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conomic uncertainties and a shaky
finance sector dampened the
construction industry’s rebound
last year – but this...
greens, McDonald’s and Best Buy, pre-
dicts roughly 10 percent growth for his
business in 2015.
He said the market continu...
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Construction Outlook in 2015


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The construction industry is seeing steady growth despite of the labor shortage for skilled construction workers. While growth looks good now, not solving for the labor challenges could be a problem that slows the industry down.

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Construction Outlook in 2015

  1. 1. Volvo E conomic uncertainties and a shaky finance sector dampened the construction industry’s rebound last year – but this year should be different. Industry researchers pre- dict strong growth across the country in 2015 driven by a variety of sectors that include residential, office, manufactur- ing, lodging, power, conservation and development and transportation. Consumer confidence is on the rise, inflation and energy prices are low, un- employment rates are steady at just over 6 percent and banks have loosened their purse strings. In its Construction Outlook 3rd Quar- ter Report, FMI projects “continued growth for manu- facturing, ending up around 7 percent growth in construc- tion put in place for 2014 with that rate continuing through 2016 until the mar- kets work off some pent-up demand and slow slightly to 6 percent for 2017-2018.” After a steep downturn in production output during the recession, the manu- facturing sector has recovered admirably. Industrial production averaged gains of almost 4 percent per year over the past four years – the strongest four year per- formance since the late 1990s. Lower en- ergy costs play a key role in making do- mestic manufacturing more attractive, particularly for energy-intensive indus- tries like steel and chemicals. The Associated General Contractors of America reported (Insert AGC Report qr code) that con- struction employ- ment “expanded in 236 metro areas, declined in 53 and was stagnant in 50 between September 2013 and September 2014.” Overall, growth will come from the private sector, but the largest chal- lenge rests in finding the right workers with the appropriate skill sets. The industry is full of near-retirees, and younger generations do not seem as ea- ger to enter the construction sector. As the number of trade schools decrease, schools focus less on technical skills and students look for jobs with higher start- ing salaries, the construction industry faces a growing problem – there aren’t enough talented people to do the work. John Gillian, a Vice President at Au- rora, Illinois-based Abbey Paving Co., Inc., said the shortage of skilled workers is concerning since business is booming. Abbey Paving, which specializes in on- site general construction, asphalt paving, concrete and excavation, works with edu- cation entities, park districts, municipal- ities and the private sector in the Chicago area. While business started out slowly in 2014, it has since taken off. Gillian said his company experienced material shortages this past year, par- ticularly concrete, and a shortage of trucks and drivers. He said there was a lot of pent up demand, and he doesn’t expect that to stop anytime soon. Abbey Paving predicted $45 million in revenue for 2014 (it has already surpassed this), which was a 25 percent increase from the previous year. As projects grow in dol- lar value and margins start to return to pre-2009 levels, Gillian predicts $55 mil- lion in revenue for 2015 – a 10 percent increase. Due to the recent and predicted growth, Abbey Paving has started to look into alternative methods of recruiting – in- cluding employing apprentices – as less millennials pursue careers in the trade industry. Another AGC- released survey (Insert AGC Survey qr code) shows re- sults in the fall of 2014 stating that 83 percent of firms across the country have a hard time filling a variety of craft positions and onsite construction jobs. Roughly 61 percent find it hard to fill professional positions, including project supervisors, estimators and engineers. The survey also found that the South- east faces the highest degree of worker shortages, and 86 percent of contractors reported difficulty in finding qualified workers. Roughly 84 percent of contrac- tors in the Midwest, 82 percent in the West and 67 percent in the Northeast re- ported difficulty finding workers. With construction expected to grow or at least remain steady across multiple sectors, employers will compete for tal- ent as the pool of qualified workers con- tinues to diminish. Here are a few construction sectors to watch: Lodging FMI predicts that growth will hit 12 percent in 2015 with the largest amount of growth coming from upscale buildings and event facilities. The tourism industry has actually recovered ahead of the econ- omy for the first time in history, which contributes to the positive forecasts. As financial performance among businesses improves, business travel will continue to increase and drive this sector. Office FMI reports a 7 percent office con- struction growth rate for 2015 to $43.6 billion. Vacancy rates should have little variance. According to the National As- sociation of Realtors, office rents are projected to increase 3.2 percent in 2015, and the net absorption of office space (including leasing of new office space as well as space in existing properties) will likely total 50.7 million square feet in 2015. As employment rates increase, GDP rises and business investment increases, the office sector will drive growth in the commercial sector. We will continue to see vacancy rates drop in the large metro- politan areas. Much of the recent growth stems from new data centers, govern- ment offices and corporate buildings. Commercial While consumers have increased their spending, they don’t yet spend at pre- recession levels. FMI expects 6 percent growth in 2015. As the rate of online shopping increases and consumers de- mand convenience, quality and a lower cost, it’s tough to predict exactly how the commercial sector will respond. Many of the economic indicators would lead to a more robust prediction in this sector if not for the major changes ahead in the retail sector that focus on meeting the new demands of the consumer. We will likely see an increase in store remod- eling, which could stall new construction in this sector. Jim Voelz, the President and Co-Owner of The Redmond Company in Waukesha, Wisconsin, a commercial design-build firm that serves clients across the Mid- west, including auto dealerships, banks, credit unions and retailers such as Wal- Sikich 2015 Construction Outlook Steady Growth Expected Across Multiple Sectors Despite Skilled Labor Shortage By Joe Kulek January 2015 N5 N4  January 2015
  2. 2. greens, McDonald’s and Best Buy, pre- dicts roughly 10 percent growth for his business in 2015. He said the market continues to grow stronger coming out of the recession, and one of the biggest challenges lies in ensuring there’s enough material to keep up with all the business. The other challenge is a lack of talent. The firm offers design, construction and both business and real estate consult- ing services. Due to this, The Redmond Company looks for a variety of special- ists – including architects, construction managers and project superintendents – that work together as a team. Voelz recently reviewed 566 resumes to find a qualified project superintendent. He doesn’t see that changing anytime soon. He said a lot of people left the construc- tion field altogether in the depths of the recession – and never came back. Amusement and Recreation FMI expects amusement and recreation construction to grow by 5 percent in 2015. Work at large sports stadiums will fuel the growth, but many small towns and colleges have started to invest in their athletic facilities, as well. States will likely invest additional funds in gaming due to the tax benefits. The availability of state and federal funds along with pri- vate financial support will drive this sec- tor. As the economy and consumer con- fidence continues to strengthen, so will the construction growth in amusement and recreation. Healthcare In the midst of a rapidly changing healthcare environment, FMI predicts 4 percent construction growth for 2015 to $44.5 billion. Overall, healthcare con- tractors will look to make their processes more efficient and leaner post-Affordable Care Act as the number of beds per 1,000 people decreases and hospitals prepare themselves to serve a greater number of insured patients. Construction will likely focus on modernizing existing buildings and incorporating appropriate technol- ogy. With the significant changes due to healthcare reform coupled with the ag- ing population, this sector will continue to face challenges as it tries to meet the demand and adjust to the new world of healthcare delivery. Education As state and local budgets shrink, FMI predicts 3 percent growth in education construction to $80.3 billion. Student debt levels are higher than ever, and schools face serious repercussions if they increase tuition costs. As a result, indus- try experts expect to see more online classes and alternatives to typical educa- tion, renovations to existing buildings as opposed to new facilities, greater atten- tion to energy reduction and construc- tion designed for safety following recent school shootings. There is too much uncertainty to ex- pect anything other than slow-to mod- est growth in this sector. On the positive side, many colleges and universities have started to explore alternative ways to project funding, including endowment funds and deferred capital spending plans. Public Safety Despite severe overcrowding of pub- lic safety facilities, FMI predicts pub- lic safety construction will grow only by 2 percent in 2015. According to the Congressional Research Service, “The number of inmates under the Bureau of Prisons’ jurisdiction has increased from approximately 25,000 in FY1980 to over 219,000 in FY2013. Since FY1980, the federal prison population has increased, on average, by approximately 5,900 in- mates each year.” The institutional sector, which in- cludes public safety, has not benefited the construction industry over the last four years. Until federal, state and local governments ramp up their spending in these areas, construction growth in insti- tutional sectors won’t exceed the rate of inflation. Transportation, Highways and Bridges One sector that should see significant growth is transportation. FMI reports that transportation construction will grow roughly 8 percent in 2015 to $45.9 billion. Work on large public transit sys- tems and increased freight rail-car load- ings along with a strong aviation indus- try will continue to boost construction. This past February, the president an- nounced $600 million in TIGER grants to fund transportation projects. The nation needs more highway fund- ing, but it’s difficult to identify how to facilitate this, manage the budget and complete the backlog of work. Accord- ing to FMI, the president’s 2015 budget includes “$199 billion over four years to continue critical investments in high- ways in addition to the creation of a new freight program as well as a new ‘Fix-it- First’ program, which is aimed at repair- ing structurally deficient bridges.” The current Highway Trust Fund was extended through May 2015, which will support future sector growth and stability. Due to the continued congres- sional gridlock and an uncertain future, though, FMI predicts only 2 percent highway construction growth in the next couple of years. Power FMI, the leading provider of manage- ment consulting, investment banking and people development services to the engineering and construction industry, expects power construction to hit 6 to 8 percent growth through 2018, with spending totaling $102.5 in 2015. FMI predicts increased consolidation as con- sumers reduce their power usage, but overall demand will continue due to pop- ulation growth. Kevin Breen, the Vice President and CFO at CJ Drilling, a national drill shaft and foundation construction contractor that works with numerous utility trans- mission companies around the country, said the outlook for the power sector looks strong for 2015. He said the sector experienced strong growth over the last few years and doesn’t show any signs of slowing down. He attributes the growth to two factors: the aging infrastructure and a wave of renewable energy projects as companies invest in wind energy and solar farms. Breen anticipates 10 percent growth in 2015, although the shortage of skilled workers along with a shortage of need- ed heavy equipment poses significant concerns. Breen’s company recently launched a training program to combat the worker shortage. The program fea- tures a multi-year curriculum that aims to teach young workers the ABCs of the business, expose them to a variety of rel- evant skill sets and empower them to act as leaders moving forward. The company even hired a seasoned professional to lead the program. Phil Rose, the President of Roman Elec- tric Co., Inc., a diversified electrical ser- vices contractor headquartered in south- east Wisconsin, said he sees a trend in the industry to ‘build it bigger and build it faster.’ Roman Electric experienced 40 percent growth from 2013 to 2014, and it already has a backlog going into 2015 that’s more than twice what it had going into 2014. Rose said that he expects another big growth year in 2015 with the caveat that the company can find skilled employees to do the work. Moving Forward Growth is always uncertain in the con- struction industry and predictions of- ten rely on previous experience, but the overall landscape looks significantly bet- ter than it did over the past few years. Rising consumer confidence, low interest rates and declining unemployment are driving demand and growth in residential and commercial construction. This will likely yield increased demand for products in other sectors, such as building materials and consumer durable goods. If weaker construction sectors make a comeback in the next few years, we might be able to say the industry as a whole is once again hitting on all cylinders. Only time will dictate whether we’ll see a comprehen- sive industry comeback, though. One thing is clear – the shortage of skilled labor will continue to threaten the health of construction. Perhaps Breen said it best. “This industry is only as strong as its people, and construction will only grow as fast as it can attract a competent workforce. It won’t be suc- cessful in the long-term unless it figures out a sustainable solution to the current crisis.” Due to the recent and predicted growth, Abbey Paving has started to look into alternative methods of recruiting – including employing apprentices – as less millennials pursue careers in the trade industry. Ko ma tsu January 2015 N7 N6  January 2015