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Construction Industry Construction Industry Snapshot and ForecastSnapshot and Forecast
byby
Mike Eby, Editor-in-ChiefMike Eby, Editor-in-Chief
EC&MEC&M magazine magazine
Phrases you don’t really Phrases you don’t really want to use as ice want to use as ice breakers at a holiday breakers at a holiday partyparty
Stalled recoveryStalled recoveryExpiration of incentivesExpiration of incentivesBudget shortfallBudget shortfallFlat forecastFlat forecastDouble dip recessionDouble dip recession
Current State of AffairsCurrent State of Affairs
Economic indicators seem to be Economic indicators seem to be moving in the right direction, but moving in the right direction, but progress is excruciatingly slowprogress is excruciatingly slow
Many of the key data points have Many of the key data points have bounced off the bottoms they bounced off the bottoms they experienced during the recession, but experienced during the recession, but are struggling to gain any momentumare struggling to gain any momentum
Housing StartsHousing Starts
Dipped 0.3% in October as compared to Dipped 0.3% in October as compared to prior month, but was up 17% as prior month, but was up 17% as compared to October 2010 levelcompared to October 2010 level Single-family starts climbed 3.9% for the Single-family starts climbed 3.9% for the
month, but dropped 0.9% year-over-yearmonth, but dropped 0.9% year-over-year Multi-family dropped 8.3% for the month, Multi-family dropped 8.3% for the month,
but is still 89% higher from a very low but is still 89% higher from a very low October 2010 levelOctober 2010 level
Source: U.S. Census Bureau
Building PermitsBuilding Permits
Up 11% in October and 18% year-Up 11% in October and 18% year-over-yearover-yearSingle-family up 5.1% for the month Single-family up 5.1% for the month
and 6.6% year-over-yearand 6.6% year-over-yearMulti-family up 24% for the month Multi-family up 24% for the month
and 48% year-over-yearand 48% year-over-year
Source: U.S. Census Bureau
Residential RemodelingResidential Remodeling The BuildFax Remodeling Index is based on The BuildFax Remodeling Index is based on
construction permits filed with local building construction permits filed with local building departments across the countrydepartments across the country
Index rose 34% year-over-year in September to 141.4, Index rose 34% year-over-year in September to 141.4, a new high.a new high. Up month-over-month 2.8 points (2%) from the August value of Up month-over-month 2.8 points (2%) from the August value of
138.6138.6 Up year-over-year 36.3 points from the September 2010 value Up year-over-year 36.3 points from the September 2010 value
of 105.1of 105.1
National numbers appear to be skewed by lots of National numbers appear to be skewed by lots of activity in the West region of the countryactivity in the West region of the country
Source: BUILDERadius
Residential RemodelingResidential Remodeling The Residential Remodeling Index (RRI) The Residential Remodeling Index (RRI)
is a quarterly measure of remodeling is a quarterly measure of remodeling activity in 336 metropolitan statistical activity in 336 metropolitan statistical areas in the U.S.areas in the U.S.
33rdrd quarter RRI declined 0.8% from 2 quarter RRI declined 0.8% from 2ndnd quarterquarter
October forecast calling for minor decline October forecast calling for minor decline in 4in 4thth quarter quarter
Source: Hanley Wood
Non-Residential Non-Residential Construction SpendingConstruction Spending
Fell 0.2% in October to seasonally adjusted Fell 0.2% in October to seasonally adjusted annual rate of $551.2 billion, according to annual rate of $551.2 billion, according to U.S. Census BureauU.S. Census Bureau Down 0.9% from one year agoDown 0.9% from one year ago
Private non-resi spending was up 1.3% this Private non-resi spending was up 1.3% this month and is 8.4% higher than a year agomonth and is 8.4% higher than a year ago
Public non-resi spending was down 1.8% for Public non-resi spending was down 1.8% for the month and down 8.9% from a year agothe month and down 8.9% from a year ago
Source: U.S. Department of Commerce
Non-Residential Non-Residential Construction Spending Construction Spending (cont’d)(cont’d)
Four subsectors realized higher Four subsectors realized higher spending levels from same time spending levels from same time last yearlast yearManufacturing (+13.3%)Manufacturing (+13.3%)Power (+12.6%)Power (+12.6%)Commercial (+10.0)Commercial (+10.0)Educational (+2.6%)Educational (+2.6%)
Source: U.S. Department of Commerce
Non-Residential Non-Residential Construction Spending Construction Spending (cont’d)(cont’d)
““For months, the non-resi construction For months, the non-resi construction industry has been characterized by rising industry has been characterized by rising levels of privately financed construction levels of privately financed construction and declining levels of publicly financed and declining levels of publicly financed construction.”construction.”
““Construction volume may slip for several Construction volume may slip for several months before stabilizing and beginning months before stabilizing and beginning a sustained recovery in earnest.”a sustained recovery in earnest.”
Source: Anirban Basu, Chief Economist, Anirban Basu, Chief Economist, Associated Builders and ContractorsAssociated Builders and Contractors
Capacity UtilizationCapacity Utilization
Measures current output versus potential Measures current output versus potential output at U.S. factoriesoutput at U.S. factories
80% rate is considered the tipping point 80% rate is considered the tipping point where factories begin expanding their where factories begin expanding their facilities or retrofitting existing linesfacilities or retrofitting existing lines
Dropped to a level of about 70% in 2009 Dropped to a level of about 70% in 2009 and now sits at about 76%and now sits at about 76%
Hey, we’re moving in the right direction!Hey, we’re moving in the right direction!
Source: Federal Reserve Board
Purchasing Manager’s Purchasing Manager’s IndexIndex
Measures the appetite that industrial Measures the appetite that industrial purchasing manager’s have for new purchasing manager’s have for new products (a reading above 50 indicates a products (a reading above 50 indicates a healthy purchasing environment)healthy purchasing environment)
Posted a November reading of 52.7% Posted a November reading of 52.7% (October reading was 50.8%)(October reading was 50.8%)
Readings have indicated an expanding Readings have indicated an expanding market for 28 consecutive monthsmarket for 28 consecutive months
Source: Institute for Supply Management
Machine Tool OrdersMachine Tool Orders
A pure indicator of the health of A pure indicator of the health of industrial businessesindustrial businesses
Hit a level of $606.6 million in Hit a level of $606.6 million in September, which was the second September, which was the second highest monthly dollar total in the last 15 highest monthly dollar total in the last 15 years!years!
Year-to-date total of $4.1 billion is up Year-to-date total of $4.1 billion is up 91.9% as compared with 201091.9% as compared with 2010
Source: American Machine Tool Distributors Association
Source: American Machine Tool Distributors Association
Electrical Manufacturer’s Electrical Manufacturer’s New OrdersNew Orders
New orders have been flat this year, New orders have been flat this year, but fairly steadybut fairly steady
Up 5% year-to-date through Up 5% year-to-date through September at a level of $3.87 billionSeptember at a level of $3.87 billion
Also up approximately 5% year-to-Also up approximately 5% year-to-yearyear
Source: U.S. Department of Commerce
Business Conditions Business Conditions SurveySurvey
Latest Electroindustry Business Latest Electroindustry Business Confidence Index on current conditions Confidence Index on current conditions reflects optimismreflects optimismNovember reading at 56November reading at 56
Future reading continues to point in a Future reading continues to point in a positive direction (looking 6 months into positive direction (looking 6 months into the future)the future)November reading at 60November reading at 60
Source: NEMA
Truck Tonnage IndexTruck Tonnage Index
Trucking serves as a barometer of the Trucking serves as a barometer of the U.S. economy, representing 67.2% of U.S. economy, representing 67.2% of tonnage carried by all modes of domestic tonnage carried by all modes of domestic freight transportation, including freight transportation, including manufactured and retail goods.manufactured and retail goods.
Tonnage readings continue to show that Tonnage readings continue to show that economy is growing and not sliding back economy is growing and not sliding back into recessioninto recession
Source: American Trucking Association
Truck Tonnage IndexTruck Tonnage Index
Index increased 0.5% in OctoberIndex increased 0.5% in OctoberUp 5.7% from one year agoUp 5.7% from one year ago
October’s tonnage reading was October’s tonnage reading was just 4.4% below the index’s all-just 4.4% below the index’s all-time high in January 2005.time high in January 2005.
Source: American Trucking Association
Source: American Trucking Association
So where do So where do we go from here?we go from here?
A View From A View From the Distributor the Distributor
Side of the HouseSide of the House
DISC AnalysisDISC Analysis This year started off strong, led by a surge This year started off strong, led by a surge
in the industrial market (+20% in the 1st in the industrial market (+20% in the 1st quarter). Growth should remain steady quarter). Growth should remain steady through the remainder of this year.through the remainder of this year.
Total electrical industry sales should end Total electrical industry sales should end the year about 9% higher than last year.the year about 9% higher than last year.
However, if we take out about a 7% price However, if we take out about a 7% price factor, we’re really only up about 2% in factor, we’re really only up about 2% in physical volume.physical volume.
Source: Distributor Information Services Corp.
DISC OutlookDISC Outlook
2012 is fraught with uncertainty2012 is fraught with uncertaintyProject strong growth in residential Project strong growth in residential
market, with a huge upturn in 2013market, with a huge upturn in 2013Commercial and industrial to flatten Commercial and industrial to flatten
outout In other words, look for another In other words, look for another
year of belt tighteningyear of belt tightening
Source: Distributor Information Services Corp.
DISC OutlookDISC Outlook
Growth rate in 2013 could be as Growth rate in 2013 could be as high as 7%, followed by double high as 7%, followed by double digit increase in the 2014-2015digit increase in the 2014-2015
Over the five year period between Over the five year period between 2010 and 2015, electrical industry 2010 and 2015, electrical industry distributor sales will grow close to distributor sales will grow close to 10% annual rate10% annual rate
Source: Distributor Information Services Corp.
Electrical Wholesaling Electrical Wholesaling ’s ’s OutlookOutlook
EW’s Top 200 electrical distributors EW’s Top 200 electrical distributors forecast a 5.1% increase in sales forecast a 5.1% increase in sales next yearnext year
It’s interesting to note, however, It’s interesting to note, however, that of the 236 distributors who that of the 236 distributors who provided a sales forecast, 41% provided a sales forecast, 41% expect their sales to stay the sameexpect their sales to stay the same
A View From the A View From the Manufacturing SectorManufacturing Sector
Manufacturing Production Manufacturing Production OutlookOutlook
Investment in business equipment and Investment in business equipment and increased exports will be economic increased exports will be economic driver for next 5 yearsdriver for next 5 years
Manufacturing production growth rates:Manufacturing production growth rates:2011 – 4.3%2011 – 4.3%2012 – 3.4 %2012 – 3.4 %2013 – 3.8%2013 – 3.8%
Source: Manufacturers Alliance for Productivity and Innovation
Manufacturing Production Manufacturing Production Outlook (cont’d)Outlook (cont’d)
Expect a net increase in hiring:Expect a net increase in hiring: 2011 – 230,000 jobs2011 – 230,000 jobs 2012 – 170,000 jobs2012 – 170,000 jobs 2013 – 140,000 jobs2013 – 140,000 jobs
Project industrial equipment expenditures to Project industrial equipment expenditures to advance by:advance by: 12.1% in 201112.1% in 2011 10% in 201210% in 2012 5.2% in 20135.2% in 2013
Source: Manufacturers Alliance for Productivity and Innovation
A View A View From theFrom the
Home Builders Home Builders
Housing StartsHousing Starts
Good newsGood news Forecast calls for double-digit increases in Forecast calls for double-digit increases in
2012 for the total market (+14.9%)2012 for the total market (+14.9%) Single family units (+16.8%)Single family units (+16.8%) Multi-family units (+10.3%)Multi-family units (+10.3%)
Bad news?Bad news? Last year’s forecast called for even bigger Last year’s forecast called for even bigger
increases, which never materializedincreases, which never materialized
Source: National Association of Home Builders
Housing Starts (single-Housing Starts (single-family)family)
Predict starts to hit Predict starts to hit 495,000 units in 2012 495,000 units in 2012 and 723,000 units in and 723,000 units in 20132013
Feels current level is Feels current level is merely maintaining merely maintaining housing stockhousing stock
However, at this time However, at this time last year they predicted last year they predicted a 33% rebound for 2011a 33% rebound for 2011
Housing Starts (multi-Housing Starts (multi-family)family)
Following a strong Following a strong showing this year, showing this year, NAHB predicts NAHB predicts starts to improve starts to improve another 13% and another 13% and 14% in 2012 and 14% in 2012 and 20132013
Residential Remodeling Residential Remodeling OutlookOutlook
A sluggish economy and housing market will A sluggish economy and housing market will continue to hamper home improvement continue to hamper home improvement spending well into next year, according to the spending well into next year, according to the Leading Indicator of Remodeling Activity Leading Indicator of Remodeling Activity (LIRA)(LIRA)
The remodeling market is expected to stay The remodeling market is expected to stay soft with the LIRA pointing to a modest soft with the LIRA pointing to a modest decline in annual homeowner improvement decline in annual homeowner improvement spending over the next several quarters. spending over the next several quarters.
Source: Joint Center for Housing Studies, Harvard University
A View From a A View From a Lodging IndustryLodging Industry Market Analyst Market Analyst
Hotel ConstructionHotel Construction
Projects under construction remain Projects under construction remain at cyclical lowsat cyclical lows
Scheduled starts in the next 12 Scheduled starts in the next 12 months fell below the 100,000 rooms months fell below the 100,000 rooms level for the first time in memorylevel for the first time in memory
Scheduled starts are expected to Scheduled starts are expected to trend further downwardtrend further downward
Source: Lodging Econometrics
A View From theA View From the Associated Builders and Associated Builders and Contractors AssociationContractors Association
Private Up, Public DownPrivate Up, Public Down
ABC expects 2012 to be a year of gradual ABC expects 2012 to be a year of gradual progressprogress
Advances in private construction are Advances in private construction are partially offset by ongoing declines in partially offset by ongoing declines in publicly financed constructionpublicly financed construction
Following a 2.4% decrease this year, non-Following a 2.4% decrease this year, non-residential construction spending is residential construction spending is expected to grow 2.4%expected to grow 2.4%
Source: Associated Builders & Contractors
Indicator 2010 2011* 2012*
% Change
2011-2012
Construction Spending – (millions, seasonally adjusted annual rate) - U.S. Census Bureau
Total Nonresidential
Lodging $11,329 $8,514 $9,025 6%
Office $37,573 $34,181 $36,505 6.8%
Commercial $40,522 $43,447 $46,575 7.2%
Health Care $39,879 $40,621 $43,871 8.0%
Educational $88,227 $85,359 $81,945 -4.0%
Power $78,540 $87,519 $95,396 9.0%
Manufacturing $38,106 $35,636 $38,487 8.0%
Total - All Industries $554,915 $541,599 $554,414 2.4%
Private Nonresidential
Lodging $10,904 $7,976 $8,455 6%
Office $24,231 $22,315 $24,250 8.7%
Commercial $37,647 $39,988 $43,050 7.7%
Health Care $30,316 $29,575 $31,960 8.1%
Educational $13,356 $13,424 $13,400 -0.2%
Power $66,601 $75,105 $82,000 9.2%
Manufacturing $37,478 $34,956 $37,753 8%
Total - All Industries $261,796 $263,538 $281,836 6.9%
Public Nonresidential
Office $13,342 $11,866 $12,255 3.3%
Commercial $2,876 $3,459 $3,525 1.9%
Health Care $9,562 $11,046 $11,911 7.8%
Educational $74,871 $71,935 $68,545 -4.7%
Power $11,939 $12,414 $13,396 7.9%
Total - All Industries $293,119 $278,060 $272,578 -2%
Source: Associated Builders & Contractors
A View From theA View From the Portland Cement Portland Cement
AssociationAssociation
Softening Their StanceSoftening Their StanceLast summer, the PCA thought total Last summer, the PCA thought total
construction put-in-place figures would construction put-in-place figures would decline 4.9% this year and increase decline 4.9% this year and increase 1.8% in 20121.8% in 2012
They have now downgraded their They have now downgraded their outlook to flat in 2012 and said “real outlook to flat in 2012 and said “real growth may not appear until after growth may not appear until after 2013”2013”
Source: Portland Cement Association
A View From Reed A View From Reed Construction DataConstruction Data
As a WholeAs a WholeRCD projects a 2.9% decline in total RCD projects a 2.9% decline in total
spending this year as national economy spending this year as national economy continues to struggle through period of continues to struggle through period of slow growthslow growth
Assuming no secondary recession, RCD Assuming no secondary recession, RCD forecasts total construction spending to:forecasts total construction spending to: increase 3.9% in 2012, andincrease 3.9% in 2012, and increase 6.8% in 2013 increase 6.8% in 2013
Source: Reed Construction Data
U.S. Total Construction Spending(billions of U.S. current dollars)
Actual Forecast 2008 2009 2010 2011 2012 2013
New Residential
237.0 141.2 136.2 128.6 132.4 142.1
Year-over-year % Change
-34.3% -40.4% -3.5% -5.6% 2.9% 7.3%
Residential Improvements*
120.7 112.7 112.5 112.8 110.3 115.2
-13.5% -6.6% -0.2% 0.3% -2.2% 4.5%
Nonresidential Building
437.7 375.7 288.9 276.0 290.0 314.0
8.4% -14.2% -23.1% -4.5% 5.1% 8.3%
Heavy Engineering (Non-Builidng)
272.1 273.5 266.0 263.3 278.5 294.8
9.7% 0.5% -2.8% -1.0% 5.8% 5.9%
Total** 1,067.6 903.2 803.6 780.7 811.1 866.1
-7.4% -15.4% -11.0% -2.9% 3.9% 6.8%
*Residential Improvements include remodeling, renovation and replacement work.Number also includes RCD estimate of improvements to public housing.
**Total may not equal the sum of its components due to rounding.Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.
Residential SectorResidential Sector RCD outlook is for slow, but steady improvement RCD outlook is for slow, but steady improvement
in residential constructionin residential construction Single-family permits have been trending up for the Single-family permits have been trending up for the
past eight monthspast eight months Lean inventories mean any increase in demand will Lean inventories mean any increase in demand will
quickly translate to construction activityquickly translate to construction activity
Forecast is for residential spending to:Forecast is for residential spending to: Fall 5.6% in 2011Fall 5.6% in 2011 Rise 2.9% in 2012Rise 2.9% in 2012 Rise 7.3% in 2013Rise 7.3% in 2013
Source: Reed Construction Data
Residential Construction Data Actual Forecast 2008 2009 2010 2011 2012 2013
Total Starts 906 554 587 596 646 743 -33.2% -38.8% 5.9% 1.6% 8.3% 15.1%Total Single-family Starts
622 445 471 422 434 476
-40.5% -28.4% 5.9% -10.4% 2.9% 9.6%Total Multifamily Starts
284 109 116 174 211 268
-8.3% -61.6% 6.2% 50.4% 21.4% 26.6%Residential Construction Spending (Billions Current $)
New Residential 237.0 141.2 136.2 128.6 132.4 142.1 -33.1% -40.4% -3.5% -5.6% 2.9% 7.3%Residential Improvements*
120.7 112.7 112.5 112.8 110.3 115.2
-13.5% -6.6% -0.2% 0.3% -2.2% 4.5%
Housing starts in thousands.*Residential Improvements include remodeling, renovation and replacement work.
Number also includes RCD estimate of improvements to public housing.Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.
Non-Residential SectorNon-Residential SectorRCD reports non-residential construction RCD reports non-residential construction
spending has slipped for the last three spending has slipped for the last three months, following four months of increasesmonths, following four months of increasesActivity in the near term will be limitedActivity in the near term will be limited
Current projectionsCurrent projectionsDecline of 4.5% in 2011Decline of 4.5% in 20115.1% growth in 20125.1% growth in 20128.3% growth in 20138.3% growth in 2013
Source: Reed Construction Data
U.S. Non-residential U.S. Non-residential ConstructionConstruction(millions of U.S. current (millions of U.S. current dollars)dollars)
Actual Forecast
2008 2009 2010 2011 2012 2013
437,744 375,742 288,921 275,976 289,977 313,992
8.4% -14.2% -23.1% -4.5% 5.1% 8.3%
Source: Reed Construction Data
The Dreaded The Dreaded Recession ScenarioRecession Scenario
Issued in early September 2011Issued in early September 2011
Year-over-Year % Change
2010 2011 2012 2013
Baseline Forecast
3.0% 1.6% 1.6% 2.4%
Recession Forecast
3.0% 1.2% -1.6% 2.0%
Source: Reed Construction Data
A View From A View From FMI Corp.FMI Corp.
As a WholeAs a Whole
FMI expects total construction put-FMI expects total construction put-in-place to be up 2% this year and in-place to be up 2% this year and 6% in 20126% in 2012
But if you take inflation out of But if you take inflation out of these numbers, then they’re these numbers, then they’re looking at a 1% drop this year and looking at a 1% drop this year and a 3% increase in 2012a 3% increase in 2012
Source: FMI Corp.
LodgingLodging
Lodging construction will drop 16% to Lodging construction will drop 16% to $10 billion this year and show some $10 billion this year and show some signs of growth with a 4% rise in 2012signs of growth with a 4% rise in 2012
This sector has dropped around 55% This sector has dropped around 55% from its highs in 2008from its highs in 2008
Green building is commonplace in Green building is commonplace in remodels and retrofitsremodels and retrofits
Source: FMI Corp.
OfficeOffice
Office construction will drop Office construction will drop another 5% this year, on top of a another 5% this year, on top of a 32% in 201032% in 2010
Minor improvement expected in Minor improvement expected in 2012 to get to $45.5 billion2012 to get to $45.5 billion
Source: FMI Corp.
CommercialCommercial
Commercial construction typically Commercial construction typically lags residential by 12 to 18 monthslags residential by 12 to 18 monthsWon’t improve much in coming yearsWon’t improve much in coming years
Bright spot is discount and food Bright spot is discount and food retailers who have major retailers who have major expansion plansexpansion plans
Source: FMI Corp.
Health CareHealth CareHealth care construction will grow a mere Health care construction will grow a mere
2% this year, 3% in 20122% this year, 3% in 2012However, despite slower growth rates, this However, despite slower growth rates, this
sector remains at a historically high levelsector remains at a historically high levelLots of facility renovation and Lots of facility renovation and
modernization work taking placemodernization work taking placeUncertainty over health care bill’s effect Uncertainty over health care bill’s effect
continues to delay expansion planscontinues to delay expansion plans
Source: FMI Corp.
EducationEducation
Construction put in place figure to drop Construction put in place figure to drop 2% this year and rise 4% in 20122% this year and rise 4% in 2012
Renovation work to improve energy use Renovation work to improve energy use will continue to drive work in this sectorwill continue to drive work in this sector
Seeing an increased use of Seeing an increased use of prefab/modular construction techniques prefab/modular construction techniques being used in this sectorbeing used in this sector
Source: FMI Corp.
Public SafetyPublic Safety
Public safety construction lost 8% in Public safety construction lost 8% in 2010 and another 4% this year2010 and another 4% this yearForecasted to drop another 3% in 2012Forecasted to drop another 3% in 2012
However, it’s not as bad as it soundsHowever, it’s not as bad as it soundsThe current levels are well above those The current levels are well above those
realized during the 2000-2006 timeframerealized during the 2000-2006 timeframe
Source: FMI Corp.
ManufacturingManufacturing
Peaked in 2009, but dropped 33% in Peaked in 2009, but dropped 33% in 2010 and is expected to drop another 2010 and is expected to drop another 6% this year6% this yearProject another 2% drop in 2012Project another 2% drop in 2012Growth not expected to return until 2013Growth not expected to return until 2013
This sector has lost more than 5 This sector has lost more than 5 million jobs in the last decademillion jobs in the last decade
Source: FMI Corp.
PowerPowerPower construction has benefited from Power construction has benefited from
wind and solar growth, as well as the need wind and solar growth, as well as the need for grid modernizationfor grid modernization
Construction put in place this year should Construction put in place this year should be $89.7 billion or 7% over 2010be $89.7 billion or 7% over 20105% growth expected in 20125% growth expected in 2012
Steady growth expected in this sector for Steady growth expected in this sector for many yearsmany years
Source: FMI Corp.
Water Supply / Sewage Water Supply / Sewage and Waste Disposaland Waste Disposal
Expected to fall 2% this year, but Expected to fall 2% this year, but rise steadily through 2015rise steadily through 2015
Source: FMI Corp.
A View From A View From McGraw-Hill McGraw-Hill ConstructionConstruction
As a WholeAs a WholeMcGraw-Hill Construction (MHC) is McGraw-Hill Construction (MHC) is
forecasting no growth for construction forecasting no growth for construction starts next year, following a 4% drop starts next year, following a 4% drop this yearthis year
MHC’s chief economist notes, “Given the MHC’s chief economist notes, “Given the economy’s current fragile condition, an economy’s current fragile condition, an overall recovery may not come until overall recovery may not come until 2013 or 2014.”2013 or 2014.”
Source: McGraw-Hill Construction
StoresStores
Construction peaked in 2007, then Construction peaked in 2007, then fell 75% over next four yearsfell 75% over next four years
Project no growth this year and a Project no growth this year and a mere 2% rise in new square footage mere 2% rise in new square footage in 2012in 2012
Extreme discount chains lead the Extreme discount chains lead the charge in this groupcharge in this group
Source: McGraw-Hill Construction
WarehousesWarehouses
Sector fell sharply in 2008-2010 Sector fell sharply in 2008-2010 timeframe, but now seeing some timeframe, but now seeing some upward movementupward movement18% rise in square footage total in 201118% rise in square footage total in 2011Project another 17% rise in 2012Project another 17% rise in 2012
Increased trade should lift demand Increased trade should lift demand for additional spacefor additional space
Source: McGraw-Hill Construction
HotelsHotels
Steep declines last two years, but Steep declines last two years, but projecting a 34% increase in projecting a 34% increase in square footage this year and square footage this year and another 17% rise in 2012another 17% rise in 2012
Business travel has been strong Business travel has been strong and industry financials have and industry financials have strengthenedstrengthened
Source: McGraw-Hill Construction
OfficesOffices
After a steep decline that started in After a steep decline that started in 2007, market is beginning to flatten out2007, market is beginning to flatten out2% drop in new square footage this year2% drop in new square footage this year4% increase in 20124% increase in 2012
Recent activity has taken place in the Recent activity has taken place in the government building, data center, and government building, data center, and corporate building areascorporate building areas
Source: McGraw-Hill Construction
EducationEducation
School construction continues to School construction continues to declinedecline14% decline in new square footage 14% decline in new square footage
projected this year on top of double-digit projected this year on top of double-digit declines prior two yearsdeclines prior two yearsLooking at a 9% drop in 2012Looking at a 9% drop in 2012
2012 figure is comparable to levels 2012 figure is comparable to levels realized back in the late 80srealized back in the late 80s
Source: McGraw-Hill Construction
Healthcare FacilitiesHealthcare Facilities
After falling by nearly 40% in 2009, After falling by nearly 40% in 2009, sector rebounded by 6% in 2010 sector rebounded by 6% in 2010 and is expected to hold steady this and is expected to hold steady this year and nextyear and next
Still a need to replace aging Still a need to replace aging facilities and meet the needs of a facilities and meet the needs of a growing elderly populationgrowing elderly population
Source: McGraw-Hill Construction
Public BuildingsPublic Buildings
A reduction in federal spending A reduction in federal spending and the end of the stimulus and the end of the stimulus package will hit this sector hardpackage will hit this sector hard
Look for a 27% drop in square Look for a 27% drop in square footage this year and another 9% footage this year and another 9% drop in 2012drop in 2012
Source: McGraw-Hill Construction
The Dreaded The Dreaded Recession ScenarioRecession Scenario
Baseline Forecast
Recession Forecast
2011 2012 2011 2012
Total Construction -4% 0 -5% -7%
Commercial Buildings
+6% +8% +5% -6%
Institutional Buildings
-15% -2% -15% -3%
Manufacturing Buildings
+35% +4% +30% -5%
Single-Family Housing
-5% +10% -6% -2%
Multi-Family Housing +13% +18% +12% -5%
Public Works -16% -5% -17% -7%
Electric Utilities +48% -24% +45% -35%
Source: McGraw-Hill Construction
A Couple of Markets A Couple of Markets to Keep an Eye Onto Keep an Eye On
Power TransmissionPower Transmission
Line construction business in the early Line construction business in the early stages of a 10 to 20 year boomstages of a 10 to 20 year boom
Investment will likely range from $12 billion Investment will likely range from $12 billion to $16 billion annually through 2030*to $16 billion annually through 2030*
Two real drivers:Two real drivers: The need to deliver large amounts of renewable The need to deliver large amounts of renewable
sources to population centerssources to population centers Increase the reliability of the gridIncrease the reliability of the grid
*Source: Brattle Group
Green ProjectsGreen ProjectsCash-strapped manufacturers are looking Cash-strapped manufacturers are looking
for energy savings projects for energy savings projects Commercial buildings benefit from Commercial buildings benefit from
upgraded lighting and HVAC systemsupgraded lighting and HVAC systemsPublic and educational buildings leading Public and educational buildings leading
the chargethe chargeUtility rebates/incentives help sell these Utility rebates/incentives help sell these
projectsprojects
And Finally, And Finally, A Few A Few
Regional PredictionsRegional Predictions
Industrial Trends Report - Industrial Trends Report - PhiladelphiaPhiladelphia
Market still up on year, but demand stallsMarket still up on year, but demand stalls Speculative construction remains nearly non-Speculative construction remains nearly non-
existentexistent Manufacturing losses should slow in coming Manufacturing losses should slow in coming
quartersquarters Rents should hold steadyRents should hold steady Stable consumer spending should translate into Stable consumer spending should translate into
more warehouse/distribution demand over the more warehouse/distribution demand over the next few monthsnext few months
Source: Grubb & Ellis
Office Trends Report - Office Trends Report - PhiladelphiaPhiladelphia
Little to no growth the normLittle to no growth the norm Look for more of the same in the coming Look for more of the same in the coming
quarters as the regional labor market quarters as the regional labor market struggles to reboundstruggles to rebound
Consolidations and downsizings in the Consolidations and downsizings in the pharmaceutical sector will continue to pharmaceutical sector will continue to drag on the market’s prospects for real drag on the market’s prospects for real growthgrowth
Source: Grubb & Ellis
Electrical Distributor Electrical Distributor Industry Sales – Industry Sales – Philadelphia MSAPhiladelphia MSA
History Forecast Forecast
$ Million 2010 2011 2012
Total $1,181,700 $1,244,157 $1,232,044
(% change) 4.6% 5.3% -1.0%
Contractor $430,979 $437,466 $417,032
(% change) 1.7% 1.5% -4.7%
Source: DISC
Electrical Distributor Industry Electrical Distributor Industry Sales – Regional Forecast Sales – Regional Forecast (+4%)(+4%)
Data center construction is strong in this regionData center construction is strong in this region Airport expansion projects at JFK and in PhiladelphiaAirport expansion projects at JFK and in Philadelphia Philly (14%) and New York (9.6%) sport two of the Philly (14%) and New York (9.6%) sport two of the
lower downtown vacancy rates in the nation, lower downtown vacancy rates in the nation, according to Grubb & Ellis’ 2Q 2011 dataaccording to Grubb & Ellis’ 2Q 2011 data
2010 2011 2012
Middle Atlantic $10,767.7 $11,607.7 $12,070.7
New Jersey $4,076.1 $4,394.0 $4,569.3
New York $4,398.9 $4,742.1 $4,931.2
Pennsylvania $3,196.6 $3,446.0 $3,583.4
Source: Electrical Wholesaling
Thank you for this Thank you for this wonderful wonderful
opportunityopportunity
Questions?Questions?