2013 Economic Forecast - CISCO || Construction Industry ...cisco.org/wp-content/pdf/FMI-25.pdf ·...

© 2013 FMI Corporation 0

2013 Economic Forecast

U.S. and Chicago Markets Construction Overview and Industry Trends

Presented to:

April 19, 2013

Rusty Sherwood

Senior Consultant FMI – Center for Strategic Leadership

© 2013 FMI Corporation 1 © FMI

Corporation

2013

“History doesn’t repeat itself, but it rhymes.”

- Mark Twain


The value of analysis


But Recession’s Grip Continues Only a Handful of Metros in Expansion

3

90.0

92.0

94.0

96.0

98.0

100.0

102.0

Washington, DC(2.4%)

New York City(2.8%)

Dallas(5.5%)

San Francisco(4.2%)

Boston(2.9%)

Seattle(4.4%)

U.S. Average(3.6%)

Chicago(1.8%)

Atlanta(4.7%)

Los Angeles(3.5%)

Total Non-Agricultural Employment Performance U.S. Major Metropolitan Areas* April 2008-September 2012

Source: Moody's Analytics; Heitman Research

Non-agricultural Employment Index

Metropolitan Area (Forecasted emp.

growth Sep. 2012 - Sep. 2014)

While coastal metros led in growth immediately following GFC, other metros are seeing strong growth now


Source: AIA

US economy - Positives Outweigh Negatives levels of uncertainty still remain…

Positives Negatives

Housing now a positive force Foreclosures still happening but rate lessening

@ 6.2 million jobs created since trough But we lost 8.5 million jobs

Unemployment at 7.6% and wages growing Europe, Europe, Europe

Low inflation allowing central banks to ease Fiscal cliff – Part behind us. Huge challenges remain

State budget positions improving Higher payroll taxes affecting consumer confidence and spending

U.S. banking sector healthy and lending Sequestration’s full impact unknown

Retail sales showing strength, as are auto sales

U.S. manufacturing competitiveness rising

Low-cost energy a boost for business and consumers; on path to energy independence

China growing again


2013 Industry Projections


Source: AIA

Architecture Billing Index (ABI)

American Institute of Architects (AIA) Billing Index

30

35

40

45

50

55

60

Feb

-08

Mar

-08

Ap

r-0

8M

ay-0

8Ju

n-0

8Ju

l-0

8A

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08

Sep

-08

Oct

-08

No

v-0

8D

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Jan

-09

Feb

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-10

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Ap

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Sep

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Oct

-10

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Jan

-11

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Sep

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v-1

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Jan

-12

Feb

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Sep

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AB

I


Forecast Construction Put In Place

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Mill

ion

s o

f C

urr

en

t D

olla

rs

FMI Construction Put in Place, Estimated for the United States

Total Residential Total Nonresidential Buildings Total Nonbuilding Structures

© 2013 FMI Corporation 8 Source: FMI 2nd Quarter Outlook 2012

Net, net…and another consideration…

2013 Summary

Residential • $293.7 billion; 11% growth • Multi-family driving up percentage • Improvements still represent biggest portion of spend

Non-Residential • $356.3 billion; 5% growth • Volume driven by education, commercial, healthcare • Lumpy recovery

Non-Building • $232.2 billion; 5% growth • Power, Highway and transportation primary volume drivers • Power double digits expected over next several years

US Construction Spending (in 2005 $s)


U.S. Markets Construction Overview

Annual spending by market sector Construction put in place (millions of current dollars)

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

Residential Nonresidential Building Nonbuilding Structures2005 2015

Residential 56% 37%

Nonresidential 28% 39%

Nonbuilding 16% 24%

Sector share of spending Indication of shifting priorities … needs vs. wants?

Residential’s Loss is Nonresidential and Nonbuilding’s Gain


Billions of Dollars

U.S. Total Construction Starts for 2013, plus 2014

2009 2010 2011 2012 2013 2014

426.3 434.4 442.2 471.7 507.3 599.3

-24% +2% +2% +7% +8% +18%

94.3 100.0 97.3 125.8 160.3 225.9

-23% +6% -3% +29% +27% +41%

17.9 21.7 29.2 38.8 47.7 55.6-53% +21% +35% +33% +23% +17%

47.3 41.9 48.1 52.9 60.8 72.5-42% -11% +15% +10% +15% +19%

112.3 111.9 100.1 89.2 88.9 98.2-14% -0- -11% -11% -0- +10%

9.7 9.5 17.2 12.2 13.2 15.0

-69% -2% +81% -29% +8% +14%

123.6 120.7 106.4 104.4 104.3 108.7

+2% -2% -12% -2% -0- +4%

21.1 28.6 43.8 48.4 32.0 23.4-37% +36% +53% +11% -34% -27%

Public Works

Electric Utilities

Total Construction

Single Family Housing

Multifamily Housing

Commercial Bldgs.

Institutional Bldgs.

Manufacturing Bldgs.

© 2013 FMI Corporation 11 Source: FMI Construction Overview 2013

The regional view…

Email: [email protected] to receive FMI’s complete 2013 Construction overview

• East North Central +3% overall

• Below national average

• Continued growth in residential; biggest percent increase in MF

• All Commercial and Institutional categories expected to grow mid-single digits with exception of public works

• Education $15.8b +2%

• Healthcare $8.6b +6%

• Non-building expected to be flat to slightly negative

• Power $15.2b +4%

• Roads / Bridges $9.02b -4%

Highlights

mailto:[email protected]


Total Construction Put in Place, Chicago – Millions of Current Dollars Source: FMI

Chicago Market Construction Forecast

Commercial construction includes lodging, office, commercial, amusement and recreation, transportation and communication.

Institutional construction includes health care, educational, religious and public safety.

Industrial construction includes warehouse and manufacturing.

9,008 6,734 5,265 5,023 5,222 5,537 5,890 6,248 6,632 7,048 7,303 7,523 7,652

5,651

5,457

4,668 4,483 4,554 4,732 4,975

5,312 5,744

6,166 6,559 6,962 7,393

1,748

1,846

1,232 1,201 1,234

1,276 1,335

1,424

1,525

1,608 1,661

1,708 1,726

$16,407

$14,037

$11,165 $10,708 $11,010

$11,545 $12,201

$12,984

$13,901

$14,823 $15,524

$16,193 $16,771

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

$0

$2,500

$5,000

$7,500

$10,000

$12,500

$15,000

$17,500

$20,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Gro

wth

$ M

illio

ns

Commercial Institutional Industrial Year-over-Year Growth

% Growth Rates 8% -14% -20% -4% 3% 5% 6% 6% 7% 7% 5% 4% 4%

History Forecast


General Observations: Chicago Market

Between 2008 and 2011, commercial development, including office and retail, dried up. However, industry stakeholders feel that it will continue to increase in 2013, following growth in 2012, with a steady rise in multifamily construction.

Institutional (e.g., higher educational) opportunities exist in the local market at schools such as University of Chicago, Northwestern, Depaul and Loyola; $166m William Eckhardt Research Center

While new construction was significantly down the last several years, the number of renovation projects increased in the market.

Illinois #3 in Highway & Bridge starts in 2012

Illinois #4 +25% in Education starts in 2012

Other notable projects: $87m Hyatt Regency McCormick Place Expansion;


Largest Construction Projects: Cook County 2011-2013

# of Projects Sum of Projects Average Project Amount

Civil 4 $519,841,609 $129,960,402

Commercial 2 $350,020,000 $175,010,000

Educational 2 $279,500,500 $139,750,250

Industrial 1 $200,000,000 $200,000,000

Medical 5 $1,035,289,000 $207,057,800

Residential 20 $9,581,200,000 $479,060,000

Retail 6 $1,471,365,381 $245,227,564

Grand Total 40 $13,437,216,490 $335,930,412 Source: Reed

Does not include $12 Billion Illinois Tollway Project Move Illinois


The value of analysis


The importance of “zooming out”


Trends impacting CISCO

Construction 2.0 : productivity +

Smart Buildings

Globalization

Modularization & prefabrication

Recovering the lost generation & the war for talent

Industry consolidation

The fate of public works

The O&G renaissance


Contractor Profit Before Tax

Source: Risk Management Associates, Philadelphia, Pa.

Annual Statement Studies 1985-2012

Recession Periods Are Shaded Red

0

1

2

3

4

5

6

7

8

19

85

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87

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07

20

08

20

09

20

10

20

11

20

12

Perc

ent

Utilities HVAC Paving Heavy Construction Commercial Electrical

Contractor Profit Before Tax


62% 68% 77%

98%

BIM IPD Lean Prefab

Construction Productivity

1965 $126,000

2010 $100,000 Construction spending put in place by workers

Methods to increase productivity

Sources: Bureau of Labor Statistics, US Census Bureau, FMI’s 2012 Construction Productivity Report, MCAA


Social Mobility

mobile apps will be downloaded in 2012

=

91% of organizations expect to spend on mobile devices in 2012

1/2 of companies expect to use internal social network apps in 2012

2.7 zettabytes

in 2012

>80% of new apps in 2012 will be distributed/ deployed on clouds

32% of businesses are likely to invest in BI and analytics in 2012

from infrastructure

to application platforms

The strategic focus in the cloud will shift in 2012

In 2012, mobile devices will outship PCs by more than

2:1 and generate more revenue than PCs for the first time

85 BILLION

Social networking will follow not just people but also appliances, devices and products

34% of CIOs say technology as a service (cloud) will have the most profound effect on the CIO role in the future

2/3 of mobile apps developed in 2012 will integrate with analytics offerings

49% of CIOs rank BI as the top project priority for 2012

Big data Cloud

Four tech megatrends will dominate the next decade

Percentage of Total Revenues Accrued by Top 400 GCs

Global 2% Large

14%

Medium 24%

Local 60%

Percentages of Top 400 GCs by Revenue Size

Global

Large

Medium

Local

Global 28%

Large 37%

Medium 18%

Local 17%

Percentage of Top 400 Total Revenue

(9)

(54)

(96)

(241) Local = Revenues between $350M and $100M

Medium = Revenues between $350M and

$800M

Large GC = Revenues between $800M and $8B

Global GC = Int'l Revenues <$1B

Source: ENR Top 400 GC List


Change in Population, 2000 to 2030 (absolute numbers)

< 500,000

500,001 - 1,000,000

1,000,001 - 2,000,000

2,000,001 - 4,000,000

4,000,001 - 6,000,000

6,000,001 - 13,000,000

Washington, 2.7 mil.

California,12.6 mil.

Nevada, 2.3 mil.

Arizona, 5.6 mil.

Texas, 12.5 mil.

North Carolina, 4.2 mil. Virginia, 2.7 mil.

Florida, 12.7 mil.

Georgia, 3.8 mil.

Source: U.S. Census Bureau

Industry Trends and Challenges: Market Demographics

Megapolitans

Source: Metropolitan Institute at Virginia Tech

Ten megapolitan areas will have populations of at least 10 million each

by 2040.



Demographic Trends Remain Favorable

26

The number of people in the age group most likely to rent apartments (ages 25-34) is rising

In 2013, about 550,000 people will age into this demographic category. An overwhelming share of this age group will rent market-rate rental apartments

In addition, household formation is favorable. The GFC kept many young people living at home. As job creation accelerates, many are young people are moving out from their parents’ homes into apartments

-850,000

-750,000

-650,000

-550,000

-450,000

-350,000

-250,000

-150,000

-50,000

50,000

150,000

250,000

350,000

450,000

550,000

650,000

Annual Change in the Age Group Most LIkely to Rent Apartments1995-2030

Source: U.S. Bureau of the Census; Heitman Research

Y-O-YChange in Population Aged 25-34


Disappearing Middle-class

0%

20%

40%

60%

80%

100%

1970 1980 1990 2000 2007

Affluent

High-Income

High-Middle Income

Low-Middle Income

Low-Income

Poor

64

.7%

56

.5%

51

.7%

47

.1%

43

.5%

Proportion of families living in high -, middle -, and low - income neighborhoods

Sources: US2010 Project


Chicago Market Population Trends (Natural Increase Dominates)

7,400

7,600

7,800

8,000

8,200

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Po

pu

lati

on

(0

00

)

(40,000)

(30,000)

(20,000)

(10,000)

-

2007 2008 2009 2010 2011

Net

mig

rati

on

Number of migrants

Lake County, IL 11,502

Gary, IN 5,421

New York, NY 3,095

Rockford, IL 2,836

Los Angeles, CA 2,483

Total in-migration 139,443

Lake County, IL 14,845

Gary, IN 10,897

Rockford, IL 4,464

Phoenix, AZ 3,896

New York, NY 3,731

Total out-migration 163,467

Net migration -24,024

Migration flows, Chicago (2011)

Into Chicago

From Chicago

Population, Chicago

Net migration, Chicago

© 2013 FMI Corporation 29 © FMI Corporation

2010

Source: National Center for Health Statistics, Center for Disease Control and Prevention Mitra Toossi, Monthly Labor Review, November 2006

Supply and Demand Number of live births, 1920-2005


Jobsrated.com ranked 200 job titles based on five factors: Physical and emotional work environment

Income

Long-term employment outlook

Physical demands

Stress

Labor Shortages Will Return

Construction continues to be an unattractive

career option.

No construction industry job placed in

the top 100

Ten industry jobs ranked lower than

“Maid” And five ranked below “Nuclear

Decontamination Tech!” © 2013 FMI Corporation


Nearly 1 in 5 members of the construction workforce will

have

retired between 2012 and 2014. Construction Business Owner, July 2012

76% of owners 50 or older plan to retire in the next 10

years… …48% of those owners are currently

working

on succession plans.



The pursuit of energy independence… U.S. Oil & Gas Renaissance


Proximity to Population Centers and Transportation Infrastructure Driving Demand

33

For core portfolios, we focus on investments in large markets that are centers for the four main ways goods are transported


It’s a VUCA World

Vo

lati

le

Uncertain

Complex

Am

big

uo

us


Living and leading in a VUCA World – what’s required

Adaptive cultures

Business Intelligence

Innovation & re-invention

High market / client EQ

Scenario plans

Speed & agility

Strategic leadership depth

© 2013 FMI Corporation

Change Leader Talent Developer Master Strategist Alliance Builder


Four Roles of the VUCA Leader


Role 1:

Master Strategist

Is there anything on the

horizon that could be a

game changer for the

industry?

What is your approach to

strategy?

What is your strategy? © FMI’s Center for Strategic Leadership


Role 2:

Change Leader

Future Focus Third generation leadership

Identify and develop talent potential

Connoisseur of talent

Unpredictable change Developing organizational

adaptability



Living and leading in a VUCA World

Perpetuating a deep bench of strategic leaders…

…the common denominator of profitable, high growth firms.


Role 3:

Talent Developer

Predictable change Knowing what to change

Knowing what NOT to

change

The more time leaders

spend developing and

coaching their team, the

more successful the

organization © FMI’s Center for Strategic Leadership


Role 4:

Alliance Builder

Business as an ecosystem

Relationships/alliances

with whom?

This is all about building the business



Success = P(urpose)*T(alent) Culture


The outlook… a matter of perspective & understanding what’s necessary to capitalize on the upturn

© FMI Corporation 2012


44

Developing Exceptional Leaders One at a Time

About FMI

FMI is the largest provider of management consulting, investment

banking and research to the engineering and construction

industry. We work in all segments of the industry providing clients

with value-added business solutions, including:

• Strategy Development

• Market Research and Business Development

• Leadership and Talent Development

• Project and Process Improvement

• Mergers, Acquisitions and Financial Consulting

Founded by Dr. Emol A. Fails in 1953, FMI has professionals in

offices across the U.S. FMI delivers innovative, customized

solutions to contractors; construction materials producers;

manufacturers and suppliers of building materials and equipment;

owners and developers; engineers and architects; utilities; and

construction industry trade associations. FMI is an advisor you

can count on to build and maintain a successful business, from

your leadership to your site managers.

Rusty Sherwood

Senior Consultant 210 University Blvd,

Suite 800

Denver, CO 80206

(303) 398-7257

[email protected]

www.fminet.com

Denver Raleigh Phoenix Tampa

@FMI_Leadership


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