Strategy Management Consultancy US Regional Analysis k n o w l e d g e c e n t e r 2017 linesight.com/knowledge
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 Contributors: Pat Ryan, Steven Cooke, Declan Comer, Joe Cusick, Michelle Cooke Linesight 2017 2 US
US Market Review 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 nonresidential building 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. 3 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) 4 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. Major project starts 2016 Vista Tower One Bennett Park Major project starts 2017 McDonald s HQ A.Finkl & Sons steel plant redevelopment 5 US
Macro indicators Value of construction output public/private 2006 2017 $bn 2000 1750 1500 1250 1000 750 500 250 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Public Private Source: US Census Bureau US construction by type of work 2017 6 7 1 2 3 5 Private 1 6 Public 4 4 3 2 5 1. Residential 2. Commercial 3. Health Care 4. Educational 5. Miscellaneous 6. Infrastructure 7. Manufacturing 520,912 82,575 30,916 19,191 107,240 132,568 60,752 1. Residential 2. Commercial 3. Health Care 4. Educational 5. Miscellaneous 6. Infrastructure 5,630 11,351 9,462 67,305 23,798 144,378 Note: Millions of dollars. Figures are up until August 2017. Source: US Census Bureau 6 US
US earnings in construction 2007 2017 $ 30 25 20 $23.01 $23.96 $24.83 $25.20 $25.42 $25.74 $26.12 $26.68 $27.35 $28.10 $28.69 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Note: Average earnings per hour Source: Bureau of Labor Statistics Employment in construction 2008 2017 8,000,000 7,500,000 7,000,000 6,500,000 6,000,000 5,500,000 5,000,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bureau of Labor Statistics 7 US
Euro vs dollar 2011 2017 1.5 1.4 1.3 1.2 1.1 1.0 Jan Apr Oct Jan Apr Oct Jan Apr Oct Jan Apr Oct Jan Apr Oct Jan Apr Oct Jan Apr Oct 2011 2012 2013 2014 2015 2016 2017 Source: European Central Bank 8 US
Linesight average American construction costs 2017 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 fees 2. Costs based on January 2017 prices 3. The costs are representative of typical specifications for each type of building and do not account for any site abnormal costs 4. The costs do not allow for any loose furniture, fittings and equipment, external works, landscaping works Source: Linesight 9 US
Indices Annual construction cost index 11,000 10,000 9,000 8,000 7,000 6,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Engineering News-Record 1913 = 100 10 US
US regional building cost index Birmingham 0.86 Cincinnati 0.93 New Orleans 0.93 Dallas 0.93 Cleveland 0.94 Detroit 0.94 Denver 0.94 Atlanta 0.94 Minneapolis 0.96 Seattle 0.97 Baltimore 0.97 Washington DC 1.00 Pittsburgh 1.01 Chicago 1.05 Boston 1.06 Philadelphia 1.06 Los Angeles 1.14 San Francisco 1.19 New York City 1.20 Source: Compass 16th annual edition 11 US
Top US contractors and design firms Top 20 US contractors 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 Top 20 US design firms 2016 rank Firm revenue $bn 1 Aecom EAC 7.43 2 Jacobs EAC 6.39 3 CH2M EAC 3.55 4 Flour Corp EC 3.29 5 Tetra Tech Inc E 2.65 6 CB&I LLC EC 2.22 7 AMEC Foster Wheeler EC 1.94 8 HDR EAC 1.93 9 KBR EC 1.92 10 Stantec Inc3 EAC 1.62 11 Bechtel EC 1.60 12 Parsons EC 1.51 13 Arcadis North America EAC 1.41 14 WSP I Parsons Brinckerhoff E 1.38 15 Black & Veatch EC 1.38 16 Burns & Veatch EAC 1.31 17 Intertex-PSI E 1.20 18 Gensler A 1.19 19 HNTB COS EC 1.03 20 Golder Associates E 0.90 Key to type of firm: A=Architect, E=Engineer, C=Contractor Note: 2017 ranking is based on design services performed in 2016 Source: Engineering News-Record 12 US
New York (East coast) 286 Madison Avenue Suite 602 New York, NY 10017 USA T: +1 646 802 9900 Patrick Ryan patrick.ryan@linesight.com San Francisco (West coast) 388 Market Street Suite 1300 San Francisco, CA 94111 USA T: +1 415 234 1248 Steven Cooke steven.cooke@linesight.com