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Comprehending the Construction Marketplace
EconomicsTrendsImplications
Rusty Sherwood, VP Market DevelopmentJanuary 20, 2008
2009 Outlook
2 2 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Trends
US & Global– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
“The trouble with our times is that the future
is not what it used to be”
Paul Valery
3 3 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Trends
US & Global– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
ContextBig Picture
2009Trend Factors
So what
4 4 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
The McGraw-Hill Companies – Essential Information & Insight…
$6.8 Billion in Revenue (2007)… 280 offices in 40 countries.
Leader in every market we serve.
5 5 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
History Founded by James H. McGraw, Frederick W. Dodge and Clinton Sweet Over 100 Years Ago
TodayServes One Million Customers Within the $4.6 Trillion Global Construction Community, Helping Industry Enterprises Save Time, Money and Energy
McGraw-Hill ConstructionMarket leadership for more than a century…
Leading provider of construction information
Founded over 100
years ago
• Key industry alliances
Over 1,000,000 customers
Serving private sector, government, financial community
serving business needs four ways.
6 6 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Leading provider of construction information
Founded over 100
years ago
• Key industry alliances
Over 1,000,000 customers
Serving private sector, government, financial community
serving business needs four ways.
Get Smarter Get Seen & Selected Find Opportunity Sell & Market Smarter
Increase Efficiency of BusinessProcesses, and Build Projectand Employee Productivity
Identify Key ProjectOpportunities, and Increase
Your Company’s Backlog
Build Your Company’s MarketPresence & Identity
Analyze, Identify andEvaluate Market Conditions
and Opportunities
MHC Integrated Media:Print, Online, Events
MHCResearch & Analytics
MHC Network®
& Dodge DatabaseMHC Network® Express& Performance Tracking
7 7 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Trends
US & Global– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
Economicsthe big picture
8 8 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Construction Market Indicators The decline for Total Construction became steeper in 2008.
150
300
450
600
750
90 92 94 96 98 00 02 04 06 08
M-H Construction Starts 2007
-8% 2008
-12%Billions of Dollars
300
500
700
900
1,100
1,300
90 92 94 96 98 00 02 04 06 08
Construction Put in Place 2007
-2% 2008
-6%Billions of Dollars
4.5
5.2
5.9
6.6
7.3
8.0
90 92 94 96 98 00 02 04 06 08
Construction Employment 2007
-1%2008
-5% Millions of Workers
9 9 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Major U.S. Construction Sectors (Starts) Single Family Housing still falling; Commercial Building heading down;
Institutional Bldg. healthy for now; Public Works slipping.
50
125
200
275
350
90 92 94 96 98 00 02 04 06 08
Single Family Housing 2007
-26% 2008
-39%Billions of Dollars
20
40
60
80
100
120
90 92 94 96 98 00 02 04 06 08
Commercial Building Construction Starts
2007
+8% 2008
-13%Billions of Dollars
35
55
75
95
115
135
90 92 94 96 98 00 02 04 06 08
Institutional Building Construction Starts
2007
+6% 2008
+10%Billions of Dollars
40
60
80
100
120
140
90 92 94 96 98 00 02 04 06 08
Public Works 2007
+8% 2008
-3%Billions of Dollars
10 10 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic Picture
Change in Employment
-600
-400
-200
0
200
400
01 02 03 04 05 06 07 08 09
Thousands of Workers
Nov.'08 -584,000
Dec.'08 -524,000
Full Yr. 2008 2.6 million jobs lost
Real GDP Growth - Quarterly
-4
-2
0
2
4
6
8
01 02 03 04 05 06 07 08 09
Annualized Percent Change '08 Q3
-0.5%
Consumer Confidence
25
50
75
100
125
150
01 02 03 04 05 06 07 08 09
Monthly, 1985 = 100
The U.S. economy has been in recession since Dec. ’07.
Unemployment Rate
3
4
5
6
7
8
01 02 03 04 05 06 07 08 09
Percent
11 11 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic Picture Inflation had shot upward – but then fell sharply in second half 2008.
Consumer Price Index
0
1
2
3
4
5
6
01 02 03 04 05 06 07 08 09
Percent Change, Year-over-Year
CPI
Core CPI
Price of Oil
0
25
50
75
100
125
150
01 02 03 04 05 06 07 08 09
Dollars per Barrel, West Texas Crude
U.S. Dollar vs. Major Currencies
60
70
80
90
100
110
120
01 02 03 04 05 06 07 08 09
Exchange Rate, Indexed, 1973=100
12 12 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic Picture Short-term rates are down; long-term rates have also retreated.
With Dec. 16 action, the federal funds
funds rate target now set at 0% to .25%.
Numerous steps taken to improve liquidity over the course of 2008.
Also a plus – second stimulus bill coming.
Monetary Policy
0
1
2
3
4
5
6
7
01 02 03 04 05 06 07 08 09
Federal Funds Rate, Percent10-Year Treasury Bill
0
2
4
6
8
10
90 92 94 96 98 00 02 04 06 08
Percent
13 13 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic Picture The Fall 2008 Financial Market Turmoil
– U.S. Treasury takeover of Fannie Mae, Freddie Mac in September.– Lehman Brothers goes bankrupt, AIG gets cash infusion.– Merrill Lynch sold to Bank of America.– Depositors pull out from money market funds.– Credit markets freeze up.
– U.S. Treasury proposes $700 billion bailout or rescue program.– Congress modifies program, passed.– Modified rescue – U.S. Treasury will use $250 billion to buy stakes in
banks -- TARP (Troubled Asset Relief Program), no longer focus of rescue effort.– Citigroup rescue package – $20 billion additional infusion, $300 billion to guarantee losses on troubled assets.– Additional program to buy up debt at Fannie Mae and Freddie Mac.– Will it work?
14 14 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic PictureTighter lending standards are a major constraint for 2008/ 2009.
More instances of tight credit conditions affecting large projects, such as
Cosmopolitan Resort in Las Vegas
Echelon Resort in Las Vegas
Atlantic Yards in Brooklyn
Seattle development (Clise property)
Chicago Spire
-30
-15
0
15
30
45
60
75
90
90 92 94 96 98 00 02 04 06 08
Survey of Bank Lending Officers Percent Reporting Tighter Lending Standards --
Commercial and Industrial Loans
-30
-15
0
15
30
45
60
75
90
90 92 94 96 98 00 02 04 06 08
Survey of Bank Lending Officers Percent Reporting Tighter Lending Standards --
Commercial Real Estate Loans
15 15 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic Picture The Emergency Economic Stabilization Act of 2008
had numerous attachments, including “green provisions”. -- Electricity generation.
Tax incentive for generating electricity from wind
extended for one year.
Tax incentive for generating electricity from other sources –
geothermal, hydropower, trash combustion – extended for
two years.
-- Energy efficiency.
Extends tax credit for energy efficient improvements for commercial buildings through 2013. Energy efficient incentives for residential homes extended through 2009.
GDP Pattern: 2007 2008 2009 2010
+2.0% +1.1% -2.0% +2.5%
16 16 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic Picture Federal budget – $455 billion deficit for fiscal 2008, more in 2009.
Federal Spending for Fiscal 2008
Federal-aid highway program, up 5% Mass transit, up 5% Airport Improve. Grants, flat Corps of Engineers, down 2% EPA Water Infrastructure down 7% -- Clean Water SRF’s, down 35%
GSA Construction, down 33% GSA renovations, down 16%
DOD base realignment, up 29%
Renewed focus on infrastructure following
I-35 W bridge collapse in Minneapolis
Fiscal 2009 –
Status quo bill passed, holding funding at 2008 levels through March 2009. Base realignment account gets another 18% hike. Large deficit limits options for next Administration.
Federal Budget Surplus/ Deficit
-1,200
-1,000
-800
-600
-400
-200
0
200
400
90 92 94 96 98 00 02 04 06 08
Billions of Dollars, CBO Projections
17 17 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic Picture Proposed Stimulus Bill
“The American Recovery and Reinvestment Plan”.
Goal: Save or create at least 3 million jobs by the end of 2010. Cost: $775 billion or more Likely passage: now mid-February
Key components Middle-class tax cuts
Business investment incentives
State fiscal relief
“Substantial investments in infrastructure, education health, and energy.”
Energy and infrastructure are two largest components of job creation.
Impact on construction –
18 18 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic PictureNumerous bond measures passed, but state fiscal health has
weakened.
November 2006 Elections
California -- voters approved Prop. 1B -- $19.9 bil. for transportation, also $10.4 bil. for school facilities
November 2007 Elections Texas – school const. measures passed. Washington State – voters rejected Proposition 1, which would have used tax hikes to fund transportation projects.
November 2008 Elections
California – voters approved $10 bil. measure for high-speed rail line, a $1 billion measure for children’s hospitals, and Los Angeles voters approved a $7 billion measure for school construction. But, numerous states with projected
budget gaps for Fiscal Year 2009, including:
Shortfall $ bil.
California $36.0
New York 6.4
Florida 5.7
Illinois 3.8
New Jersey 3.7
Massachusetts 3.3
Georgia 2.7
Virginia 2.3
State & Local Governments
0
2
4
6
8
10
12
90 92 94 96 98 00 02 04 06 08
Year-End Balance, Percent of Expenditures
.
19 19 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic PictureMaterials Prices moved higher in 2008; now some signs of easing.
PPI -- Construction Materials
130
150
170
190
210
01 02 03 04 05 06 07 08 09
Index, 1982=100
First 8
Mos.'08
+13%
Sept.-
Nov.'08
-4%
PPI -- Iron and Steel Products
100
140
180
220
260
300
00 01 02 03 04 05 06 07 08 09
Index, 1982=100
First 8
Mos.'08
+48%
Sept.-
Nov.'08
-29%
PPI -- Iron and Steel Scrap
50
250
450
650
850
00 01 02 03 04 05 06 07 08 09
Index, 1982=100
First 8
Mos.'08
+87%
Sept.-
Nov.'08
-72% In early 2008, investors pushed commodity prices upward. Is slower U.S. economy leading to less pressure on commodity prices? Recent months – yes.
20 20 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Macroeconomic Picture
Producer Price Indexes Percent Changes Annual Levels First 8 Sept.-
2004 2005 2006 2007 Mos. '08 Nov. '08
Construction Materials +10 +5 +6 +2 +13 -4
Iron and Steel +34 +5 +9 +8 +48 -29
Iron and Steel Scrap +77 -10 +16 +21 +87 -72
Copper Wire +18 +26 +61 -1 +15 -24
Lumber and Wood +10 -0- -1 -1 +2 -2
Gypsum +16 +15 +20 -15 +6 +1
Cement +3 +12 +13 +5 -0- -0-
Aluminum Mill Shapes +5 +7 +12 +4 +8 -9
Plastic Construction Prod. +4 +10 +14 -1 +5 -0-
Glass Products -2 +1 +2 +1 +4 +1
Insulation Materials +7 +4 +5 -3 -0- +1
21 21 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Trends
US & Global– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
Construction Economics
2009The GoodThe BadThe Ugly
The Upside
22 22 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
The Good…
Public Buildings… federal projects continue / tougher at state level– Now settling back slightly from ‘07 highs
Public Works… both environmental and transportation to improve– ST – pull back, but quick re-strengthening transportation, water
Schools… slowing but off historic highs– Higher Ed / “Dorms” turning negative but decent volume
Healthcare… settling expected– LT – demographics/aging population favor expansion
Material Costs… product prices cooling due to capacity surplus– Steel still impacted by global demand, but improving
23 23 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
The Bad…
Energy… major pull-back but transmission capacity remains prime need
– LT – existing tax incentives / new administration pro-alternatives and energy independence
State Public Works… state income / deficits creating project pullback– Yet to be funded projects at serious risk
Offices… Better supply management preventing sharp pullback but expect double digit correction
– Job market; demand for office workers may prolong slump
Multi-family… residential still depressed but some demand in apartment easing slide in multi-fam
Manufacturing… expect double digit drop; some segments flat “Work on the boards”… 10th straight months of declines
– October steepest decline in history of ABI tracking
– Firms focused on commercial & industrial feeling the brunt of this downturn
– All regions of country effected – Northeast & South the mildest declines
24 24 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
The Ugly… Residential… single family continues downward through 2009
– 2009 single family starts 30% of 2005 peak
– Diversification of multi-family has eased length of downturn ie: apts
– A few rays of sunshine…national market declining at a declining rate
Retail & Warehouses… bankruptcies will continue; consumer spending down; expect a dramatic pullback
– Expect double digit declines following ’08’s massive 1-year 30% drop
Hotels… surplus capacity; reduced travel budgets; big pullback expected
Access to construction financing…– Conventional lending guidelines
unprecedented tightening through 2009
– Degree of access crisis still unclear
(when do banks get “back to business”?)
– Expect greater scrutiny on new funding
– Expect impact on projects “in-flite”
-30
-15
0
15
30
45
60
75
90
90 92 94 96 98 00 02 04 06 08
Survey of Bank Lending Officers Percent Reporting Tighter Lending Standards --
Commercial Real Estate Loans
25 25 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Upside factors…
Alternative Energy… expect Obama administration support, but when will impact be felt?
– Probably not much help in 2009, but 2010 beyond!?!
“Green” (Public) Work… expect greater energy & water efficiency, and health quality requirements
– Required “triple bottom-line” results will sustain demand in spite of market slowing
LEED certified construction… developers, owners recognizing financial results in operations, occupancy, lease rates & resale
– Demand for LEED certified projects well above present supply Alternative construction financing…
– Will lack of conventional credit access stimulate use of new methods found effective internationally (ie: P3)?
And…
26 26 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
The Pending Stimulus Bill… significant emphasis in construction and energy Boost to infrastructure, especially
highways and bridges
School modernization efforts
Energy efficiency improvements to federal buildings
Energy efficiency incentives directed at residential buildings.
Incentives, support for alternate energy sources
11,391 projects “ready to go” with funding!!
Upside factors…
27 27 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Trends
US & Global– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
Construction Economics
2009The Details
28 28 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Single Family Housing Construction has continued to fall sharply.
Single Family Housing Starts
2005 1.626 million units +5%
2006 1.331 million units -18%
2007 .937 million units -30%
200
400
600
800
1,000
1,200
1,400
1,600
1,800
86 88 90 92 94 96 98 00 02 04 06 08
Single Family HousingThousands of Dwelling Units
0.3
0.5
0.7
0.9
1.1
1.3
1.5
01 02 03 04 05 06 07 08 09
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
New Homes (L)
Existing Homes (R)
Millions -- New homes, left scale; Existing homes, right scale
Home Sales -- New and Existing Homes
Supply of Single Family Housing
2
4
6
8
10
12
90 92 94 96 98 00 02 04 06 08
Number of Months
29 29 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Single Family Housing Major negatives – falling prices, tighter lending.
Single Family Housing Starts
2008 .550 million units -41%
2009 .460 million units -16%
Home prices continue to fall.
Subprime lending turmoil is now
affecting more traditional mortgage lending. (Fed. Reserve surveys)
Steps taken to improve funds available for mortgages -- will they help?
Also – efforts to limit foreclosures taken at state level; similar efforts at federal level could be coming in spring ’09.
One positive – low mortgage rates.
-20
-15
-10
-5
0
5
10
15
20
90 92 94 96 98 00 02 04 06 08
S&P/Case-Shiller Home Price IndexPercent Change, Same Quarter a Year Ago
Mortgage Rates - Weekly
4
5
6
7
8
9
10
11
90 92 94 96 98 00 02 04 06 08
Percent
30 30 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Multifamily Housing Construction relatively stable in 2006, weakened in 2007 and 2008.
Comprised of both apartments and condominiums.
Helped by push for downtown redevelopment.
Demographics supportive, especially from empty-nesters.
Mid-decade strength came come from condominium development, focus now on apts.
Was attractive investment target, less so now –
due to mounting concern about over-building of condos and diminished credit availability.
Multifamily Housing
2006 516,000 units -3%2007 455,000 units -12%
2008 310,000 units -32%
2009 250,000 units -19%
0
200
400
600
800
1,000
86 88 90 92 94 96 98 00 02 04 06 08
Multifamily HousingThousands of Dwelling Units
31 31 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Commercial Bldgs. -- Stores Construction in 2007 at all-time high; now in sharp retreat..
Store Construction
2006 308 msf -1%2007 313 msf +2%
2008 210 msf -33%
2009 150 msf -29% (msf = million of sq. ft.)
Derived demand from housing market – definitely going up; now true going down. Substantial building from five major players: Wal-Mart, Home Depot, Lowe’s Target, Kohl’s
Impact of slowing retail sales – reduced store openings, store closings, etc.
Still, competitive retail landscape.
Fate of “lifestyle centers”?
100
150
200
250
300
350
86 88 90 92 94 96 98 00 02 04 06 08
Stores and Shopping CentersMillions of Square Feet
32 32 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Commercial Bldgs.-- Warehouses Construction rebounded in 2007; now heading down.
Warehouses
2006 221 msf -1%
2007 255 msf +15%
2008 193 msf -24%
2009 140 msf -27%
Slow economy now having Impact on construction.
Vacancy rates now moving up. 2008Q3 reported at 11.4%, after bottoming at 9.5% in 2006 Q3.
Still, push coming from greater demand from increased global trade.
Larger regional facilities being built by major retailers.
Need for updated facilities to handle improved inventory management practices.
75
125
175
225
275
325
86 88 90 92 94 96 98 00 02 04 06 08
WarehousesMillions of Square Feet
33 33 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Commercial Bldgs.-- Hotels Construction soared in 2006, more growth in 2007 and 2008.
Hotels
2006 82 msf +68%2007 86 msf +5%
2008 83 msf -3%
2009 57 msf -31%
Industry financials had strengthened: Occupancies in 2006 at 63.3%, vs. 63.1% in 2005. Revpar in 2006 up 7.5%. almost as strong as 8.5% in 2005. (Smith Travel Research)
2007 Revpar up 5.7%.
2008 Revpar up only 1%.
In 2005: hotel/casino projects, and convention center- related hotels. In 2006 and 2007: broader expansion, more Las Vegas projects, convention center hotels, “condo” hotels
10
30
50
70
90
110
86 88 90 92 94 96 98 00 02 04 06 08
HotelsMillions of Square Feet
34 34 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Commercial Bldgs. -- Offices Construction upturn has been measured this time …
Office construction
2006 208 msf +24% 2007 219 msf +5%
2008 168 msf -23%
2009 125 msf -26%
Market fundamentals still relatively healthy, but now turning. office employment vacancy rates –
suburban in 2008 Q3 up to 15.8%; downtown in 2008 Q3 rose to 10.9%
In 2006 and 2007: several major high-rise projects reached groundbreaking, including:
Goldman Sachs headquarters Freedom Tower 11 Times Square
Early 2008: more NYC WTC – Towers 2, 3, 4
50
125
200
275
350
425
86 88 90 92 94 96 98 00 02 04 06 08
Office BuildingsMillions of Square Feet
35 35 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Commercial Bldgs. -- Offices Office Building Factors
Overbuilding is less than in past cycles.
But – cutbacks in office employment now affecting market fundamentals more severely.
0
5
10
15
20
25
86 88 90 92 94 96 98 00 02 04 06 08
Downtown
Suburban
U.S. Office Vacancy Rates Source: CB Richard Ellis
15.8%
10.9%
Change in Office Employment
-750
-500
-250
0
250
500
750
1,000
1,250
86 88 90 92 94 96 98 00 02 04 06 08 10
Thousands of Workers
36 36 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Commercial Bldgs. -- AlterationsOffice Building Alterations
0
2
4
6
8
10
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
Hotel Alterations
0.0
0.5
1.0
1.5
2.0
2.5
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
Stores Alterations
0
2
4
6
8
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
37 37 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Institutional -- Educational Bldgs. School construction still strong, but losing some momentum.
2007 2008
Primary, Jr. Highs -6% -5%
High Schools -7% +10%Colleges/Univ. +10% +1%
Libraries -5% -11%Laboratories +11% -30%
Museums -26% +6%Comm. Colleges -0- +8%
Vocational Schools -43% +33%
Numerous states in recent years have passed school construction bond measures, especially California and Texas. Major universities increased capital spending plans – but, now under re-evaluation.
Educational Buildings
2006 230 msf +5%2007 220 msf -4%
2008 223 msf +1%
2009 192 msf -14%
50
100
150
200
250
300
86 88 90 92 94 96 98 00 02 04 06 08
Educational BuildingsMillions of Square Feet
38 38 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Institutional – Educational Bldgs. College/University construction was strong, now declining.
Colleges, Univ.,Comm.Col.
2006 29.3 msf +12%2007 31.8 msf +8%
2008 32.4 msf +2%
2009 27.2 msf -16%
Dormitories
2006 24.1 msf -11%2007 26.6 msf +10%
2008 29.0 msf +9%
2009 24.0 msf -17%
Dormitories (College dorms, & barracks)
0
5
10
15
20
25
30
35
86 88 90 92 94 96 98 00 02 04 06 08
Millions of Square Feet College/Universities & Comm. Col.
0
5
10
15
20
25
30
35
86 88 90 92 94 96 98 00 02 04 06 08
Millions of Square Feet
39 39 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Institutional -- Educational Bldgs.
Educational Building Alterations
0
2
4
6
8
10
12
14
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
School renovation work already strong – now getting more emphasis from school modernization focus of Obama stimulus plan.
40 40 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Institutional -- Healthcare Buildings Healthcare facilities reached new high in 2006, now settling back.
2007 2008 Clinics/ Nursing Homes +2% -7%
Hospitals -16% +25%
Ongoing need to replace aging facilities
Hospital vs. outpatient clinic dynamic
Closer scrutiny of finances
Growth of the elderly population
Healthcare Facilities
2006 110 msf +1%2007 103 msf -6%
2008 110 msf +7%
2009 97 msf -12%
Healthcare Facilities
0
15
30
45
60
75
90
86 88 90 92 94 96 98 00 02 04 06 08
Millions of Square Feet
Hospitals
Clinics
41 41 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Institutional BuildingsPublic Buildings had strong 2007; Amusement category weakening again.
0
15
30
45
60
75
86 88 90 92 94 96 98 00 02 04 06 08
Public BuildingsMillions of Squaare Feet
15
35
55
75
95
115
86 88 90 92 94 96 98 00 02 04 06 08
Amusement & Rec. BuildingsMillions of Squaare Feet
2008Detention Facilities -47%Armories/Military +41%Courthouses -6%Police/Fire Stations +13% Post Offices -5%
Total Public 2006 +2%Total Public 2007 +48%
Total Public 2008 -1%Total Public 2009 -6%
2008Convention Centers +12% Sports Arenas +55%Theaters -29% Other (inc. theme parks) -14%
Total Amuse. & Rec. 2006 +8% Total Amuse. & Rec. 2007 -9%
Total Amuse. & Rec. 2008 -9%
Total Amuse. & Rec. 2009 -5%
42 42 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Institutional BuildingsChurches still declining, airport terminal work (sq. ft.) now weak
10
20
30
40
50
60
86 88 90 92 94 96 98 00 02 04 06 08
Religious BuildingsMillions of Squaare Feet
Airport Terminals
0.0
2.0
4.0
6.0
8.0
10.0
84 86 88 90 92 94 96 98 00 02 04 06 08
Millions of Sq. Ft.
Religious Buildings
2006 34 msf -6%2007 31 msf -11%
2008 27 msf -12%
2009 25 msf -7%
Airport Terminals
2006 3.1 msf -28%
2007 2.2 msf -28%
2008 2.1 msf -5%
2009 1.9 msf -9%
43 43 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Manufacturing BuildingsPlant construction in sq. ft. lackluster, yet growth in dollar terms
0
50
100
150
200
250
86 88 90 92 94 96 98 00 02 04 06 08
Manufacturing BuildingsMillions of Square Feet
0
10
20
30
40
86 88 90 92 94 96 98 00 02 04 06 08
Manufacturing BuildingsBillions of Dollars
Manufacturing Buildings
2006 83 msf +4%2007 90 msf +8%
2008 78 msf -13%
2009 70 msf -10%
Manufacturing Buildings
2006 $13.6 bil. +34%
2007 $17.6 bil. +29%
2008 $26.9 bil. +53%
2009 $18.3 bil. -32%
Surge of ethanol plants in 2006-2007
Huge refinery additions in 2008
44 44 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Public Works -- Highways & BridgesHighways and bridges slipped back in 2008; should get more funding in 2009 from stimulus bill.
Highways and Bridges
10
20
30
40
50
60
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
Highways, Bridges
2006 $51.0 billion +15%
2007 $53.6 billion +5%
2008 $52.4 billion -2%
2009 $55.9 billion +7%
Renewed focus on infrastructure following I-35W bridge collapse in Minneapolis.
Fiscal 2008 appropriations – federal-aid highway program up 5%, including added funding for bridge maintenance. Fiscal 2009: status quo.
Congress supplied $8 billion to Highway Trust Fund in Sept.
Potential boost in 2009 from second stimulus bill.
AASHTO – 5,148 projects totaling $64 billion ready to start in 180 days.
This year and next – debate over new transportation bill to replace SAFETEA-LU.
45 45 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Public Works -- EnvironmentalEnvironmental public works is now settling back. May get gradual boost from stimulus bill.
Sewers, Dams/ Water Resources
0
3
6
9
12
15
18
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
Dams, Water Resources
Sewers
Water Resources
Water Supply Systems
0
3
6
9
12
15
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
Environmental Public Works
2006 $33.4 billion +6%
2007 $37.1 billion +11%
2008 $38.2 billion +3%
2009 $37.8 billion -1%
• Projects generally take longer to reach construction start stage compared to transportation work.
• Various “gap” analyses point to aging infrastructure, and how current funding is coming up short.
46 46 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Electric UtilitiesNew electric utility starts have soared in 2008.
Electric Utilities
0
5
10
15
20
25
30
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
Electric Utilities
2006 $17.7 billion +125%
2007 $16.8 billion -5%
2008 $26.4 billion +57%
2009 $17.1 billion -35%
Energy Bills -- tax incentives for oil and gas production, electric utilities, transmission lines, etc. Extended with financial rescue package.
Capacity utilization had climbed to 87% for full year 2007; has since retreated to 83% (late ’08).
Stimulus bill should provide boost -- incentives for alternative sources of electricity generation. Also, push for “smart grid.”
Power Lines
0.0
0.3
0.6
0.9
1.2
1.5
86 88 90 92 94 96 98 00 02 04 06 08
Billions of Dollars
47 47 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
U.S. Total Construction Starts for 2009Billions of Dollars
2005 2006 2007 2008 2009
Total Construction 670.3 689.9 638.2 550.7 482.2 +13% +3% -7% -14% -12%
Single Family Housing 315.5 272.4 201.2 122.2 104.1+12% -14% -26% -39% -15%
Multifamily Housing 68.6 69.9 63.5 41.0 33.9+36% +2% -9% -35% -17%
Commercial Bldgs. 72.2 93.0 100.7 87.5 67.7+7% +29% +8% -13% -23%
Institutional Bldgs. 100.1 110.7 117.2 129.0 121.3 +12% +11% +6% +10% -6%
Manufacturing Bldgs. 10.1 13.6 17.6 26.9 18.3 +26% +34% +29% +53% -32%
Public Works 96.0 112.5 121.2 117.8 119.7 +9% +17% +8% -3% +2%
Electric Utilities 7.9 17.7 16.8 26.4 17.1+6% +125% -5% +57% -35%
48 48 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Points of Perspective – U.S. Construction
85
100
115
130
145
160
175
190
T T+2 T+4 T+6 T+8 T+10 T+12 T+14 T+16 T+18
1982-1991
1991- 2005
1975-1982
Cyclical Trough (T) = 100, Based on Constant 2000 Dollars
Years from Cyclical Trough
Total Construction Activity by Cycle
1991-2009
49 49 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Points of Perspective – U.S. Construction
80
100
120
140
160
180
T T+2 T+4 T+6 T+8 T+10 T+12 T+14 T+16 T+18
1982-91
1991- 2004
1975-82
Based on Constant DollarsCyclical Trough (T) = 100, as determined by Total Construction pattern
Years from Cyclical Trough
Nonresidential Building by Cycle
1991-2009
50 50 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Impact of Recession on Construction Commercial building has the
strongest negative response to recession
One year after start of last 2 recessions commercial has fallen by 30%
The change in Institutional is slight and lagged.
Based on construction starts Public Works shows little downward impact in the near term
More impacted by federal funding, environmental mandates and state transportation bondsImpact of recession may be present but spread out over several years so hard to discern-40 -30 -20 -10 0 10 20
Total Commercial
Total Com. & Mfg.
Total Institutional
Total Residential
Total Public Works
Total Nonbuilding Year 2%ch,'02/'00Year 1%ch,'01/'00 Year 2%ch,'92/90Year 2%ch,'92/90Year 1%ch,'91/'90
51 51 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Global Total Construction Spending – Top 15 Countries
0
100
200
300
400
500
600
700
800
900
United S
tate
s
Japa
n
China
United K
ingdom
Franc
e
Germ
any
Spain
Italy
South
Kore
a
Canada
India
Brazil
Mex
ico
Austra
lia
Nether
lands
Bill
ions
of
2000
US
$
2006 2011
United States is still the largest construction market in 2011 despite China's growth
Source: Global Insight
52 52 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Trends
US & Global– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
TrendsGreen
InnovationLabor & MaterialsProject Delivery
53 53 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Becoming Mainstream
Tipping Points Occurring Across Industry Sectors
Commercial– By 2010: 10% of all starts green (~$23 billion)
Corporate America– By 2009: 82% greening at least 16% of their real estate
portfolios (18% greening at least 60%) Healthcare and Education
– Over next 5 years: Dramatic increases expected Residential
– By end of 2007: 52% of the builder population greening at least 16% of their portfolio
Green Building Serves as Market Differentiator in Down Markets
Green Building
54 54 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Sources: U.S. Energy Information Administration, 2006; World Trends & Forecasts, Nov-Dec 2005; Glenn and Gordon, “Update on the State of the Future,” Jan-Feb 2006
The Prime Catalyst – Global Energy Demand, Impact and… Energy resources are being used at
the rate of 421 Quadrillion BTU annually, increasing 3.8% each year
Energy demand will grow 71% by 2030
New energy investments of $538 billion needed each year
CO2 emissions are being produced at the rate of 25 billion metric tons annually Alternative energy is
growing in popularityand getting cheaper!
Green Building
55 55 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Perceived Advantages of Building Green from AEC firms and Owners
Decreased Operating Costs: 8-9%8-9% 13.6%13.6% Increased Building Values: 7.5%7.5% 10.9%10.9% Improvement in ROI: 6.6% 6.6% 9.9%9.9% Increased Occupancy: 3.5%3.5% 6.4%6.4% Rent Rise: 3.0%3.0% 6.1%6.1% Increased revenue flows: 71%71% 77%77%
Increased profits: 59%59% 61%61%
Advantages are Increasing Over Time!
20052005 20082008
Green Building
56 56 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Impact of LEED LEED more important
than government Programs
Contractors find LEED even more effective
– Consistent with other studies
Resistance to mandates
Green Building
57 57 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Driven by Key Sector Needs & Adoption
Key Drivers to Future Green Growth:– Changing ethics– Government regulations– Energy cost increases– Corporate
Investment/Involvement– Market differentiation– Cost savings – Health benefits– More green product
availabilityEducation Institutional Health Care Retail
HospitalityOfficeGovernment
U.S. Sectors Expected to HaveGreen Building Growth
#1Growth Sector
in Europe
= same in Europe
Green Building
58 58 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Adopting New Means & Methods Considered Key to Productivity Gains
Innovation Broadly Refers to Process and Procedure Improvements
Many Global Firm Leaders Believe Innovation in Technology and Processes Will Help Solve Their Biggest Concerns
Pre-Fabrication& Modularization
13%
Safety & Healthof Workforce
29%
New ConstructionMethods & Processes
13%
GreenBuilding
16%
Intelligent Building& Infrastructure
13%
Other16%
Areas of Innovation with Greatest Expected Impact on Future Business
Innovation
59 59 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
• BIM “tipping point” in AEC/O in 2008
BIMWho is using BIM?
60 60 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Source: ENR April 23, 2008
BIMStructural adoption of BIM accelerating
61 61 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
From SmartMarket Report on BIM
Architects Engineers Contractors Owners
2009Current2009Current2009Current2009Current2009Current
60%+
31-59%
16-30%
1-15%
2009: 2009: Year of the ContractorYear of the Contractor
Low
Med
High
V.High
BIMBIM project involvement2009 Year of the Contractor
62 62 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
The Workforce Crunch: A Global ConcernDemographic Shifts Around the World Are Leadingto a More Mobile, Aging Workforce
Top Concerns of Both European and U.S. Firm Leaders– Training– Safety– Well-being of workforce
U.S. Construction Workforce– Industry needs to fill 12 million new jobs by 2012– An estimated 95,000 new craft workers will be needed each year
for the next decade to replace those leaving the industry European Construction Workforce
– Biggest shortage seen in electricians, carpenters, roofers, plumbers
– Expect shortage to stay severe for next 5-7 years
Workforce Resources
63 63 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Project Delivery Methods
Construction Management At-Risk is the most common delivery method among respondents
Design-Bid-Build is a close second, though it represents more by “number of projects” than by “dollar value”
13%
5%
2%
0%
2%
39%
41%Construction Management At-Risk
Design-Bid-Build
Design-Build(Contractor Led)
Multiple Prime (Owner holds trade contracts)
Integrated/Tri-Party Agreement
Design-Build(Architect Led)
Other
Project Delivery Method Used Most Often - By Project
Is the case for IPD growing?
64 64 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Trends
US & Global– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
So whatimplications
65 65 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Assume pending or proposed projects are NOT safe if financed through conventional construction loans
– Anecdotally loan-to-values of 60% or less are at risk
Stay close to existing clients & keep an eye on fiscal health of key trade and supply partners
Expect “Green” to become de facto market expectation, particularly for public works, institutional and office
– Can you deliver profitably; are you aligned with trades experienced with green projects?
– Are you internalizing sustainability efficiencies into your business?
• Besides direct bottom-line impact, “green savvy” clients will begin to inquire about your corporate commitment to sustainable business practices
Implications
66 66 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Infrastructure, Education, Healthcare, Alternative Energy & Transmission are all good bets over the long term…
– Driven by demographics– Driven by state of economy – simultaneous need for
jobs and repairs– Driven by need for energy independence– Priorities of Obama’s Stimulus Plan
Alternative delivery ie: IPD becomes increasingly attractive as owners look for greater efficiencies and risk sharing
– Is your firm ready to engage and/or lead IPD projects?
– BIM is the critical enabler in IPD/other project management efficiencies – have you invested / are competent with these enabling technologies?
• Industry leaders Walter P Moore, JE Dunn - near 100% BIM deliverable
Implications
67 67 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Alternative financing like PPP has renewed appeal as state /local govt’s balance infrastructure needs and budget shortfalls
It’s a great time to recruit!– Top talent at weaker firms are looking
Use of prefabrication and modularization will accelerate
– Owner expectations driving job productivity improvements, reduced waste and better cost management
– Companies in favorable cash position are investing in innovation to secure profitable competitive advantage
Implications
68 68 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
“Co-opetition” essential to managing risk and leveraging expertise on complex high $ projects
Continued softness in residential and “softening” with income / retail segments should stabilize / reduce building material costs…
Don’t expect fuel costs to remain low…
– Any recovery will spark a rapid rise in oil prices
– Energy mgm’t should remain a top priority with operational efficiency efforts
– Carbon taxes and offsets are coming!!
Implications
69 69 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.
Trends
US & Global– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
“Luck favors the prepared mind.”- Louis Pasteur -
Thanks for listening!Questions or comments??