Between the current economic factors impacting the construction landscape and the continuing advances in tools, materials and technologies, 2018 promises to be a very interesting year for the construction industry. As we peer into our crystal ball, here’s a quick look at the top three economic challenges facing construction companies in the year ahead.
1. Industry Growth Rate: Still Growing, But Slowing
Overall, the construction industry has enjoyed several years in a row of strong growth. Yet, signs are beginning to appear that suggest the growth rate is starting to slow down. For 2018, industry analysts predict that, despite ongoing labor shortages, the industry as a whole will continue to grow, just not as briskly as over the past few years.
Ken Simonson, chief economist for the Associated General Contractors of America, predicts that construction spending and starts will remain strong in 2018, but overall growth will be “subdued.” He sees commercial construction, which is expected to have a 12.4 perent increase in 2018, and residential construction as the winners. Construction Connect predicts a growth rate of 2-3 percent for nonresidential building starts in 2018, while FMI, a leading construction consulting company, projects 5 percent growth in 2018.
Not everyone foresees a slowdown looming on the horizon. At the end of 2017, Building Design+Construction polled 356 architects, engineers, and contractors to learn their expectations. Six out of 10 said they expect 2018 to be a very good or excellent year for their businesses.
2. Where Will the New Workers Come From?
As construction in the U.S. continues to grow at a healthy pace (new projects topped out at $1 trillion last November!), now is not a good time for labor shortages to get in the way. Unfortunately, that’s what much of the industry is facing. A lack of skilled workers, combined with a bleak outlook for new incoming talent, has begun acting like an anchor on the industry, adding time and cost to many projects. Industry analysts point to a number of causes for the shortage.
During the “Great Recession,” more than 1.5 million construction workers left the industry, voluntarily or otherwise. To date, less than half of them have rejoined the construction workforce. More recently, the ongoing rebuilding efforts from severe storms, such as Hurricane Irma and Harvey, have greatly increased the demand for experienced skilled workers.
As a population, construction workers are getting older, with industry analysts putting the average age of construction workers at between 45 to 50 years. At the same time, construction companies increasingly struggle to attract younger, incoming talent to the industry. Organizations like the Home Builder’s Institute are working hard to implement training and apprentice programs. But like steering a massive aircraft carrier, it takes time to change the direction with national labor force trends.
On a positive note, the Supreme Court’s decision in February to mandate the continuation of the DACA (Deferred Action for Childhood Arrivals) program could prevent the loss of more than 100,000 current construction industry workers. But until more students and young adults entering the workforce begin opting for the building trades, the industry will likely see ongoing labor shortages.
3. Rising Material Costs
The steady demand for the materials needed to build new and disaster recovery projects is causing significant increases in material costs, putting the squeeze on cash flow and margins. As a whole, construction material costs are expected to increase by 2-4 percent in 2018. Gypsum products will lead the way, with a projected increase of 6-7 percent. Concrete products, including cement and aggregates, are expected to climb from 1 percent to 4 percent. Oil prices, another key driver of overall construction industry costs, increased 12 percent in 2017, reaching nearly $50 a barrel. Current projections foresee the price stabilizing around $50 a barrel in 2018.
Now For the Good News
Economics aside, construction companies can look forward to many positive developments in 2018.
- Increased Use of Drones
Unmanned Aerial Vehicles – also known as UAVs or drones – have been gradually working their way into the construction landscape over the past few years. Look for them to become more commonplace in 2018 as they replace traditional land surveying methods while offering a host of other benefits.
Drones produce quicker and more accurate land surveys, while reducing labor costs and minimizing human error. Their ability to capture real-time intelligence on job sites shrinks the time it takes to build large projects, especially skyscrapers, allowing contractors to make larger bids. Drones also make it easier to stay in contact on large and/or multiple job sites.
One of their biggest advantages comes from the ease of increased job site and yard surveillance. Drones with mounted cameras can increase security and safety at yards and job sites by providing surveillance and video footage. They can also
improve job site inspection and increase employee safety by eliminating previously undetected dangers and safety hazards.
- Increased Use of Modular/Prefab Structures
Until recently, modular prefab structures were looked down upon by many as the poor stepchild of the construction industry. As they evolve from cheap, poorly-constructed designs, their use is rapidly increasing – to the point where more and more architects are embracing this approach to building.
Modular prefabs help lower construction costs, a major benefit when material costs continue to rise, while also enabling quicker builds and easy portability. With home prices going through the roof, home building will likely lead the way in this area. Expect to see a lot more pop-ups and permanent modular buildings, as well as prefab houses, in 2018.
- More Green Projects
It seems green is good for construction companies, their employees as well as the environment. A recent study by the U.S. Green Building Council projected that, by 2018, green construction would be responsible for 3.3 million jobs in the U.S. construction industry while generating more than $190 billion in labor earnings. According to the World Green Building Council, additional benefits include:
- Using less water, energy or natural resources. In some cases, green buildings can generate their own energy
- A reduction in greenhouse gas emissions
- Cost savings on utility bills for tenants or households through energy and water efficiency
- Lower construction costs and higher property values for building developers
- Increased occupancy rates for commercial building owners
- Ongoing Advancements in Construction Management Software
As the construction industry grows more sophisticated and tech-savvy by the year, software companies are working hard to produce programs that enable exponential leaps in productivity, efficiency and costs reductions. As more construction firms become aware of the benefits offered by these programs, look for their usage to climb steeply in 2018.
Speaking of construction management software, you can’t do better than Tenna when it comes to asset management for construction, oil and gas and other industrial industries. Our innovative software and hardware tracking technologies lead the way in providing comprehensive turn-key solutions for tracking, managing and maintaining your mission-critical assets and vehicles.