Construction’s opportunities and challenges are slowly coming into view for 2018. Forecasters are adjusting earlier predictions to account for economic and political realities, so next year’s outlook for construction is starting to look slightly less exciting. Here are strategies for dealing with the challenges and taking advantage of the opportunities.
According to the recent American Institute of Architects Consensus survey, construction’s growth for 2018 is downgraded. The predictions are that nonresidential will miss its earlier 2017 projections by almost 2 per cent and won’t grow as much as it has been previously anticipated in 2018. The commercial forecast is for slight growth in 2018 over 2017, while institutional and industrial are in for sharp declines. The factors affecting construction’s economic growth are:
- A slowing overall U.S. economy which is now projected to grow somewhere between 2 per cent and 2.5 per cent in 2018.
- Rising interest rates
- Rising material costs
- Labor shortages
According to ConstructConnect, residential construction’s increase this year over 2016 is down 3.3 per cent and the multifamily market is starting to slow from its torrid pace. Single family starts have stalled, adding more uncertainty to residential’s prospects for 2018. A part of the problem is that new family formations are lagging from historic levels.
If you build in retail, manufacturing, education, or healthcare, you face greater uncertainties than in other sectors.
If you build in retail, manufacturing, education, or healthcare, you face greater uncertainties than in other sectors. Construction has also been on a long growth pattern causing some to speculate the next cyclical downturn is overdue. With this in mind it is best to consider some strategies, regardless of the sector you work in.
Adequate cash flow and cash on hand can help cushion you by providing strength in negotiations. Keeping your customers close and increasing your marketing efforts can help stimulate the pipeline of new work. This is also a good time to get back to the basics and attend to critical project factors like accurate estimating and aggressive quality control. Do whatever you can to make your business stand out so that you gain a competitive advantage. It will serve you well when competition heats up.
However, you should also look for opportunities in work slowdowns. For one, it’s a chance to catch your breath and do a reality check on your business plan. Times change, and you need to reassess if your business plan reflects new realities. It’s also a good time to consider ways you can streamline your operations and improve business fundamentals. If you’ve been looking for a chance to diversify, this is the time to do it. Especially, if your primary sector is more vulnerable to disruption.
More of the Same on Labor
Construction’s labor problems are perennial, and, according to most sources, shortages will continue way beyond 2018. While the shortage of people is one thing, the ongoing shortage of certain skills poses extra challenges. Carpenters, electricians, and equipment operators top the list of skills in demand, while finding enough general laborers is a continuing problem for both general and specialty contractors. It’s the pipeline of available recruits that’s the problem, so many contractors must work hard to keep the people they have while following other strategies to attract talent.
- Dealing with labor challenges is a multifaceted effort. Top ideas include:
- Offering flexible work arrangements and part-time opportunities
- Partnering with local unions, trade schools, and universities to address shortages and attract new recruits
- Offering competitive pay and benefits packages
- Creating situations that encourage existing staff to retire later
Nevertheless, labor shortages can also inspire innovation. That’s exactly where the opportunities lie. Entrenched processes and methods often stay so just because people fail to question them. Labor shortages then become the catalyst for change, causing people to think about alternatives to long-standing, labor-intensive processes. You might reorder work sequences or start using automation. Adopting panelization and modular components can also lower your labor requirements for some tasks. Companies have even gone so far as to reduce the services they offer so they can improve their competency and labor mix for their core capabilities.
Construction’s labor problems are perennial, and, according to most sources, shortages will continue way beyond 2018.
Uncertain Factors for Material Prices
While material prices have been surprisingly stable, the wild card is the aftermath of Hurricane Harvey. Major disruptions to refining will affect manufacturing and, ultimately, the materials and tools used in construction. The continuing drama over trade agreements is injecting uncertainties into the materials picture, and some materials like steel mill products are on the rise. So while materials prices are expected to only post modest gains in 2018, there are factors that could easily upset that prediction.
Dealing with material prices fluctuations is often a long-term game where you have to balance acquisition with project needs. Stockpiling, for instance, can often cost you more in storage, damage, and theft than you gain by buying ahead of time. The best hedge is to stay aware of what’s affecting material prices and, after identifying your critical materials, set up alternative sources, in case the worst comes to pass.
Low volatility in materials prices does offer some opportunities. Buying as needed keeps your cash flow closer to positive, and setting up agreements with suppliers to lock in favorable prices provides more certainty for project budgets.
If 2018 shapes up to have lower business volume than previously expected, technology is going to be a game changer for many companies.
Finally, there is the technology picture to consider. If 2018 shapes up to have lower business volume than previously expected, technology is going to be a game changer for many companies. With the use of the building information modeling, companies can now get highly accurate project timelines.
Drones, mobile devices, project management software, collaborative tools, and data driven automation are all helping to move the construction processes into the 21st century. The trick is to make wise choices so you aren’t chasing app after app while missing out on integration with the rest of your business. You need to have a firm grip on the interdependencies of your processes, hold vendors to their guarantees, and keep the big picture top of mind.
If you liked this article, here are a few eBooks you might enjoy: