2016 - fmifmi nonresidential construction forecast lodging although we expect only 14% growth in...

FMI’s Construction OutlookSecond Quarter Report

2016

Table of ContentsSecond Quarter 2016 Construction Outlook

Construction Forecast ..............................................................................................1

Residential Construction ...........................................................................................3

FMI Nonresidential Construction Forecast ....................................................................6

Lodging ..........................................................................................................6

Office .............................................................................................................7

Commercial .....................................................................................................8

Health Care .....................................................................................................9

Education ........................................................................................................10

Religious .........................................................................................................11

Public Safety ....................................................................................................12

Amusement and Recreation .................................................................................13

Transportation ..................................................................................................14

Communication .................................................................................................15

Manufacturing ..................................................................................................16

Nonbuilding Structures ............................................................................................17

Power .............................................................................................................17

Highway and Street ..........................................................................................18

Sewage and Waste Disposal ..............................................................................19

Water Supply ...................................................................................................20

Conservation and Development ...........................................................................21

Construction Put in Place Estimated for the U.S. ............................................................22

Appendix ..............................................................................................................23

12nd Quarter 2016 Report

After a slow start to the year, the U.S. economy is picking

up speed in the second quarter, with consumer spending

continuing to rise and a buoyant housing market. According

to the Federal Reserve, economic activity is expected to

expand at a moderate pace in the coming months, while

inflation will remain low in the near term.

FMI’s forecast for the second quarter continues the trend

from our first quarter report – and since 2011 – with another

quarter of growth for construction put in place (CPIP).

Overall growth for construction put in place is projected

to be 6%, with several markets growing at a higher pace,

including:

Together, these three markets represent 33% of nonresiden-

tial buildings for 2016. With the exception of commercial

construction, all are strong markets but growing slower than

in 2015.

SECOND QUARTER 2016 CONSTRUCTION OUTLOOK

Growth expectations in these markets were supported

by FMI’s Second Quarter Nonresidential Construction

Index report (NRCI), a survey of hundreds of construction

executives.

Conditions as we head into the summer of 2016 look

positive for the construction industry:

� Interest rates remain relatively low for borrowers

building homes and commercial projects.

� Unemployment remains low, so more people have

jobs and are spending money—on the other hand,

low unemployment translates into higher wages and

difficulties finding workers.

� The consumer price index (CPI) shows little sign of

inflation. Oil and energy prices also remain low. The

numbers, shown in more detail below, lead us to

expect continued growth that could be sustained for

several years.

55.6 to 61.3

TOTAL NRCI INDEX SCOREROSE FROM

LastQuarter

ThisQuarter

FMI’s Construction Outlook 2

FMI CONSTRUCTION PUT IN PLACEESTIMATED FOR THE UNITED STATES

However, there are tensions behind the numbers. Oil and gas producers mostly need higher prices to keep people employed

and make a profit. This is especially true for those countries that derive most of their income from oil and gas production. The

Federal Reserve has been looking for an opportunity to raise interest rates to encourage banks to lend and savers to save, but wages

have not shown much sign of rising rapidly for the working class, even if unemployment remains below 5%. Even though current

conditions are mostly good, we can see the tension in the economy.

Source: FMI Research Services


RESIDENTIAL CONSTRUCTION PUT IN PLACE Forecast as of Q2 2016

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

20

16

20

17

20

18

20

19

20

20

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

Mill

ions

of C

urre

nt D

olla

rs

Multifamily Single-Family

RESIDENTIAL CONSTRUCTIONAfter four years of double-digit growth, we expect single-family housing to add 8% in 2016, reach-

ing $237.5 billion.

This growth is still far short of the pre-recession boom years, and that may be a good sign as pur-

chasers avoid getting in over their heads in debt and take a more conservative approach to making

the decision to buy a new home. That indecision is showing up in the growth of multifamily housing

and home improvements.

After four years of a hot market for multifamily homes, we expect the growth rate to cool in 2016 to

just 7%. Still, that translates to $61.7 billion in new construction put in place. Many of those who

might have once considered moving to a new home are now improving the home they live in by

adding rooms or just modernizing and repairing to the tune of $153 billion for 2016.

One reason that residential construction may not be growing faster is the lack of skilled labor in

some regions of the country. Higher prices may also slow the decision to buy a home, as the market

is currently a seller’s market with the housing inventory remaining quite low.

According to David M. Blitzer, managing director and chairman of the Index Committee at S&P

Dow Jones Indices, “The number of homes currently on the market is less than two percent of

the number of households in the U.S., the lowest percentage seen since the mid-1980s.” (May 31,

2016.) The current inventory of houses for sale in the U.S. is just 4.7% compared to 12.2% at the

height of the recession. (See Appendix for Monthly Supply of Houses in the U.S.)

SINGLE-FAMILY HOUSING

8%$237.5 Billion

MULTIFAMILY HOUSING

7%$61.7 Billion



RESIDENTIAL CONSTRUCTION IMPROVEMENTS PUT IN PLACE Forecast as of Q2 2016



NEW PRIVATELY OWNED HOUSING UNITS STARTEDSeasonally Adjusted Annual Rate

Source: Federal Reserve Economic Data

TRENDS: � According to the U.S. Census Bureau, “National vacancy rates in the first quarter 2016 were 7.0% for rental

housing and 1.7% for homeowner housing . . . The homeowner vacancy rate of 1.7% was 0.2 percentage

points (+/-0.1) lower than the rate in the first quarter 2015 and 0.2 percentage points (+/-0.1) lower than the

rate in the fourth quarter 2015.” (April 28, 2016)

� “The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, reported

a 5.2% annual gain in March, down from 5.3% the previous month. The 10-City Composite and the 20-

City Composites’ year-over-year gains remained unchanged at 4.7% and 5.4%, respectively, from the prior

month.” (S&P Down Jones Indices, May 31, 2016)

� According to the U.S. Census Bureau, “Privately-owned housing starts in May were at a seasonally adjusted

annual rate of 1,164,000. This is 0.3% (±14.0%) below the revised April estimate of 1,167,000, but is 9.5%

(±16.0%) above the May 2015 rate of 1,063,000. (June 17, 2016)

DRIVERS: Unemployment rate

Core CPI

Income

Mortgage rates

Home prices

Housing starts

Housing permits


FMI NONRESIDENTIAL CONSTRUCTION FORECAST

LodgingAlthough we expect only 14% growth in 2016 compared with 31% in 2015, the pace of growth for

lodging continues to be the highest among the construction categories we cover in this report. With an

expected value of $24.1 billion for 2016, this market is well below its high of $35.8 billion in 2008;

but we expect these numbers to be more sustainable with a mix of new venues and refurbishing estab-

lished locations. It is not unusual for lodging construction to have large swings, and, at this time, new

supply is beginning to surpass absorption, thus putting downward pressure on revenue per room and

occupancy rates.

TRENDS: � STR reports, “Affected significantly by a Memorial Day calendar shift, the industry's occupancy

decreased 6.8% to 64.6%. Average daily rate was flat at US$118.45. Revenue per available room dropped 6.8% to US$76.56.” (STR Market Report U.S., June 9, 2016)

� “In the In Construction stage, the U.S. reported 161,014 rooms in 1,241 projects, a 28.3% increase in year-over-year comparisons.” (Construction Pipeline U.S., STR April 2016)

� Green building is more commonplace in remodels and retrofits.

DRIVERS: Occupancy rate

RevPar

Average daily rate

Room starts

LODGING CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



OfficeAfter a strong show of growth in 2015 (22%), we expect office construction to cool in 2016 to a still

respectable rate of 11% growth. Much of the growth has come from an increase in employment, espe-

cially in high-tech job markets. These high growth rates will taper off to more sustainable rates in 2017

and beyond. Continued growth in the technical sector and in larger metropolitan areas like New York

City will keep rents and absorption of new space high.

TRENDS: � In the Reis Q1 2016 Office Trends report, Victor Calanog writes, “The office sector was off to a

strong start, with national vacancies falling by 20 basis points to 16.0%. This is the second consec-

utive quarter that vacancies have fallen by 20 basis points; this suggests that positive momentum

remains for office fundamentals, despite overall seasonal weakness during the colder months of

the year.” (Victor Calanog, May 18, 2016)

� CBRE reports, “Annual growth in gross asking rents accelerated to 6.0% in Q1 2016, the fastest

pace since Q2 2008. The tighter downtown market continued to lead, with year-over-year rent

growth approaching 9.0%.” (CBRE Q1 2016 U.S. Office MarketView, May 23, 2016)

DRIVERS: Office vacancy rate

Unemployment rate

OFFICE CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



CommercialThe solid growth rate of 7% in 2015 will improve to 8% for commercial construction in 2016.

Some of the fastest-growing areas are drinking places and food services; however, building materials

and garden supply stores are currently experiencing the highest growth rate. While many national

chain stores are closing properties, new startup businesses are taking off in major metro areas. The

marketing landscape for commercial construction is changing rapidly due to technology and growing

options for consumer shopping. Disruption in traditional commercial construction is not only

occurring for online shopping but also in the form of boutique startups and the future of smart stores

both online and stick-built. This will create opportunities for contractors that can accommodate new

design ideas. Growth in nonstore sales is also driving growth in warehouse space and data centers.

TRENDS: � The Department of Commerce reports, “Retail trade sales were up 0.4% (±0.5%) from April 2016, and up 2.0%

(±0.5%) from last year. Nonstore retailers were up 12.2% (±1.2%) from May 2015, while Health and Personal Care Stores were up 8.3% (±2.1%) from last year.” (U.S. Department of Commerce, June 14, 2016)

� Consumer confidence fell 2.1 points to 91.6 in May. (The Conference Board, May 31, 2016)

� The Internet of Things (IoT) will be increasingly disruptive for commercial business, presenting both opportuni-

ties for new businesses and threats to traditional brick-and-mortar markets.

DRIVERS: Retail Sales

CPI

Income

Home prices

Housing starts

Housing permits

COMMERCIAL CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



Health CareHealth care construction is making a steady recovery. FMI is forecasting $41.3 billion in construction

put in place for 2016 — which is 3% growth. Traditional large hospital projects are returning to the

drawing boards with fewer large hospital projects in the works. The bulk of the work will be renovation

and additions as well as outpatient care. New facility designs are upping the game for a patient-centered

environment as well as reducing concerns for the spread of supergerms. Construction will continue to

become more collaborative and integrated with the various communities involved.

TRENDS: � According to the Bureau of Labor Statistics, “Employment of registered nurses is projected to grow 16%

from 2014 to 2024, much faster than the average for all occupations.”

� Veterans Administration hospitals are rocked by poor management and patient care, old facilities and huge construction cost overruns.

� According to a Health Facilities Management survey, the “industry is moving away from large-scale new construction. While 70% of respondents said they have projects currently under construction or planned in the next three years, a full three-fourths of those were expansions or renovations.” (2016 Hospital Construction Survey, Health Facilities Management)

� The new model for hospitals is the medical center with a cluster of offices including beds, which will deliver more of a patient’s needs.

� The number of ambulatory care facilities will continue to grow, pressed by the need to lower health care costs and to improve health facility profits.

DRIVERS: Population change

younger than age 18

Population change ages 18-24

Stock market

Government spending

Nonresidential structure investment

HEALTH CARE CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



EducationEducation construction increased by 6% in 2015 to reach nearly $85 billion in construction put in

place. We now expect that rate of growth to continue in 2016, reaching $89.6 billion. Similar to health

care construction, new schools will be greener and take more advantage of new materials and technol-

ogy to create a safer, brighter space for learning. However, there is also a darker side to the need for

school renovation and construction. Schools increasingly need to have security measures in place due

to increasing threats of terrorism and deranged people entering the school with weapons. There also

need to be funding solutions to improve the deplorable conditions in inner-city schools in depressed

areas like Detroit. In order to prepare students for future careers, all schools should include modern

technology or be renovated and updated for modern computing and collaboration.

TRENDS: � Significantly less funding from states for K-12 schools.

� Enrollment growth 2.5 million in the next four years.

� New designs for schools will be more flexible for changing classrooms and greater use of natural light. Expect more use of modular building designs.

� Greater attention to energy reduction and green building technologies.

� Renovation and additions to current school buildings will continue to grow in comparison to new school projects.

� Greater focus on safe schools, as the threat for shootings on campus continues to rise.

DRIVERS: Population change

younger than age 18

Population change ages 18-24

Stock market

Government spending


EDUCATION CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



ReligiousReligious construction managed to improve 4% in 2015. However, for 2016, we expect the growth

rate will be -2% to reach $3.3 billion. Although the recession can be seen as a primary reason for slow

growth in this sector, there are also many other changes in the religious landscape, including a changing

mix of religious faiths in America and fewer people who consider themselves regular churchgoers, even

if they still belong to a certain faith. Many new churches are small and established in existing buildings

like those found in vacated shopping centers. With all of these challenges, it still appears that improve-

ments in parishioners’ pocketbooks translate into higher tithes.

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

� Establishing a capital campaign is becoming increasingly common.

� Many churches are seeing tremendous declines in contributions and tithes.

� PEW Research Center reports the share of people “who describe themselves as Christians has dropped by nearly

eight percentage points in just seven years, from 78.4% in an equally massive Pew Research survey in 2007 to

70.6% in 2014. Over the same period, the percentage of Americans who are religiously unaffiliated – describ-

ing themselves as atheist, agnostic or “nothing in particular” – has jumped more than six points, from 16.1% to

22.8%." (America’s Changing Religious Landscape, PEW Research Center, May 12, 2015)

DRIVERS: GDP

Population

Income

Personal savings rate

RELIGIOUS CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



Public SafetySpending for public safety construction declined 5% in 2015 to $8.9 billion, and we expect that de-

cline to continue in 2016 to 8.5 billion. For 2017, we forecast a return to growth of 3%. California’s

prison system improvements and growth continue to lead the way. Otherwise, there are questions as

to how much should be privatized or publicly funded.

TRENDS: � “The United States held an estimated 1,561,500 prisoners in state and federal custody at the end of 2014, down

1% from the previous year. This was the smallest total prison population since 2005 and the second-largest

decline in more than 35 years. More than a third (34%) of the decrease was attributed to the Federal Bureau

of Prisons (BOP) population, which declined for the second consecutive year.” (Bureau of Justice Statistics,

September 2015)

� “Since 1999, the size of the private prison population grew 90%, from 69,000 prisoners in 1999 to 131,300 in

2014. The use of private prisons was at a maximum in 2012, when 137,200 inmates (almost 9% of the total U.S.

prison population) were housed in private facilities.” (Bureau of Justice Statistics, September 2015)

DRIVERS: Population

Government spending

Incarceration rate


PUBLIC SAFETY CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



Amusement and RecreationAmusement and recreation construction growth pole-vaulted to reach record heights with 24% growth

in 2015. For 2016, we expect the boom to take a breather, growing at just 6% to reach $21.9 billion.

Sports venues are promoted as job creators with the ability to revitalize many dilapidated areas around

a city. The market for amusement and recreation will continue to grow as large professional teams

continue to try to keep up with their competition. With the addition of domes and retracting roofs

as well as bars, restaurants, shopping, luxury boxes and so on, sports venues are becoming more like

climate-controlled cities.

TRENDS: � Ohio Stadium is planning a $42 million renovation project.

� A dedicated soccer stadium is being built in Orlando for the Orlando City Soccer Club expansion

franchise. The opening is planned for the 2016 season.

� The new home for the Minnesota Vikings is nearing completion. The new stadium boasts an en-

closed roof designed to shed snow more easily.

� The Washington Redskins are looking at new stadium designs with over 10 years left on their cur-

rent lease.

� Competition in the gaming sector will draw business away from some existing gambling centers,

such as Atlantic City and Las Vegas, as well as from other public arenas.

DRIVERS: Income

Personal savings

Unemployment rate

AMUSEMENT AND RECREATION CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



TransportationTransportation construction achieved a solid 7% growth in 2015, but we now expect it to slow to 4% in

2016. The boom in petrochemical manufacturing plants, particularly in the Gulf Coast region, will take

advantage of the completed Panama Canal expansion and boost transportation infrastructure in both

the South and West to accommodate increased activity from Panamax vessels. The latest news expected

to boost transportation spending is the passing of a highway transit bill. According to ASCE, “The FAST

Act provides $305 billion for highway, transit and railway programs. Of that, $233 billion is for high-

ways, $49 billion is for transit, and $10 billion is dedicated to federal passenger rail. By the end of the

bill’s five-year duration, highway investment would rise by 15%, transit funding would grow by nearly

18%, and federal passenger rail investment would remain flat.” (Peter Nonis, ASCE, December 6, 2015)

TRENDS: � According to the Association of American Railroads (AAR) report for March 30, 2016, “Total car-

loads for the week ending March 26 were 232,348 carloads, down 18.5% compared with the

same week in 2015, while U.S. weekly intermodal volume was 237,923 containers and trailers,

down 14.5% compared to 2015. . . . Two of the 10 carload commodity groups posted an increase

compared with the same week in 2015. They were miscellaneous carloads, up 18.5% to 9,629

carloads; and motor vehicles and parts, up 0.1% to 18,676 carloads. Commodity groups that

posted decreases compared with the same week in 2015 included coal, down 37.8% to 66,281

carloads; petroleum and petroleum products, down 22.1% to 10,738 carloads; and grain, down

16.1% to 19,144 carloads.”

� The FAA Modernization and Reform Act will provide $63.6 billion for the agency’s programs

between 2012 and 2015.

� “The 2015 FAA forecast calls for U.S. carrier passenger growth over the next 20 years to average

2.0% per year, slightly lower than last year’s forecast. The sharp decline in the price of oil in 2015

is a catalyst for a short-lived uptick in passenger growth.” (FAA Aerospace Forecast Fiscal Years

2015-2035)

DRIVERS: Population

Government spending

Transportation funding

TRANSPORTATION CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



CommunicationCommunication construction put in place in 2016 will improve 4% over 2015, reaching $20.3 billion.

The trend for communications is likely to be more integration and mergers in order to capture market

share. The current trend is for building more data centers and beefing up security and privacy against

potential interlopers and severe weather events. The increasing need for data storage is not driven just

by corporate and government use. The trend continues to merge telecommunications for entertainment

and data that will be offered by a few competing service providers. Add to this the growing Internet

of Things that will connect smartphones and computers to anything that has a chip and the ability to

connect to the internet, such as automobiles, manufacturing equipment, personal monitoring devices

and kitchen appliances.

TRENDS: � The AT&T/Direct TV merger has been approved. One of the stipulations of the approval is that

AT&T connects fiber-optic service to 12.5 million new customer locations.

� “Mini towers” for increasing coverage and spectrum will proliferate rapidly in the next five years.

� Google’s Google Fiber arm is deploying high-speed gigabit connections in selected metro areas.

� Data security is critical for large businesses and governments in the face of potential disasters and

threats from hackers and foreign enemies.

DRIVERS: Innovation/technology

Global mobility

Population

Security/regulatory

standards

Private investment

COMMUNICATION CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



ManufacturingManufacturing construction took a heavy hit during the Great Recession, but it has more than caught

up as of 2015, with a whopping growth of 44% for the year and a more modest 4% growth expected for

2016. In either case, new records are being set for manufacturing construction investment. Currently,

at just 75.3% for April 2016, manufacturing capacity utilization has yet to top the long-term average

of 78.5%. Continued low energy prices will hold down capacity additions in the oil and gas sector, but

help those relocating or expanding in other areas of manufacturing, including the current boom in the

petrochemical areas. The completion of the Panama Canal expansion project is expected to decrease

costs and increase shipments from Gulf Coast ports between the U.S. and Asia.

The need for talented workers in manufacturing will continue to compete with construction as both

face the same problems of recruiting the next generation to replace retiring baby boomers.

TRENDS: � Since the U.S. has lifted the ban on exporting crude oil, exports have increased from 1.2 million barrels in January

to 6 million barrels in March. A drop in the bucket, considering we still imported 8 million barrels of crude in

March. (Matt Egan, CNN Money, June 6, 2016)

� With little change since last quarter, manufacturing capacity utilization rates are at 75.3% of capacity in April

2016, which was below the historical average of 78.5%.

� The U.S. Department of Commerce reports, “Shipments of manufactured durable goods in April, up following

two consecutive monthly decreases, increased $1.5 billion or 0.6% to $232.5 billion. This followed a 0.8% March

decrease.” (May 26, 2016)

� “New orders for manufactured durable goods in April increased $7.7 billion or 3.4% to $235.9 billion, the U.S.

Census Bureau announced today. This increase, up three of the last four months, followed a 1.9% March in-

crease.” (U.S. Census Bureau, May 26, 2015)

� The PMI for May 2016 was at 51.3% according to the Manufacturing ISM® Report On Business®.

DRIVERS: PMI

Industrial production

Capacity utilization

Durable goods orders

Manufacturing inventories

MANUFACTURING CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



PowerAfter a strong year in 2014, power construction declined sharply in 2015, losing 14%. We expect a

small recovery of 3% in 2016 to reach $89.7 billion for construction put in place.

The power industry is in flux due to changing fuel supplies using more natural gas and less coal as well

as variable rates of growth in alternative energy sources like solar and wind. Power plants must be up-

dated to keep up with changing requirements as well as to manage distributed generation sources. The

power industry will continue to consolidate as the average consumer reduces power use, but growth

will flatten-out in 2016 and 2017.

TRENDS: � Power companies are placing greater emphasis on flexibility to respond to peak needs alongside hydropower,

solar and wind-generating facilities.

� According to The Edison Foundation, “The United States currently has enough solar capacity installed to power

approximately 4.6 million homes. Solar is the fastest-growing source of renewable energy in the U.S. Already it

reduces carbon dioxide emissions by 23.5 million metric tons each year—the equivalent of taking 4.9 million

cars off the road.” (Key Trends Driving Changes in the Electric Power Industry, The Edison Foundation, Institute

for Electric Innovation, December 2015)

DRIVERS: Industrial production

Population


POWER CONSTRUCTION PUT IN PLACEForecast as of Q2 2016

NONBUILDING STRUCTURES



Highway and StreetHighway and street construction increased 7% in 2015 to $90.1 billion. FMI forecasts another 5%

growth for 2016. Even though the passing of the Fixing America's Surface Transportation (FAST) Act

for highway and transportation funding for the next five years removes much uncertainty for highway

funding, we do not expect a significant jump in spending over current rates in 2016 through our fore-

cast horizon of 2020. The onus will still be on states and communities to find funding for many of their

highway and bridge repair needs, and funding for FAST is seen by many as tentative, as it is not based

on a fuel tax.

TRENDS: � Passage of the Fixing America's Surface Transportation (FAST) Act removes some budgeting uncertainty and

provides a five-year horizon for planning.

� According to Finance and Commerce, “About $163 billion is needed annually over a six-year period for high-

ways, bridges and transit systems, yet only about $105 billion is being invested, according to a December report

from the American Association of State Highway and Transportation Officials and the American Public Transpor-

tation Association.” (finance-commerce.com/2015/04)

DRIVERS: Population

Government spending


HIGHWAY AND STREET CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



Sewage and Waste DisposalConstruction put in place for sewage and waste disposal construction grew 7% in 2015 and will con-

tinue at the rate of 4% in 2016. “By and large, the onus of public funding water and wastewater capital

projects has been on state and local governments for the past couple of decades. In 2014, even after five

years of decline, state and local governments still accounted for more than 90% of all public spending

on capital projects. The recent decrease in local and state government capital expenditures may thus be

of particular concern if it continues for a few more years.” (Shadi Eskaf, “Four Trends in Government

Spending on Water and Wastewater Utilities Since 1956,” University of North Carolina, September 9,

2015)

TRENDS: � Growth, driven by aging infrastructure and regulation, is on the horizon, but the length of the horizon is still

unknown. Slow water infrastructure markets in the aftermath of the recession continue to build the backlog of

necessary work as existing infrastructure ages.

� In need of replacement and upgrades, the 16,000 wastewater systems nationwide discharge more than 850 bil-

lion gallons of untreated sewage into surface waters each year.

� Combined sewer systems (stormwater and sewage) serve roughly 950 communities with about 40 million peo-

ple. Most communities with CSOs are located in the Northeast and Great Lakes.

� The Clean Water State Revolving Fund (CWSRF) programs have provided more than $5 billion annually in re-

cent years to fund water-quality protection projects.

DRIVERS: Population


Government spending

SEWAGE AND WASTE DISPOSAL CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



Water SupplyWater supply construction grew 2% in 2015, and it is expected to maintain a steady, slow-growth pat-

tern in 2016. In some regions of the nation, specifically California, water is the new oil. Like oil, one

of the concerns for water besides scarcity is storage. Among the concerns are conveyance to the right

place according to need. More people will be asked to pay more for water as water becomes a scarcer

commodity, considering increased population, agricultural and industrial needs. Whether one believes

in global climate change or not, states will need to be strategic and proactive in both freshwater needs

and sewage disposal and recycling.

TRENDS: � “With California still experiencing severe drought despite recent rains, on February 2, 2016, the State Water

Board adopted an extended and revised emergency regulation to ensure that urban water conservation continues

in 2016. The regulation extends restrictions on urban water use through October 2016 while providing urban

water suppliers more flexibility in meeting their conservation requirements. It also directs staff to report back on

additional flexibility once more complete water supply information is known in April.” (California State Water

Sources Control Board)

� Green construction practices, such as controlling runoff to help increase groundwater, will become the norm for

improvements and new construction.

DRIVERS: Population


Government spending

WATER SUPPLY CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



Conservation and DevelopmentConservation and development construction grew 10% in 2015. We expect that growth to slow to

just 4% in 2016, reaching $8.4 billion. The president’s 2017 budget for the Civil Corp of Engineers

allots $1.09 billion for construction. “By program area, the 33 funded construction projects consist

of 17 flood risk management projects (two funded for completion), nine aquatic ecosystem restora-

tion projects, six commercial navigation projects (three funded for completion), and one hydropower

project (funded for completion).” (President's Fiscal 2017 Budget for U.S. Army Corps of Engineers

Civil Works released, PRNewswire, February 9, 2016, from U.S. Army Corps of Engineers.)

DRIVERS: Population

Government spending

CONSERVATION AND DEVELOPMENT CONSTRUCTION PUT IN PLACEForecast as of Q2 2016



Construction Put in PlaceEstimated for The United StatesMillions of Current Dollars2nd Quarter 2016 Forecast (based on Q1 2016 Actuals)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

RESIDENTIAL BUILDINGS

Single-Family 109,984 133,668 171,837 194,091 219,072 237,503 249,973 258,429 268,416 278,629

Multifamily 17,821 25,758 35,169 46,250 57,533 61,712 64,577 67,203 70,222 72,764 Improvements* 124,842 116,631 122,210 134,759 148,132 153,174 157,882 161,439 164,282 167,492

Total Residential 252,646 276,057 329,217 375,100 424,737 452,389 472,433 487,071 502,919 518,885

NONRESIDENTIAL BUILDINGS

Lodging 9,129 10,836 13,484 16,124 21,054 24,090 25,765 26,610 27,149 27,526

Office 36,011 37,800 37,979 46,056 56,049 61,976 65,185 68,182 70,057 70,464

Commercial 42,816 47,335 53,159 62,708 67,404 72,854 75,541 77,503 78,984 80,313

Health Care 40,204 42,544 40,689 38,410 39,962 41,252 43,872 47,122 50,115 54,154

Educational 84,985 84,672 79,060 79,700 84,879 89,624 93,703 98,880 105,361 112,237

Religious 4,239 3,846 3,590 3,248 3,377 3,322 3,384 3,486 3,607 3,670

Public Safety 10,407 10,431 9,506 9,380 8,896 8,458 8,732 9,058 9,430 9,803

Amusement and Recreation 15,995 15,480 15,207 16,630 20,681 21,926 23,105 23,466 23,850 24,181

Transportation 34,737 37,862 39,459 41,786 44,786 46,730 50,530 53,967 57,186 58,849

Communication 17,685 16,165 17,783 17,093 19,511 20,340 21,483 22,585 23,659 24,376 Manufacturing 40,559 47,741 50,548 57,761 83,384 86,824 92,270 95,971 99,427 101,456

Total Nonresidential Buildings 336,767 354,712 360,464 388,896 449,983 477,395 503,570 526,830 548,825 567,027


Power 75,185 97,434 93,317 101,216 87,167 89,684 92,902 99,851 108,281 114,510

Highway and Street 79,322 80,546 81,364 84,220 90,068 94,779 98,251 100,863 103,312 105,200

Sewage and Waste Disposal 22,710 22,261 22,425 23,321 25,064 26,187 27,214 28,408 29,501 31,017

Water Supply 14,163 13,218 13,597 13,334 13,563 13,795 14,264 14,661 15,198 15,759 Conservation and Development 7,538 6,228 5,967 7,323 8,091 8,420 8,813 9,398 10,075 10,818

Total Nonbuilding Structures 198,918 219,687 216,670 229,414 223,953 232,865 241,445 253,181 266,368 277,305

Total Put in Place 788,331 850,456 906,351 993,410 1,098,673 1,162,650 1,217,448 1,267,081 1,318,112 1,363,217

*Improvements includes additions, alterations and major replacements. It does not include maintenance and repairs.

Construction Put in Place

Change From Prior Year - Current Dollar Basis2nd Quarter 2016 Forecast (based on Q1 2016 Actuals)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

RESIDENTIAL BUILDINGS

Single-Family -3% 22% 29% 13% 13% 8% 5% 3% 4% 4%

Multifamily 2% 45% 37% 32% 24% 7% 5% 4% 4% 4%Improvements* 3% -7% 5% 10% 10% 3% 3% 2% 2% 2%

Total Residential 0% 9% 19% 14% 13% 7% 4% 3% 3% 3%

NONRESIDENTIAL BUILDINGS

Lodging -22% 19% 24% 20% 31% 14% 7% 3% 2% 1%

Office -5% 5% 0% 21% 22% 11% 5% 5% 3% 1%

Commercial 7% 11% 12% 18% 7% 8% 4% 3% 2% 2%

Health Care 2% 6% -4% -6% 4% 3% 6% 7% 6% 8%

Educational -4% 0% -7% 1% 6% 6% 5% 6% 7% 7%

Religious -20% -9% -7% -10% 4% -2% 2% 3% 3% 2%

Public Safety -7% 0% -9% -1% -5% -5% 3% 4% 4% 4%

Amusement and Recreation -6% -3% -2% 9% 24% 6% 5% 2% 2% 1%

Transportation -9% 9% 4% 6% 7% 4% 8% 7% 6% 3%

Communication 0% -9% 10% -4% 14% 4% 6% 5% 5% 3%Manufacturing -2% 18% 6% 14% 44% 4% 6% 4% 4% 2%

Total Nonresidential Buildings -3% 5% 2% 8% 16% 6% 5% 5% 4% 3%


Power -4% 30% -4% 8% -14% 3% 4% 7% 8% 6%

Highway and Street -4% 2% 1% 4% 7% 5% 4% 3% 2% 2%

Sewage and Waste Disposal -13% -2% 1% 4% 7% 4% 4% 4% 4% 5%

Water Supply -8% -7% 3% -2% 2% 2% 3% 3% 4% 4%Conservation and Development 5% -17% -4% 23% 10% 4% 5% 7% 7% 7%

Total Nonbuilding Structures -5% 10% -1% 6% -2% 4% 4% 5% 5% 4%

Total Put in Place -3% 8% 7% 10% 11% 6% 5% 4% 4% 3%

*Improvements includes additions, alterations and major replacements. It does not include maintenance and repairs.

Estimated for The United States


CONSUMER PRICE INDEXInflation Remains Low

APPENDIX


CONSTRUCTION UNEMPLOYMENT RATES

EMPLOYMENT AND UNEMPLOYMENT RATE COMPARISON


CONSTRUCTION AS A PERCENTAGE OF GDP

MONTHLY HOUSING SUPPLY

Federal Reserve Economic Data, https://research.stlouisfed.org/fred2


CONSTRUCTION SPENDING AND NOMINAL GDP

Value of Construction Put in Place—Seasonally Adjusted Annual Rate (Millions of Dollars)

Total Construction Put in Place (April 2015)

% of Total Construction Put in Place (Q2 2015)

Total Construction Put in Place (Q2 2016 Forecast)

% of Total Construction Put in Place (Q1 2016)

*Public Construction $287,432 26% $290,787 25%

*State and Local $265,575 24% $268,744 23%

*Federal $21,857 2% $22,043 2%

FMI Forecast: Private Construction Put in Place $810,722 74% $871,863 75%

FMI Forecast: Construction Put in Place $1,098,154 100% $1,162,650 100%

* from U.S. Census Bureau Construction Spending

(Millions of dollars. Details may not add to totals due to rounding.)

VALUE OF PUBLIC CONSTRUCTION PUT IN PLACE – SEASONALLY ADJUSTED RATE

CONFERENCE BOARD CONSUMER CONFIDENCE INDEX

0

20

40

60

80

100

120

Dec

03 Mar Jun Sep

Dec

04 Mar Jun Sep

Dec

05 Mar Jun Sep

Dec

06 Mar Jun Sep

Dec

07 Mar Jun Sep

Dec

08 Mar Jun Sep

Dec

09 Mar Jun Sep

Dec

10 Mar Jun Sep

Dec

11 Mar Jun Sep

Dec

12 Mar Jun Sep

Dec

13 Mar Jun Sep

Dec

14 Jan

Feb

Mar Apr

May Jun Jul

Aug

Sep

Oct

Nov

Dec

15 Jan

Feb

Mar Apr

May

BenefitsA Construction Market Forecast FromFMI’s Research Services Group Can:____________________________________

� Supply the market-oriented, economy-driv-

en dimension essential for preparing, imple-

menting and monitoring strategic plans.

� Be a significant aid in defining, targeting,

implementing and monitoring other critical

corporate decisions, such as long- and short-

term sales goals or redirecting resources (i.e.,

on a geographic or a product-line basis).

� Provide the basis for estimating submarkets.

� Provide the basis for comparing performance

among markets.

� Provide the basis for identifying activities that

are beneficial or detrimental to performance.

Features Each Standard Construction Market Forecast:____________________________________

� Details construction put in place in three

residential building, 11 nonresidential build-

ing and five nonbuilding structure categories.

It covers the current year, eight previous

years and five forecast years. It is available for

any county in the U.S. or any combination of

counties, metropolitan statistical areas, states,

regions, etc.

� Includes both construction values and an-

nual percentage changes. Delivery time de-

pends on the size of the request but is usually

only a few days. It can be delivered in printed

or electronic form and in most major text or

spreadsheet formats. Graphs can be provided

at additional cost.

Basis____________________________________

� Historical information in FMI’s standard

Construction Market Forecast is based on

building permits and construction put in

place data as provided by the U.S. Com-

merce Department. Forecasts are based on

econometric and demographic relationships

developed by FMI, on information from

specific projects gathered from trade sources,

and on FMI’s analysis and interpretation of

current and expected social and economic

conditions.

Other Reports____________________________________

� Reports on state and federally financed

highway construction are available for most

counties or combinations of counties.

� Custom reports on a wide variety of con-

struction-related topics can be prepared by

FMI.

� Reports are based on multiple sources and

are appropriate for preliminary analytical and

planning purposes but contain little or no

direct observation of the area described and

are not guaranteed by FMI to be accurate.

For more information,call 919.785.9268.

J. Randall (Randy) Giggard Managing Director Research Services

Randy Giggard is responsible for design,

management and performance of primary

and secondary market research projects

and related research activities, including

economic analysis and modeling,

construction market forecasting and

database management. Randy’s particular

expertise is in the areas of market sizing and

modeling, competitive analysis, sales and

market performance evaluations, buying

practices and trends analysis.

Randy holds undergraduate degrees in

mechanical engineering from Southern

Illinois University and in English from

Illinois State University and a master's of

marketing and management policy from

Northwestern University.

T 919.785.9268

Email: [email protected]

www.fminet.com

About FMI’s Research Services GroupAs the construction industry becomes increasingly competitive, market intelligence becomes an

important tool for the building industry. A more complete understanding of the market, market trends,

customer perceptions, buying practices, competitor profiles and other market influencers will enhance

craft labor studies.

Since 1953, FMI has provided consulting and training services specialized for the construction industry.

FMI’s market research includes both secondary and primary research designed to meet clients’ specific

needs. Both types of research are used to provide accurate assessments in a timely, efficient and concise

manner for clients.

Typical project work performed includes customer buying practices, competitive analyses, market-size

modeling, market forecasts and trends, channel performance analyses, customer satisfaction surveys and

sales performance evaluations.

About FMIFounded in 1953 by Dr. Emol A. Fails, FMI is the leading management consulting, investment banking† and people development

firm dedicated exclusively to the engineering and construction industry. FMI professionals serve all sectors of the industry and

combine more than 60-plus years of industry context and leading insights to achieve transformational outcomes for our clients.

We have subject matter experts in the following practice areas and serve clients throughout the U.S., Canada and internationally:

� Strategy

� Market Research

� Business Development

� Operations and Project Execution

� Risk Management

� Compensation

� Peer Groups

� Performance Management

� M&A Representation

� Valuations and Fairness Opinions

� Private Capital Placement

� Ownership Transfer Planning

� Organizational Leadership Development

� Leadership Training

� Executive Coaching

� Succession Planning

� Training and Talent Development

Management Consulting Investment Banking† People Development

† Investment banking services provided by FMI Capital Advisors, Inc., a registered broker-dealer and wholly owned subsidiary of FMI.

Denver210 University BoulevardSuite 800Denver, CO 80206303.377.4740

www.fminet.com

Copyright © 2016 FMI Corporation

Notice of Rights: No part of this publication may be reproduced or transmitted in any form, or by any means, without permission from the publisher.

Phoenix7639 East Pinnacle Peak RoadSuite 100Scottsdale, AZ 85255602.381.8108

Raleigh (headquarters) 5171 Glenwood AvenueSuite 200Raleigh, NC 27612919.787.8400

Tampa308 South BoulevardTampa, FL 33606813.636.1364

Houston9303 New Trails DriveSuite 350The Woodlands, TX 77381713.936.5400

2016 - fmifmi nonresidential construction forecast lodging although we expect only 14% growth in...

Documents