Market Outlook Construction Forum Situation Report, January 8, 2021

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Session Presenters

  • Richard Vermeulen, Lead Economist, Vermeulens
  • Blair Tennant, Associate Principal, Vermeulens

Evolving Trends in Financial and Labor Markets

  • expecting a minor decline in the coming quarter, generally flat escalation
  • work backlogs have been depleting
  • US dollar and NYSE are still very volatile
  • crude oil is stabilizing; pricing is flat, which is consistent with the construction labor market
  • anticipating a construction slow-down in Q1 and Q2 of 2021 based on 2020 AIA Billings
  • construction unemployment is relatively minor, only down 200,000 jobs nationally since February 2020
  • unit rates will be held at 2020 values
  • 3%-4% escalation for new projects between Q3 2020 and Q2 2021
  • margins offsetting cost increases in materials, labor, and construction efficiency
  • design add alternates in the 10% cost range
  • complex and occupied renovations will come at a lower premium (attractive in the current market); occupants can work/study from home

Escalation Forecast and Procurement Strategy

  • contracting construction markets in most states
  • construction remains local-market dependent
  • put in place construction volume is at 2019 levels
  • healthcare spending levels are looking good whereas education spending has declined
  • low escalation for Q1 and Q2
  • consider CM for preconstruction only until acceptable GMP is established; more attention on bid projects; need to weigh quality of service with first costs
  • buying opportunity for early 2021: plan and program ’90 to 105’; will generate more aggressive pricing from the subs as they continue their hunt to fill up their backlogs; pricing to be flat to -5%
  • buying projects in Q3/Q4 2021 could have much more volume out for procurement; expect pricing increases 2-4%
  • buying projects in Q1/Q2 2022 could continue to see more volume for procurement; expect pricing increases 4-8%

Trends to Watch in the Built Environment

  • forest reserves are much larger than current demand; home and wood prices will spur rapid growth in supply, already seeing a spike in wood prices
  • mass timber and nonresidential design will accelerate timber adoption and technologies
  • thoughts on establishing a framework for total benefit analysis in the built environment
  • nature of the workspace is expected to change from cubical spaces to communal space (social and collaborative spaces)
  • workspaces becoming attractive destination; anticipating an increase in the days people work from home, on average

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