CONSTRUCTION PRICE INCREASE IN NYC?

New York, San Francisco and Hong Kong are the world’s most expensive cities to build in, according to the latest International Construction Cost Comparison published by Arcadis!

Or so we were told in 2019.  It just got a whole lot more expensive – here’s why.  

Additional building hygiene and social distancing rules, elevator capacity regulations of 4 people, site sanitization twice daily, personnel logs, 14 day quarantine, container shortages, factory shutdowns, reductions in the customs clearing workforce in NJ and a raft of other COVID-era changes are all affecting our ability to deliver on time at the prices we did just a year ago.  

Building Work Hours

Picture this: 45 East 22nd street, a 65 story 83 unit luxury building with 7 concurrent renovations.   This building, like many other luxury high-rises in NYC, allows entry no earlier than 9:00am, requiring that work stop no later than 4:30pm.  This means that actual construction work stops at 4:00pm, triggering the cleanup crew to tidy common areas sanitize the work area, pack up tools and ensure that the site is staged for the next morning before vacating at 4:30 sharp, so as to not incur additional costs and run afoul of the building’s strict guidelines.  

Now consider that each renovation has 10 workers. The elevator takes a 4-minute round trip to the mid 42nd  floor, taking 4 people each round.  In the end, that’s 18 trips, totaling 1 hour and 10 minutes, for 70 people.  This means that for some, the job starts up to 90 minutes late, assuming the elevator is running efficiently and not servicing work on higher floors. Given all of that, we now have an effective work day of only 4 hours and 45 minutes given a 30-minute break – a work day that costs the contractor a full 8 hours pay. Add to this the delays of getting materials on site via elevator and projects soon become shockingly inefficient. 

COVID-19 Quarantine

A second factor is quarantine. We recently had a worker become sick with COVID.  The entire workforce, including subcontractors quarantined as required by law, for 14 days.  In the end, the site was professionally sanitized by SparkleNYC, a specialist cleaning company. Our team member made it through – these unexpected breaks add cost and cause delays.   

Delivery and Production Delays 

China is experiencing an “extreme shortage” of 20’ containers, causing prices to rise significantly. We arranged shipping in December for $18,000 of goods to NY for delivery in early January.   Having priced shipping during production in October 2020 at $4,200 we ended up paying $9,600 on January 16th because there were no containers, with a delayed ship date of February 20th. Two months late and a $5,400 up-charge, doubling shipping costs and totaling a 25% increase in cost of goods.  

Buy American Solves the Problem

Another example, this time with domestically produced appliances.  A Subzero fridge made in Madison, Wisconsin for our loft renovation on Greene Street was scheduled in October for delivery on November 10th.  It was rescheduled by the supplier to December 15th, January 20th, February 12th ; delivery is now mid-April. Considering that this is from a supplier that we spend a great deal of money with, enjoy a good working relationship, component delays, production shutdowns and shipping issues are making it very difficult to accurately set client expectations. 

Collectively we are seeing a 25% increase to our hourly labor cost per project and about a 25% increase in project duration/general conditions expenses. It’s not just the added time due to projects happening more slowly, it’s the amount of project management resources required to find new suppliers and source available products, reschedule shipping, delivery, installation and this impacts phasing and efficiency. 

The paradox is that due to the slowdown in general of commerce in NYC, many assume that this is an opportune moment to negotiate hard with their GC.  It’s true that there is less work than this time last year but also, there are fewer skilled workers in the city.  

The suburbs are booming! The Hamptons, CT, Westchester, Garrison NY are all significantly busier than this time last year with cabinet makers, framers, wallpaper and finish specialists, all very mobile, focusing their efforts there. In fact, they are having a bumper year!  Working more easily with fewer restrictions, lower insurance requirements, longer work days, no scheduling, delivery and elevator issues, city parking, DOB site shut downs….. 

If you’re dealing with a mid-level, NYC contractor that’s short on work you’ll likely get 2020 pricing. If you’re looking higher up the food chain to the more established firms with multiple sources of revenue and deep relationships of accountability with suppliers and subcontractors, expect to see a 10% – 15% price increase over last year.  

I think that there is going to be a shakeout in the NYC contractor market as projects that are priced incorrectly struggle to get finished, and less efficient players just walk away. 

On the other hand, more serious firms with streamlined operations will pick up great management and site supervision talent and find ways to capitalize on the new paradigm. 

There’s no doubt that 2021 will be fun ride!