Insiders Debate Predictions That Construction Will Hit the Skids

NEW YORK CITY-J.A. Jones-GMO chairman Al McNeill recently released a statement declaring that the construction activity here would slow down. Since the release of this statement, industry insiders have been reacting, debating the issue between themselves. Many point to some considerable projects underway or planned for the future. Some argue that as compared with suburban markets elsewhere, Manhattan has a disadvantage in its limited developable space, but some say the future is in redeveloping space.

Currently there are a number of buildings under development around Manhattan. Cushman & Wakefield recently identified those it considers “major buildings under construction” in its Manhattan Market Highlights. C&W identified 383 Madison Ave. in the Grand Central submarket with a proposed completion some time next year creating 1.2 million sf of rentable office space; 5 Times Square in the West Side submarket to be finished in 2003 for 1.06 million sf of space; 1 Rockefeller Plaza West in the West Side submarket to be finished in 2002 creating 1.04 million sf of rentable office; 3 Times Square in the West Side submarket to be finished next year for 819,910 sf of rentable office; and 1731-1745 Broadway in the West Side submarket to be completed in 2003 creating 540,000 sf.

Insiders argue that there are plenty of projects in the works and that the economy may be up and down lately, but that development is a necessity in Manhattan where there is such a limited amount of office space for the continuing job growth. Most sources with whom GlobeSt.com spoke said that they don’t see that development has peaked, and that the financial lenders are so careful to not fund projects that are not pre-leased and show significant promise, that the pitfalls of the 1980s have been successfully circumvented in this economy. McNeill, however, says, “The heady days of activity over the last few years has begun to catch up to everyone in this industry.”

He also says that forecasts showing that development will increase only 1% next year, a continuation of a three-year slowdown, reflect several factors, including overtime, burnout, a shortage of 250,000 construction workers to fulfill current plans and raising prices at construction firms for services. His report states, “With wages on the rise, projects that might have gotten done a year or so ago will have trouble being brought to fruition–simply because they do not pencil out. Manhattan’s tight commercial real estate market will compound this situation–forcing owners and tenants to consider other options.”

According to Manhattan office market statistics released by C&W, in the third quarter of this year there was 1.4 million sf of space in the Grand Central submarket, an increase from the same period in 1999 when there were 1,200,000 sf under construction. The Madison and Fifth Avenues submarket did see a decrease with 10,000 sf under construction in the third quarter 2000, down from 128,000 sf in 1999. The West Side submarket saw a dramatic increase, though, to 3.5 million sf, up from only 1.9 million in 1999. The total Midtown area saw an increase in construction with 4.8 million sf in 2000, when there was only 3.2 million sf in 1999. Midtown South’s only construction in 2000 was in the SoHo area for a total of 87,800 sf, a 100% increase from 1999.

For related news, click on: Construction Industry Beginning to Wane, New England Could Be Hit Hard