Building in Philly: Cheaper than New York, but not cheaper enough?

As reported in early 2013 by Gregory Management & Consulting Services, the long standing and accepted construction model in Philadelphia is no longer the most effective and efficient model of construction.  The winds of change are blowing.  Our friends at Econsult reinforce this in their recent study of construction costs associated with commercial construction here in the city.  While I sincerely believe that their data requires justification, the signatory obligations of the preferred model at this time are restrictive and lack efficiency.  With dwindling RACP, TIF, county and local sources of subsidizing projects to support these inefficiencies, it is time to take a hard look at our existing model and make the necessary changes to support cost effective, quality construction here in the region.

Building in Philly: Cheaper than New York, but not cheaper enough?

Philadelphia's Center City office district is roughly just as big (40 million sq ft), just as busy (400,000 workers) and just as cheap ($20s/sq ft) as it was 10 or 20 years ago. In short, it's falling behind New York, Washington and even Boston as an East Coast business center. The Urban Land Institute (in a forum partly paid for by lawyers Cozen O'Connor and brokers Marcus & Millichap) this morning assembled builder Dan Keating, Brickstone Cos.'  John J. Connors, Philadelphia Area Labor Management's Anthony Wigglesworth, Econsult Solutions' Peter Angelides, and city deputy mayor Alan Greenberg at the Union League to talk -- not about how to attract more business, they'll look at that later this fall -- nor about rumored new towers might get built to contain Comcast's expansion or FMC's headquarters -- but to compare building costs in the city vs. elsewhere.

Their conclusions, according to Angelides, who is putting a report together:

·         Compared to Philadelphia, New York building costs are 15 to 20 percent more expensive.
Boston, Chicago and other big cities are slightly more expensive than Philly.

·         Other places are 10 or 20 percent less expensive

·         Posted labor costs are higher in New York than Philadelphia

·         Skilled labor costs (Electricians, Ironworkers, Steamfitters, Operating Engineers) are similar for union and nonunion workers; union benefits cost a little more.

·         Unskilled or semiskilled labor costs (Laborers, Carpenters) are higher on all-union jobs, partly because those unions' work rules require more people on the job than non-union contractors typically use. (That's why big projects in places like Delaware used mixed shops: you'll see non-union Latin American immigrant labor and unionized U.S. skilled workers on the same job sites.)

·         Building in Philadelphia is difficult because the small lots make it tough to store materials and set up staging areas onsite or near the site. This is pushing more builders to pre-fab elements at suburban locations, which reduces the city workforce and wage tax collections.

·         Lenders charge higher interest and fees, or require more equity (cash up front), on Philadelphia jobs than in New York or Washington because the lower rents would otherwise make for higher financial risk or lower profits.

So Philadelphia construction typically requires government subsidies, which are currently hard to come by.

Source: Philly.com