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
AEC Business Innovation | Jul 11, 2021
Staffing, office changes at SCB, SmithGroup, RKTB, Ryan Cos., Jacobsen, Boldt, and Adolfson & Peterson
AEC firms take strategic action as construction picks up steam with Covid openings.
K-12 Schools | Jul 9, 2021
LPA Architects' STEM high school post-occupancy evaluation
LPA Architects conducted a post-occupancy evaluation, or POE, of the eSTEM Academy, a new high school specializing in health/medical and design/engineering Career Technical Education, in Eastvale, Calif. The POE helped LPA, the Riverside County Office of Education, and the Corona-Norco Unified School District gain a better understanding of which design innovations—such as movable walls, flex furniture, collaborative spaces, indoor-outdoor activity areas, and a student union—enhanced the education program, and how well students and teachers used these innovations.
Multifamily Housing | Jul 7, 2021
Make sure to get your multifamily amenities mix right
One of the hardest decisions multifamily developers and their design teams have to make is what mix of amenities they’re going to put into each project. A lot of squiggly factors go into that decision: the type of community, the geographic market, local recreation preferences, climate/weather conditions, physical parameters, and of course the budget. The permutations are mind-boggling.
Industrial Facilities | Jul 2, 2021
A new approach to cold storage buildings
Cameron Trefry and Kate Lyle of Ware Malcomb talk about their firm's cold storage building prototype that is serving a market that is rapidly expanding across the supply chain.
Multifamily Housing | Jun 30, 2021
A post-pandemic ‘new normal’ for apartment buildings
Grimm + Parker’s vision foresees buildings with rentable offices and refrigerated package storage.
Architects | Jun 30, 2021
Perkins Eastman joins forces with MEIS
MEIS’ work on stadiums and entertainment centers spans the globe with state-of-the-art designs in the U.S., Europe, Asia, and the Middle East.
Architects | Jun 25, 2021
AIA announces Small Project Award recipients
Now in its 18th year, the AIA Small Project Awards program recognizes small-project practitioners for the high quality of their work.
Architects | Jun 24, 2021
Post-pandemic, architects need to advocate harder for project sustainability
An AIA-Oldcastle report looks closer at the coronavirus’s impact on design and construction
Resiliency | Jun 24, 2021
Oceanographer John Englander talks resiliency and buildings [new on HorizonTV]
New on HorizonTV, oceanographer John Englander discusses his latest book, which warns that, regardless of resilience efforts, sea levels will rise by meters in the coming decades. Adaptation, he says, is the key to future building design and construction.
Multifamily Housing | Jun 23, 2021
COVID-19’s impact on multifamily amenities
Multifamily project teams had to scramble to accommodate the overwhelming demand for work-from-home spaces for adults and study spaces for children.