Construction Industry

Construction growth/decline, challenges, cost reduction & future trends.

Construction management software is used effectively by most firms for project management.

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What is the growth/decline in the Construction industry:

Dodge Data & Analytics publishes an annual industry forecast report, considered one of the most accurate by industry experts. The report, which was released earlier this month, finds:

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  • Total construction for 2015 “is on pace to reach the largest gain during the current expansion — since the crippling economic recession.”
  • It “will grow 13% to $675 billion, largely due to major gains in nonbuilding construction and residential building.”
  • “In 2016, construction starts are expected to grow 6% to $712 billion.” The leader will be residential building, “with a 16% gain. Dodge predicts the U.S. economy in 2016 will support continued growth in the construction sector.”
  • Long-term rate increases are expected to rise only gradually, and along with “easing lending standards and an influx of funding support from state and local construction bond measures,” should lead to 2016 as “a year of slow, but steady, expansion for the construction industry.”
  • Other construction sectors will grow more slowly: “Dodge expects institutional construction to expand 9%, manufacturing to fall 1%, public works to remain unchanged, and electric utilities/gas plants to plummet 43%.”

IBISWorld data follows:

  • Commercial construction: IBISWorld, in its Commercial Building Construction in the US, report 23622a Aug. 2015, calls for revenue to increase in the five years to 2015 “at an annualized rate of 5.0% to $175.5 billion, including a 2.6% rise in 2015 alone.”
  • Industrial construction: IBISWorld, in its Industrial Building Construction, report 23621 dated Sept. 2015, calls for industry revenue “to increase at an average annual rate of 3.4% to $27.6 billion during the five years to 2015.”
  • Home builders: “In 2015, industry revenue is expected to increase 5.3% to $66.3 billion as a result of wage growth and improved access to credit by households.” (Home builders in the U.S., report 23611a Oct. 2015)
  • Housing developers: ‘Industry revenue is forecast to grow an annualized 7.3% to $138.7 billion over the five years to 2015. Additionally, revenue is forecast to grow a stronger 9.8% in 2015 as consumers act on relatively low prices and cheap credit.” (Housing Developers in the US, report 23611c, Nov. 2015)
  • Multi-family housing: Apartment and condominium construction “has experienced one of the fastest expansions among residential construction industries over the five years to 2015.” Factors include decreasing vacancy rates, increasing rent prices, declining homeownership rates, “aggressive lending into the multifamily sector,” and improved employment and disposable income. “Due to the historically low level at the start of this period, industry revenue is expected to grow at an average annual rate of 14.0% in the five years to 2015.” (Apartment & Condominium Construction in the US, report 23611b Oct. 2015
What are they doing about cost reduction now:

The XL Catlin offers advice on managing cost escalation risk at “Managing the Costs of Construction”.

cost-reduction

  • Build in contingency for exceptional escalations in contracts.
  • Compress the construction schedule whenever possible; “any time saved by compressing the schedule may increase the float to allow for situations that would potentially lead to cost escalation.”
  • Use strategic phased bidding.
  • Pre-purchase materials whenever possible and when a cost escalation is likely.
  • Work “with subs to identify value engineering and alternates when a specified material or practice exposes a construction firm to potential escalation.”

Cost control plans (CCP) “should describe the systems and procedures proposed for estimating, controlling, analyzing, and reporting on the costs of the project, including representative illustrations, flowcharts, examples of standard reports, and reports for proposed deliverables.”

“10 trends defining the construction industry,” also suggests:

  • “3-D printing and off-site construction are emerging as possibly more efficient ways to build.”

off-site construction

  • Building Information Modeling, used to create digital models “to provide information for planning construction,” “can help contractors save thousands of dollars of unnecessary spending on scaffolding and staging.”

lineConstruction management software is used effectively by most firms for project management.

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Construction management software is used effectively by most firms for project management.

What are the challenges/struggles the industry faces:

The American Institute of Architects produces a semi-annual Consensus Construction Forecast, based on data from the nation’s leading construction forecasters (“Consensus Construction Forecast: Double-digit growth expected for commercial sector in 2015, 2016,” Building Design + Construction, July 29, 2015.

  • The most recent, compiled in July, forecasts double digit growth in commercial building for 2015 and 2016.
  • The greatest activity as of the date of the report was in commercial building, and especially offices and hotels.
  • Manufacturing construction spending also spiked because of “the surge in domestic oil and natural gas production.”
  • The forecast expects “a nearly nine percent increase in 2015, with next year’s projection being 8.2%.”
  • “Spending on nonresidential buildings should be close to $360 billion this year, approaching $390 billion in 2016.”

Timetric’s Construction Intelligence Center (CIC) forecasts industry growth for the construction industry in general over the next five years. (“Five-Year Outlook for US Construction Industry Looks Brighter,” For Construction Pros, Aug. 26, 2015.

  • Average annual growth should “accelerate in real terms from 1.7% during the review period to 3.1% over the forecast period, increasing from $1.0 trillion in 2014 to $1.1 trillion in 2019 in real terms.”
  • Factors include investments “to modernize the country’s aging infrastructure and renewable energy sector” and “the growing population which will generate demand for residential buildings.”
  • Residential construction took the lead during the review period and is expected to continue as market leader. Energy and utilities will be second while commercial construction will also be strong.

IBISWorld offers long-term forecasts for the industry sectors, as follows:

  • Commercial construction: “Strong demand from key downstream markets is anticipated to remain strong over the next five years,” the business sector should remain healthy, office vacancies should decrease, and “higher consumer spending will also generate strong demand for new retail and office construction from businesses.” “Over the five years to 2020, industry revenue is anticipated to grow at an average annual rate of 3.0%, to reach $203.1 billion.” (Commercial Building Construction in the US, report 23622a Aug. 2015)
  • Home builders: Home builders should have more consistent growth as the property market recovers, especially in the next two years. Interest rates will remain low, consumer confidence will rise, and corporate profits will rise over the next two years. Revenue is expected to slow down as interest rates increase. “In the five years to 2020, industry revenue is expected to grow at an annualized 4.2% to $81.4 billion in the five years to 2020.” (Home builders in the U.S., report 23611a Oct. 2015)
  • Housing developers: The industry is expected to perform well over the next five years, with the strongest growth in the first half of that period. Factors include “rising disposable income and recovering homeownership rates” and relatively low interest rates that will increase slowly. “Overall, the industry is forecast to grow an annualized 6.5% to $190.1 billion over the five years to 2020.” (Housing Developers in the US, report 23611c, Nov. 2015)
  • Industrial building construction: Interest rates, although low, will rise slowly over the next five years, increasing the cost of new industrial development. Companies are continuing “the reshoring of basic manufacturing back to the United States,” but are also looking at “Mexico’s lower labor costs as a potential alternative.” “However, advanced manufacturing is expected to remain within the United States.” IBISWorld expects industry revenue “to grow at an average annual rate of 2.7% during the five years to 2020, totaling $31.5 billion.” (Industrial Building Construction, report 23621 Sept. 2015)
  • Multi-family housing (apartment and condominium construction): In the five years to 2020, the current growth trend is expected to slow down and “industry revenue is anticipated to increase at an average annual rate of 4.3% to $69.4 billion.” Improvement in the economy will spur consumers to buy homes and “revenue will grow at a slower rate due to a surplus of projects in certain key markets.” (Apartment & Condominium Construction in the US, report 23611b Oct. 2015)
Future_OutlookA newly released trucking forecast, a collaboration between ATA and IHS Global Insight, predicts the following:
  • “Overall freight tonnage will grow 23.5% from 2013 to 2025 and freight revenues will surge 72%.”
  • As the freight economy grows, “trucking will maintain its position as the nation’s dominant mode of freight transportation.”
  • “Trucking’s share of freight tonnage will grow from 69.1% in 2013 to 71.4% in 2025.
  • Truckload volume will grow 3.5% a year through 2019, then 1.2% annually from 2020 to 2025 – however, truckload carriers will make greater use of intermodal rail for intermediate- and long-distance hauls.
  • Rail intermodal tonnage will grow 5.5% annually through 2019 and 5.1% a year through 2025.
  • Railroad market share will, however, shrink from 14.5% of all tonnage in 2013 to 13.8% in 2025.”

The transportation management systems market for all subsets of transportation is predicted to grow “from USD 9.22 Billion in 2015 to USD 19.03 Billion by 2020” according to a recent report entitled Transportation Management System Market – Global Forecast to 2020.

According to “The Future of Transportation” (“The Future of Transportation,” Material Handling & Logistics May 2015):

  • “The DOT predicts freight volume to grow by 45%, to 29 billion tons annually, by 2040, fueled by rising population and expanding trade.”
  • The trucking and ground freight industry will consolidate.
  • Technology being developed now includes connected vehicle technology which will minimize congestion, pollution, safety, and wasted fuel.

IBISWorld data follows:

  • Long distance trucking: IBISWorld, in its Long-Distance Trucking, report 48412, Oct, 2015 predicts “that industry revenue will grow at an annualized rate of 3.6% to $209.7 billion” in the five years to 2020.
  • Local freight trucking: IBISWorld, in its Local Freight Trucking, report 48411 Oct. 2015, predicts “industry revenue is forecast to increase at an annualized rate of 2.2% to $45.4 billion” in the five years to 2020.

 

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Rail: IBISWorld’s Rail Transportation in the US, report 48211 July 2015 predicts that “over the five years to 2015, industry revenue is estimated to grow at an estimated annualized rate of 4.6% to $84.0 billion.”