Stephen G. Kliegerman
President of Development Marketing
by Tom Fredrickson
Residential construction in New York City is headed for its first annual decline in more than a decade.
In the first seven months of the year, the city has issued permits to developers to build 3% fewer residential units than in the same period of 2005, according to U.S. Census Bureau data.
While the number of units in Brooklyn and Queens continued to rise--although at a fraction of last year's pace--the other boroughs all recorded dips. In Manhattan, the numbers slumped 13% for the period to a total of 4,986, which translates to 12 fewer buildings going up.
Many observers say the latest numbers mark a major turning point after years of robust growth in residential construction in the city. The rising cost of land, materials and construction has made many large construction projects uneconomical--especially in the face of a softening in sale prices.
"The supply of condos over the next several years is going to be a lot less than people thought six months ago," says Gary Barnett, president of Extell Development Corp., one of the city's largest residential developers.
Forecasting company McGraw-Hill Construction anticipates that the value of large apartment building construction in the New York City area will rise this year by 4%, down steeply from last year's 23% jump. The company predicts a 7% fall in the total value for next year.
The last time the city saw a decline in the number of permits issued for residential units was in 1994, early in Bill Clinton's first term of office. By last year, the totals had increased by a factor of seven.
"I think we are seeing a natural slowdown in construction because there is less land available, and the land that is out there continues to rise in price," says Stephen Kliegerman, executive director of development and marketing at Halstead Property.
Many developers are looking at pieces of property and deciding against building on them because the numbers no longer make sense in a market where developers cannot count on further steep rises in sales prices. A Halstead client Mr. Kliegerman declined to identify recently passed on developing a 20-unit condo building in the West Village. The units would have to sell at $2,000 a square foot, reflecting a high-watermark price that may not hold.
"It wouldn't be impossible to attain those numbers, but no reasonable investor would bank on it," Mr. Kliegerman says.
©2006 Crain Communications Inc.
Monday, August 28, 2006