As with the beginning of every new year, the prognosticators put on their thinking caps and give their forecasts for the coming year. Iv'e read a couple of good articles (links provided below), but I'll summarize them as to make your life easier. Keep in mind these forecasts are for the United State as a whole. They may not directly represent regions or specific cities (San Francisco, for example, is marching to its own beat). Here's my very basic summary of both articles: 2013: decent year, particularly since we’re still climbing out of the crater of the Great Recession, but most of the growth was in private residential. 2014: expected to be better, with the growth more evenly spread throughout construction sectors, except public infrastructure, which will continue to struggle due to a lack of investment. 2014 Construction Outlook (by EC&M Magazine) (The link above is behind a registration wall and is a long read) The nuts and bolts:
Simonson Says: For Now, 2014 Looks Fortunate for Many (published by AGC)
(Link above is a short read and requires no registration to read) The gist:
What happened in 2013:
What to expect in 2014 in terms of construction by market:
What to expect in 2014 in terms of material prices:
What to expect in 2014 in terms of labor:
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I recently wrote about how architectural billings, a leading indicator for construction, has slowed. It has in specific market regions and sectors, but multi-family housing is holding strong. The most recent data on overall construction shows similar trends. Residential construction spending is going strong. This is typically dominated by single-family housing, which is not the focus on my construction interest, but that is also considered a leading indicator for construction activities. Private non-residential construction spending lags the economy, so there's no surprise that it's been low. Bill McBride from the Calculated Risk blog thinks it will pick up in 2014 based on his analysis of the AIA's ABI. Public construction was down in November after inching up from its April low water mark. It is currently at 2006 levels (or 2001 in real terms). This is not surprising given that many elected officials are pushing austerity measures. The above figures are courtesy of Bill McBride at the Calculated Risk blog. His full write-up can be read here.
I'm about two weeks late with this (sorry, I was traveling…), but the American Institute of Architects (AIA) released the most recent Architectural Billings Index from November. It's down from last month and November's value of 49.8 is slightly below the Mendoza Line-like threshold of 50 (a value >50 indicates and increase in billings; a value <50 indicates a decrease in billings). The ABI is considered a leading indicator for construction activities. Decreasing architectural billings seems ominous, but like most things in life, the devil is in the details. Most of the pain is being felt in the Northeast. Everywhere else in the country is above 50 (the south has been clearly above 50 all year). Furthermore, in terms of product type, multifamily residential continues to show strength while commercial/industrial and institutional projects have dropped below the 50-point mark. The rundown is below: The full AIA report can be read here. Anecdotally, this makes sense to me. Many of the 30+ tower cranes in San Francisco are hovering over high-rise residential tower projects, a market that has been strong for some time. It's important to note that the health of macro markets (the West) should not be confused with micro markets (San Francisco). While San Francisco is in beast mode in terms of building, Sacramento (90 mile miles to the east) continues to struggle. While multifamily is picking up slightly in Sacramento (16 Powerhouse, 25th and R), hospital work is the major source of activity in a market that's overall very slow. Like they say about real estate: location, location, location.
Many of my recent posts have discussed the improving construction industry (click here and here). These improving trends are over macro-regions (west coast, southeast, etc.). There are many metropolitan areas that are going gangbusters (38 tower cranes over San Francisco!). But others are still hurting, despite promising trends for the industry overall. One such place is Sacramento. Consider these stats from the Associated General Contractors of America reported in this week's Sacramento Business Journal:
Despite this, graduates of Sacramento State's Construction Management Department are still highly sought after. Where are they going? Click here to find out. Spoiler alert: big cities other than Sacramento. Many of the students that graduate from the Sac State Construction Management Department want to stay in the Sacramento area. I don't blame them, I like this area. However, if current trends persist, then for those students that want to pursue a career in commercial building construction, their next stops will increasingly be dense urban areas. Companies are ditching the suburbs for city cores, which will require a lot more construction in those metropolitan areas (office, housing, retail, schools and other services). This will require students to develop skills to work in environments that are difficult for construction. Cities present their own difficulties, and the dense they get, these constraints will continuously escalate.
The entire is a very interesting read in terms of the shift underway from suburban corporate campuses to moving into high-rises. Read the entire article here. In a post two weeks ago about the most recent AIA ABI numbers, I wrote about multifamily projects are showing the most strength (the multifamily ABI is at 57; and ABI > 50 means an increase in architectural billings for that project type). Buried on page A8 of yesterday's Wall Street Journal is a graph that also shows how strong the multifamily market is. Basically, the graph shows the percentage of permits going to multifamily projects in select metropolitan areas in the U.S.:
New York City: 91.8% San Francisco: 90.6% Miami: 76.3% San Jose: 73.7% Los Angeles: 71.1% Middlesex County, MA (west of Boston): 70.3% Fort Lauderdale: 68.4% Boston: 65% San Diego: 64.9% Newark: 61.1% There are 38 tower cranes over San Francisco right now, so one can imagine the amount of units currently being constructed. The WSJ article states that in the case of Miami, the investment Just yesterday I was discussing why general contractors need to ensure that their clients have proper funding to support a project. If the owner is not properly funded, then the general contractor is at risk of not being paid for performed work. After that lecture, I read an article in Bloomberg about how risky lending is back for office, mall and hotel projects. The increase in interest only (IO) and part ion IO lending is on the rise. If the project owner has financing, regardless of the type, that's good for contractors and issues with shaky financing may not be an issue until after the project is completed and principle payments or the balloon payment is due. But contractors should still be aware of the type of project funding mechanism and the financial strength of the owner and bid projects accordingly. Be very weary of owners with weak financial backing.
The American Institute of Architects released it's October Architectural Billings Index (ABI). It's at 51.6, down from 54.3 in September (a value >50 indicates and increase in billings). The ABI is considered a leading indicator for construction activities. The good news for those of us in the west is that The above figure is courtesy of Bill McBride at the Calculated Risk Blog.
Some other details:
The industry sectors tend to ebb and flow from one-another, so that's not really news. With hiring season among us, it's best that CM students keep an eye on these figures. They may provide clues as to how the job market will evolve and who will be hiring the most/least. More data showing a recovery in the construction market: the price of lumber continues to increase. The increases tend to follow the fate of homebuilders, so it's not directly correlated with the health of the commercial construction industry. Homebuilders saw a steep ramp-up in business early in 2013 but cooled dramatically over the summer. But coupling this data with the AIA ABI, and all signs indicate an improving construction market. Graph courtesy of Bill McBride at the Calculated Risk blog.
The American Institute of Architects released it's September Architectural Billings Index (ABI). It's at 54.3, up from 53.8 in August (a value >50 indicates and increase in billings). The ABI is considered a leading indicator for construction activities. The above figure is courtesy of Bill McBride at the Calculated Risk Blog.
Some other details:
Over the last year, multi-family led the pack. It will be interesting to watch if commercial/industrial stays out front. |
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