella. Total Building includes single-family home construction, multi-family home construction, office space, retail space, warehouses, healthcare facilities, educational buildings, manufacturing plants and research facilities. We did not include money spent on public works projects such as bridges, streets and parks, nor did we include electric utility construction. McGraw Hill Construction tallies the full value of the project at the time it starts, meaning the cost of a project’s construction, which will typically take two to three years to complete, though not the value of the land itself or the cost of its acquisition.
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We focused on construction starts because they are a leading indicator of economic activity and one that is commonly used by builders, developers and economists. Still, it’s worth noting that tracking construction by starts is hardly foolproof, as work can begin on a project and still stall-if a developer loses their financing, for instance. To a smaller extent seasonality can also play a hand in when a project starts.
New construction for the entire country was up 10% in 2012 and McGraw Hill Construction projects it will climb another 12% in 2013. The biggest driver of that recovery is far and away multifamily housing, a trend reflected in every metro area on our top 20 list. “All of these markets have shown a strong increase in multifamily projects and to a lesser degree, a pickup in commercial building, which corresponds to the broader national pattern that we are seeing,” notes Murray.
Homebuilding, particularly multifamily construction, continues to lead the larger real estate recovery. In May, for example, housing starts rose nearly 29% from a year earlier to an annual rate of 914,000 units, according to the Commerce Department, of which slightly more than a third were multifamily. McGraw Hill estimates apartment building starts were up 33% nationally in 2012 from 2011 and will climb another 23% in 2013.
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Commercial building starts have risen more modestly, 10% in 2012, and are expected to rise another 15% in 2013. One of the major factors weighing commercial development down is financing which temporarily dried up in the downturn and, despite the country’s nascent economic recovery, remains tight. Hotels and warehouses have been the most common nonresidential projects, more recently joined by retail space, particularly within mixed-use developments. Institutional building – for example, of hospitals and schools – has lagged, falling 11% last year and is projected to fall another 2% in 2013.
Perhaps unsurprisingly, given Texas’ relatively strong economic growth, three Lone Star cities make our list: Dallas (No. 2), Houston (No. 3) and Austin (No. 15).
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About $5.2 billion has poured into Dallas-area development so far this year, a 21% increase over the same period in 2012. The largest projects include the $113 million T5 office space addition at the Dallas Data Center in Plano, a new $91 million high school campus in the suburb of Flower Mound, and several warehouse sites that will serve as distribution centers for companies like Nebraska Furniture Mart, ACE Hardware and Amazon.
So far this year Houston has logged $4.8 billion in new construction, an 8% increase over last year. While Dallas is welcoming a tremendous amount of building related to business operations and infrastructure, Houston’s largest projects have typically revolved around healthcare and housing, such as the $72 million MD Anderson Pavilion begun in May and the $45 million Hanover Post Oak rental high rise begun in April.