This is a presentation we shared with the local NAWIC Chapter in San Jose

1. Presented to
NAWIC
Jan. 23, 2019
NAWIC
2019 Economic Forecast
This Photo by Unknown Author is licensed under CC BY-SA

2. 2
1. US Construction
2. California
3. Local Statistics
4. What to do in 2019
Table of Contents

3. Annual Rate of Construction
Spending US (Billions)1
Public ($) Private ($) Total ($)
2007 297.8 842.4 1140.2
2008 319.6 737.1 1053.7
2009 309.6 593.0 902.5
2010 301.0 486.9 787.9
2011 286.6 529.7 816.4
2012 270.1 614.9 885.0
2013 266.5 663.9 908.4
2014 283.5 698.6 982.1
2015 294.3 828.2 1122.5
2016 284.5 897.0 1181.5
2017 294.8 967.9 1262.7
2018 310.2 998.7 1308.9
3
1Numbers come from December Annual Construction Report for the US Census Bureau, except for 2018 numbers which came from
the October Report. Dollars are counted valued as construction put in place.

4. United States
Construction Starts ($ Billions)
(McGraw Hill)
In billons 2017
Actual
2018
Estimate
2019
Forecast
% change 17-18 % change
18-19
Total Construction 785.301 806.825 808.325 +2.7% +0.2%
Residential 307.628 325.450 319.275 +5.8% -1.9%
Single Family 218.641 232.425 232.150 +6.3% -0.1%
Multifamily 88.987 93.025 87.125 +4.5% -6.3%
Nonresidential 285.975 295.175 296.450 +3.2% +0.4%
Nonbuildings 191.698 186.200 192.600 -2.9% +3.4%
4
ENR Magazine, November 19/26 2018, p 9

5. FMI Construction Put In Place
Forecast 2019 ($ Billions)
In billons 2017
Actual
2018
Estimate
2019
Forecast
% change 17-18 % change
18-19
Total Construction 1,246.002 1,314.807 1,388.796 +5.5% +5.6%
Total Residential 531.657 567.218 600.673 +6.7% +5.9%
Total
Nonresidential
489.343 515.144 547.258 +5.3% +6.2%
Non-buildings 225.002 234.445 240.865 +4.2% +2.7%
5ENR Magazine, November 19/26 2018, p 9

6. Dodge Construction
National Growth Forecast
6
Annual % Change for $Volume of
Construction Starts
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
+12.0 +10.0 +6.0 +5.0 +2.0 +5.0 +12.0 +13.0 +3.0 -7.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-13.0 -24.0 +2.0 +1.0 +12.0 +11.0 +11.0 +14.0 +7.0 +7.0 +3.0 0.0
ENR Magazine, November 19/26, 2018, p 14

7. Dodge Construction
US Outlook-2019
• Total Construction holding steady at $808 Billion.
• Residential building will be down in 2%
• Non-residential building will match 2018.
• Non building construction will increase 3%
• Single Family housing will have a drop of 3% in housing starts
• Multi-Family housing will slide 6% in dollars and 8% in units
• Commercial building will retreat 3% in 2019
• Institutional building will advance 3%
• Mauf. Plant will rise 2%
• Public Works construction will increase 4%
• Electrical utiltities/gas plants will drop 3%
7
Data from www.construction.com, January 2019.

8. Pattern of US Construction
Starts 2012-2018 (in billions $)
Dodge 2018 Construction Outlook
2013 2014 2015 2016 2017(a) 2018(e) 2019 (f)
Total
Construction
547.4 607.0 684 721.2 785.301 806.825 808.325
Single Fam
Housing
159.2 163.8 186.2 201.1 218.64 232.42 232.150
Multi Fam
Housing
51.8 70.7 87.7 95.2 88.98 93.02 87.12
Commer.
Build
67.6 84.2 92.3 111.8 116.08 119.275 115.85
Instit. Build 92.1 105.1 108.2 118.5 143.53 145.5 149.975
Manuf.Build 19.4 35.8 25.1 20.0 25.83 30.4 30.92
Pub. Works 127.4 122.3 127.0 128.5 159.91 162.5 169.6
Elec.
Utilities
29.9 25.1 57.4 46.2 31.8 23.7 23.0
8
Dodge Data and Analytics November, 2018

9. National Development
Profile
West Midwest Northeast South Nat. Average
46.9 57.8 51.8 48.4 50.4
9
The further the index is from 50, the larger the number of firms reporting the change
Index <50- Architectural Firms are reporting decrease in billings
Index=50 –Architectural Firms are reporting no change in billings
Index>50- Firms are reporting an increase in billings
Construction Business Owner, January 2019 p. 48
West Midwest Northeast South
Q3 2017 6.61 7.61 10.21 11.32
Q3 2018 9.35 7.76 9.21 10.01
Construction Backlog Indicator (in months)
ABC Press Release, P. 2, 12/17/2018

10. US National Construction
Optimism Quotient
103.0 109.0 102.0
86.0
80.0
42.0
66.0
96.0
114.0
103.0
124.0
130.0
108.0
123.0
133.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
10
Wells Fargo 2018 Construction Industry Forecast, p. 6

11. California Forecast
Data
• Over the next 12 months, real gross state product is forecast to grow at a strong
3.1% before dropping to 2.3% growth rate in 2020
• State unemployment rate is forecast to average 4.2% for 2018 and fall further to
3.9% in 2019 before gradually increasing
• A slight slowdown in construction job growth in 2019, about 20,000 compared to
40,000-50,000 in recent years. Job growth is limited by worker availability and
wages have been rising. Job growth back up in 2020 due to higher wages.
• Single Family Housing starts are expected to surpass 65,000 this year and level off
at 75,000 in 2020 and beyond. Multi-family expected at 55,000 units per year.
Projection of 130,000 units will be enough to keep with pop. Growth, but not
enough to cover backlog.
• State pop. Growth has declined to 0.7% and is projected to remain at level through
2022. State population will reach 40 million this year.
11
Eberhard California Metro Forecast, October 2018

12. Housing Production in CA
2004-2018
212960
208972
164280
113034
64962
36421
44762
47343
59225
85472
85844
98233 100961
115670 119978
0
50000
100000
150000
200000
250000
New Housing Units
2004 2005 2006 2007 2008 2009 2010 2011
2012 2013 2014 2015 2016 2017 2018
12Information from the California Building Industry Foundation. 2018 data is through November 2018

13. Highlights of the California
Forecast
13Eberhard School of Business, 2018 Fall Metro Report, California Center for Jobs and the Economy
• Over the next 12 Months, real gross state product is forecast to grow at a strong
3.1% pace before dropping to 2.3% growth in 2020 as recession risks grow.
• Population growth is project to remain at 0.7% and remain at that level until 2022.
• California will be a Majority Renter State by 2025
• International Buyers for CA housing has been flat for 3 years; peaked in 2013.
• 5 Large wildfires in 2018 destroyed 21,000 homes across 6 counties = to more
than 85% of all new housing built in those counties over the past 10 years.

14. San Jose, Sunnyvale, Santa Clara
Construction Starts
In millions ($) 2014
Actual
2015
Actual
2016
Actual
2017
Actual
2018
Forecast
Total Construction 6,127 3,718 4,928 5,854 5,302
Residential 1,327 1,449 1,229 1,739 1,498
Non Residential 4,391 1,775 3,062 3,748 3,143
Comm/Manuf 660 413 493 551 614
Office/Bank 3,086 814 1,591 1,393 1,587
Institutional 537 404 816 1,678 860
Nonbuildings 410 495 638 367 680
14ENR Magazine, December 3/10, 2018, p CA4

15. San Jose, Sunnyvale, Santa Clara
Short Term Outlook, County
Profile
15
Eberhard School of Business, 2018 Fall Metro Report, California Center for Jobs and the Economy
Marcus and Millichap, 3Q 2018 Housing Report
• During the past 4 quarters, San Jose employers created 40,400 new positions, expanding payrolls by
3.7%. Hiring was led by the education and healthcare sector where 10,320 jobs were created.
• Population is expected to reach 2,026,958 in 2019 an increase of 0.7% from the previous year.
• San Jose is poised to be the nation’s hottest real estate market in 2019. Home Values are expected to
grow by 12.7% in 2019. Rents are expected to grow by 2.1%
San Jose Real Estate Data- Zillow 2019
Median Home Value- $1,251,200 Median Rent-$3,521
Household Income-$117,474 Population Growth-1.0%
As of Oct. 2018
2.4% Unemployment in 2019 Labor Force up 1.2% in 2019 then taper to 0.4 % in 2022
6,360 housing starts in 2019 Nearly 2/3rds of housing starts will be multifamily.

16. San Jose, Santa Clara, Sunnyvale
Construction Starts 2011-2018
2377
4153 4213
6127
3718
4928
5854
5302
0
1000
2000
3000
4000
5000
6000
7000
Total Construction
Total Construction, in Millions
2011
2012
2013
2014
2015
2016
2017
2018
16
Engineering News Record San Jose Reports-2011-2018
(2018 are forecasted numbers)

17. San Jose, Santa Clara, Sunnyvale
New Private Housing Units by
Building Permits 2009-2018
995
4116
2645
5665
7628
9599
7262
6344
7193
6069
0
2000
4000
6000
8000
10000
12000
Private Housing
Private Housing Units By Building Permits 2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
17
FRED (Federal Reserve Board Statistics, January 20, 2019)
(2018 are through September

18. Santa Clara County Privately Owned
Housing Units Authorized-Valuation in
Thousands of Dollars
18
Year 2012 2013 2014 2015 2016 2017 2018
Totals 1,081,862 1,649,709 1,859,331 1,485,555 1,282,793 1,750,224 1,522,894
1 Unit 552,474 686,793 637,506 728,611 766,746 803,699 793,450
2 Units 7,364 6,083 3,707 4,583 3,815 1,566 5,399
3 and 4
Units
14,115 24,988 28,804 43,368 24,109 15,071 5,836
5 Units or
More
507,909 931,845 1,189,314 728,993 488,123 929,888 718,209
1Census Bureau Statistics, through October 2018

19. Santa Clara County
Real Estate Trends-Retail
19
• 890,000 sq. ft. available for rent
• 2 significant retail proj. under construction. Valley Fair-415,000 sq. ft
Sunnyvale Center- 275,000.
• Short term vacancy rates may raise due to Orchard, Toys-R-US and
David’s Bridal bankruptcy.
Availability in 3rd Quarter in South Bay
Palo Alto 2.17% Santa Clara 9.31%
San Jose 5.08% Fremont 7.19%
Colliers San Jose Metro Area Commercial Research Report 3rd
Quarter 2018

20. Santa Clara County
Real Estate Trends-Commercial
20
1 Marcus & Millichap 3rd Quarter 2018.
2 Jan. 4, 2019,P. 5 San Jose Business Journal
• Following delivery of 8.4 million sq. ft. in 2017, builders will complete 3.4
million sq. ft. in 2018.
• Vacancy rises to 13% as development impacts vacancy.
• 1.4 million sq. ft. under construction in South Fremont
• 350,000 sq. ft. to break ground in Milpitas.
In Downtown San Jose (2)
1. 30 plus development projects 3. 7,600 new residential units
2. 23 million sq. ft. of office space 4. 650 potential new hotel rooms

21. Santa Clara County
Real Estate Trends-Multi Family
• Core submarkets near corporate campuses remain in high demand.
• 2060 Units Completed Y-OY
• Vacancy declined to 3.5%. Average effective rent increased 5.5%
• Approximately 6,360 housing starts expected in 2019
• Nearly 2/3 of housing starts between 2019 and 2022 will be multifamily.
21
Marcus & Millichap San Jose Metro Area Apartment Research Report 4th
Quarter 2018
San Jose Statistics
*Vacancy 3.4% *YOY Basis Point Change -110
*Effective Rent $2868 *YOY Change 8.7%

22. 22
Other Local Trends
•Only 20% of all construction spending in 2019 will come from new jobs that start in 2019. The
other 80% of spending is already in backlog and comes from jobs started in 2016-2018. That 80%
is not indicating anything resembling a recession. (Ave spending on a job-1st year (20%), 2nd yr.
(50%), 3rd year is (30%).
•Spending in Non-Building Sector in San Jose/Santa Clara area is expected to grow 80% in 2018
•5 Large wildfires in 2018 destroyed 21,000 homes across 6 counties = to more than 85% of all
new housing built in those counties over the past 10 years.
•San Jose is expected to have an annual growth rate of 3.5% GDP until 2035-best in US.
•In 2019, the average annual wage is estimated to be $137,784 an increase of 3.8% from 2018.
•Population Growth is 9.4% from 2010-2018
•During 2018, the state added 284,300 jobs. Despite having just 20 percent of California’s
population, the Bay Area nevertheless created one-third of all the jobs added in the Golden State
last year.
1 Ed Zarenski, Construction Analytics Blog, 2019
2 Engineering News Record, Construction Starts in San Jose, Jan. 7, 2019
3 Construction Industry Research Board, Jan. 2019 Twitter
4 George Avalos, “Latest Report Card for the Bay Area,” Jan. 18, 2019 Mercury News,

23. Santa Clara County Construction
Employment-Annual Average
In Thousands
43.0 44.5 46.8 47.5
44.5
34.6 32.4 31.8
34.8
37.5 39.7
43.9
48.6 49.8 51.5
0.0
10.0
20.0
30.0
40.0
50.0
60.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
23
Bureau of Labor Statistics-San Jose, Santa Clara, Sunnyvale Statistical Area
November 2018 is 51,400
Peak Employment was September 2000-52,200
Peak Employment now is September 2018-53,1000

24. California Construction
Employment (In Thousands)
736.1
587.2 554.7 569.2 609.1
653.2
689.2
757.9
784.7
831.5
861.1
0.0
200.0
400.0
600.0
800.0
1000.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
24
BLS.Gov., State and Area Employment, Construction
Employment based on November Data since 2008

25. Conclusions
25
Historically, “any time unemployment hovers around
4.5%, recession comes about three years later,” he said.
The rate has been sliding down from this level since
March of last year, according to Bureau of Labor
Statistics data, and by Moody’s estimates, the economy is
due for a slowdown in the summer of 2020. 1
1 Kathleen Brown, Calm before the storm? What the construction industry can expect in 2019 Construction Dive, Nov. 2, 2018

26. What to watch for
in 2019
26
• Your Material Costs (tariffs)
• Interest Rates
• Inflation (2.5% in 2018-3% is the danger zone)
• Shortage of Skilled Workers
• We approaching 10 years of Economic Recovery in 2019,
which would match the largest expansion in post WWII era.
1 Jeff Gavin, “2019 Construction Forecast-A Steady Jog Through a Maturing Expansion”, Electrical Contractor Magazine

27. Construction is
Costing More
27
Item % Increase Item % Increase
Asphalt 44.9% Diesel Fuel 43.6%
Unleaded 40.7% Iron & Steel Scrap 25.2%
Plywood 22.5% Softwood Lumber 19.5%
Steel bars, plates 18.1% Aluminum Mill 17.8%
Steel pipe & tubes 16.6%
Year over Year July 17 to July 18 , PPI
Alex Carrick, ConstructConnect