Beyond the Build

Construction Trends

Construction Industry Update

Last week, I had breakfast with Ken Simonson, chief economist with the Associated General Contractors of America. While we see a good bit of positive news, it was interesting to listen to his national perspective, hearing the facts and the trends as he sees them.

  • Construction spending totaled about $854 billion in 2012, a 10% increase from 2011, but 27% below the peak year of 2006.
  •  Right now, there are three main drivers nationally for construction spending, both upstream and downstream:

Shale Gale. Technological conditions have made it profitable and practical to recover natural gas that otherwise would have been left in the ground in years past. These new reserves in are production from Pennsylvania, to North Dakota and Texas.

Panama Canal Expansion. Panamax Ready Ports is prepping for the expansion of the Panama Canal. This will affect ports on the east coast including Miami, Mobile, Charleston, Jacksonville, Savannah, Norfolk and New York/New Jersey, and along with west coast ports. All are getting ready with larger/wider/deeper facilities to take care of cargo ships containing 2 – 3 times the containers that are presently able to navigate the Canal, prior to its expansion.

Residential Revival. Multifamily is up about 50% since 2011 and single-family is up 30%. Expect multifamily to experience continued growth through 2014. Maybe by the end of this year, single-family will begin to taper off because of credit, higher pricing resulting in downward pressure. Single-family costs are up about 9% in the last year.

  • Cities/Urban Living should continue its own revival, with increased population growth in these urban areas and in the first ring of suburban neighborhoods.
  • Government spending on infrastructure is trending downwards.
  • In terms of square footage per employee, office space is shrinking. There is not a lot of office growth, except on the west coast in the tech markets.
  • Expect construction growth to be in the 8-10% range this year. Material cost will be up +/- 4% and labor costs 2 to 3.5%.
  • The economy should continue to grow 2 to 3% a year for the next several years with population growth in the 1% a year range or slightly less.

What trends are you seeing in the market?

 

Merrill Stewart Jr.

Merrill Stewart is Founder and President of the Stewart Perry Company, a commercial building contractor based in Birmingham.