International Construction Cost Commentary - Rider Levett Bucknall

on the future of all SPEED related projects
which, if implemented in their entirety,
could potentially significantly help Arizona’s
economy, which relies heavily on the
construction industry.
Despite the stagnant housing sector it is
widely anticipated that, with The State
of Arizona continuing to experience
population growth, this current trend will
show signs of a slow recovery in early
2010. It is further anticipated that a slow
recovery within commercial construction
related works may follow behind the
housing sector.
Boston
The Boston market continues its
downward spiral.
The residential construction market
continues to struggle, with no new large
scale condominium projects planned in the
city and single family home construction
effectively stalled. Condominium sales
remain significantly below last year’s
numbers and the median price of a single
family home has now dropped by 14% over
the last 12 months.
The commercial market has suffered
considerably during the credit crisis in the
last 6 months, with all but a handful of the
ongoing city centre developments grinding
to a halt over issues with financing. Lenders
have been reviewing and withdrawing
financing on projects, while developers are
seeking to fill their yet-to-be built office
building before committing to construction.
Office rents remain inflated, but with
vacancy rates rising steadily as businesses
downsize, this should correct over the upcoming
months.
Hospitals and Universities, long considered
the “safe” option in Boston, have also
signalled a cautious approach for the
upcoming year. With issues over bond
financing and reduction in endowments,
the city’s major health and educational
institutions have placed major capital
projects under review and halted a number
of high profile developments.
Contractors are becoming more aggressive,
and the only silver lining currently out
there is that the next 12 months will be a
great time to build - if finance is available.
Los Angeles
Los Angeles experienced significant declines
in construction activity across many sectors
in 2008 with residential permits down
41.7% and non-residential permits down
16.6%.
The devastated national credit market is
reflected in Los Angeles with construction
lending down 52.5% and many projects
struggling to break ground. Most notably,
Los Angeles’ marquee project, the $2.7
billion mixed-use development of Grand
Avenue faces continued delays due to
major financing issues.
The residential market has been significantly
impacted by the credit freeze. Park Fifth, a
$1.3 billion 76-story development; Suncal
Condo Tower, a $400 million dollar
development and 9900 Wilshire Blvd., a
$366 million dollar development have all
been placed on hold. This trend is mirrored
throughout the private sector in Los
Angeles with construction loans becoming
increasingly tougher to obtain.
The one bright light for construction in
Los Angeles is public projects. With funds
already in place, these projects are avoiding
the credit issues plaguing the private sector.
Three major new infrastructure projects
broke ground in 2008 totalling $470 million.
The ongoing $869 million Metro Gold Line
expansion and $504 million Tom Bradley
International Terminal are both under
construction until 2010. Public school
construction is pushing forward with the
$391 million Central Los Angeles Learning
Center and two new LAUSD campuses
totalling $218 million.
In 2009 it is anticipated that there will be
a continued reliance on the public sector
to stimulate the Los Angeles construction
economy, with no sign of improvement in
any private sectors expected until 2010.
New York
The New York City area, like most
major urban centres in the United States,
has begun to experience a downturn in
construction activity across all sectors.
While construction continues on priorfunded
privately financed projects, it is
apparent that the area is bracing for a
protracted and severe economic slowdown.
The market for office space as well as
luxury high-rise residences has dropped off.
This, coupled with the dearth of private
financing, has resulted in significant layoffs
among the city’s largest developers.
The hotel and hospitality sector has been
particularly hard hit, experiencing declining
occupancy rates in the 4th quarter of 2008
(traditionally a busy season) for the first
time in recent memory. It is expected that
some 9,000 new rooms will come on line
in 2009, mostly in the three-star and below
category. No new five-star development is
planned and the last of the major five star
renovations is underway.
The State is in the midst of a multi-billion
dollar budget gap and the public sector
will feel the pinch in coming months as
government and agency projects are
shelved. Quasi-public entities such as
colleges and universities, especially privately
endowed institutions, continue to develop
capital projects as well as upgrades,
maintenance, and even investment.
Prices for major durable commodities have
levelled or started to decline, especially
those which are energy sensitive, in the
wake of severely declining crude oil prices.
Gasoline surcharges, in place for most of
2008, are being rescinded.
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INTERNATIONAL CONSTRUCTION COST COMMENTARY: January 2009