western us construction market insights.ppt

1 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.

Rusty Sherwood I Vice President

US Construction 2010

Regional projections

key trends & business

implications

January 21, 2009 I San Francisco, CA

San FranciscoMarket Insight

Is there an upside (to this “downsized” market)?!


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through the four business essentials


Trends

US & Global

– Sustainability/Green Building

– Interoperability and BIM

– Workforce/Labor

– Innovation

– Materials

– Project Delivery Methods

Job Creation

Capital

Innovation


What’s the score?Jobs…employment declines are slowing, but still present

As of November 2009…• 10.2% unemployment, heading

for 10.? by mid-’10

• Rate of descent is slowing

• 6.8+ million jobs lost in current

recession

• 18.5% construction

unemployment vs 8% 2008

Change in Employment

-750

-600

-450

-300

-150

0

150

300

450

01 02 03 04 05 06 07 08 09 10

Thousands of Workers

Jan-June '09

-560,000/ mo

7.3 million jobs lost

Jan.'08- Oct. '09

Jul-Oct. '09

-217,000/ mo

Unemployment Rate

3

4

5

6

7

8

9

10

11

01 02 03 04 05 06 07 08 09 10

Percent

Oct. '09

10.2%


For prime residential and commercial mortgages some 40% of banks saidstandards would be tougher than normal “for the foreseeable future”.

James Cooper, Business OutlookBusinessweek 9/7/2009

“Canary in the coalmine”… commercial real estate loan defaults are accelerating;

significant volume maturing in 2010

What’s the score?Capital…

Signs of loosening, but on what terms?!

-30

-15

0

15

30

45

60

75

90

90 92 94 96 98 00 02 04 06 08 10

Survey of Bank Lending Officers Percent Reporting Tighter Lending Standards --

Commercial Real Estate Loans

0

2

4

6

8

10

12

14

90 92 94 96 98 00 02 04 06 08 10

Delinquency Rate, Percent

Commercial Real Estate Loans


Other points of concern…What About Inflationary Pressures?

Drop in Materials Prices Bottoming Out

BUT

Fierce Competition cutting margins

Constructions Costs well below 2008

Composite measure of building materialprices slipped another 0.5% inNovember

www.enr – eCover 24 September 2009


What’s the score?Recovery…

GDP Pattern:

History Forecast

2007 2008 2009 2010

+2.1% +0.4% -2.6% +1.8%

What shape will the recovery be?

V or U or L or W ? (Probably U-shaped.)

The recession is expected to bethe longest and deepest since the1930s

Fiscal stimulus will support therecovery

But recovery is likely to be slowbecause of financial markets andswitch to higher savings

If financial markets lock up again

And, home prices continue to fall

And, oil prices continue to rise

The recession could be longer anddeeper

With the risk of a “lost decade”similar to Japan in the 1990s

Source: David Wyss Chief Economist Standard& Poors October 2009

Real GDP Growth - Quarterly

-6

-4

-2

0

2

4

6

8

01 02 03 04 05 06 07 08 09 10

Annualized Percent Change '09 Q3

+3.5%


Trends

US & Global



– Workforce/Labor

– Innovation

– Materials


Job Creation

Capital

Innovation

Not yet

Improving

Emerging


Trends

US & Global



– Workforce/Labor

– Innovation

– Materials


Stimulusn. pl. stim·u·li (-l )

1. Something causing or regarded as causing a response.2. An agent, action, or condition that elicits or accelerates a physiological orpsychological activity or response.3. Something that incites or rouses to action; an incentive: "Works which were in

themselves poor have often proved a stimulus to the imagination" (W.H. Auden).


$787.2 BillionARRA is and will have direct and notable impact onconstruction activity

…the most sweeping

economic recovery

package in U.S.

history…

President Barack ObamaSigned Denver, CO

“

”

What about the stimulus?!

Expect more stimulus construction activity in2010-2011!


What’s the hold-up?Procurement underway…some bottlenecks…

New GSA ContractsStarting To SurgeGSA contract awards top $1 billion,but lawmakers and AGC criticizeother agencies’ slow pace08/05/2009By Tom Ichniowski and Pam Hunter

As the American Recovery and ReinvestmentAct approaches its sixth month on the books,the General Services Administration’s $5.5-billion ARRA-funded program to build orupgrade scores of federal buildings suddenlyhas begun to take off. But critics continue tocomplain that other agencies are not turningtheir construction stimulus money into jobs-producing contracts fast enough.

$158M GSA project: Commerce HQ overhaul

Awarded to: Gilbane & Grunley Const

GSA $1.5B in ARRA awards to date

Another $4B to be allocated


Is it really happening?Procurement underway…numbers show acceleration

According to McGraw-HillConstruction’s dB of ARRA projects…

– States have allocated $18B of highwayaid

– $8.0B of total construction projects fundedby ARRA from March thru July

– Representing 6% of total general buildingconstruction & infrastructure starts

– Yielding $137B in starts, 32% down overprior year vs $129B 36% down withoutARRA

– 93% of ARRA projects started areinfrastructure


EPA – quick allocation to states forwastewater treatment and sewerprojects

Hold up at state level

Only $100M outlayed – out of $8 Billion

Buy America clause possible challengein purchase of manufactured productslike membranes

– Emerged as top issue for Canada

– Special meeting between Canadian PrimeMinister Harper and Obama

– U.S. Chamber of Commerce concernedabout backlash

Is it really happening?Water projects lagging…buy America creating challenges


Yes, ARRA funded construction is happening!Pulled from the regional headlines…

Free access to news & analysishttp://construction.com

http://construction.com/stimulus/

•10/14/2009 Hungry Contractor Bids Low To Win

California Freeway Job – ENR

•10/14/2009 Brownfield Stimulus Funds Jump-

Start San Francisco Redevelopment Project – ENR

•10/14/2009 Rural California City Leverages ARRA

Funds To Build Better Treatment Plant – ENR

•10/02/2009 OPINION High-Speed Rail Authority

Applies for Federal Stimulus Funds – California

Construction

•10/02/2009 Calif. Seeks $4.7B from Feds for High-

Speed Rail Line – ENR

•09/26/2009 L.A. Seeks Fed Funds for Rail Projects

– ENR

•09/24/2009 Skanska Says It Won Big Calif.

Stimulus Highway Job – ENR

•09/22/2009 Calif. to Apply for $1.28B for High-

Speed Rail – ENR


“Stimulus” projects in “Network” as of 12/15/09…

$184.5B in ARRA + Shovel Ready value

3,975 “funded” projects in planning

6,517 “funded” projects in construction

6.112 “funded” projects out for bid

Yes, ARRA funded construction is happening!ARRA dollars are flowing, projects are accelerating…

Nationally

Region Shovel ReadyARRA

Stimulus

Total

Recovery

Tracked

Total Value

Recovery Tracked

ENC 1850 3497 5347 $19,547,742,835

ESC 537 1404 1941 $16,020,693,734

MATL 951 1344 2295 $36,113,868,967

NENG 1391 753 2144 $10,444,137,793

PNW 277 1142 1419 $5,983,001,711

PSW 1361 2110 3471 $34,380,472,312

SATL 1344 2839 4183 $31,111,659,361

WNC 1273 1546 2819 $12,311,485,907

WSC 716 1962 2678 $18,639,633,715

US 9700 16597 26297 $184,552,696,335


Total Construction StartsNational & Westregional 2009-2010Total Construction Starts

(Billions of Dollars)

WestNational

2009 total starts $419B, - 25% from 2008

2010 total starts $466B, + 11% from 2009

2009 W starts $96.4B, - 21.8% from 2008

2010 W starts $109.9B, + 14% from 2009

Total Construction

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+11%

Total Construction

0

50,000

100,000

150,000

200,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+14%


Residential bottoming out in 2009,Early signs point to an upturn in 2010…

Residential


2009 W starts $22.6B, -18.4% from 2008

2010 W starts $31.5B, +39.3% from 2009

2009 W starts $3.67B, -61.1% from 2008

2010 W starts $4.1B, +12.2% from 2009

2010 West Single Family construction tracking ABOVE national

Multi Family construction tracking BELOW national

Inventories are settling back – starts and sales are recovering!! Prices nationally are down 31% from their peak Stimulus benefits via HUD; guidelines announced May for $980M devel block grants

Single Family Housing

0

20,000

40,000

60,000

80,000

100,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+39.3%

Multifamily Housing

0

5,000

10,000

15,000

20,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+12.2%


Highway and Bridge ConstructionContinued improvement Under Stimulus

Construction Starts Including Stimulus Effect


2009 W starts $2.84B, +4.2% from 2008

2010 W starts $3.26B +14.7% from 2009

2009 W starts $9.7B, -5.1% from 2008

2010 W starts $10.5B, +8.7% from 2009

2010 West Bridge construction tracking ABOVE national Highway construction tracking BELOW national

California #2 in $ starts for ‘09 Highway & Bridges construction Debate continues on trans bill to replace SAFETEA-LU

Bridges

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+14.7%

Streets

0

2,000

4,000

6,000

8,000

10,000

12,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+8.7%


Environmental Public WorksExpect improvement from ARRA after slow start

Environmental Public Works Construction Starts


2009 W starts $2.95B, -34.3% from 2008

2010 W starts $3.55B, +20.3% from 2009

2009 W starts $3.1B, -22.8% from 2008

2010 W starts $3.84B, +24% from 2009

2010 WEST Environmental construction tracking ABOVE national

Water

0

1,000

2,000

3,000

4,000

5,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+20.3%

Sewers

0

1,000

2,000

3,000

4,000

5,000

6,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+24%


Other Public Works Will BenefitTransit/Rail Improving nationally, mixed regionally

Other Public Works, Including Transit/Rail


2009 W starts $6.38B, +2.5% from 2008

2010 W starts $7.57B, +18.7% from 2009

2010 West Other Public Works construction tracking ABOVE national

Other Nonbuilding

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,00086 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars +18.7%


Electric Utilities Will Stayat Relative High Volume with some Stimulus

Electric Utilities, Including SmartGrid (Billions of Dollars)

Energy Bills – tax incentives for oil and gas production, electric utilities,transmission lines, etc. extended with financial rescue packages

2009 W starts $2.99B, -54.5% from 2008

2010 W starts $3.47B, +16% from 2009

2010 West Energy construction tracking ABOVE national

Utilities

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+16%


Investment in Renewable Energy &Conservation

– "Smart-Grid" activities $11B

– Energy efficiency grants $6.3B

– Renewable energy loan guarantees $6B

Incentives: Manufacture ofGreen Energy Products

Stimulus Boosts Solar Marketplace:

NJ to add 120 MW solar power to brown fieldsand undeveloped properties

1 Block Off the Grid, the solar group purchasingprogram is expanding

Renewable energyBig focus on renewable energy

Expect more support: invented AND manufactured in US


Energy Generationfurther points of perspective

LT Outlook for Electric Power, Gas andCommunications is positive

– LT demand for power will rise

– Need for transmission upgrades to enablerenewable energy use

– Requirements of new renewable portfoliostandards

– $23 to $24B by 2013

Pending legislation to limit carbon dioxideemissions major factor in present / futuregeneration methods

The “renaissance” of nuclear still in infancy

3 to 4 years to review, evaluate and approve anew reactor

High cost / high value and…long constructioncycle


Energy Generationlarge projects…

Expansion in fossil-based gen continues, but alternative methods are gaining steam

Value Start Date

$ Millions City State Year: Mo

1,500.0 John W Turk Jr Coal Fueled Power Plant Fulton AR 2009:01

864.0 West County Energy Ctr. Nat.Gas Power Plant Ph 3 Palm Beach FL 2009:02

619.0 580 MW Bear Garden Power Station New Canton VA 2009:06

600.0 Coolidge Generating Plant Coolidge AZ 2009:08

500.0 PSNH Scrubber Facility & WWTP Bow NH 2009:02

476.0 Martin Solar 75 MW Solar Thermal Steam Gen. Facility Indiantown FL 2009:02

440.0 Wind Turbine Electricity Generating Plant Not Available IA 2009:02

300.0 Papalote Creek 180 MW Wind Farm Taft TX 2009:02

300.0 Natural Gas Fired Combined Cycle Plant Unit 4 Kissimmee FL 2009:04

250.0 PrairieWinds Wind Power Plant Minot ND 2009:08

233.6 Wind Farm Wellsboro PA 2009:08

200.0 Desoto Next Generation Solar Energy Center Not Available FL 2009:03

200.0 Crane Creek Wind Farm Riceville IA 2009:05

170.0 Beech Ridge Wind Farm - Phase 1 Rupert WV 2009:04


Public Buildings, While a Small Category,Stimulus boosting activity; holding steady in West

Public Buildings (Billions of Dollars)

2009 W starts $3.33B, +26.9% from 2008

2010 W starts $3.56B, +6.9% from 2009

2010 West Public Building construction starts tracking BELOW national levels

Government Service Buildings

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+6.9%


Green Wins in Stimulus:Renovation Gets a Boost in Green

Much of Public Building $$ to GreenRenovation Projects

– GSA $4.5 billion

– DOD $4.2 billion

– VA $1 billion

Tax breaks for Residential EnergyEfficiency expanded & extended

Stimulus in Action:

• Minnesota uses $148.6 million to renovateschools and public facilities

• Philadelphia Housing Authority will use the$90 million in stimulus funds to completelyrenovate and provide energy upgrades for300 houses and apartments

Renovation


Healthcare Facilities2010 rebound after modest 2009 decline

Healthcare Construction Starts


2009 W starts $5.72B, FLAT from 2008

2010 W starts $6.18B, +7.9% from 2009

2010 West Healthcare construction tracking ABOVE national levels

Hospital chains hit hard by tight credit conditions; healthcare reformdebate creates uncertainty $430M Kaiser Permanente Hospital Fontana, CA 2009:03

Healthcare Facilities

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

+7.9%


Educational Buildings Will Settle Back,State budgets curtailing K-12; Higher-ed holding

Educational Buildings (Billions of Dollars)

2009 W starts $9.42B, -33.9% from 2008

2010 W starts $9.14B, -3% from 2009

2009 W starts $987M, -31.7% from 2008

2010 W starts $881M -11% from 2009

2010 West Education construction starts tracking BELOW national levels

Major universities increased capital spending plans – but now under re-evaluation 20 states have implemented cuts to K-12 education

28 states have implemented cuts to public colleges & universities

Educational Buildings

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

Dormitories

0

200

400

600

800

1000

1200

1400

1600

86

88

90

92

94

96

98

00

02

04

06

08

10

Millions of Dollars

-3% -11%


Office Construction in Retreat,Upturn was measured this time, however…

Office Construction Starts


2009 W starts $4.04B, -32% from 2008

2010 W starts $3.97B, -1.8% from 2009

2010 West Office construction starts tracking ABOVE national levels

Tight credit conditions causing more and more projects to be deferred Rents and vacancies deteriorating in difficult economic climate New York #2 nationally in 2009 new square feet

Office Buildings

0

2,000

4,000

6,000

8,000

10,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

- 1.8%


Store Construction in Sharp Correction,As goes consumer spending, so goes…

Stores and Shopping Centers (Billions of Dollars)

2009 W starts $2.78B, -43.7% from 2008

2010 W starts $2.6B, -6.5% from 2009

2010 West Retail construction starts tracking BELOW national levels

Impact of slow retail sales – reduced store openings, store closings US consumer expected to remain cautious in near term

2009 W starts $1.15B, -55.5% from 2008

2010 W starts $1.13B, -2% from 2009

Warehouses (Billions of Dollars)

Retail

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

Warehouse

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

- 6.5%

- 2%


Hotel Construction in Sharp Correction,Similar story…

Hotels and Motels


2009 W starts $1.49B, -46.2% from 2008

2010 W starts $1.38B -7.3% from 2009

2010 West Hotel construction starts tracking ABOVE national levels

Negatives: weak economy, reduced business travel, hotel/casino overbuilding

Hotels

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

- 7.3%


The bottom line…2010 West, across the three categories…

NonresidentialResidential Non-building

Overall 2010 vs 2009 +16.5%

$35.1B in starts forecasted

Benefiting from ARRA

Tracking above US avg

Overall 2010 vs 2009 -1.9%


Tracking at US growth %’age

Overall 2010 vs 2009 +35.6%


A low base but turning upward

Tracking above US avg

Total Residential

0

20,000

40,000

60,000

80,000

100,000

120,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

Total Nonresidential

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars

Total Nonbuilding

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

86 88 90 92 94 96 98 00 02 04 06 08 10

Millions of Dollars


Nationally…Total Construction Starts bottoming 2009, improving 2010

Billions of Dollars

2005 2006 2007 2008 2009 2010

Total Construction 670.3 689.6 639.2 554.9 418.9 466.2 +13% +3% -7% -13% -25% +11%

Single Family Housing 315.5 272.4 201.2 122.4 95.3 126.2+12% -14% -26% -39% -22% +32%

Multifamily Housing 68.6 69.8 61.4 39.7 18.2 21.1+36% +2% -12% -35% -54% +16%

Commercial Bldgs. 72.2 93.0 100.8 84.5 48.2 46.1+7% +29% +8% -16% -43% -4%

Institutional Bldgs. 100.1 110.8 117.6 129.3 110.2 111.1+12% +11% +6% +10% -15% +1%

Manufacturing Bldgs. 10.1 13.5 20.4 28.9 10.9 9.4 +26% +33% +51% +41% -62% -14%

Public Works 96.0 112.4 121.7 120 119.7 136.3+9% +17% +8% -1% -0- +14%

Electric Utilities 7.9 17.7 17.8 30.2 16.5 16.0+6% +125% +1% +70% -45% -3%


West Index of growth…As goes the West so goes the US

Billions of Dollars

2005 2006 2007 2008 2009 2010

Total Construction 670.3 689.6 639.2 554.9 418.9 466.2 +13% +3% -7% -13% -25% +11%

Single Family Housing 315.5 272.4 201.2 122.4 95.3 126.2+12% -14% -26% -39% -22% +32%

Multifamily Housing 68.6 69.8 61.4 39.7 18.2 21.1+36% +2% -12% -35% -54% +40%

Commercial Bldgs. 72.2 93.0 100.8 84.5 48.2 46.1+7% +29% +8% -16% -43% -4%

Institutional Bldgs. 100.1 110.8 117.6 129.3 110.2 111.1+12% +11% +6% +10% -15% +1%

Manufacturing Bldgs. 10.1 13.5 20.4 28.9 10.9 9.4 +26% +33% +51% +41% -62% -14%

Public Works 96.0 112.4 121.7 120 119.7 136.3+9% +17% +8% -1% -0- +14%

Electric Utilities 7.9 17.7 17.8 30.2 16.5 16.0+6% +125% +1% +70% -45% -3%

M-H Construction Starts

50

100

150

200

250

300

350

400

88 90 92 94 96 98 00 02 04 06 08 10

Indexed, 1991 = 100

West

United States


A new cycle emerging?The cyclical nature of business & construction

85

100

115

130

145

160

175

190

T T+2 T+4 T+6 T+8 T+10 T+12 T+14 T+16 T+18

1982-1991

1975-1982

Cyclical Trough (T) = 100, Based on Constant 2000 Dollars

Years from Cyclical Trough

Total Construction Activity by Cycle

1991-2009


US Construction over the next 25 years…

50% of Building Stock Will Be New – Built After 2000

New Building Stock Will Represent 127 Billion Additional Sq Ft

Most Growth Will Be in the South and West

The longer the down cycle…Replacement demand + Industry Confidence

ENR Construction Industry Confidence Index…

752 AEC firms; inception 4/2009; 1 to 100 scale; quarterly updates

44% predict market improvement next 12 to 18 mths raising CICI to 30

Segments with highest CICI: power (59),transportation (57), water (56), healthcare (53) &education (49)

Segments with lowest CICI: retail (17), office (19), hospitality (23)multi-family (25)

…the greater the “spring load”


Trends

US & Global



– Workforce/Labor

– Innovation

– Materials


Not if…

but differentconstruction hemlines & trends


Trends

US & Global



– Workforce/Labor

– Innovation

– Materials


“Overall, industry specific

innovation does not follow,

but creates expansion”“The Instability of capitalism”

- Joseph Schumpeter –1928


What’s the score?Innovation…Unprecedented levels entering construction marketplace

Many global firm leaders believeinnovation in technology andprocesses will help solve theirbiggest concerns

Advances in technology arefueling alternative deliverymethods and sustainable “smart”design

All bringing the potential ofgreater value to the buildingowner

Pre-Fabrication

& Modularization

13%

Safety & Healthof Workforce

29%

New ConstructionMethods & Processes

13%

GreenBuilding

16%

Intelligent Building

& Infrastructure

13%

Other

16%

Areas of Innovation with Greatest

Expected Impact on Future Business


Global Markets & Influences– China impact

– Emergence of India + Middle East

Project Attributes– Sustainability/Green Building

– Renovation

– Renewable Energy

– Water Efficiency

– New Materials

Design & Construction

Productivity– Workforce

– Interoperability/BIM

– Pre-fabrication & Modularization

Alternative Construction Financing– Public-Private Partnerships

Infrastructure requirements

Present Trends…Numerous factors impacting industry direction / growth

ProjectInfluences


0

20

40

60

80

100

120

140

Upper Market Size

Lower Market Size

Mark

et

Siz

e$ (

billio

ns)

TotalTotal Non-ResNon-Res ResidentialResidential TotalTotal ResidentialResidential TotalTotal Non-ResNon-Res ResidentialResidentialNon-ResNon-Res

TripleTriple

DoubleDouble

TripleTripleFiveFiveFoldFold

Green Construction tripling in the United States by 2013

CONSTRUCTION TRENDS2005 2008 2013

Project attributes…


2005 2006 2007 2008 2009

$182Billion

$3Billion

$29Billion

$245Billion

= Commercial &Institutional Market

= Green Market

$208Billion

Project attributes…Green is growing despite declining new buildingconstruction

CONSTRUCTION TRENDSSource:Commercial & Institutional Market Size: McGraw-Hill Construction, as of January 27, 2009. MHC Housing Starts data is similar to theCensus Bureau, except that MHC defines single family housing as detached housing only. MHC includes townhomes in its multifamilydata.Green Market Size: Commercial & Institutional Green Building: Green Trends Driving Market Change, McGraw-Hill Construction, 2008


Corporate Leaders:

– Over one-third of companies (36%)are positioning themselves aroundgreen and sustainability, up fromonly 18% in 2007

– Nearly all firms (95%) areundertaking at least somesustainability practices

Project Attributes…Corporate sustainability practices continue to rise

CONSTRUCTION TRENDSSource: The Greening of Corporate America SmartMarket Report, McGraw-Hill Construction, 2007; Bernstein,Harvey. Presentation. Construction Industry Trends. McGraw-Hill Companies Offices, New York, NY, May 2009.(based on 2009 market research data conducted by McGraw-Hill Construction in 2009)


Perceived Advantages of Building Green from AEC firms and Owners

Decreased Operating Costs: 8-9%8-9% 13.6%13.6%

Increased Building Values: 7.5%7.5% 10.9%10.9%

Improvement in ROI: 6.6% 6.6% 9.9%9.9%

Increased Occupancy: 3.5%3.5% 6.4%6.4%

Rent Rise: 3.0%3.0% 6.1%6.1%

Increased revenue flows: 71%71% 77%77%

Increased profits: 59%59% 61%61%

20052005 20082008

Project Attributes…Building green is proving to be smart business

CONSTRUCTION TRENDS

Advantages are Increasing Over Time!

“When Aardex developed the Signature Centre (LEED certified), the market sat at 15%vacancy… all 300,000 sqft were leased 5 months before completion –

and for nearly double the going rents of surrounding buildings.”Source: The Denver Post 9/8/2009


85%

96%

69%

91%

Water use

reduction

Energy

efficiency

Next 5 Years Currently• Becoming one of the

most importantmost importantaspects of a greenbuilding

• Correlationbeginning to emergebetween savingwater and savingenergy

Project Attributes…Water efficiency rapidly growing in importance

CONSTRUCTION TRENDS


Increases in Productivity Broadly Influence SocietyBy Improving Standards and Creating Income

The correlation between growth & innovation…Focus on productivity gains is driving innovation


Digital Design shifts the bulk of project work to the Design phase to help coordinate building systemsand the project and manage project costs

Design & Construction Productivity…

CONSTRUCTION TRENDS

LitigationPhase

ofDes

ign C

hang

es

Cost

Ability

to

cost

control

Design Design Devel Const Docs Construction

Eff

ort

Time

TraditionalDesign

DigitalDesign

Source: International Alliance for Interoperability, 2007Source: International Alliance for Interoperability, 2007

The case for Digital Design & Construction has been made


Adoption of BIM Increasing Over 2009

% of Total Projects

2008

38%

17%10%

35%

Expected % of Total Projects

2009 18%

20%

17%

45%

1-15%

16-30%

31-59%

>60%

Design & Construction Productivity…And now adoption is increasing

CONSTRUCTION TRENDS33%

41%

12%

45%

21%12%

32%

10%

14%

11%

12%

16%

8%

22%

11%

36%

35%

20%

20%

21%

10%

12%

8%15%

46%41%38%35%54%43%

23%

43%

20092008200920082009200820092008

60%+

31-59%

16-30%

1-15%

Architects Engineers Contractors Owners


SmartMarket Report:Executive summary of latest BIM study…

Highlights:

– Almost 50% of the industry is now usingBIM.

– All BIM users plan significant increases intheir use.

– Two-thirds of BIM users say they seepositive ROI on their overall investment inBIM.

– Skill level directly relates to experience ofvalue.

– 40% of non-users plan to adopt within 2years.


Player Value:– Architects are perceived to reap the

highest value from BIM.

– Engineers see the most value inmarketing BIM services and theproductivity gains created by BIM.

– Civil engineers lag behind structural andMEP engineers in adoption.

– Contractors reap the highest value frombenefits related to costs.

– MEP contractors rank among the top BIMadopters.

– Owners see BIM as a valuablecommunication tool.

The Business Value of BIMWhich “team players” benefit the most?Getting Building Information Modeling to the Bottom Line

Key Finding


Measurable benefits driving market demand…

Design & Construction Productivity…Prefabrication & Modularization yielding jobsiteproductivity gains

– Increase productivity

– Enhance on-site safety

– Reduce construction time

– Reduced labor costs

– Enhance durability and quality

– Reduce environmental impact

CONSTRUCTION TRENDS


Customer Focus:

Tailoring project approaches to meet customerneeds, having an “open system, recognizingdifferent customers’ needs

Investment in Talent:

Firms will need to establish and reward their laborforce, encouraging those that are skilled,dedicated and productive

Integrated Project Teams:

Developing relationships across the projectplayers to be efficient and deliver a quality project

Technology advances will change the face of the industry,but a focus on the client and workers will remain dominant

McGraw-Hill Construction ©McGraw-Hill Construction ©

Design & Construction Productivity…One thing remains the same…people will continue to beconstruction’s center of gravity

CONSTRUCTION TRENDS


AEC Implications…the stimulated OutlookOpportunities do exist…function of knowing where to lookand with whom to partner

– Infrastructure: major ARRA benefactor; strong nationally

– Institutional (schools / healthcare): demographics favor longterm

– Energy: “alternatives” & transmission big winners

– Public Buildings: ARRA winner; growth continues; state &local issues

– Renovation: significant long term potential

– Do we have “intell” / access into these markets?

As goes access to construction financing so goes…– Activity beyond stimulus requires private sector engagement

– Early signs indicate banks are returning to work, however…

– Cash management / project financing insight never morecritical

End of one cycle marks beginning of a new one?

– >50% building stock requires replacement / renovation

– Preparing for the “turn” or waiting for the “turn”?

– Adapting to “new norms”?


AEC Implications…Construction Hemlines

Green de facto market expectation, particularly

for public works, institutional and office

– Creating / renovating energy / water efficientbuildings in top demand by owners / tenants

– Are we growing share even in decliningsegments because of green constructionneeds?

– What unique services do we bring to greenmarket place? Does market know this?

The means and methods to improve productivityare proliferating & driving profitability

– Where are we on the BIM adoption curve? Isprocess excellence part of our competitivestrategy

– Do we understand the value of “pre-fab” /modularization? Do our competitors?

– What’s our role with alternative deliverymethods that a) insure greater outcomes, b)improve profitability, c) appropriately allocatesrisk, d) separate us through service?


AEC Implications…Construction HemlinesInfrastructure requirements represent ST & LTopportunity, but…

– Future based on acknowledged correlation betweencompetitiveness and world class infrastructure and,

– Public / private collaboration to finance requirements

– Do we offer products for this space? If so, does themarket know this?

Follow the money…

– How will capital gap to finance construction befilled…?

– How will this impact project & job site requirements?

Adapting and positioning based on trends areessential to a thrive strategy

– Creative destruction fundamental to healthyeconomies / businesses

– Do we embrace sound reinvention & compete basedon “value” innovation? If so, are we communicatingthis effectively?

– Are we evolving based on emerging needs ofconstruction marketplace?

“Mere husbandingof already existing

resources, nomatter how

painstaking, isalways

characteristic of adeclining position.”

Joseph Schumpeter- 1927 -


Trends

US & Global



– Workforce/Labor

– Innovation

– Materials


Strategic planningramifications and considerations


2005

Customer Priorities

1.

2.

3.

2009

Customer Priorities

1.

2.

3.

2013

Customer Priorities

1.

2.

3.

Customer priorities trajectory

Strategic planning tools...


Business Implications

– SEGMENT (Re)PRIORTIZATION –

• Do we shift construction segment / geo-market priorities?

– MARKET EXPECTATIONS –

• What are emerging needs of our targets?

– PROCESS IMPROVEMENT –

• What needs to change in business processes to reach / serve target needs?

– COMPETITIVE LANDSCAPE -

• What’s our competition doing / how do our strengths match up with theirs?

– REQUIRED COMPETENCIES –

• Do we have the competencies essential to serving existing/emerging needs of our targets?

– EXPERTISE & ORGANIZATION –

• Do our expertise and organization allow us to profitably serve target priorities?

“Based on the construction economy, industry trends and their implications,

what needs to change in our business assumptions & strategy?”


CustomerRelationships:

5.5. Interaction

6.6. Understanding/ insight

7.7. Authority / Trust

4.4. Reach

Traditional: 1.1. Content/intellectual property

3.3. Brand

2.2. Method or core competency

Information: 8.8. Market visibility / knowledge

9.9. Software and systems

investments

10. 10. Byproduct info

11. 11. Technical know-how

StrategicReal Estate:

Network:

12.12. Value chain

13.13. Third-party relationships

Hiddenassets

Create valuefor

customers

Superioreconomics

Powerfulsources ofstrategiccontrol

Hidden assets evaluation

Strategic planning tools...


Invest for Growth

Improve Core / Maintain Adapt / Expand

Next Generation Growth

Re

ve

nu

e G

row

th

ROS%

Ne

w S

erv

ice

sE

xis

tin

g S

erv

ice

s

Existing Customers New Customers

• Extend brands• Share of wallet• Service adjacencies

• Extend value• Increase C-SAT• Share of wallet

• Expand Footprint• Win market share• “Cash Cow” investment

• Create markets• Disrupt markets• Invest for future trends /

customer needs

Evolutionary

Incremental Evolutionary

Revolutionary

Strategic Roadmap – where is ST / LT growth coming from?

Strategic Planning Tools...


Now it’s your turn!Open mic…

“What else are you seeing, hearing, experiencing that carries

significant strategic implications?”

“What other “success” factors need to be considered in

building winning strategies in a “down market?”

“How has your strategic planning process changed in light of

current market conditions?”

What is your firm looking for marketing to address / provide?


Trends

US & Global



– Workforce/Labor

– Innovation

– Materials


Marketing plansother factors & fundamentals


Cutting Marketing Budgets in a RecessionGood Idea or Bad Idea? - the Stats

1981 – 1982– McGraw-Hill Research

– 600 businesses - maintained / increased

– Higher sales growth during recession to 3 years following!

1985– Businesses that maintained / increased marketing spend during recession

– Sales rose 256% over those who cut back

2001– Another study with aggressive recession marketers

– Increased share 2 times average for all businesses in post-recession

2002– Strategic Planning Institute

from Innovating through a Recession by Professor Andrew J. Razeghi

at the Kellogg School of Management at Northwestern University

– 80% of businesses increase spend in times of market expansion

– NO improvement in market share

– Impact minimal - all companies increased spending


Marketing “foundations”…What top firms do in down markets?

Assess the “current state” of market position / brand awareness

Understand, (re)articulate points of differentiation & advantage

– Technology, process, people, project experience – all?

Build marketing program that “MAPs” directly to strategic business goals

– Increase frequency

– increase visibility of differentiated benefits (and the risk of inexperience)

Measure message impact continuously / adjust mix ruthlessly


Other considerations…the myth of “one-size-fits-all” media

Your FirmYour Firm The MediaThe Media Your Customers/ProspectsYour Customers/Prospects

Your BrandYour Brand

MessagingMessaging

Print andPrint and

ElectronicElectronic

Your Web Site:Your Web Site:

ComprehensiveComprehensive

Your Sales andYour Sales and

Business Business

DevelopmentDevelopment

Executives:Executives:

PersonalPersonal

Print PublicationsPrint Publications

E-NewslettersE-Newsletters

““PushPush””

““PullPull””

Industry EventsIndustry Events

and Conferencesand Conferences

Advertise to Advertise to

Engage and Engage and RedirectRedirect

Your BrandYour Brand

MessagingMessaging

Customer Actions:Customer Actions:

SubscribeSubscribe

ReadRead

Customer Actions:Customer Actions:

InvestigateInvestigate

ResearchResearch

Media Web SitesMedia Web Sites

““PullPull””Customer Actions:Customer Actions:

AttendAttend

Generate LeadsGenerate Leads

Sponsor/Sponsor/

Present or SpeakPresent or Speak

Generate TrafficGenerate Traffic

Develop ContactsDevelop Contacts

75% respond to 75% respond to ads via the Webads via the Web


It’s your turn (again)!Open mic…

“What’s changed in your ‘value proposition’ to combat low-bid,

inexperienced competitors (and its risk to your account base)?”

“Has the coordinated effort of marketing & business

development changed (or needs to change) to increase overall

revenue performance?” “If so, how?”

“How are you addressing team morale (especially with top

talent)?”

“In general what’s been emphasized / deemphasized in your

marketing communication mix, and why?”


Trends

US & Global



– Workforce/Labor

– Innovation

– Materials


“Whichever way we satisfy it, theneed for information on the

environment where the major threatsand opportunities are likely to

arise will become increasingly urgent.”- Peter Drucker –

What Executives Should RememberHarvard Business Review

Feb 2006


to Thrive and achieve the upside…

Strategic Planning

Get SmarterGet Smarter

Analyze, Identify and

Evaluate Market Conditions

and Opportunities

Brand Marketing

Get SeenGet Seen

Build Your Company’s Market

Presence and Identity

Business Development

Find WorkFind Work

Identify Key Project

Opportunities, and Increase

Your Company’s Backlog

Process Improvement

Do WorkDo Work

Increase Efficiency of Business

Processes, and Build Project

and Employee Productivity

market conditions through your business Essentials

1) ID / target new opportunities; 2)reach the influencers; 3)deepen relationships; 4) profitably deliver

8)Anticipate future needs; 7)broaden influencer network; 6)expand customer base; 5)improve efficiencies

McGraw-Hill Construction…intelligence + access to gain the upside

Thank you!For more analytics & research on

your target markets:

[email protected]

western us construction market insights.ppt

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