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
Data Centers | Oct 25, 2022
Virginia county moves to restrict the growth of new server farms
Loudoun County, Va., home to the largest data center cluster in the world known as Data Center Alley, recently took steps to prohibit the growth of new server farms in certain parts of the county.
Museums | Oct 25, 2022
Seattle Aquarium’s new Ocean Pavilion emphasizes human connection to oceans
Seattle Aquarium’s new Ocean Pavilion, currently under construction, features several exhibits that examine the human connection with the Earth’s oceans.
Energy-Efficient Design | Oct 24, 2022
Roadmap shows how federal buildings can reach zero embodied carbon emissions by 2050
The Rocky Mountain Institute (RMI) has released a roadmap that it says charts a path for federal buildings projects to achieve zero embodied carbon emissions by 2050.
Higher Education | Oct 24, 2022
Wellesley College science complex modernizes facility while preserving architectural heritage
A recently completed expansion and renovation of Wellesley College’s science complex yielded a modernized structure for 21st century STEM education while preserving important historical features.
Transportation & Parking Facilities | Oct 20, 2022
How to comply with NYC Local Law 126 parking garage inspection rules
Effective January 1, 2022, New York City requires garage owners to retain a specially designated professional engineer to conduct an assessment and file a report at least once every six years. Hoffmann Architects + Engineers offers tips and best practices on how to comply with NYC Local Law 126 parking garage inspection rules.
Architects | Oct 20, 2022
Michael Graves Architecture acquires Jose Carballo Architectural Group
Michael Graves Architecture (MG), an award-winning global leader in planning, architecture, and interior design based in Princeton, NJ, announces the acquisition of Jose Carballo Architectural Group (JCAG), a New Jersey-based architecture firm.
Architects | Oct 20, 2022
Woolpert acquires Sheehan Nagle Hartray Architects, global experts in mission critical design
Woolpert has acquired Sheehan Nagle Hartray Architects, a full-service architecture firm that specializes in mission critical and technically challenging projects, interior design and predesign services for commercial, civic and education clients. SNHA has offices in Chicago and London.
Mixed-Use | Oct 20, 2022
ROI on resilient multifamily construction can be as high as 72%
A new study that measured the economic value of using FORTIFIED Multifamily, a voluntary beyond-code construction and re-roofing method developed by the Insurance Institute for Business & Home Safety (IBHS), found the return can be as high as 72%.
40 Under 40 | Oct 19, 2022
Meet the 40 Under 40 class of 2022
Each year, the editors of Building Design+Construction honor 40 architects engineers, contractors, and real estate developers as BD+C 40 Under 40 awards winners. These AEC professionals are recognized for their career achievements, passion for the AEC profession, involvement with AEC industry organizations, and service to their communities.
BAS and Security | Oct 19, 2022
The biggest cybersecurity threats in commercial real estate, and how to mitigate them
Coleman Wolf, Senior Security Systems Consultant with global engineering firm ESD, outlines the top-three cybersecurity threats to commercial and institutional building owners and property managers, and offers advice on how to deter and defend against hackers.
