The Construction Industry Has Not Stopped Working, FMI Report Says

Nov. 13, 2012
Contrary to election-year rhetoric, the economy is inching its way to improvement, and the construction industry has not stopped working, FMI, the Raleigh, N.C.-based provider of management consulting and investment banking to the engineering and construction industry, said in announcing the availability of its third-quarter 2012 Construction Outlook.

Contrary to election-year rhetoric, the economy is inching its way to improvement, and the construction industry has not stopped working, FMI, the Raleigh, N.C.-based provider of management consulting and investment banking to the engineering and construction industry, said in announcing the availability of its third-quarter 2012 Construction Outlook.

Released Nov. 12, the report forecasts an 8-percent increase in total construction put in place (CPIP) in 2013, which FMI attributes to growth in residential construction, as well as a few markets in non-residential and non-building construction.

“The focus for 2013 will be on the movement of private money back into the markets,” FMI said. “For the economy to grow at a faster rate with the fiscal cliff looming and state and municipal budgets still in repair mode, it will be the private markets that must lead the way. Total construction put in place for 2013 is forecast to be $892 billion, a solid improvement over the last few years, but still just edging out 2003 levels of construction activity.”

In non-residential-buildings construction:

Amusement and recreation: Money from local-government investment will be hard to find for sports stadiums, and banks will be reluctant to lend to anyone who cannot pay for a project from cash flow.

Commercial: Expect more rethinking of commercial construction space to accommodate smaller stores and the combination of in-store sales and online shopping. Look for an increase in multiuse projects.

Communications: Growth in communications construction is being powered by an insatiable need for speed and to send and store large amounts of multimedia files over the Internet. One trend that might slow this growth is the use of mini cell “towers,” which are small, easily installed boxes that help to maximize spectrum.

Education: Expect significantly less funding from states for K-12 schools.

Health care: New health-care construction will include a growing number of renovation projects to update facilities to modern design standards, incorporate more technology in rooms, and improve air quality and reduce energy usage.

Lodging: Hotel developers will renovate before building new properties. Bank loans will be hard to justify until occupancy and room rates are consistently high.

Manufacturing: Manufacturing construction is starting to make a comeback, with both new growth in manufacturing output and some companies repatriating their manufacturing capacity.

Office: Through the first two quarters of 2012, the U.S. office sector absorbed 10.4 million sq ft—100,000 sq ft of net absorption less than over the first six months of 2011. This is not yet enough activity to compare to prerecession highs, but FMI expects CPIP to improve 4 percent in 2013.

Public safety: Despite overcrowding in prisons, FMI expects public-safety construction to remain slow, with only 1-percent growth in 2013.

Religious: The lending environment continues to be a challenge for many congregations.

Transportation: CPIP is expected to grow 6 percent in 2013. FMI attributes this in part to the FAA Modernization and Reform Act, which will provide $63.6 billion for Federal Aviation Administration programs from 2012 to 2015.

To download the report, click here.