Gilbane, the family owned construction and real estate development firm, is predicting stronger spending on nonresidential building this year, even if the number of projects started doesn’t appreciate significantly.
“Even if new starts growth were to turn flat for the rest of 2015 (which is not expected), those starts already recorded over the past 12 months indicate spending for nonresidential buildings in 2015 will increase 15% over 2014, the best growth since 2007,” writes the company in its “Building For the Future” Spring report on Construction Economics and Market Conditions.
Gilbane estimates that total spending for nonresidential building construction will reach $370 billion this year, a 15.3% increase. The company expects nonresidential starts to slow in 2015 but still hit 218,052 units, 7.4% ahead of the previous year.
Educational building is expected to account for 22.7% of total nonresidential construction spending in 2015, down from its 24.4% market share in 2014 and 30.3% in 2010. Still, Gilbane foresees spending on educational building to be up 7% this year, to $83.8 billion, the first substantial increase since 2008.
The manufacturing sector, whose market share of total nonresidential construction spending is projected to be flat at 17.2% this year, should see its spending amounts increase by 15% to $63.5 billion, which would be on top of a 15% gain in 2014. Spending on office construction is expected to grow 17.5% to $52.6 billion. And construction spending on commercial retail will be up 12.5% to $64.2 billion.
Gilbane projects that nonresidential construction revenue will increase by 9.1%. However, using historical benchmarks as its guide, the company believes that at least half of that gain could be attributable to “rapidly increasing inflation,” which had grown by 11% in the previous three years.
As other industry watchers have noted, Gilbane isn’t seeing much inflation on the materials side, with some exceptions like gypsum and precast concrete. Gilbane is more concerned, though, about construction hiring trends.
As of March 2015, there were 6.344 million construction employees, according to Bureau of Labor Statistics’ data. The unemployment rate in construction is now at 9.5% after hitting a low of 6.4% in October 2014. Total hiring in the construction industry was up by an estimated 15% in the first quarter of this year.
Gilbane believes that companies aren’t always using the right metrics to determine their hiring levels.
It notes that since 2012, the number of workers to complete $1 billion of constant volume has increased from about 5.65 million to 6.1 million. That would imply an 8% loss in productivity in three years. But Gilbane insists this “loss” has more to do with overall cost reductions than with projects being over-staffed.
“Workload volume should be used for planning the size of the workforce,” Gilbane states. “As an example, at the 2008 peak of construction cost, a building cost $12 million and took 100 men per year to build. In 2010, that same building potentially cost as little as $10 million to build, 20% less. Did it take 20% fewer men per year to build it? No, certainly not. That would be the fallacy of trying to determine jobs needed based on unadjusted revenue.”
To bolster its argument, Gilbane notes that historical averages (adjusted for inflation) since year 2000 show the number of direct construction jobs supported by $1 billion in construction spending varies +/- from 6,000 jobs. That calculates to one job for every $165,000 (in 2014 dollars) spent on construction, or 6.0 to 7.0 jobs per $1,000,000 spent.
Related Stories
| Jul 23, 2014
Meet Acquario Ceará: The giant crustacean-shaped aquarium that's causing concerns
A new aquarium on Brazil's northeastern coast is designed, engineered, constructed and financed by U.S. firms and institutions.
| Jul 23, 2014
Architecture Billings Index up nearly a point in June
AIA reported the June ABI score was 53.5, up from a mark of 52.6 in May.
| Jul 22, 2014
Herzog & de Meuron unveil curvy concrete condo in Manhattan
Herzog & de Meuron have released renderings of their new $250 million New York building, a 12-story condominium with 88 luxury apartments.
| Jul 21, 2014
Designing the process of leadership transition
Transition planning can be one of the more complex challenges that firms face. Effective plans begin by determining the gap between a firm’s current state and the future it envisions for itself. SPONSORED CONTENT
| Jul 21, 2014
16 utility questions to answer during your building project
We need electricity to power our building projects, along with water and gas and a faultless sanitation system. That’s what we think about when we think about utility requirements for our building project, but are we missing something? SPONSORED CONTENT
| Jul 21, 2014
Commercial real estate development growing at strongest pace since recovery began: NAIOP report
Industrial, warehousing, office, and retail sectors see strong gains; Texas leads the nation in construction-value stats.
| Jul 21, 2014
Economists ponder uneven recovery, weigh benefits of big infrastructure [2014 Giants 300 Report]
According to expert forecasters, multifamily projects, the Panama Canal expansion, and the petroleum industry’s “shale gale” could be saving graces for commercial AEC firms seeking growth opportunities in an economy that’s provided its share of recent disappointments.
| Jul 21, 2014
Workplace trends survey reveals generational patterns in office use
Data analysis from Mancini•Duffy indicates significant variations among age cohorts in the workplace.
| Jul 21, 2014
Schindler Elevator Corp.'s new manufacturing facility receives LEED Green Excellence Award
Pennsylvania plant is the first LEED Gold certified elevator manufacturing facility in North America.
