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  • Imagining a Reimagined Future

    The Post COVID-19 Recover Outlook

    May 19, 2020

  • 2FMI Corporation | Copyright 2020

    “He knows changes aren’t permanent, but change is.” – Neil Peart

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

  • 3FMI Corporation | Copyright 2020

    Just because the future is uncertain, it doesn’t mean it is unknowable.

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    National Bureau

    of Economic Research:

    • Wholesale/retail sales

    • Industrial production

    • Real income

    • Employment

    Dynamic models

    are required in the

    current context

  • 4FMI Corporation | Copyright 2020

    An unprecedented velocity of change

    Pre-pandemic Post-pandemic

    +273,000 jobs (2/2020) → -33M jobs (3/15- 4/18/2020)

    3.5% unemployment rate (2/2020) → 25% unemployment rate

    7-yr peak labor force participation rate (2/2020)

    +2.9% wage and salary growth (Q4 2019)

    +4% retail trade and food sales (2/2020 vs. 2/2019) → -30% retail trade and food sales (3/2020 and 4/2020)

    Q1 Q2 Q3 Q4

    D o d

    g e

    N A

    H B

    G o

    ld m

    a n S

    a c h

    s

    J P

    M o

    rg a

    n

    -18%/ -34%

    -2%/ -9%

    +8%/ +19%

    +3%/ +10%

    US GDP projections

    March 31, 2020- May 15, 2020

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

  • 5FMI Corporation | Copyright 2020

    Preparing for a V, U, or L shaped recovery

    $1,307

    $788

    2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

    Total construction spending put in place (US)

    Billions of current dollars

    Source: FMI

    $1,404

    (2-year decline/ 2% CAGR 20- 24)

    $1,286

    (3-year decline/ 0% CAGR 20- 24)

    $834

    (4-year decline/ -9% CAGR 20- 24)

    Near return to Great Recession trough

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

  • 6FMI Corporation | Copyright 2020

    $200

    $250

    $300

    $350

    $400

    $450

    $500

    $550

    $600

    2019 2020 2021 2022 2023 2024

    2019 ($521B)

    Mid case

    Best case

    Worst case

    Residential suffers from credit constraints and loss of wealth

    Current “interim” Q2 2020 Outlook trajectory

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    Residential buildings spending put in place (US)

    Billions of current dollars

    Source: FMI

  • 7FMI Corporation | Copyright 2020

    $250

    $300

    $350

    $400

    $450

    $500

    $550

    $600

    2019 2020 2021 2022 2023 2024

    2019 ($534B)

    Mid case

    Best case

    Worst case

    Nonresidential buildings construction will be very uneven

    Current “interim” Q2 2020 Outlook trajectory

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    Nonresidential buildings construction spending put in place (US)

    Billions of current dollars

    Source: FMI

  • 8FMI Corporation | Copyright 2020

    0

    0.2

    0.4

    0.6

    0.8

    1

    1.2

    1.4

    1.6

    1.8

    2

    Category 1 Category 2

    P o

    te n

    ti a

    l d

    e p

    th o

    f d

    e c lin

    e

    Potential length of decline

    S h

    a llo

    w D

    e e p

    Brief Prolonged

    Office

    Lodging

    Commercial

    Nonresidential buildings construction segment recession risk

    Potential depth and length of decline

    Source: FMI

    Nonresidential Sector

    (Overall)

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    Segment impact

    Health care

    Religious

    Educational

    Public Safety

    Communication

    Transportation

    Manufacturing

    Amusement & Recreation

    Lodging

    • Travel (both business and leisure), RevPar and

    occupancy rates all plummet through 2020 as a

    result of COVID-19

    Office

    • Downtown markets experience rent stabilization

    while vacancy rates trend higher

    • Slowed employment growth expected to weigh

    on future spending

    • Demand for data center investment continues to

    expand rapidly alongside 5G deployment

    Health care

    • Demand and adoption for health care services

    and technologies (e.g., telehealth and wearables)

    are expected to jump substantially in the wake of

    COVID-19 and 5G deployment

    • Affordable Care Act is anticipated to become an

    important political platform through the 2020

    presidential election

    • Project pipeline suggests some resurgence in

    larger health care campuses

    Manufacturing

    • COVID-19 related (international and domestic)

    supply chain disruptions, political uncertainty,

    ongoing trade tensions and oil price collapse

    support continued decline in industrial production

    into 2021

    • Large scale planned petrochemical investments

    along the Gulf Coast postponed or shelved until

    oil prices rebound and volatility in the energy

    sector stabilizes

  • 9FMI Corporation | Copyright 2020

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    Pacific

    Division

    -1%

    Mountain Division

    -1%

    West North

    Central Division

    -2%

    East North

    Central Division

    -2%

    West South

    Central Division

    1%

    East South

    Central Division

    -1% South Atlantic Division

    0%

    Middle Atlantic

    Division

    -1%

    New

    England

    Division

    -1%

    Forecast growth in nonresidential buildings construction spending put in place

    2020; by Census Division

    Source: FMI March 20, 2020

  • 10FMI Corporation | Copyright 2020

    $230

    $240

    $250

    $260

    $270

    $280

    $290

    2019 2020 2021 2022 2023 2024

    2019 ($251B)

    Mid case

    Best case

    Worst case

    Public infrastructure may not provide traditional relief

    Current “interim” Q2 2020 trajectory

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    Nonbuilding structures construction spending put in place (US)

    Billions of current dollars

    Source: FMI

  • 11FMI Corporation | Copyright 2020

    2006- 2011 Percent Change in Construction Spending Put in Place

    US total

    Source: FMI

    Total construction

    Multifamily

    Lodging

    Office

    Commercial

    Health Care

    Educational

    Religious

    Public Safety

    Amusement and Recreation

    Transportation

    Communication

    Manufacturing Power

    Highway and Street

    Sewage and Waste Disposal

    Water Supply

    Conservation and Development

    Single family

    Improvements

    -80% -60% -40% -20% 0% 20% 40% 60% 80%

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    Bulls and bears coexist in all economies

  • 12FMI Corporation | Copyright 2020

    Potential winners and losers

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    Manufacturing

    Distribution

    Communications/

    Data Centers

    Intelligent Transportation Systems

    Lodging

    Commercial

    Amusement & Recreation

    Office

  • 13FMI Corporation | Copyright 2020

    Avoiding poor—if not dangerous—decision making

    Decision Paralysis Gut Instinct

    • Most common among loss-

    averse organizations

    • Abandonment of analytical

    rigor

    • Premature action/

    “Ready. Fire. Aim.”

    • Potential for anchoring and

    confirmation bias

    • Most common among risk-

    averse organizations

    • Data/ Information obsession

    • Delayed action/

    “Wait and see”

    • Potential for normalcy bias

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

  • 14FMI Corporation | Copyright 2020

    Regardless of the shape, the recovery will be reinvented

    The biggest mistake

    made during the Great

    Recession…

    Not moving fast enough

    COVID-19 Industry Implications and Outlook | May 19, 2020 update

    Avoid decision paralysis

    Perform frequent situation analysis

    Consider market composition

    Align with customers

    Know what to say no to

  • Who We Are FMI is a leading consulting and investment banking firm dedicated exclusively to the built environment.

    We serve the industry as a trusted advisor. More than six decades of context, connections and insights lead to

    transformational outcomes for our clients and the industry.

    FMI Consulting has a deeper understanding of the built

    environment and the leading firms across its value chain