Hot Topics
Greatest Concerns for Commercial Builders: QBE North America, an insurance company headquartered in New York City, surveyed 500 commercial general contractors and construction managers between March 11 and March 24 to identify the primary risks threatening the success of commercial construction projects. While cybersecurity topped the list, other concerns that dominate the industry include cost overruns, high interest rates, labor shortages, and the potential for an economic downturn.
The results of the survey suggest that while respondents are worried about these exposures and threats to their business, they are also least prepared to manage the potential impact and loss from these specific concerns. This is especially true for smaller to mid-sized construction firms, which often operate with less financial capacity than their larger counterparts.
Bolstering Cyber Defenses – About 42% of survey respondents highlighted cybersecurity as the industry’s top risk. Employees need to know how to recognize potential cyber threats and how to report them. Firms can limit their cyber risk exposures by (a) training workforces to adhere to cybersecurity best practices, (b) working closely with information technology support to identify vulnerabilities, and (c) regularly updating their software and operating systems.
Addressing Labor Shortages – With ongoing labor shortages, some companies may be faced with hiring inexperienced workers. This can lead to increases in injuries, quality issues, and equipment damage, all of which raise the potential for increased liability exposure. To mitigate such exposure, companies must adopt strong hiring practices to ensure employees and subcontractors have the necessary credentials. This includes a comprehensive orientation of the work environment, a safety plan review, onsite training, and regular check-ins to monitor progress.
Navigating Financial Conditions – High interest rates are impacting attempts to move projects forward. Owners and developers tend to be more hesitant to invest when rates are high. Along with high interest rates and labor costs, until recently there has been an upward trend in material prices. To address these financial uncertainties, companies must closely review budgets, get ahead of cost overruns on projects, and add contingencies into contracts on future endeavors.
The commercial construction industry is being confronted with a multitude of risks with new challenges continuing to emerge. Mitigating the potential impact of these risks requires an ongoing commitment and proactive measures to ensure a more efficient, safer, and resilient future.
Construction Job Outlook for 2024: The construction job outlook for 2024 is exceptionally favorable. The labor shortage continues to increase as senior workers near retirement age, many workers transition to other industries, and younger generations choose other professions. In February 2024, the U.S. Bureau of Labor Statistics (BLS) identified 456,000 construction job openings. As a result of the above factors, opportunities to enter or advance within the construction industry are increasing. The availability of construction jobs from apprenticeships to supervisory roles lets workers find jobs that align with their goals and interests. According to Associated Builders and Contractors, in 2024 the construction industry must attract an additional 501,000 workers on top of the normal hiring pace to meet labor demand. As a result, many construction firms offer an attractive culture, competitive compensation and perks, and exceptional employee experiences to attract and retain workers.
There is also a growing need for specialization within the industry. Data from the BLS shows that opportunities for electricians will grow 6% from 2022 to 2032, faster than the average for all other occupations. An average of approximately 73,500 openings for electricians are projected each year over the decade. There is also a strong need for sheet metal mechanics, pipefitters, and other skilled workers.
Looking ahead over the next decade, four workforce trends are expected in the construction industry:
- Rising Compensation – Many construction firms are raising compensation rates to attract and retain employees. Some firms are also offering hiring bonuses and additional benefits.
- Increasing Job Stability – The growing demand for construction workers offers strong job stability. Many firms are focused on filling employee needs to increase engagement, close the skills gap, and strengthen retention. Also, by attaining transferrable skills an employee can qualify for additional opportunities with increased income and benefits.
- Growing Use of Technology – Construction technology spending is growing due to the worker shortage. For instance, firms are investing in equipment and software to streamline tasks, elevate safety, and improve project outcomes. By learning to use new construction technologies employees can position themselves for increased job opportunities.
- Additional Professional Development Opportunities – Construction firms are focusing more on developing internal talent to attract and retain employees. One survey found that 41% of firms are elevating investments in training and professional development programs, while others are upskilling and reskilling their employees and training apprentices and entry-level hires to support construction career growth.
Economic Uncertainties Impact the Construction Industry: A recent report issued by Deloitte examines the strategies and performance of the world’s 100 largest construction companies in 2023. To be included, companies must be publicly traded with a significant portion of their revenue arising from building and civil works. “The construction industry is still coping with the lingering impacts of the COVID-19 pandemic, including commodity pricing surges, supply chain disruptions, and exchange rate fluctuations, and growth is expected to be sluggish in 2024, especially in advanced economies,” says Javier Parada, Deloitte Global Engineering & Construction leader. “However, there should be a steady growth trajectory through 2030 with opportunities emerging as the global infrastructure gap caused by population growth, urbanization, digital transformation, and decarbonization is addressed.”
Many companies are alleviating risk through increased diversification and internationalization. The top 100 companies generated 25% of their 2023 revenue from non-construction activities and 18% from international activities. Diversified activities such as real estate, services, and concessions, provide more predictable revenues and higher operating margins than construction activities. At the same time, internationalization reduces dependency on local markets and provides access to high-growth regions, although this comes with challenges in the form of different regulatory frameworks and business models.
Despite the lingering effects of the pandemic and geopolitical tensions, modest growth is still predicted for most geographies. U.S.-based companies saw an astounding 50.1% increase in market capitalization in 2023, with sales accounting for approximately 8.3% of global revenue. Looking ahead, U.S. government initiatives will drive substantial investments in transportation infrastructure, utilities, and technology.
With construction accounting for 37% of global CO2 emissions, the Paris Agreement calls for the industry to halve its emissions by 2030 and achieve net zero across new initiatives and existing assets by 2050. This poses significant challenges since the industry relies heavily on high-carbon processes. The move toward decarbonization will likely impact the global industry, including technological adaption, workforce changes, industry fragmentation financing, and data collection and benchmarking
Notwithstanding challenges, strong opportunities for construction companies exist in the form of portfolio diversification, international sales, and widespread investments in infrastructure, energy, transportation, and urban development.
Material Prices Down in June: According to Associated Builders and Contractors (ABC), compared to the previous month June construction input prices fell 0.3%, including a 0.4% decline in prices for nonresidential construction. Despite the June decrease, construction input prices overall are up 1.1% from a year ago, while nonresidential construction input prices are 0.7% higher.
“Construction material prices dipped in June, perhaps a reflection of declining project starts in several construction segments and an associated dip in demand,” said ABC chief economist Anirban Basu. “For instance, input prices fell in the multifamily segment, where many contractors indicate substantial softening of demand for their services. The same was true of input prices in commercial construction segments.”
“While ABC members continue to report stable backlog as measured by the Construction Backlog Indicator and steady confidence as measured by the Construction Confidence Index, there remain reasons for concern,” Basu said. While construction input prices fell in June, overall inflation as measured by the Producer Price Index is hotter than anticipated. The Federal Reserve is still looking for data indicating that 2% inflation will soon be re-established, so recent data may forestall much-anticipated and desired interest rate cuts, which would be damaging to construction industry prospects.
Trends in Used Equipment Values
Overall, the U.S. equipment market is characterized by rising inventory levels across various equipment categories, putting downward pressure on both asking and auction values. Despite some monthly fluctuations, the general trend suggests a market with growing supply and waning demand, particularly in heavy-duty trucks, semitrailers, and certain construction equipment categories.
According to the newest Sandhills Global market reports, inventory levels of medium- and heavy-duty construction equipment continue to surge. “Inventory levels across the construction industry have been rising for months,” says Director of North American Construction Stephanie Olberding. “That trend has had a negative impact on values, as the newest market reports show. Track skid steer inventory increases have been especially steep, with inventory levels exceeding pre-pandemic levels and auction values 10% lower than they were a year ago. If these trends continue, we’ll expect other equipment categories to follow.”
Specific observations regarding U.S. trends related to used heavy-duty construction equipment and lifts are as follows:
U.S. Used Heavy-Duty Construction Equipment
During May, the inventory of used heavy-duty construction equipment continued to increase, although at a slower rate than medium-duty construction equipment. Inventory in the heavy-duty market rose 1.47% month-over-month and 18.91% year-over-year and is following an upward trend. The used wheel loader category exhibited the most pronounced inventory increase with gains of 5.17% month-over-month and 29.13% year-over-year. Values have also been impacted by the rise in inventory levels. Although asking values declined over several months, they were stable month-over-month in May. However, these values were 3.74% lower than one year ago. Auction values have also shown months of decreases. In May, auction values were down 0.47% month-over-month and 7.9% year-over-year.
U.S. Used Lifts
The U.S. supply of used lifts decreased 2.02% month-over-month but is on an upward trajectory. On a year-over-year basis, inventory levels were 4.25% higher. In May, asking values increased 0.71% month-over-month but are trending downward, with a 6.9% year-over-year decline. Conversely, auction values ticked downward by 1.19% month-over-month, continuing a pattern of consecutive decreases, and were down 13.93% year-over-year.
Although values for used equipment overall have been trending down, that does not appear to be the case for late-model low-hour equipment. The demand for such equipment continues to be strong due to several factors, including new infrastructure improvement projects, the upward trend in the cost of new equipment, economic uncertainty, the lack of available capital, depreciation woes, costly breakdowns, and limited space availability. Considering these factors, the values of late-model low-hour equipment are likely to maintain steady levels through 2024, barring any unforeseen financial downturn in the markets.