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 17, 2013
McLaughlin named Executive Director of the Builders Association
The Executive Committee of the Builders Association welcomes Dan McLaughlin as the new Executive Director. Dan comes to the Builders Association after twenty one years as the Executive Director of the Plumbing Contractors Association Of Chicago.
| Jul 17, 2013
CBRE recognizes nation's best green research projects
A rating system for comparative tenant energy use and a detailed evaluation of Energy Star energy management strategies are among the green research projects to be honored by commercial real estate giant CBRE Group.
| Jul 17, 2013
Retail store openings at five-year high
Analysis by RBC Capital Markets shows that U.S. retailers are planning to open 42,757 stores over the next 12 months, and some 83,700 locations over the next two years, both five-year highs.
| Jul 16, 2013
As the U.S. economy sputters back to life, contractors wait for the green light on projects [2013 Giants 300 Report]
There are enough positive indictors in the economy to justify greenlighting projects, but building owners and developers remain reluctant to pull the trigger.
| Jul 16, 2013
Top Construction Management Firms [2013 Giants 300 Report]
URS, STV, JE Dunn top Building Design+Construction's 2013 ranking of the largest construction management and project management firms in the United States.
| Jul 16, 2013
Top Contractors [2013 Giants 300 Report]
Turner, Fluor, Skanska top Building Design+Construction's 2013 ranking of the largest contractors in the United States.
| Jul 16, 2013
Robotics: A new way to demolish buildings
A robot prototype uses water jets to break up concrete structures and then sucks up the water and debris for reuse and recycling.
| Jul 15, 2013
Zaha Hadid unveils plan for boutique condo development in New York
Related Companies taps the London-based architect for the 11-story 520 West 28th Street residential development adjacent to the High Line in Chelsea.
| Jul 15, 2013
Driggs named to lead Heery International
Rich Driggs has been named President of Heery International, following Bill Heitz, who retired on July 1st after 34 years with the company. Driggs is only the fourth leader of Heery International since George Heery founded the firm in 1952.
