Document

Is there an upside (to this “downsized” market)?! 2010 US Construction projections & industry shaping trends

Rusty Sherwood I Vice President March 30, 2010 I Austin, TX

2010

2 McGraw-Hill Construction Research & Analytics Confidential

Public Works

Electric Utilities

Manufact’g Bldgs

Institutional Bldgs

Multifamily Hsg

Commercial Bldgs

Single Family Hsg 47%

18%

40% 31%

22%

10%

6% 10%

10% 7%

14% 28% 16% 19% 22%

11%

13% 13% 16% 15%

15%

26% 16%

18% 23%

Project Types

+100%

-60%

Project Types as Percentage of Total: 2005-2009 Billions of Dollars

2005 2006 2007 2008 2009

Total Construction 670.3 689.6 639.2 548.1 463.1

5%

5%

+100%

-60%

+80%

+80%

-40%

-40%


History Founded by James H. McGraw, Frederick W. Dodge and Clinton Sweet Over 100 Years Ago

McGraw-Hill Construction Market leadership for more than a century…

Leading provider of construction information

Founded over 100 years ago

Key industry alliances Over 1,000,000 customers Serving the private sector, government and financial communities

Connecting people and products to projects…

•  Key industry alliances

Get Smarter Get Seen & Selected

Find Opportunity

Sell & Market Smarter

MHC Research &

Analytics

MHC Performance

Tools

through the four business essentials

Today Serves One Million Customers Within the $4.6 Trillion Global Construction Community, Helping Industry Enterprises Save Time, Money and Energy


  Trends

 US & Global –  Sustainability/Green Building –  Interoperability and BIM – Workforce/Labor –  Innovation – Materials –  Project Delivery Methods

Job Creation

Capital

Innovation


  Trends


“Overall, industry specific innovation does not follow,

but creates expansion” “The Instability of capitalism”

-  Joseph Schumpeter – 1928


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

As of January 2010… •  9.7% unemployment •  766k (1/9) to 20k (1/10)

• Rate of descent is slowing •  6.8+ million jobs lost •  + 20% construction unemployment vs 8% 2008


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

James Cooper, Business Outlook Businessweek 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?!


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 material prices slipped another 0.5% in November

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 be the longest and deepest since the 1930s

  Fiscal stimulus will support the recovery

  But recovery is likely to be slow because of financial markets and switch 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 and

deeper

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

Source: David Wyss Chief Economist Standard

& Poors October 2009


  Trends


Job Creation

Capital

Innovation

Not yet Improving Emerging


  Trends


Stimulus n. 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 or psychological 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).


Stimulus Bill: American Recovery and Reinvestment Act of 2009

 Transportation  Highways: $27.5

billion  Transit: $8.4

billion  Rail: $9.3 billion  Transportation

Security Administration: $1 billion to buy, install explosive-detection, airport screening equipment.

 Environment  EPA clean water

and drinking water SRF’s: $6 billion

 Corps of Engineers: $4.6 billion

 DOE environmental cleanup: $6 billion

 EPA cleanup, including Superfund: $1.2 billion

 Energy  Electricity grid:

$11 billion;  Renewable

energy loan guarantees: $6 billion

 Tax credits for renewable energy projects extended


2009

2010

Forecasted Stimulus Effect on Construction


“Stimulus” projects in “Network” as of 1/24/10…

 $187B in ARRA + Shovel Ready value  4,037 “funded” projects in planning

 6,517 “funded” projects in construction  7,713 “funded” projects out for bid

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

Nationally


Total Construction Starts Helped by Stimulus Bill in 2010-2011

Total Construction Starts Including Stimulus Effect (Billions of Dollars)

  2009 total starts $419B, -24.3% from 2008   2010 total starts $463B, +9.9% from 2009

+9.9%


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

Residential (Billions of Dollars)

  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

+28.9% +12.6%

  2009 US starts $94.1B, - 23.1% from 2008   2010 US starts $121.2B, +28.9% from 2009

  2009 US starts $18.2B, -54% from 2008   2010 US starts $20.3B, +12.6% from 2009


Highway and Bridge Construction Continued improvement Under Stimulus

Construction Starts Including Stimulus Effect (Billions of Dollars)

  2009 US starts $15.5B, +11.9% from 2008   2010 US starts $17.5B +12.9% from 2009

  2009 US starts $41.5B, +6.3% from 2008   2010 US starts $47.9B, +15.4% from 2009

+12.9% +15.4%


Environmental Public Works Expect improvement from ARRA after slow start

Environmental Public Works Construction Starts (Billions of Dollars)

  2009 US starts $11.2B, - 13.9% from 2008   2010 US starts $12.9B, +15.2% from 2009

  2009 US starts $13.6B, -15.4% from 2008   2010 US starts $15.9B, +16.9% from 2009

+15.2% +16.9%


Other Public Works Will Benefit Transit/Rail Improving nationally, mixed regionally

Other Public Works, Including Transit/Rail (Billions of Dollars)

  2009 US starts $27.8B, -4.6% from 2008   2010 US starts $30.9B, +11.2% from 2009

+11.2%


Electric Generation Will Stay at 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 US starts $18.9B, -39.4% from 2008   2010 US starts $17.2B, -9% from 2009

-9%


  Investment in Renewable Energy & Conservation –  "Smart-Grid" activities $11B –  Energy efficiency grants $6.3B –  Renewable energy loan guarantees $6B

  Incentives: Manufacture of Green Energy Products

 Stimulus Boosts Solar Marketplace:   NJ to add 120 MW solar power to brown fields

and undeveloped properties   1 Block Off the Grid, the solar group purchasing

program is expanding

Renewable energy Big focus on renewable energy

Expect more support: invented AND manufactured in US


Public Buildings, While a Small Category, Stimulus boosting activity

Public Buildings (Billions of Dollars)

  2009 US starts $15.3B, +7.1% from 2008   2010 US starts $16.4B, +15.7% from 2009

+15.7%


Green Wins in Stimulus: Renovation Gets a Boost in Green

 Much of Public Building $$ to Green Renovation Projects –  GSA $4.5 billion –  DOD $4.2 billion –  VA $1 billion

  Tax breaks for Residential Energy Efficiency expanded & extended

 Stimulus in Action: •  Minnesota uses $148.6 million to renovate

schools and public facilities •  Philadelphia Housing Authority will use the

$90 million in stimulus funds to completely renovate and provide energy upgrades for 300 houses and apartments

Renovation


Healthcare Facilities 2010 rebound after sharp 2009 decline

Healthcare Construction Starts (Billions of Dollars)

  2009 US starts $20.2B, -33% from 2008   2010 US starts $21.3B, +5.6% from 2009

  Hospital chains hit hard by tight credit conditions; healthcare reform debate creates uncertainty   Demographics favor long term outlook

+5.6%


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

Educational Buildings (Billions of Dollars)

  2009 US starts $47.5B, -18% from 2008   2010 US starts $46.3B, - 2.6% from 2009

  2009 US starts $5.4B, -5.8% from 2008   2010 US starts $5.3B –2.2% from 2009

  20 states have implemented cuts to K-12 education   28 states have implemented cuts to public colleges & universities

  Major universities increased capital spending plans – but now under re-evaluation

-13% -2.6% -2.2%


Nationally… Total Construction Starts bottoming 2009, improving 2010 Billions of Dollars

2005 2006 2007 2008 2009 2010

Total Construction 670.3 689.6 639.2 554.9 421.1 463.0 +13% +3% -7% -13% -24.3% +9.9%

Single Family Housing 315.5 272.4 201.2 122.4 94.1 121.2 +12% -14% -26% -39% -23% +28.9%

Multifamily Housing 68.6 69.8 61.4 39.7 18.0 20.3 +36% +2% -12% -35% -54.4% +12.6%

Commercial Bldgs. 72.2 93.0 100.8 84.5 47.4 45.6 +7% +29% +8% -16% -44% -3.7%

Institutional Bldgs. 100.1 110.8 117.6 129.3 100.8 100.6 +12% +11% +6% +10% -15% -1%

Manufacturing Bldgs. 10.1 13.5 20.4 28.9 10.6 8.9 +26% +33% +51% +41% -64% -16%

Public Works 96.0 112.4 121.7 120 112.2 137.2 +9% +17% +8% -1% -6.5% +22.3%

Electric Utilities 7.9 17.7 17.8 30.2 18.9 17.2 +6% +125% +1% +70% -39.4% -9%


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

Nonresidential Residential Non-building

  Overall 2010 vs 2009 +10.3%   $154.4B in starts forecasted   2010 – peak year for ARRA

  Overall 2010 vs 2009 -1.2%   $167B in starts forecasted   + Institutional, PW   - Commercial

  Overall 2010 vs 2009 +26.3%   $141.5B in starts forecasted   A low base but turning upward


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


  Trends


Not if…

but different construction hemlines & trends


 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

Project Influences


Green Design


Mar

ket S

ize

$ (b

illio

ns)

Green Construction tripling in the United States by 2013

2005 2008 2013

Green Demand…


$182 Billion

$3 Billion

$29 Billion

$245 Billion

= Commercial & Institutional Market

= Green Market

$208 Billion

Green demand… Green is growing despite declining new building construction

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


Before 2006 Enacted 2006-2008 Before 2006

Increasing Government Influence


 Corporate Leaders: – Over one-third of companies (36%)

are positioning themselves around green and sustainability, up from only 18% in 2007

– Nearly all firms (95%) are undertaking at least some sustainability practices

What driving the demand? Corporate sustainability practices continue to rise

CONSTRUCTION TRENDS Source: 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

What’s driving the demand? 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


Rapid Growth of LEED in Specs


Dramatic Growth Worldwide

Europe South America

Asia Sub- Saharan Africa

36%

73%

Percentage of Firms Largely Dedicated to Green (on over 60% of projects) from 2008-2013


BIM Being Used in Green Projects

High Involvement Moderate Low

Involvement


Technology

  Technology


SmartMarket Report on Interoperability (Nov 2007)

 Studied awareness and cost of the lack of interoperability

 Major finding: – 3% of project cost is

directly related to the lack of interoperability

$600Billion x 3% = $18Billion


SmartMarket Report on Interoperability (Nov 2007)

 Secondary finding: –  2008 = Tipping point year for BIM


 Not “IF”, but “WHEN”  2008 studied implementation

and productive use –  Impact of Adoption and

Implementation •  Internal, External

– Determining Value of BIM •  Qualitative and Quantitative

–  BIM Infrastructure •  Content •  Hardware, Software, Model

management, Interoperability •  Training, Certification •  Contracts

SmartMarket Report on BIM (Dec 2008)


SmartMarket Report on BIM (Dec 2008)

  63% of BIM users will use it on more than 30% of their projects in 2009

  72% of BIM users say that BIM has had an impact on their internal project processes

  82% of Expert BIM users believe that BIM has a very positive impact on their company’s productivity

 Contractors expect to see the greatest % growth of BIM use in 2009

 Users who measure it report higher ROI than the perceived ROI of those going on “gut feel”


 The Business Value of BIM – Research; Case studies; Web

•  Adoption •  Business value •  Productivity

– Release date: September 22, 2009 – McGraw Hill BIM Conference:

•  “Getting BIM to the Bottom Line” •  September 21-22 •  UCSF Conference Center, San Francisco

SmartMarket Report on Business of BIM (Sept 2009)


ADOPTION: Current Status  49% of all respondents report using BIM

–  Architects at 54% vs.16% two years ago 36%

39%

47%

59% 47%

47%

42%

54%

57%


Intensity of Use: Forecast 2 Years

 All current BIM users –  “Very Heavy

Users” (>60% of projects)

–  “Heavy Users” (30-60% of projects)

–  “Moderate Users” (15-30% of projects)

–  “Light Users” (<15% of projects)


 Architect BIM users –  “Very Heavy

Users” (>60% of projects)

–  “Heavy Users” (30-60% of projects)

–  “Moderate Users” (15-30% of projects)

–  “Light Users” (<15% of projects)

Intensity of Use by Architects


Intensity of Use by Other AEC Types

Engineers Contractors Owners Others

 Consistent expansion across all other company types

Lot of Design/Build firms


Intensity of Use by BIM Experts

 79% of Experts forecast becoming Very Heavy Users –  20% growth in that

segment –  Light usage drops

to 1%

X


 When will you get BIM capability: –  23% = Next 12 months

–  19% = 1-2 years –  16% = More than 2 years

–  5% = Never –  37% = Not sure

NON-USERS: Current Attitude

23%

19%

16%

5%

37%

58% 42% next 24

mo’s


Intensity Levels

Mid-range 2009 Intensity

% 2009 work in BIM

2011 Intensity

% 2011 work in BIM

Very Heavy (>60%)

80% 27% 22% 52% 42%

Heavy (30-60%)

45% 18% 8% 25% 11%

Moderate (15-30%)

22.5% 21% 5% 17% 4%

Light (<15%)

7.5% 35% 3% 6% 1%

TOTALS 37% 58%

Forecasted Usage Intensity by Architects


Forecasted $ Volume of BIM Work

50% of current architects doing BIM 40% of non-users will start in next 2 years 2011 = 70% of architects will be doing 58% of their work in BIM

Est. 2011 US Volume = $600B (2007 level) 70% x 58% x $600B =

$243B being designed in BIM (40%)


VALUE: Perceived ROI by Skill Level  Skill level relates directly to experience of value

–  33% of Beginners negative ROI; 21% of Experts over 100% ROI


Why is BIM Use Growing So Fast?

 Experience of Value –  “Internal” business value to users –  ROI –  “External” value to projects

 A lot of data in the Sept 22 SmartMarket Report –  Free digital version – Deeper dive on a MHC BIM

website


VALUE: Internal Values to Users  Tangible Benefits (High/Very High)

Very High/High

Increased profits

Marketing new business to new clients

Offering new services

Reducing overall project duration

Reducing rework

Reducing cycle time of specific workflows

Maintaining repeat business with past clients

Younger staff’s learning of how buildings go together is improved

Fewer claims/litigation

Overall better construction project outcomes

Reduced construction cost

Reduced errors and omissions in construction documents

Recruiting and retention of staff


BIM implications are far reaching Consider the following... – CONSTRUCTION –

•  When major pieces of a facility are created in factory settings and assembled on a site

–  PROGRESS REPORTING - •  When each physical component knows where it is and when its been

installed and communicates

– RFIs – •  When there aren’t any coordination problems

– CHANGE MANAGEMENT – •  When field changes are rare

– DOCUMENT MANAGEMENT – •  When the model is “the source”


BIM implications are far reaching Consider the following...

– CONTRACT MANAGEMENT – •  When every intelligent object in the model knows what contract it is

associated with

– BUDGETING – •  When models are connected to the market from the start

–  ESTIMATING – •  When quantities are in the model

–  SCHEDULING/SITE LOGISTICS – •  When you can simulate virtually

–  PROCUREMENT – •  When you have visibility to suppliers and can do JIT


Strategy  Improve Collaboration Infrastructure

– Distributed collaboration - efficient communications, save time, expand available project resources

Central Office

Public Access

Document Management

Plot Deliverables

Web Browser Access

Local Caching Server

Local Caching Server Image: Bentley Systems


Strategy  Improve Collaboration Infrastructure

–  Project portals - extending access of project data

Image: Bentley Systems


Strategy  Improve Collaborative Capabilities

– Design review - improve quality, avoid costs



Strategy  Improve Design Capabilities

–  Performance simulation – optimize energy utilization

Images: Bentley Systems, IES


Strategy  Improve Design Capabilities

– Design exploration and drawing production - dynamic, models linked to drawings, save time, improve coordination



Strategy  Improve Implementation Planning Capabilities

– Construction simulation - optimize delivery, save time, shorten construction schedule



Strategy  Improve Fabrication Capabilities

– Digital fabrication - improve quality, shorten construction schedule

Images: Bentley Systems


“If you don’t like change … you’ll like irrelevance even less.”

Remember:

General Eric Shinseki, Ret.

AECOO Outlook and Key Trends


to Thrive and achieve the upside…

Strategic Planning

Analyze, Identify and Evaluate Market Conditions

and Opportunities

Brand Marketing

Build Your Company’s Market Presence and Identity

Business Development

Identify Key Project Opportunities, and Increase

Your Company’s Backlog

Process Improvement

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! [email protected]

Document

Documents

Transcript of Document