At VMA’s annual Market Outlook event held in August 2013, Harvey Bernstein, vice president of industry insights and alliances at McGraw Hill Construction, appeared for the first time as a speaker and shared important insights into the key trends and outlook for institutional construction.
U.S. Construction Trends and Outlook
The data from which Bernstein extrapolated the industry trends came from six different sources including Dodge Construction Outlook and Forecasting Service, ENR Top Lists and the Industry Association Network.
There have been solid increases of construction starts in the last two years, up 8% overall in 2013 compared to 2012. Looking ahead, however, an 18% increase is expected between 2013 and 2014, with the biggest increase in multi-family residential, which is expected to climb 23% in 2013 and 17% in 2014. Multi-family housing will be growing so much because, according to Bernstein, families have been and will be moving into apartments due to retirement of baby boomers, foreclosures, and losing or changing jobs, along with the uncertainty that is inherent in those changes.
Following multi-family residential is office buildings with an 18% increase to $22.3 billion expected in 2014. Expansion in this sector is partially due to the growing need for and reliance on digital information, which results in the need for data storage facilities. The volume of data storage is growing 40% to 60% each year and by 2015, data center space devoted to cloud computing will be 12 times higher than in 2010. Bernstein does expect continued growth in mid-term, though changing trends (telecommuting, smaller office spaces, etc.) mean office building will never return to its 2007 peak.
Manufacturing building will vary by region with an overall 14% rise to $15 billion anticipated in 2014. Education building dropped off in the last few years because of money problems in municipalities, but Bernstein projected that it will grow an anticipated 11% in 2014. Strength in education building will continue in 2015 and beyond, thanks to improving local economies, improved public-finance credit ratings and high enrollments causing pent-up demand.
Returning veterans and an aging population are behind the growth in healthcare buildings, expected to be $24.6 billion, up 11% in 2014 after a year of no growth from 2012 to 2013. Bernstein expects the turnaround to be sustained due to the need for upgrades and retrofits of existing facilities and increased demand for capacity.
Overall, construction starts (other than single family residential) are expected to finish 2013 at $507.1 billion, and projected into 2014, totally $599.4 billion. The long-term construction market is positive in institutional building, slower in commercial.
Bernstein noted that the biggest percentage of growth in non-residential starts will be in “green” building, rising from $25 billion, or about 12% of the market in 2008, to $67 to $71, or 45 to 48% of the market in 2013. By 2016 it could be as high as 55% of the market, or $131 billion. In the past, “green” simply meant reducing energy use, but now it is more about the impact the building has on the occupants.
Green building includes geothermal, greywater recycling and more efficient HVAC systems. All of these require valves and piping, even if it is a new system within an older building. In 2009, 63% of projects had little or no green focus; in 2015 it is expected that 93% of projects will have moderate to high involvement. Since green construction requirements do make a difference when valves are being specified, this is definitely an area that manufacturers should monitor carefully.
During the downturn, the regular residential builders were going out of business, but the green builders were holding their own or growing.
Current Trends and Opportunities
In down markets, Bernstein said, specifiers are less concerned with specifying a particular type of valve as cost is a paramount consideration. However, future product and policy trends are driving industry change in manufacturer expectations.
Customers want to know that what they see is what they get. That means you must be able to show product attributes and materials, and be able to provide sourcing data for the materials. There must be transparency in supply chain and product attributes.
Prefab and BIM
Building information modeling (BIM) is transforming the construction industry. Instead of CAD drawings, BIM generates and manages digital representations of physical and functional characteristics of a facility. It integrates directly with other digital tools and produces drawings and specs as needed. The focus is on assemblies and systems rather than discreet materials and products.
In 2007, BIM was only used in 28% of cases; in 2012, it was used 71% of the time. For valve manufacturers, that means BIM objects will become a necessity and will help with product specification and selection. BIM lowers the chance of spec changes and gives specifiers confidence your product information is current and accurate. It also ensures compatibility of your product information with changing software programs.
Another change will be prefabrication and modular construction, which will increase and change distribution, manufacturing and sales strategies. In the future, prefabrication of MEP building systems, wall units, etc., will become standard. This will affect valve, actuator and control manufacturers because there will be more centralized procurement practices. There will be volume opportunity for your products. New product transport logistics will be easier due to fewer locations for product deliveries to prefabrication facilities versus a number of different jobsites. It will necessitate more immediate marketing and communication strategies (for example, you will need to know immediately if there are dimensional changes in a ball valve that impact the model.) Product manufacturers will compete on BIM model attributes, not just price and quality.
Building in the Future
Looking forward to the future of construction, Bernstein shared some of the most interesting trends. While he anticipates that many of the lower-skill labor functions will be carried out by robots, the humans who do work in the industry will need to hone higher-level skills such as critical thinking, innovating and problem solving.
The buildings themselves will be more user-friendly and will be much more environmentally friendly. Bernstein noted that biomimicry—mimicking nature—will be applied in designs, allowing for significant reductions in resource use and enhancing sustainable design. Thermobimetals are breathable skins for buildings that respond to fluctuating heat and weather conditions. Inspired by human skin, thermobimetals encase buildings and allow them to “breathe.” Metal strips bend to shade building or open to release heat. An implication of this for the valve industry means that future HVAC systems will need to take into account these new energy-efficient, passive methods of ventilation.
The U.S. construction market is improving with dramatic increases in the longer term. There will be continued growth of green, which will lead to higher use of greywater recycling systems and other system changes. Digital design and prefabrication/modularization will transform product sales, marketing and distribution strategies for valve manufacturers. Innovations in product materials and greater emphasis on building system performance will change expectations of product manufacturers.