The construction industry has seen a strong 2019, with a variety of product types fueling demand. C.W. Driver saw particular growth in higher education, K-12 and civic work, as well as strong demand in the senior housing space.
As we prepare to enter 2020, here are the five most important factors that we project are most likely to impact construction moving forward, presenting both opportunities and challenges in the new year:
The Impact of a Potential Downturn
While no one has a crystal ball about when a potential
softening of the market may occur, 2020 construction projects have been in the pipeline for quite a while now, making a potential recession unlikely to have a major impact on projects next year. Particularly for civic, K-12 education, higher education and other projects funded by public bonds — sectors where C.W. Driver is very active — a market dip is unlikely to have a major impact.
The Architecture Building Index (ABI) — a leading economic indicator — does show a softening of certain market types, such as mixed-use and industrial. However, institutional and multifamily remain stable. The outlook for projects in the western U.S. is particularly strong, with little indication that a negative swing is on the horizon.
What does this mean for construction firms? It’s important to stay nimble and adapt based on
market dynamics, but overall, we’re optimistic that 2020 will be a strong year for the industry, particularly for companies with a diverse project set.
Modular and prefabricated construction, in which buildings or certain components of buildings are constructed offsite in a factory before being installed in their final location, will likely become much more commonplace in the new year. The controlled environment of a factory eliminates weather and other unforeseen delays inherent in the outdoor environment of construction sites, and it provides a standardized setup where all the necessary tools and machinery are easily available and accessible. When the components reach the construction site, they can be installed much more quickly, which can significantly shorten construction timelines — a benefit for all stakeholders involved. Sustainability is another added benefit. The controlled environment of a factory allows for more accurate use of materials and makes it easier to recycle on-site.
The cost benefits remain to be seen, but as more manufacturers offer prefabrication, and as modular construction saturates the market, economies of scale will likely make it a more cost-effective construction method.
VR & Enhanced Technology
Rapid advancements in technology will continue to improve the way the construction industry operates in 2020. Virtual reality (VR) is changing how owners make decisions in a big way, as they are now able to put on goggles and see in 3D how a building will look. Down to the colors, textures and finishes, owners can visualize what their project will look like and be confident in their design choices, as they can virtually toggle between each option to see what it looks like in the given space. This can significantly reduce the changes or corrections made later in the project, which helps keep projects on time and on budget. While VR is available now, it’s likely to become much more widely available on projects in 2020 and beyond.
Drone technology is also making a major impact. We can now fly drones above construction sites to get a comprehensive look at any given time. If we need to see a rooftop or other project component, we can see real-time video and photography in mere minutes and track project progression over time.
3D scanning is another valuable tool that helps to streamline documentation, improve collaboration and collect highly detailed information about the project site. 3D scanning, along with Building Information Modeling (BIM), are integral in identifying potential issues, avoiding costly mistakes due to a lack of information and effectively working with project partners and subcontractors.
Stabilizing Construction Costs
While continuing to rise, construction costs saw much more manageable increases in 2019 than in years past. This trend will likely continue in 2020. For the years leading up to 2019, we were experiencing 5% to 6% yearly increases, meaning that a project may increase in cost by 15 to 18% during the entitlement and permit period. Now, we’re
seeing increases close to 2% to 3%, which is much more manageable. While trade issues and tariffs make it somewhat difficult to project how material costs for steel, lumber, concrete and certain other commodities will fare in 2020, we don’t anticipate that they’ll rise to the levels we saw in 2017 and 2018.
One way to minimize these increases is to lock in p
rices as early as possible. By negotiating with the trades and securing materials early during pre-construction, budgets become much more predictable. Get subcontractors’ and project partners’ input on where commodity prices are headed in an effort to keep your finger on the pulse of the market and secure materials before costs escalate, if necessary.
Continued Manpower Shortage
While material costs may be stabilizing, the severe labor shortage the construction industry experienced in 2019 will likely continue through 2020. There simply aren’t enough people working in certain trades. Ensure projects are staffed up by engaging the owner and key subcontractors as early in the process as possible to develop a construction timeline and ensure their time is earmarked for the project duration. It’s also critical to keep projects on schedule, as deviations from initially agreed-upon dates puts your project at risk of losing subcontractors who have not reserved their time for potential project overruns or schedule changes.
As we close 2019, we are optimistic about what’s to come for the construction industry. In 2020, it will be more important than ever for firms to be innovative in their adoption of new technologies and construction methods, while getting creative in managing costs and adapting to shifting demand.
Karl Kreutziger is the president of C.W. Driver Companies, a premier builder celebrating its 100-year anniversary this year. As a leader in general contracting and construction management services, C.W. Driver Companies is on the cutting edge across a broad spectrum of industries, including education, commercial/office, biomedical/life sciences, hospitality and gaming, assisted living, entertainment, retail and civic. For more information, please visit cwdriver.com.