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Presented to
NAWIC
Chapter 99
March 23, 2015
2015 Construction
Economic Forecast
2
1. Rules to Remember
2. National Trends
3. California
4. Bay Area
5. Local Trends
Table of Contents
Economic Forecasting
3
The only function of economic forecasting
is to make astrology look respectable.
John Kenneth Galbraith
3 Rules to Remember
• Construction is one the last industries to go into
a recession and one of the last to come out.
• Real Estate and Construction are Dance
Partners-what one industry does affects the
other
• Overall employment is a key indicator for the
health of the construction industry
4
Annual Rate of Construction
Spending US(1 of 2) (Billions)1
Public ($) Private ($) Total ($)
1994 130 401 531
1995 140 409 549
1996 147 453 600
1997 153 478 631
1998 155 535 690
2000 169 575 744
2001 181 621 802
2002 202 638 840
2003 213 675 888
2004 216 675 891
5
1Numbers come from December Annual Construction Report for the US Census Bureau, except for 2014 numbers which came from
the November Report.
Annual Rate of Construction
Spending US (Billions)1
Public ($) Private ($) Total ($)
2005 256.3 904.3 1160.6
2006 280.9 896.8 1177.7
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 268.6 683.9 952.5
6
1Numbers come from December Annual Construction Report for the US Census Bureau, except for 2014 numbers which came from
the November Report.
United States
Construction Starts ($ Billions)
(McGraw Hill)
In billons 2013
Actual
2014
Estimate
2015
Forecast
% change 13-14 % change
14-15
Total Construction 534,467 563,875 611,950 +5.5% +9.0%
Residential 209,982 227,375 256,875 +8.3% +13%
Single Family 159,131 165,450 189,675 +4.0% +15.0%
Multifamily 50,851 61,925 67,200 +21.8% +9.0%
Nonresidential 176,670 200,600 215,775 +13.5% +8.0%
Nonbuildings 147,915 135,900 139,300 -8.1% +3.0%
7ENR Magazine, November 17/24, 2014, p 11
San Jose, Sunnyvale, Santa Clara
Construction Starts
In millions ($) 2011
Actual
2012
Actual
2013
Actual
2014
Estimate
2015
Forecast
Total Construction 2,377 4,153 4,213 5,570 4,191
Residential 828 1,047 1,142 1,104 1,546
Non Residential 790 1,603 2,088 3,979 1,858
Comm/Manuf 259 475 700 3,667 1,250
Office/Bank 168 284 302 3,215 985
Institutional 531 1,128 1,388 313 608
Nonbuildings 759 1,503 983 487 787
8ENR Magazine, December 1/8, 2014, pCA5
US Dept. of Commerce
Construction Put in Place Year
to Date 2014 (Part 1 of 2)
9
Value ($ Bil) 2014 Dec. 2013 Dec. % Chg Month % Chg Year
Total Public 274.37 269.62 -11.9 +1.8
Res. Building 5.18 5.99 0.0 -13.5
Office 7.76 7.84 +10.4 -0.9
Commercial 1.85 2.25 -10.4 -17.6
Health Care 10.06 11.14 -5.3 -9.7
Educational 61.99 61.26 -8.8 +1.2
Public Safety 9.02 9.53 -6.0 -5.3
Amuse/Rec 8.99 8.29 -9.3 +8.4
Transportation 30.11 28.69 -8.0 +4.9
Power 11.91 12.09 +11.8 -1.5
Highway/Street 84.39 81.10 -23.8 +4.1
Sewage/Water Dis 22.24 21.24 -13.3 +4.7
Water Supply 12.35 12.90 -10.3 -4.3
Conservation 7.32 5.95 +8.9 +23.0
US Dept. of Commerce
Construction Put in Place Year to
Date 2014 (Part 2 of 2)
10
Value ($ Bil) 2014 Dec. 2013 Dec. % Chg Month % Chg Year
Total Private 687.03 641.15 -6.3% +7.2
Res. Building 350.01 336.21 -10.9% +4.1
Lodging 15.54 13.13 -1.2 +18.3
Office 36.97 29.79 -2.6 +24.1
Commercial 55.21 48.74 -8.7 13.3
Health Care 28.85 30.35 -2.4 -4.9
Educational 16.47 16.74 -6.0 -1.6
Religious 3.54 3.65 -10.0 -3.0
Amuse/Rec 7.65 7.22 -0.9 +5.9
Transportation 11.61 11.04 -10.8 +5.2
Communication 15.90 17.13 +20.2 -7.2
Power 89.27 78.55 -5.5 +13.7
Manufacturing 54.64 47.23 +8.7 +15.7
ENR Magazine, Feb. 16, 2015, p.41
Dodge Construction
US Outlook-2015
• Total Construction up 9% in dollars to $612 Billion
• Multi Family Housing up 9% in dollars & 7% in units
• Single Family Housing up 15% in dollars & 11% in units
• Commercial Buildings up 15% in dollars
• Public Works up 5% in dollars
• Electric Utilities down 9% in dollars
• Institutional Buildings up 9% in dollars
• Manufacturing down 18% in dollars
Data is based on Construction Starts
11Dodge and Data Analytics, Press Release Nov. 6, 2014
2015 AIA Consensus
Construction Forecast
Consensus % Change 2015 % Change 2016
Nonresidential Total 7.7 8.2
Commercial Total 11.8 10.4
Office 12.9 12.0
Retail & Other Commer. 10.1 9.0
Hotel 15.3 11.5
Industrial Total 10.5 10.1
Health 4.7 6.2
Education 4.7 5.2
Religious 1.2 2.5
Public Safety 1.7 3.6
Amusement/Recreation 9.1 5.312
California Building Permits
2014 through November
13
New Commercial New Industrial Alters/Additions
$6,512,090,850 $948,501,297 $9,939,623,819
New Other Total Non Residential Total All Construction
(including Res)
$4,033,513,396 $21,433,729,362 $43,456,578,079
Information from the California Building Industry Foundation. 2014 data is through November 2014
California Housing
Starts-2004-2014
212960208972
164280
113034
64962
362094476247336
59638
85310
77099
0
50000
100000
150000
200000
250000
New Housing Units
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
14Information from the California Building Industry Foundation. 2014 data is through November 2014
California New Housing
Starts Forecast (thousands)
72.681.5
115.7
146.1157.8 159.5
0
50
100
150
200
Housing Starts
2013 2014 2015 2016 2017 2018
15
1Eberhard School of Business, Metro Forecast, September 2014
California Construction Activity
as a % of State GDP
16
5.3
5.6
5.5
5.5
5.5
5.2
5.3
5.6
5.5
5.2
4.8
4.1
3.4
3.1
3.1
3.2
3.2
0
1
2
3
4
5
% GDP
US Dept. of Commerce, Bureau of Economic Analysis
Santa Clara County
Real Estate Trends-Retail
• By the end of 2014, vacancy to decline to 3.9%
• Development pipeline-800,000 sq. ft.
• 2014 will bring roughly 900,000 sq. ft. to market
• Stanford Shopping Center to add 100,000 sq. ft. of retail
plus 20,000 sq. ft of office space
• Santa Clara Square initial phase will have 600,000 sq. ft.
of office space and 125,000 of retail
17
Marcus & Millichap San Jose Metro Area Retail Research Report
3rd Quarter 2014
Santa Clara County
Real Estate Trends-Commercial
• Class A Vacancy Rate 13.7%/ Class B/C 11.4%
• 4.3 million sq. ft. is underway/50% preleased
• 1.7 million sq. ft completed in 2014, down from
2.3 million in 2013.
18
Marcus & Millichap San Jose Metro Area Commercial Research
Report 3rd Quarter 2014
Santa Clara County
Real Estate Trends-Apartments
• 4,400 units are being finished in 2014.
• Vacancy at 2.6%
• Effect rents will climb 10.8% to $2281 per
month.
• 6,700 units to be completed into 2016
• 4,500 units on the drawing board.
19
Marcus & Millichap San Jose Metro Area Apartment Research Report
4th Quarter 2014
Changing Landscape in
Housing
20
1”Shiny Prospects for Some Golden State Contractors in 2015”, Ken Simonson, California
Constructor, p. 22.
• Axiometrics reported that the San Jose
Metro area experienced a 59% jump in multi
family permits between October 2013 and
2014. There was no % change in single
family permits during the same time.1
21
Santa Clara County-Construction
Employment Statistics by Month-Jan.07-Nov.14
Peak Employment- September 2000, 52,200 November 2014 Employment 40,100
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Employment
Santa Clara County Construction
Employment-Annual Average
In Thousands
44.441.6 43.0 44.5
46.8 47.244.2
34.432.2 31.4
34.737.5 39.2
0.0
10.0
20.0
30.0
40.0
50.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
22
Bureau of Labor Statistics-San Jose, Santa Clara, Sunnyvale Statistical Area
2015 Wells Fargo
Optimism Quotient
23
96105104102
93 88 89
103109
102
8680
42
66
96
114106
124130
0
20
40
60
80
100
120
140
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
OQ
An OQ score of 100 or more represents strong optimism for increased local const. activity relative to prior
year. A score above 75 represents measured optimism.1 Wells Fargo 2015 Construction Industry Forecast, p. 5
A quote from the Center for the
Continuing Study of the CA
Economy
24
This is now clearly a solid and sustainable recovery led by
sectors with good future growth prospects. The near term
prospects for the national and state economy are better since
before the recession. A continuation of the construction
recovery would be a triple winner.
1) Building Activity creates jobs in other sectors as well as in
construction
2) Most construction jobs pay good wages
3) Building housing and infrastructure addresses two of
California’s key economic competitiveness challenges.1
1 Steven Levy, Center for the Continuing Study of the California
Economy, Numbers in the News
25
Other Trends
•About 250,000 new Construction Jobs are expected to be created over the next four years,
about one quarter of the 1.3 million jobs California will add by 2018. Despite leading the state
in job growth over the next four years, there will still be fewer construction jobs than before
the recession.
•State and Local government payrolls will still be slightly below 2008 levels in 2018
•Construction of more multifamily residential buildings means few workers are needed per
unit. In the past 70% of new homes in CA were single family-now the mix is 50/50.2
•The industry has recovered just 30% of the 2.2 million jobs it lost during the sub-prime
mortgage crisis from 2006 to 2010. In 2014, however, it gained jobs at more than twice the
rate of the overall labor market.
•Private Construction is 70% of Market/Public is 30% of market
•There are still 1.5 Million fewer construction jobs today than in 2007.4
1Eberhard School of Business, Metro Forecast, September 20132 George Avalos, “Economic Boom Leaving Some Workers Out”,
San Jose Mercury News, Dec. 10 2014.3 Paul Davidson, “Construction Hiring is Surging”, USA Today, p. B14 REJournals..com
Copy of the
presentation
26
If you would like an electronic copy of the presentation,
please send an email to:
Michael Miller
Executive Director
Builders’ Exchange of Santa Clara County
