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Strategy | Management | Consultancy

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k n o w l e d g e c e n t e r

2017

USRegional Analysis

2 | US


Contributors: Pat Ryan, Steven Cooke, Declan Comer, Joe Cusick, Michelle Cooke

©Linesight 2017

Contents

US Market Review 3

Macro indicators 6

Value of construction output public/private 2005–2016 6

US construction by type of work 2016 6

US earnings in construction 2006–2016 7

Employment in construction 2007–2016 7

Euro vs. US dollar 2010–2017 8

Linesight average American construction costs 2017 9

Indices 10

Annual construction cost index 10

US regional building cost index 11

Top US contractors and design firms 12

Top 20 US contractors 12

Top 20 US design firms 12

3 | US


US Market Review

The US construction market is experiencing a mature expansion phase, characterized by a deceleration in growth rates in 2016 when compared to 2012 - 2015 figures, but growth nonetheless. Total construction starts were slightly behind 2015 indicators, but these lower figures reflected unusually high activity at the beginning of 2015, which was driven by 13 very large projects valued at a minimum US$1 billion, such as the US$2.5 billion office tower in New York city.

Total construction starts are forecasted to rise by 5 percent to US$713 billion this year, with gains of 8 percent expected for both residential building and non-residential building, while non-building construction will decline by a further 3 percent. Commercial building is expected to increase by approximately 6 percent in 2017 – this growth reflects the commencement of a number of signature office towers and associated developments in downtown markets. Slow retail markets last year look set for some improvement, while hotel construction will begin to decelerate after a strong 2016.

East Coast

According to the ‘New York Building Congress’, the current building boom is set to continue through the next two years, with US$42.1 billion in construction spending projected for 2017 and US$42.3 billion in 2018. The five boroughs of New York City contributed to over US$22 billion in new construction starts during the first nine months of 2016. Manhattan remained the dominant contributor with 58 percent of all new projects starts.

Employment in the construction sector has grown year-on-year since 2011. The total number of workers in the NYC construction industry is set to increase again in 2017 to approximately 147,000, which will represent 9,000 new jobs in 2017.

Government spending on public works, which includes investments in mass transit, roads, bridges and other essential infrastructure, is forecast to reach US$14.3 billion in 2017 and US$14.1 billion in 2018.

Annual materials and labor price escalation came in at 4.8 percent in 2016. Skilled labor shortages will keep the rate of increase in line with previous years.

Major project starts 2016

• One Vanderbilt 1,750,000 sq.ft.

• 3 Hudson Boulevard 1,800,000 sq.ft.

• Brooklyn Navy Yard Dock 4,000,000 sq.ft.

• Marriott Moxy New York 350,000 sq.ft.

• South Beach Psychiatric Center 250,000 sq.ft.

Total construction starts are forecasted to rise by 5 percent to US$713 billion this year, with gains of 8 percent expected for both residential building and non-residential building

4 | US


Ongoing mega projects

• Hudson Yards +US$2.5 billion

• MTA Capital Plan 2019 +US$30 billion

• La Guardia Airport +US$4 billion

• Waterline Square +US$1.5 billion

• Domino Sugar Factory +US$1.5 billion

• 3 World Trade +US$2.75 billion

West Coast

This year promises to deliver the most new office space in terms of square footage to San Francisco in three decades, at double the amount that hit the market in 2016. The number of residential unit completions in San Francisco in 2017 is lower than last year, but it is still significant at over 3,000. Annual construction volume is forecast to hit US$34.3billion during 2017, exceeding the 2005 peak.

A number of landmark projects are also underway. Oceanwide Center, which will be San Francisco’s second tallest tower when completed, held its ground-breaking ceremony in December; this landmark development, which includes 265 condos, hotel and office space in two towers, will reshape the city’s skyline. The Golden State Warriors Arena also held its ground-breaking ceremony for the team’s new arena in the Mission Bay area in January.

Project completions 2016

• VTA Berryessa BART Extension; +US$700 million

• 181 Fremont St; +US$650 million

• SF MOMA; +US$250 million

• 340 Fremont St; +US$150 million

• Apples US$5 billion Campus 2 is to be complete in 2017

Upcoming projects

• Oceanwide Center

• SF Shipyard and Candlestick Redevelopment; US$8 billion

• Parkmerced – 5,500 new housing units

• Treasure Island; US$6 billion

• Mission Rock Mixed Use; SF Giants – US$1.5 billion

• Transbay Transit Center; +US$2 billion

• Treasure Island

• Salesforce Tower

• Third Street Light Rail

• HOPE SF @ Sunnydale Seawall; Lot 337 (mixed use)

5 | US


Chicago / Mid-West update

From the Chicago Cubs adding a new clubhouse to over 30 new high rise buildings in progress in the area, construction in Chicago has been strong in recent times. Along with the steady increase in new construction over the last six years; commercial occupancy rates in the city were at a 15-year high in 2016.

The market is showing signs of decelerating in 2017, however, with an oversupply of residential property, in particular, having an impact. In their January 2017 issue, Engineering News-Record (ENR) forecasted this deceleration in the Chicago market, from its high point in 2016. This will be driven by a reduction in the residential market starts, which are forecasted to drop to US$5.48 billion. This decline will outpace the steady rise expected in non-residential areas, dragging the overall construction starts in 2017 down to US$12.30 billion from the 2016 high of US$13.20 billion.

Government spending on public works, including mass transit, roads, bridges and other essential infrastructure, is expected to increase, with over US$1 billion in live projects at present, and several multi-billion dollar mega-projects on the horizon.

Annual materials and labor price escalation was between 4 and 5 percent in 2016, depending on source. As is the case in other parts of the US, skilled labor shortages will keep the rate of increase in line with previous years for 2017.


• Vista Tower

• One Bennett Park


• McDonald’s HQ

• A.Finkl & Sons steel plant redevelopment

6 | US


Value of construction output public/private 2006–2017

US construction by type of work 2017

Source: US Census Bureau

0

250

500

750

1000

1250

1500

1750

2000

201720162015201420132012201120102009200820072006

Public Private

$bn

Note: Millions of dollars. Figures are up until August 2017.Source: US Census Bureau

7

6

5

43

2

1 6

5

4

321

Private Public

1. Residential 2. Commercial 3. Health Care4. Educational 5. Miscellaneous6. Infrastructure 7. Manufacturing

520,91282,57530,916

19,191107,240132,56860,752

1. Residential2. Commercial 3. Health Care4. Educational5. Miscellaneous6. Infrastructure

5,63011,3519,462

67,30523,798

144,378

Macro indicators

7 | US


US earnings in construction 2007–2017

0

5

10

15

20

25

30

20172016201520142013201220112010200920082007

Note: Average earnings per hourSource: Bureau of Labor Statistics

$

$23.01$23.96

$24.83 $25.20 $25.42 $25.74 $26.12 $26.68 $27.35 $28.10$28.69

Employment in construction 2008–2017

Source: Bureau of Labor Statistics

5,000,000

5,500,000

6,000,000

6,500,000

7,000,000

7,500,000

8,000,000

2017201620152014201320122011201020092008

8 | US


Euro vs dollar 2011–2017

Source: European Central Bank

20172011 2012 2013 2014 2015 2016

1.0

1.1

1.2

1.3

1.4

1.5

OctJulAprJanOctJulAprJanOctJulAprJanOctJulAprJanOctJulAprJanOctJulAprJanOctJulAprJan

9 | US


San Francisco Seattle New York

USD / Sq.ft. High Low High Low High Low

Residential Sector

Medium Quality - Low Rise Apartments 275 225 250 175 275 225

Medium Quality - High Rise Apartments 425 300 375 225 425 300

Commercial / Office Sector

Average standard offices

Low Rise - Medium Rise 400 250 350 175 400 275

Medium Rise - High rise 450 350 375 250 475 375

High standard offices

Low Rise - Medium Rise 525 450 500 450 575 450

Manufacturing Sector

Light industrial 175 125 150 100 175 125

Heavy industrial 225 150 175 125 225 150

Hotel & Leisure / Retail Sector

Budget / 3 Star 275 250 250 200 275 250

5 Star 550 450 475 400 550 475

District Shopping Center 375 175 300 175 375 200

Regional Shopping Center 325 275 300 250 350 275

Education Sector

Primary Schools 375 275 325 200 425 300

Secondary Schools 450 325 375 275 450 350

Notes:1. All costs exclude Tax and professional fees2. Costs based on January 2017 prices3. The costs are representative of typical specifications for each type of building and do not account for any

site abnormal costs4. The costs do not allow for any loose furniture, fittings and equipment, external works, landscaping works

Source: Linesight

Linesight average American construction costs 2017

10 | US


Annual construction cost index

Source: Engineering News-Record 1913 = 100

6,000

7,000

8,000

9,000

10,000

11,000

20172016201520142013201220112010200920082007200620052004

Indices

11 | US


US regional building cost index

Source: Compass 16th annual edition

New York City

San Francisco

Los Angeles

Philadelphia

Boston

Chicago

Pittsburgh

Washington DC

Baltimore

Seattle

Minneapolis

Atlanta

Denver

Detroit

Cleveland

Dallas

New Orleans

Cincinnati

Birmingham 0.86

0.93

0.93

0.93

0.94

0.94

0.94

0.94

0.96

0.97

0.97

1.00

1.01

1.05

1.06

1.06

1.14

1.19

1.20

12 | US


Top 20 US contractors

Top 20 US design firms

Top US contractors and design firms

2016 rank Firm revenue $bn

1 Bechtel 24.25 2 Flour Corp 15.19 3 The Turner Corp 11.26 4 CB&I LLC 8.46 5 Aecom 8.32 6 Kiewit Corp 7.86 7 Skanska USA Inc. 6.39 8 PCL Construction Enterprises Inc. 6.01 9 Tutor Perini Corp 5.71 10 The Whiting-Turner Contracting Co. 5.50 11 The Walsh Group Ltd. 5.05 12 Clark Group 4.97 13 Gilbane Building Co. 4.68 14 Balfour Beatty US 4.64 15 Structure Tone 4.01 16 DPR Construction 4.00 17 Swinerton Inc. 3.83 18 Mortenson Construction 3.82 19 Hensel Phelps 3.55 20 McCarthy Holdings Inc. 3.45

Note: Ranked by domestic revenue. 2017 ranking is based on 2016 revenue.Source: Engineering News-Record

2016 rank Firm revenue $bn

1 Aecom EAC 7.432 Jacobs EAC 6.393 CH2M EAC 3.554 Flour Corp EC 3.295 Tetra Tech Inc E 2.656 CB&I LLC EC 2.227 AMEC Foster Wheeler EC 1.948 HDR EAC 1.939 KBR EC 1.9210 Stantec Inc3 EAC 1.6211 Bechtel EC 1.6012 Parsons EC 1.5113 Arcadis North America EAC 1.4114 WSP I Parsons Brinckerhoff E 1.3815 Black & Veatch EC 1.3816 Burns & Veatch EAC 1.3117 Intertex-PSI E 1.2018 Gensler A 1.1919 HNTB COS EC 1.0320 Golder Associates E 0.90

Key to type of firm: A=Architect, E=Engineer, C=ContractorNote: 2017 ranking is based on design services performed in 2016Source: Engineering News-Record

New York (East coast)286 Madison Avenue Suite 602New York, NY 10017USAT: +1 646 802 9900

Patrick [email protected]

San Francisco (West coast)388 Market StreetSuite 1300San Francisco, CA 94111USAT: +1 415 234 1248

Steven Cooke [email protected]

us - linesight · the us construction market is experiencing a mature expansion phase, ... • sf...

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