??Construction growth is looking up, according to the Winter 2013 release of the periodic report Construction Economics, authored by Gilbane Building Company. Construction spending for 2013 will finish the year 5% higher than 2012. All of the growth will be attributed to residential construction. However, the Dodge Momentum Index, a leading indicator, is up more than 20% since January 2013, indicating growth in 2014. ??
The Architecture Billings Index (ABI) dropped below 50 in April, briefly indicating declining workload. Through September, we’ve seen five more months of growth, a good leading indicator for future new construction work. In October we’ve just had another drop, but not below 50, indicating slower gains rather than declines.
??ENR published selling price data for 2013 that shows contractors adding to their margins.
Some economic factors are still negative:
- ??The monthly rate of spending for nonbuilding infrastructure may climb from September through January, but then may decline by 10% through 2014. ??An anticipated decline in spending from February to May 2014 is influenced only mildly by a slight dip in nonresidential buildings and a flattening in residential but is influenced strongly by a steep decline in nonbuilding infrastructure spending.
- ??The construction workforce is still 25% below the peak. It will take a minimum of four more years to return to peak 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.
Impact of recent events:
- ??FMI’s Third Quarter 2013 Construction Outlook Report mentions a few reasons why spending is not rapidly increasing: the decline in public construction as sequestration continues; lenders are still tight with lending criteria and consumers are still cautious about increasing debt load, and that includes the consumers’share of public debt.
- ??Comments regarding the outlook for economic stimulus have recently caused interest rates to increase rapidly. Lending criteria is still tight and borrowers are cautious about taking on new debt. Rates will continue to rise and borrowing costs will add potential cost to future funding of projects. The cheapest time to build is now behind us.
- ??Construction jobs growth has slowed. Jobs grew by 90,000 in the first half of 2013, but have grown by only 33,000 since June.
The impacts 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 up on average about 2% to 2.5% year over year. However, selling price indices are up on average 4%. The difference between these indices is increased margins.
Supported by overall positive growth trends for the year 2013, expect margins and overall escalation to climb more rapidly than we have seen in five years.
Nonresidential buildings construction slowed in the first five months but is expected to increase substantially in the last few months of 2013. We will see a decline in nonbuilding infrastructure extend completely through 2014. Residential work will remain extremely active. Once growth in nonresidential construction picks up, and both residential and nonresidential are active, we will begin to see more significant 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. Even moderate growth in activity will allow contractors to pass along more material costs and increase margins. When activity picks up in all sectors, escalation will begin to advance rapidly.
Click here for the full report.
About Gilbane
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.
Author Ed Zarenski, a 40-year construction veteran and a member of the Gilbane team for more than 33 years, is an Estimating Executive who has managed multimillion dollar project budgeting, owner capital plan cost control, value engineering and life cycle cost analysis. He compiles economic information and provides data analysis and opinion for this quarterly report.
Related Stories
| Jan 20, 2011
Worship center design offers warm and welcoming atmosphere
The Worship Place Studio of local firm Ziegler Cooper Architects designed a new 46,000-sf church complex for the Pare de Sufrir parish in Houston.
| Jan 20, 2011
Construction begins on second St. Louis community center
O’Fallon Park Recreation Complex in St. Louis, designed by local architecture/engineering firm KAI Design & Build, will feature an indoor aquatic park with interactive water play features, a lazy river, water slides, laps lanes, and an outdoor spray and multiuse pool.
| Jan 20, 2011
Community college to prepare next-gen Homeland Security personnel
The College of DuPage, Glen Ellyn, Ill., began work on the Homeland Security Education Center, which will prepare future emergency personnel to tackle terrorist attacks and disasters. The $25 million, 61,100-sf building’s centerpiece will be an immersive interior street lab for urban response simulations.
| Jan 19, 2011
Industrial history museum gets new home in steel plant
The National Museum of Industrial History recently renovated the exterior of a 1913 steel plant in Bethlehem, Pa., to house its new 40,000-sf exhibition space. The museum chose VOA Associates, which is headquartered in Chicago, to complete the design for the exhibit’s interior. The exhibit, which has views of five historic blast furnaces, will feature artifacts from the Smithsonian Institution to illustrate early industrial America.
| Jan 19, 2011
Baltimore mixed-use development combines working, living, and shopping
The Shoppes at McHenry Row, a $117 million mixed-use complex developed by 28 Walker Associates for downtown Baltimore, will include 65,000 sf of office space, 250 apartments, and two parking garages. The 48,000 sf of main street retail space currently is 65% occupied, with space for small shops and a restaurant remaining.
| Jan 19, 2011
Biomedical research center in Texas to foster scientific collaboration
The new Health and Biomedical Sciences Center at the University of Houston will facilitate interaction between scientists in a 167,000-sf, six-story research facility. The center will bring together researchers from many of the school’s departments to collaborate on interdisciplinary projects. The facility also will feature an ambulatory surgery center for the College of Optometry, the first of its kind for an optometry school. Boston-based firms Shepley Bulfinch and Bailey Architects designed the project.
| Jan 19, 2011
San Diego casino renovations upgrade gaming and entertainment
The Sycuan Casino in San Diego will get an update with a $27 million, 245,000-sf renovation. Hnedak Bobo Group, Memphis, Tenn., and Cleo Design, Las Vegas, drew design inspiration from the historic culture of the Sycuan tribe and the desert landscape, creating a more open space with better circulation. Renovation highlights include a new “waterless” water entry feature and new sports bar and grill, plus updates to gaming, poker, off-track-betting, retail, and bingo areas. The local office of San Francisco-based Swinerton Builders will provide construction services.
| Jan 19, 2011
Extended stay hotel aims to provide comfort of home
Housing development company Campus Apartments broke ground on a new extended stay hotel that will serve the medical and academic facilities in Philadelphia’s University City, including the University of Pennsylvania and the Children’s Hospital of Philadelphia. The 11,000-sf hotel will operate under Hilton’s Homewood Suites brand, with 136 suites with full kitchens and dining and work areas. A part of the city’s EnergyWorks loan program, the project aims for LEED with a green roof, low-flow fixtures, and onsite stormwater management. Local firms Alesker & Dundon Architects and GC L.F. Driscoll Co. complete the Building Team.
| Jan 19, 2011
New Fort Hood hospital will replace aging medical center
The Army Corps of Engineers selected London-based Balfour Beatty and St. Louis-based McCarthy to provide design-build services for the Fort Hood Replacement Hospital in Texas, a $503 million, 944,000-sf complex partially funded by the American Recovery and Reinvestment Act. The firm plans to use BIM for the project, which will include outpatient clinics, an ambulance garage, a central utility plant, and three parking structures. Texas firms HKS Architects and Wingler & Sharp will participate as design partners. The project seeks LEED Gold.
| Jan 19, 2011
Museum design integrates Greek history and architecture
Construction is under way in Chicago on the National Hellenic Museum, the nation’s first museum devoted to Greek history and culture. RTKL designed the 40,000-sf limestone and glass building to include such historic references as the covered walkway of classical architecture and the natural wood accents of Byzantine monasteries. The museum will include a research library and oral history center, plus a 3,600-sf rooftop terrace featuring three gardens. The project seeks LEED Silver.
