Gilbane has released its Spring 2014 edition of the periodic report "Construction Economics: Market Conditions in Construction" (download the full report).
Among the findings from the Executive Summary:
CONSTRUCTION GROWTH IS LOOKING UP
- Construction Spending for 2014 will finish the year 6.6% higher than 2013. Nonresidential buildings will contribute substantially to the growth.
- The Architecture Billings Index (ABI) in 2013 dropped below 50 in April, November and December briefly, indicating declining workload. Overall the ABI portrays a good leading indicator for future new construction work.
- Selling price data for 2013 shows contractors adding to their margins.
- Construction jobs grew by 156,000 in 2013, less than anticipated. However, hours worked also grew by 3%, the equivalent of another 150,000+ jobs.
SOME ECONOMIC FACTORS ARE STILL NEGATIVE
- We are experiencing a slight slowdown in construction spending that could last through May, influenced by a slight dip in nonresidential buildings and a brief flattening in residential, but more so by a steep decline in nonbuilding infrastructure spending. The monthly rate of spending for nonbuilding infrastructure may decline by 10% through Q3 2014.
- The construction workforce and hours worked is still 22% below the 2006 peak. At peak average growth rates, it will take a minimum of five more years to return to previous peak levels.
- Construction volume is 23% below peak inflation adjusted spending, which was almost constant from 2000 through 2006. At average peak growth rates of 8% per year, and factoring out inflation to get real volume growth, it will take eight more years to regain previous peak volume levels.
- As workload expands in the next few years, a shortage of available skilled workers may have a detrimental effect on cost, productivity and the ability to readily increase construction volume.
THE EFFECTS OF GROWTH
- Construction spending during the first five months of 2013 declined from the rate of spending in Q4 2012. Growth has been inconsistent, even in the booming residential sector, which has seen recent declines. We see more consistent growth in 2014 for buildings.
- As spending continues to increase, contractors gain more ability to pass along costs and increase margins. The growth in contractor margins slowed since last year. However, expected increases in volume should reverse that in 2014.
- ENR’s Third Quarter 2013 Cost Report shows general purpose and material cost indices increased on average about 2% to 2.5% year over year. However, selling price indices increased 4% on average. The difference between these indices is increased margins.
IMPACT OF RECENT EVENTS
- There are several reasons why spending is not rapidly increasing: public sector construction remains depressed as sequestration continues; the government is spending less on schools and infrastructure; lenders are just beginning to loosen lending criteria; consumers are still cautious about increasing debt load, including the consumers’ share of public debt and we may be constrained by a skilled labor shortage.
- Supported by overall positive growth trends for year 2014, Gilbane expects margins and overall escalation to climb more rapidly than we have seen in six years.
- Growth in nonresidential buildings and residential construction in 2014 will lead to more significant labor demand, resulting in labor shortages and productivity losses. Margins regained a positive footing in 2012 and extended those gains in 2013. Expect margins to grow stronger in 2014. When activity picks up in all sectors, escalation will begin to advance rapidly.
Click here to download the complete report and a list of data sources.
ABOUT THIS REPORT
Gilbane Inc. is a full service construction and real estate development company, composed of Gilbane Building Company and Gilbane Development Company. The company (www.gilbaneco.com) is one of the nation’s largest construction and program managers providing a full slate of facilities related services for clients in education, healthcare, life sciences, mission critical, corporate, sports and recreation, criminal justice, public and aviation markets. Gilbane has more than 50 offices worldwide, with its corporate office located in Providence, Rhode Island. The information in this report is not specific to any one region.
Related Stories
| Sep 22, 2010
Michael Van Valkenburg Assoc. wins St. Louis Gateway Arch design competition
Landscape architect Michael Van Valkenburgh and a multidisciplinary team of experts in “urban renewal, preservation, commemoration, social connections and ecological restoration” have been picked for the planning phase of The City+The Arch+The River 2015 International Design Competition.
| Sep 22, 2010
Satellier, Potential + Semac close investment deal
Satellier, a world leader in providing CAD and Building Information Modeling (BIM) outsourced services to the architecture, engineering and construction industry, announces a strategic minority investment from India-based top engineering firm Potential + Semac, ushering in the next evolution of the global architecture support industry.
| Sep 21, 2010
New BOMA-Kingsley Report Shows Compression in Utilities and Total Operating Expenses
A new report from the Building Owners and Managers Association (BOMA) International and Kingsley Associates shows that property professionals are trimming building operating expenses to stay competitive in today’s challenging marketplace. The report, which analyzes data from BOMA International’s 2010 Experience Exchange Report® (EER), revealed a $0.09 (1.1 percent) decrease in total operating expenses for U.S. private-sector buildings during 2009.
| Sep 21, 2010
Forecast: Existing buildings to earn 50% of green building certifications
A new report from Pike Research forecasts that by 2020, nearly half the green building certifications will be for existing buildings—accounting for 25 billion sf. The study, “Green Building Certification Programs,” analyzed current market and regulatory conditions related to green building certification programs, and found that green building remain robust during the recession and that certifications for existing buildings are an increasing area of focus.
| Sep 21, 2010
Middough Inc. Celebrates its 60th Anniversary
Middough Inc., a top ranking U.S. architectural, engineering and management services company, announces the celebration of its 60th anniversary, says President and CEO, Ronald R. Ledin, PE.
