Cost of Building in New York Is Nearly Triple That of Chicago or Atlanta, Report Finds

By PETER KIEFER, Staff Reporter of the Sun

Constructing a square foot of office space in New York City costs almost three times as much as it would cost in Chicago, Atlanta, and other American cities, according to a report being released today.

Just as spending for nonresidential construction has surpassed $1 trillion annually across the country, the costs associated with construction in New York City — materials, labor, and city permitting delays — have made it far and away the most expensive city to build in in America, a report being released today by the New York Building Congress and New York Building Foundation says.

"That is a huge differential," the president of the Real Estate Board of New York, Steven Spinola, said yesterday when told of the report's city-to-city cost differentials. The report estimates that a square foot of office space for a high-rise in New York can exceed $400 a square foot, not including marketing, land costs, or the developer's profits.

The total project costs, including soft costs, can average $150 a square foot in Chicago and $120 a square foot in Atlanta.

The report's findings come at a pivotal moment for New York's construction industry. A series of fatal crane accidents in recent months resulted in the resignation of the buildings commissioner, Patricia Lancaster, and a number of criminal investigations. The City Council is considering legislation that would overhaul the training and inspection policies related to cranes and construction sites in the city.

The added safety measures come as a number of billion-dollar development projects in New York City have faced delays and budget shortfalls. Many of those projects have been scaled back or abandoned altogether due in part to the rising costs of construction and difficulties associated with gaining government approvals. This week Mayor Bloomberg announced a series of changes aimed at easing the risks assumed by contractors bidding on public/private projects.

"This year has already produced news that government is pulling back on long-anticipated and initially funded projects — such as the expansion of the Jacob K. Javits Convention Center and creation of a Fulton Street Transit Center. These events point to the collective need to get a real handle on building costs, especially given the multitude of major transit and development projects currently on the drawing board — including the Second Avenue Subway, Atlantic and Hudson Yards and the World Trade Center build out," the president of the Building Congress, Richard Anderson, said in a statement.

In New York City costs have risen 32% between 2004 and 2007 and are expected to increase 1% each month till at least 2010, according to the report, which says nonresidential construction spending has increased 46.5% since 2004 nationwide.

The report said that in New York City "land costs have accelerated beyond all of the other cost factors" but the report also cites local regulations and government policies, workforce shortages, more extensive union rules, and stringent environmental standards, as well.

"Many factors unique to New York affect its costs. Proximity to subways, the depth of rock, a dense urban fabric, confined sites, the presence of previous and adjacent structures, and the size and risk associated with large scale projects present complexities that layer on costs," the report says.

Mr. Bloomberg's proposals, which mirror the recommendations suggested in the report, include the city compensating contractors whose public works projects are delayed by city mistakes, and trying to estimate more accurately the cost of projects before they are given budget approval.

Mr. Spinola said Mr. Bloomberg's proposals and those mentioned in the report would be a welcome relief to his members.

"It clearly is necessary. When contractors bid for New York jobs they add a percentage to it because they know it is going to take them longer to get the permits and that it will be more complicated, so they build that into the cost. If there can be confidence that payments can be made, and there will be no inappropriate second-guessing, I think you will see the prices come down," he said.