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)?!
2 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
HistoryFounded by James H. McGraw, Frederick W. Dodgeand Clinton Sweet Over 100 Years Ago
TodayServes One Million Customers Within the $4.6Trillion Global Construction Community, HelpingIndustry Enterprises Save Time, Money and Energy
McGraw-Hill ConstructionMarket 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
Connectingpeople and productsto projects…
construction information
Founded over 100 years ago
• Key industry alliancesOver 1,000,000
customersServing private sector, government, financial community
Get Smarter Get Seen &
Selected
Find
Opportunity
Sell & Market
Smarter
MHC Integrated
Media:
Print, Online,
Events
MHC
Research &
Analytics
MHC Network®
& Dodge
Database
MHC
Performance
Tools
through the four business essentials
3 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Trends
US & Global
– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
Job Creation
Capital
Innovation
4 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
5 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
6 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
7 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
8 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Trends
US & Global
– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
Job Creation
Capital
Innovation
Not yet
Improving
Emerging
9 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Trends
US & Global
– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
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).
10 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
$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!
11 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
12 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
13 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
14 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
15 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
“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
16 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
17 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Residential bottoming out in 2009,Early signs point to an upturn in 2010…
Residential
(Billions of Dollars)
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%
18 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Highway and Bridge ConstructionContinued improvement Under Stimulus
Construction Starts Including Stimulus Effect
(Billions of Dollars)
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%
19 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Environmental Public WorksExpect improvement from ARRA after slow start
Environmental Public Works Construction Starts
(Billions of Dollars)
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%
20 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Other Public Works Will BenefitTransit/Rail Improving nationally, mixed regionally
Other Public Works, Including Transit/Rail
(Billions of Dollars)
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%
21 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
22 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
23 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
24 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
25 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
26 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
27 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Healthcare Facilities2010 rebound after modest 2009 decline
Healthcare Construction Starts
(Billions of Dollars)
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%
28 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
29 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Office Construction in Retreat,Upturn was measured this time, however…
Office Construction Starts
(Billions of Dollars)
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%
30 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
31 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Hotel Construction in Sharp Correction,Similar story…
Hotels and Motels
(Billions of Dollars)
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%
32 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
$39.1B in starts forecasted
Tracking at US growth %’age
Overall 2010 vs 2009 +35.6%
$35.6B in starts forecasted
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
33 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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%
34 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
35 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
36 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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”
37 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Trends
US & Global
– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
Not if…
but differentconstruction hemlines & trends
38 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Trends
US & Global
– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
“Overall, industry specific
innovation does not follow,
but creates expansion”“The Instability of capitalism”
- Joseph Schumpeter –1928
39 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
40 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
41 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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…
42 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
43 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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)
44 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
45 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
46 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Increases in Productivity Broadly Influence SocietyBy Improving Standards and Creating Income
The correlation between growth & innovation…Focus on productivity gains is driving innovation
47 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
48 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
49 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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.
50 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
51 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
52 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
53 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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”?
54 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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?
55 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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 -
56 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Trends
US & Global
– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
Strategic planningramifications and considerations
57 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
2005
Customer Priorities
1.
2.
3.
2009
Customer Priorities
1.
2.
3.
2013
Customer Priorities
1.
2.
3.
Customer priorities trajectory
Strategic planning tools...
58 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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?”
59 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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...
60 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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...
61 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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?
62 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Trends
US & Global
– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
Marketing plansother factors & fundamentals
63 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
64 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
65 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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
66 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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?”
67 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
Trends
US & Global
– Sustainability/Green Building
– Interoperability and BIM
– Workforce/Labor
– Innovation
– Materials
– Project Delivery Methods
“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
68 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.
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:
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