commercial building construction in the us industry report

8/18/2019 Commercial Building Construction in the US Industry Report

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WWW.IBISWORLD.COM Commercial Building Construction in the US July 2012 1

IBISWorld Industry Report 23332aCommercial BuildingConstruction in the USJuly 2012 Andrea Alegria

Reconstruction era: Recovery makes its way as vacancy rates fall and corporate pro t returns

2 About this Industry2 Industry Denition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

14 Products & Services

15 Demand Determinants

16 Major Markets

17 International Trade

18 Business Locations

20 Competitive Landscape20 Market Share Concentration

20 Key Success Factors

20 Cost Structure Benchmarks

22 Basis of Competition

23 Barriers to Entry

24 Industry Globalization

25 Major Companies

29 Operating Conditions29 Capital Intensity

30 Technology & Systems

31 Revenue Volatility

31 Regulation & Policy

32 Industry Assistance

33 Key Statistics33 Industry Data

33 Annual Change

33 Key Ratios

34 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com


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The Commercial Building Constructionindustry includes rms that are primarilyresponsible for work on the construction(i.e. new work, additions, alterations,maintenance and repairs) of of ce, retail,hotel and entertainment buildings. The

majority of participants are generalcontractors or project managers. Thisindustry does not include municipal

building construction, which comprisesinstitutional buildings such as schools,hospitals, and churches.

The primary activities of this industry are

Ofce building construction

Hotel and motel construction

Restaurant, cafe and bar construction

Retail store construction

Shopping center or shopping mall construction

Public commercial warehouse construction

Service and gas station construction

Auto service and sales store construction

Entertainment and recreation building construction (i.e. casinos, gyms, cinemas and arenas)

Radio and television broadcast studio construction

23 Construction in the USOperators in this industry perform specialized construction work.

23611a Home Builders in the USEstablishments in this industry primarily construct residential buildings.

23611b Apartment & Condominium Construction in the USIndustry establishments construct residential buildings.

23331 Industrial Building Construction in the USThis industry constructs industrial buildings.

23493 Heavy Industrial Facilities Construction in the USEstablishments in this industry construct non-building structures, such as industrial processes, power plantsand blast furnaces.

53 Real Estate and Rental and Leasing in the USIndustry operators nance and develop commercial property.

Industry Denition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Construction management services

General contractingRemodeling contracting

Other business activities

Other non-building construction activities


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About this Industry

54131 Architects in the USCompanies in this industry provide architectural design for buildings.

54133 Engineering Services in the USFirms in this industry provide engineering design and project management services.

23332b Municipal Building Construction in the USEstablishments in this industry construct institutional buildings (e.g. hospitals, schools and prisons).

Similar Industriescontinued

For additional information on this industry

www.reedconstructiondata.comReed Construction Data

www.agc.orgThe Associated General Contractors of America

www.census.govUS Census Bureau

Additional Resources

IBISWorld writes over 700 USindustry reports, which are updatedup to four times a year. To see allreports, go to www.ibisworld.com


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SOURCE: WWW.IBISWORLD.COM

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Revenue vs. employment growth

Products and services segmentation (2012)

67%General contracting

15%Remodelingcontracting

10%Construction

management services

7%Other non-building

construction activities1%

Other businessactivities


Key StatisticsSnapshot

Industry at a GlanceCommercial Building Construction in 2012

Industry Structure Life Cycle Stage MatureRevenue Volatility High

Capital Intensity Low

Industry Assistance None

Concentration Level Low

Regulation Level Heavy

Technology Change Medium

Barriers to Entry Low

Industry Globalization Low

Competition Level High

Revenue$105.9bnProt

$1.9bnWages

$74.0bnBusinesses

29,012

Annual Growth 12-176.8%Annual Growth 07-12-13.4%

Key External DriversConsumer spendingOfce rental vacancyNationalunemployment rateS&P 500Yield on 10-yearTreasury note

Market ShareThere are noMajor Players in

this industry

p. 25

p. 5

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33



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Key External Drivers Consumer spendingConsumer spending, as an indicator ofthe total amount spent by Americanson services and new goods as well asnet purchases of used goods, directlyimpacts US businesses. High consumerspending contributes to businessexpansion, which fuels demand for newof ce buildings, new retail spaces, suchas stores and shopping centers, andnew hotels. Consumer spending alsodrives demand for construction of

amusement and recreational spacessuch as casinos and theaters. Thisdriver is expected to rise in 2012.

Office rental vacancyThe need for new commercial propertiesoften depends on of ce vacancy rates,

with higher rates signaling weakdemand or over-development. Existingof ce space will usually be lled up rst(of ce vacancy rates will drop) beforenew of ce buildings are constructed.

ExecutiveSummary Few industries have been more adverselyaffected by the recession thancommercial construction. The totalcollapse of the housing market and itssubsequent strain on the nancial sectorset the stage for a stagnant commercialconstruction market. Reduced corporatepro t, high unemployment and lowconsumer spending contributed to theindustry’s decline as businesses stoppedgrowing or even downsized, which halteddemand for new of ce space and

warehouse construction. High

unemployment and low consumer

spending also severely hurt the retail andhospitality sectors. As a result, industryrevenue is expected to fall at an averageannual rate of 13.4% to $105.9 billionover the ve years to 2012.

Commercial construction tends to lag behind the overall economy by 12 to 24months (due in part to the length ofconstruction contracts and industry

backlog). The industry began to slow in2008 and underwent steep revenuedeclines in 2009 and 2010 of 29.7% and30.3%, respectively. Especially duringthose years, most contractors saw

backlogs diminish to unprecedentedlevels, despite the in ux of stimulusdollars, causing pro t to shrink. As themarket for construction servicesdeclined, rms had to cut pro t marginsand even bid on projects for a loss, just tokeep their crews busy. In 2009 and 2010,pro t margins dropped to less than 1.0%from a peak of 5.0% in 2007. Margins areexpected to remain low in 2012, at 1.8%,showing modest improvement aseconomic recovery stimulates demandfor new commercial construction and as

the prices of services gradually increase. After three years of consecutiverevenue decline, the industry is expectedto begin recovering in 2012, with revenueexpected to grow by 2.1%. Even morepromises, over the ve years to 2017revenue is projected to increase at anannual average rate of 6.8% to $147.1

billion. Industry growth will be driven bycontinued improvements in the USeconomy, with demand for constructionprojected to steadily rise as businesses

begin to expand operations.Over the next ve years, merger and

acquisition activity will becomeprominent in the industry as theconstruction markets recover andmore established rms compete formarket share. The number of rms

will grow moderately by 2.1%, totaling32,230 in 2017.

Industry PerformanceExecutive Summary | Key External Drivers | Current PerformanceIndustry Outlook | Life Cycle Stage

Businesses will expand as the economyrecovers, driving industry demand


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Industry Performance

Key External Driverscontinued This driver is expected to decrease in2012, as economic recovery fuels businesses expansion. Decreasing vacancy rates are a potentialopportunity for commercialconstruction industry growth.

National unemployment rateUnemployment is an important driver ofindustry performance because the needfor additional space diminishes as

businesses shed workers. Additionally,consumer spending signi cantly

in uences the commercial segment because retailers and other consumer-oriented businesses rely on consumersfor income. As unemployment rises,consumer spending falls, retail

businesses contract and demand for newcommercial space drops. Highunemployment shrinks demand foramusement parks, shopping centers andcasinos, among other commercial

buildings. This driver is expected todecrease over 2012.

S&P 500The Dow Jones Industrial Average is astrong indicator of economic conditionsand corporate pro t, which is important

for determining demand for newcommercial property developments andrenovations. Industry revenue generally

uctuates with economic conditions because the need for new property risesduring economic expansions andcontracts during recessions as

businesses and consumers increase anddecrease expenditures during thesecycles. Moreover, the nancial marketsindicate the ability for investors or

businesses to purchase and develop realestate because more capital is available

during bull markets. This driver isexpected to increase over 2012.

Yield on 10-year Treasury noteInterest rates determine industrydemand because lower rates and creditstandards increase the ability forinvestors and businesses to purchaseproperty. Most property purchases,developments and constructionactivities in the industry are nanced bycommercial mortgages, which arerelated to the yield on 10-year treasury

bonds. Costs of construction uctuate with interest expenses. This driver isexpected to increase over 2012, makingit a potential threat to industry growth.

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CurrentPerformanceFewer projects, less revenue andshrinking pro t are currentcharacteristics of the CommercialBuilding Construction industry, which

was plagued by the economic downturnof last ve years. The recession slammedthe brakes on the industry’s boomleading up to 2007, and revenue fell atan estimated annualized rate of 13.4% inthe ve years to 2012.

Demand for commercial constructionis driven by the business sector, which

was severely set back by the downturn.

Layoffs, bankruptcies and businesscontraction weakened demand for theconstruction of new of ce buildings,retail stores, shopping centers,

warehouses and entertainment buildings, such as casinos. The industrycontinued to decline well into 2011 dueto a number of factors, including lenders’reluctance to nance constructionprojects. This is just one side-effect ofoverbuilding that took place during the

construction boom between 2005 and2006 and rising costs of key constructionmaterials. Commercial buildingconstruction activity, however, isexpected to pick up slightly in 2012, andrevenue is expected to grow 2.1% to$105.9 billion, marking the start of theindustry’s recovery.

Ripple effect The decline in the overall health of US businesses was triggered by the creditcrisis that ensued after the housingmarket collapsed in 2006. The pressureson the nancial sector, incurred by risingmortgage defaults, translated tocommercial businesses as losses and

write-downs, as banks reduced theholding value of assets on balance sheetsto better align them with market value.

As the lending markets tightened, businesses and individuals struggled tosecure nancing for operations andpurchases. Expansion plans were

canceled or put on hold, hamperingdemand for new construction.

Contraction in the business sectorresulted in a smaller workforce, whichincreased vacancy rates in commercial

buildings, including of ces, retail storesand shopping centers. Changes withinthe commercial real estate market,including vacancy rates, property valuesand credit activity, generally in uencedemand for industry services. Duringperiods of economic contraction,property values fall and vacancy ratesclimb as demand for real estate drops.

Revenue declines Commercial construction generally lags behind the overall economy by 12 to 24months, due in part to the length ofconstruction contracts and industry

backlogs. The Commercial Building

Construction industry in the UnitedStates was still growing in 2007 and2008 as many contractors entered therecession with a cushion of projects inthe pipeline, accrued during the

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Revenue declinescontinued construction boom of 2005 and 2006. When the industry began to slow in2008, revenue steeply declined,plummeting 29.6% in 2009 as backlogsdiminished and new constructionprojects were sharply reduced. In 2010,revenue fell 30.3% because consumerand business con dence was still poor,resulting in little business investment inthe real estate market. In 2011 theindustry further contracted 5.9%.

Revenue from of ce constructiondeclined largely because a shrinking

workforce left vacant of ce space, whichdrove down demand for new of ce buildings. Retail construction, including warehouses, contracted because ofoperators’ decreased revenue and pro t;consumer spending declined during thesluggish economy. This drove downdemand for new construction of shops,malls, retail centers and warehouses. Adrop in consumer spending, triggered

largely by high unemployment, alsoreduced demand for construction ofamusement, social and recreationalspaces, including casinos.

The poor economy also hindered

demand for hotel and motel constructiondue to a decline in tourism as well asconsumer and business travel. During therecession, businesses slashed traveling

budgets and conference expenses whensales were down, and consumers cut backon vacations and other discretionaryspending activities to save money. Ashotel vacancies rose, demand for

buildings in this sector slowed.

Prot drops The rising costs of construction materialshave all but drained pro t margins. Steel,copper and aluminum prices have

uctuated signi cantly in recent years,often offsetting declines for lumber andconcrete products. Rising energy costshave also been central to the unusual

volatility in building material prices. Asthe market for construction servicesdeclined, rms also had to cut pro tmargins and even bid on projects for aloss, just to keep their crews busy. In 2009and 2010, pro t margins dropped to lessthan 1.0% of revenue from a peak of 5.0%in 2007, largely because the industry facedincreasing competition for a limitedamount of projects. In 2012 pro t marginsare expected to remain low at 1.8%.

Most industry rms contract workers on a per-project basis, so thedecline in construction projectsduring the downturn led to a decreasein industry employment. During the

ve years to 2012, industry jobsdecreased at an average annual rate of4.7% to 351,673 people in 2012.Industry rms decreased slightlyduring the same period by 0.1% to29,012. Although some rms went outof business or were acquired by largercompanies during that period, themajority of companies survived therecession by diversifying their servicesand focusing on sectors that were less

vulnerable to the recession, such ashealthcare and education.

Revenue plummeted in2009 and 2010 as industry

backlogs ran low and newprojects slowed greatly


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IndustryOutlook

As the economy gradually recovers,lower unemployment, greater consumerspending, and a drop in of ce vacancies

will drive growth in the commercial building construction industry in thenext ve years. The industry’s recovery,however, will be slow as it continues to

be plagued by high vacancy rates, whichgenerally spike during economicdownturns. The previous real estate

boom will initially hinder growth because many markets remainoverbuilt. High unemployment, which

will remain elevated for most of the nextve years due to the employment

market’s slow recovery, will alsohamper industry growth. Nonetheless,recovery in the industry is expected togain momentum in 2013, with revenueforecast to grow 5.6% to $147.1 billion.

Consumer and business con dence will need to increase signi cantly before high investment activity takesplace in the commercial real estatemarket. Spending on renovations of

existing facilities will strengthen ascorporate pro t and businessoperations also improve, and a growingeconomy will boost demand for newconstruction of of ces, retail buildings,hotels and other commercial structures.The Commercial Building Constructionindustry’s revenue is expected toincrease at an average annual rate of6.8% to $147.1 billion in 2017, as

businesses gradually recover and beginexpanding operations, which willincrease demand for new construction.Economic recovery will also strengtheninvestment into the real estate marketas property values inch upward andcommercial rent rises.

Diversication helpscontractors The commercial construction industry iscomprised of general contractors, projectmanagers and design-builders thatprimarily work on of ce, hospitality,retail, warehouse and entertainment

buildings. These participants also workon a variety of other projects, including:institutional buildings (e.g. schools andhospitals), industrial structures (e.g.factories and laboratories) andresidential properties (mainly multistoryapartments). The diversi cation ofoperations helps contractors moderate

revenue volatility, particularly duringeconomic downturns.In the ve years leading up to 2012,

certain construction sectors were lessimpacted by the recession, such ashealthcare and education, which do not

generally move in line with economiccycles, and government-funded projects.Diversi cation helped many contractorsstay a oat. For some, the steep decline inof ce, retail and lodging construction wasmitigated by a rise in hospital andmunicipal development.

This diversi cation is important forunderstanding the dynamics ofcontractor income, but constructionprojects in the healthcare, education,industrial and government sectors arenot included in this industry report.

Industrial construction is discussed inthe Industrial Building Constructionindustry (IBISWorld report 23331), whilemunicipal construction is included in theMunicipal Building Constructionindustry (23332b).

The industry will growstrongly toward the end ofthe ve-year period due toa recovering economy


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Industry rms, jobsand prot recover

Employment in the constructionindustry will recover as industryrevenue increases and rms hire staffin response to increased demand fornew developments. With a greaternumber of construction projects,general contractors will subcontractincreasing amounts of labor-intensive

work. Industry employment is forecastto increase at an average annual rate of7.3% over the next ve years to499,509 in 2017. Similarly, industry

rms are forecast to rise by an averageannual rate of 2.1% to 32,230 in thenext ve years. Growth will be slow,however, because the industry, whichis in its mature stage, will experienceincreased competition. In addition,larger rms will undertake a greater

level of merger and acquisition activityto increase market share.

Industry pro t margins will improvegradually and reach a peak of 9.3% in2017, as price for construction servicesremain unscathed by poor demand andan unsound business environment. Amore stable world economy will alsomitigate wide uctuations in the cost ofconstruction materials; however, energycosts will remain volatile.

Delay in recovery Recovery in the of ce building sector will lag due to high of ce vacancies, which will need to decrease signi cantly before demand for new buildings picksup. High of ce vacancies will drop aslabor markets improve. As theunemployment rate declines, the needfor new of ce space will rise, pushingdown vacancy rates in existing

buildings. Once vacancies drop,investment into of ce construction willstrengthen considerably, with pro tgrowth underpinning demand for

prime of ce stock. Within the Commercial BuildingConstruction industry, the retail, hoteland entertainment sectors willexperience the most growth, driven byimproved consumer spending and afavorable lending market. Job growth

will support consumer-spending habitsas individuals return to work anddisposable incomes rise. Increasedconsumer spending and wealth will alsopave the way for investment into theconstruction of shopping malls,department stores, food retail outlets and

entertainment facilities. Betterconditions in the global nancial markets will support industry growth, as banksand others invest in real estatedevelopments at higher rates,particularly as delinquencies improve.

Within the retail store constructionmarket, much of the expansion will occurin the construction of mixed-usecommercial buildings. Operations willexpand and refurbish existing shoppingmalls and construct new shoppingprecincts to service new suburban

housing developments.Industry expansion is forecast tostrengthen in a cyclical pattern. Theindustry is expected to reach its highest

year over year revenue growth in 2015,growing by 8.1%, and then growth will

begin slowing down to about 5.3% in2017 as demand stabilizes. Constructionof commercial buildings will not reachpre-recession levels in the next ve

years because property values will notaccelerate, lending standards willremain strict, and overbuilt markets

will limit demand.

Enterprise growth willremain slow as the amountof mergers and acquisitionsincreases


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Industry PerformanceThe market is driven by fairly stable growthfactors, including GDP, employment,property values and rental yields

Advancements in construction techniques andmaterials have a limited impact on demand

Few rms are exiting or entering the business in the ve years to 2017

Life Cycle Stage


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DeclineCrash or Grow?

Potential Hidden GemsFuture Industries

Quality GrowthHigh growth in economicimportance; weaker companiesclose down; developedtechnology and markets

Time WastersHobby Industries

MaturityCompanyconsolidation;level of economicimportance stable

Shake-out

S h

ak

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Quantity GrowthMany new companies;minor growth in economicimportance; substantialtechnology change

Key Features of a Mature IndustryRevenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

Glass Product Manufacturing

Industrial Building Construction

Gas Stations with Convenience Stores

Cement Manufacturing

Municipal Building Construction

Commercial Building Construction


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Industry Life Cycle The commercial building constructionindustry is in the mature stage in its lifecycle. This industry’s contribution to theeconomy (industry value added) isexpected to grow at a similar rate as theUSGDP in the 10 years to 2017. Duringthis period IBISWorld projects thatindustry value added (IVA) will grow atan average annual rate of 1.5%, whileGDP is projected to experiencecompound growth of 1.9% during thesame period.

Few companies have left or entered

the Commercial Building Constructionindustry in recent years. That stabilitycould be further evidence of a matureindustry. In the ve years to 2012, rmsincreased only slightly at an average 0.1%per year to 29,012 in 2012.

The industry will remain in a maturestage because the growth in industryrevenue over the next ve years willlikely be offset by the dramatic declinethat occurred from 2009 through 2011.

The industry’s IVA will outpace GDPgrowth by a wide margin in the yearsfrom 2012 to 2017, though IVA isexpected to grow at an annualized rate of8.8%. Typically, an industry isconsidered to be in a growth phase whenIVA outpaces GDP growth; however,commercial building constructionactivity uctuates on a cyclical basis. Nosubstantial technology changes areexpected that could push the industry

back into a growth cycle.Construction techniques and

technological advancements haveresulted in substantial advances inproductivity, building quality andtimeliness. However, these achievementshave not in uenced demand or industrygrowth. The move toward greentechnology will not catapult the industry

back into a growth cycle, as Leadershipin Energy and Environmental Design(LEED) buildings take the place of newdevelopment projects.

This industryis Mature


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Products & MarketsSupply Chain | Products & Services | Demand DeterminantsMajor Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES42 Wholesale Trade in the US

Wholesale trade funds the construction of shops, warehouses and other retail buildings.44711 Gas Stations with Convenience Stores in the US

These operators fund investment into the construction of automotive retail buildings, gasstations and drug stores.

45211 Department Stores in the USThis industry provides investment into the construction of retail stores, shopping malls anddepartment stores.

52593 Real Estate Investment Trusts in the USProperty trusts fund the development of commercial construction projects (e.g. ofces andshops).

53 Real Estate and Rental and Leasing in the US

Commercial property operators and developers fund the development of non-residentialbuilding projects.71 Arts, Entertainment and Recreation in the US

Arts, entertainment and recreational service providers fund investment into commercialbuildings such as theaters and casinos.

72 Accommodation and Food Services in the USThis industry provides investment funds for the construction of hotels, motels, restaurants,cafes and bars.

KEY SELLING INDUSTRIES23 Construction in the US

Special construction trade subcontractors supply a wide range of specialist services to theCommercial Building Construction industry (e.g. electrical, carpentry and plumbing).

32721 Glass Product Manufacturing in the USThis industry supplies construction material inputs to the Commercial Building Constructionindustry.

32731 Cement Manufacturing in the USCement manufacturers supply construction material inputs to the Commercial BuildingConstruction industry.

32733 Concrete Pipe & Block Manufacturing in the USThis industry supplies construction material inputs to the Commercial Building Constructionindustry.

32799 Mineral Product Manufacturing in the USOperators in this industry supply construction material inputs to the Commercial BuildingConstruction industry.

42 Wholesale Trade in the USWholesalers supply construction and building materials (e.g. clay bricks, concrete products,wallboard, paint and timber) and consumables (e.g. hardware and adhesives).

42381 Construction & Mining Equipment Wholesaling in the USThese wholesalers supply capital equipment (e.g. cranes and hydraulic pumps) to theCommercial Building Construction industry.

52 Finance and Insurance in the USThis industry provides nance facilities and insurance coverage (notably professionalindemnity, health insurance and income security) to the Commercial Building Constructionindustry.

53241 Heavy Construction Equipment Rental in the USThis industry leases construction and transportation equipment for lease to the CommercialBuilding Construction industry.

Supply Chain


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Products & Markets

Products & Services

Products and ServicesThe Commercial Building Constructionindustry’s principal activity is toprovide prime contracting services inthe construction of commercial

buildings. Industry rms operate asgeneral contractors (GCs) or design-

builders; specialist remodelingcontractors; specialist constructionmanagement rms; and contractorsthat supply other non-buildingconstruction services (e.g. excavationand site preparation) and non-construction activities (e.g. land sales).

General contractors and design-builders About 67% of industry revenue isderived from general contracting anddesign-building activities related to newconstruction. Typically, construction

rms obtain contracts throughtendering or quoting a price accepted bythe property developer. Contractsnormally require that the GC oversee allaspects of the project from quantitysurveying, material purchase, skilledlabor and subcontractor recruitmentand construction to the lockup stage,

which is the period before construction begins. The GC is expected to consult with project architects, nancialproviders and building regulators.

There is a growing tendency for rms topartly or fully nance propertydevelopments with the view to accessingabove normal pro t and countercyclicalcash ow. Throughout the past ve

years, building rms increasingly havetaken an equity interest in large-scaleproperty developments, such asshopping complexes, of ces andlandmark buildings (e.g. sportingcomplexes and casinos).

Revenue from general contracting ordesign-builders has decreased as a shareof revenue in the past ve years. Thenumber of new commercial constructionprojects has diminished due to nancialconstraints on business growth duringthe down economy.

Remodeling contractorsRemodeling construction work generatesabout 15.0% of industry revenue.Property developers often choose toupgrade an existing premise, such as ahotel, of ce or department store, throughextensive remodeling rather thanconstruct a new building. Occasionally,remodeling involves altering the type of

building, which may include converting warehouses to of ce, but it typicallyinvolves restoring an existing premise toits original position within the property

Products and services segmentation (2012)

Total $105.9bn

67%General contracting

15%Remodelingcontracting

10%Construction

management services

7%Other non-building

construction activities1%

Other businessactivities



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Products & Markets

Products & Servicescontinued market. Of ces are generally restored toa class A rental accommodation throughinternal renovations, new externalcladding, installing building automationand upgrading facilities for modern dataand communication transmission.

The conversion of older premises tomultipurpose buildings, such as hotels,shopping arcades, of ces andapartments, requires many of the skillsneeded on a new building project. It alsoinvolves maintaining the originalcharacter of period buildings – that is,

operating in an environment where the building remains fully or partlytenanted; and upgrading services (e.g.electricity and air conditioning) withinthe original building structure’s con nes.The share of revenue for this segmenthas increased since 2007, as propertyowners opted for renovating existingspaces instead of purchasing newcommercial facilities in the dif culteconomy. Especially in the of ce sector,

which faced high vacancy rates,landlords invested in remodeling workas a way to lure high-quality tenants.

Other activitiesThe supply of construction managementservices, which specialize inestablishment building projects, isestimated to account for 10.0% of

industry revenue. The provision of theseservices comprises many of the elementsperformed by the general contractor ordesign-builder; however, subcontractorsundertake all the construction activity.Like general contractors, rms thatsupply construction managementservices oversee all aspects of the project,from quantity surveying, materialpurchase, skilled labor and subcontractorrecruitment and construction to thelockup stage. The construction managerconsults with project architects, nancial

providers and building regulators. In line with the recessionary decline of newconstruction projects, this segment hasalso decreased as a share of revenue.

The industry generates about 7.0% ofits revenue from providing non-buildingconstruction services, like specializedtrade. These services are typicallyundertaken on land the client owns andinvolve activities such as excavation andland clearing, water and sewerinstallation and traf c and pedestrianinfrastructure construction. Thissegment has increased as a share ofrevenue since 2007 because many rmshave looked to diversify services as a wayto ride out the stagnant constructionmarket. By offering additional non-

building activities to clients, rmsincrease their revenue sources.

DemandDeterminants

The key factors that in uence demandfor commercial building construction

vary according to the type of building.However, industry activity is generallydetermined by current economicconditions and investor con dence. Keyeconomic factors that in uenceinvestment decisions include theprevailing interest rate and availabilityof nance; current and expected rates ofgeneral economic growth; the expectedinvestment yield (long-term rental yield

and speculative capital gains); taxationtreatment of building investmentcompared with other types of assets;

vacancy rates of existing building stock;the rate of replacing aging buildingstock; and changes in the structure,distribution and population size. Theindustry is also subject to unforeseenstimuli to demand resulting from naturaldisasters, such as tropical storms,hurricanes and earthquakes, whichcreate new building projects.


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Products & Markets

DemandDeterminantscontinued

Of ce construction is principallydetermined by growth in the servicesector work force, growth in foreigninvestment in ow and developerspeculative activity. The average age ofcommercial of ce stock is an importantdeterminant of demand for the additionof new stock or the upgrade of existingstock. New technologies in the areas ofIT and communications have negativelyin uenced rapidly aging building stock,thereby increasing demand forpremium stock.

Retail building construction isprincipally determined by shoppingpreference and patterns; population

growth rates and catchment areas; andpatterns in consumption expenditure.Hotel construction is determined bygrowth in international and domestictourism; major cultural, sporting,entertainment and business events;growth in casino licenses; and existingsupply of accommodation. Othercommercial building construction isdetermined by population growth andurban spread; increases in tourism andleisure time; major cultural andsporting events (e.g. Winter Olympics);

and popularity of new sports andrecreational activities, like soccer and beach volleyball.

Major Markets

Industry revenue is derived from theof ce, retail, amusement and lodgingconstruction markets. The value of workdone in each market uctuatesdepending on demand. Triggered ofdemand include economic factors(unemployment rates, corporate pro t,and consumer spending), and therelative strength of the investment cyclesin each of the key markets.

Office buildingsIn 2012 the of ce construction sector willconstitute an estimated 34.0% of the

value of total commercial buildingconstruction. Of ce construction washindered by the recession as businessescontracted and the need for additionalof ce space declined. Commerciallending also tightened during thedownturn, making it hard for businesses

Major market segmentation (2012)

Total $105.9bn

42.9%Retail andwarehouse

34%Ofce

15%Amusement

8.1%Lodging



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Products & Markets

to get loans to nance expansion plans.High of ce vacancy rates have been adrag on of ce construction in the past

ve years. As vacancy rates go down,demand for construction of of ce

buildings will increase in 2012.

Retail and warehouseThe construction of retail stores andcommercial warehouses accounts forabout 42.9% of the value of totalcommercial building construction. Thissegment includes the building of

shopping centers, shopping malls andgeneral merchandise stores; restaurants, bars and fast food outlets; drug stores, building supply stores, and commercial warehouses. Reduced per capitadisposable income hurt retailers in therecession. In the past ve years,companies that went out of business orlost revenue translated into high retail

vacancy rates, which lowered demand fornew retail construction. Economicrecovery will boost retail construction

when consumer spending picks up.

Amusement and recreationThe industry generates about 15.0%of annual revenue from theconstruction of non-institutionalamusement and recreation buildings,such as private sports and tnessfacilities, private clubs and socialcenters, movie theaters, theme parksand casinos. In the ve years to 2012declining per capita disposableincome has brought down demandfor construction in this sector.

LodgingHotel and motel construction willgenerate an estimated 8.1% of industryrevenue in 2012. Over the past ve

years, demand for hotel and motelconstruction has uctuated dramaticallyas the recession’s impact on thehospitality sector hindered newconstruction of hotels and motels. Highunemployment and low consumerspending hurt tourism and led to highroom vacancies, which brought downdemand for new construction.

Major Marketscontinued

International Trade The industry is composed of companiesthat construct commercial buildings andother structures within the United States.Consequently, there is no internationaltrade within this industry, since goodsare not passed from one country to

another. However, the industry providesservice to foreign owned operations,

while some US operators have of ces inforeign locations. For more informationon international operations, refer toIndustry Globalization.


18/35


Products & Markets

Business Locations 2012

MO2.1

VT0.2

MA2.1

RI0.3

NJ2.8

DE0.2

NH0.4

CT1.0

MD2.1

DC0.2

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ2.1

CA11.2

NV1.2

OR1.4

WA2.5

MT0.4

NE0.6

MN1.8

IA1.1

OH3.4 VA

2.7

FL6.3

KS1.0CO2.1UT1.1

ID0.8

TX7.7

OK1.6

NC3.1

AK0.5

WY0.3

TN1.7

KY1.3

GA3.7

IL3.7

ME0.4

ND0.4

WI1.5 MI

2.8 PA3.6

WV0.4

SD0.4

NM0.9

AR1.0

MS0.9

AL1.6

SC1.4

LA1.6

HI0.5

IN1.9

NY6.1 5

67

8

321

4

9


Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more


19/35


Products & Markets

Business Locations The distribution of industry activitycorrelates to shifting regional populationsand economic activity. Short-termdeviations from the normal distributionof industry activity result fromdifferences in the pace of population andeconomic growth and one-off stimuli toconstruction activity. Such stimuliincludes the staging of the WinterOlympics in Salt Lake City, thereconstruction of buildings followingterrorist actions in Oklahoma,

Washington DC and New York, and

reconstruction following the devastationof Hurricane Katrina in the Southeast.The current distribution of regionalindustry activity comes from the annualsurvey of County Business Patterns forthe combined commercial andinstitutional building industry.

The Southeast region contains aquarter of the industry’s employees andestablishments, re ecting the region’slarge share of population and economicactivity. These high shares are alsoindicative of the signi cant tourismactivity in the region, which stimulatesinvestment into hotels, retail andrecreation facilities. The Mid-Atlantic,

which includes the economic nodes ofNew York City, Philadelphia and NewJersey, accounts for about 15.0% ofindustry establishments and about 18.0%of employment. These percentagescorrespond to the region’s share of thepopulation and economic activity andre ect the large-scale of ce and hotelconstruction that takes place in majormetropolitan areas.

The West accounts for about 17.3% ofindustry activity. This percentage is

below its share of the economy andpopulation, but it is consideredconsistent with its share of non-residential building activity in the 2000s.

The bulk of employment andestablishments is concentrated inCalifornia, which accounts for 11.0% ofnational establishments. The Great Lakesregion makes up about 13.2% of industryestablishments and employment, whichis consistent with the region’s share ofthe economy and construction activity.

The Southwest makes up 11.0% to12.5% of industry activity, which closelycorresponds to the region’s share of thepopulation and the economy. The Plainsregion accounts for 7.4% of industryactivity, which also re ects the region’sshare of the US population and economy.

New England and the RockyMountains each make up about 4% to 5%of industry establishments, employmentand payroll, which is consistent with eachregion’s share of the population andeconomic activity. The slower pace ofpopulation growth in New Englandconstrains demand for new commercial

building activity.

P e r c e n

t a g e

30

0

10

20

S o u t h w e s t

W e s t

G r e a t L a

k e s

M i d - A t

l a n t i c

N e w E n g

l a n d

P l a i n s

R o c k y M o u n t a i n s

S o u t

h e a s t

Establishments

Population

Establishments vs. population



20/35


Cost StructureBenchmarks

ProtIndustry pro t as a measure of earnings

before interest and taxes (EBIT)continues to be constrained by

competition for a reduced number ofconstruction projects as a result of theeconomic downturn. As the market forconstruction services declines, cut

Key Success Factors Access to highly skilled workforceEnsuring ready access to skilled

workers and subcontracting buildingtrade specialists is essential forsuccess in this industry.

Ability to compete on tenderMost contracts in this market areallocated through the tender process,and successful contractors ensurethey secure a steady ow of newcontracts without compromising theirlong-term price margins.

Ability to negotiatesuccessfully with regulatorIt is important to have constructionmanagers who have sound

knowledge of building statutes andregulations. They also need to havethe capacity to deal with localgovernment administration andregulatory authorities throughoutthe project.

Access to high quality inputsSuccessful rms establish good

working relationships with suppliersof high-quality construction materialsand xtures.

Ability to forward sell productionwhen appropriateSuccessful industry operators are ableto pre-lease or obtain clients beforethe project is constructed.

Market ShareConcentration The industry has a low level ofconcentration, with the four largestplayers accounting for about 5.7% ofindustry revenue. The largest industryparticipants are general contractors, butthese rms often use subcontractorsand local rms to develop projects. As aresult, most participants aresubcontractors that compete on a localor regional scale. Additionally, largeparticipants operate in severalconstruction segments outsidecommercial building, including civil

projects, and municipal andinstitutional building construction, which further dilutes the concentrationof industry revenue. About two-thirdsof establishments employ fewer than 10people, including about 47.0% of rmsthat employ fewer than ve people.Only about 2.0% of industry

establishments employ more than 100people. These large-scale players aremulti-establishment companies with

branches that operate across manystates and regions.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure BenchmarksBasis of Competition | Barriers to Entry | Industry Globalization

LevelConcentration inthis industry is Low

Establishments by employment sizeNo. of persons Share of establishments (%)

1 to 4 46.65 to 9 18.910 to 19 16.320 to 49 12.150 to 99 3.8100 to 249 1.8250 to 499 0.4500 to 999 0.11,000+ 0.1Total 100.0

SOURCE: US CENSUS BUREAU COUNTY BUSINESS PATTERN

IBISWorld identies250 Key SuccessFactors for abusiness. The mostimportant for thisindustry are:


21/35


Competitive Landscape

Cost StructureBenchmarkscontinued

pro t margins and even bid on projectsfor a loss. Competition has especiallyhurt general contractors in the industry

who have been frequently underbid bylarger rms with greater resources andgreater capacity to undertake projects

with little or no pro t.The industry’s pro t dropped to 0.78%

in 2010 from a peak of 5.0% in 2007 because the shrinking number of newconstruction projects put pressure on theprice of services. In 2012, pro t margins

will remain low at 1.8% also due to the

rising costs of construction materials, which have hurt pro t margins in recent years. Steel, copper and aluminumremain volatile. Rising energy costs havealso been central to the unusual volatilityin building material prices.

In the past ve years, rms haveespecially been compelled to bettermanage their performance and

ne-tune their business strategies to

improve pro tability. Constructiondelays or cancellations due to lack ofnancing for construction projects

greatly hurt pro t margins in the ve years to 2012. Contractors often bidon projects before all aspects of aconstruction project are known, soany miscalculation or underestimatein the amount of labor required or thecost of materials, or any change in thetiming of the construction, frequentlyresults in losses.

WagesCommercial construction is highlylabor-intensive, which industry’s coststructure re ects. Industry labor costsabsorb about 69.9% of annual industryrevenue, including employeecompensation payments, which accountfor 20.3% of industry revenue, andpayments to subcontractors accountingfor a further 49.6% of revenue.

Sector vs. Industry Costs

■ Prot■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other

Average Costs ofall Industries insector (2012)

Industry Costs(2012)

0

20

40

60

P e r c e n t a g e o

f r e v e n u e

80

100

10.7

9.53.7 0.72.0

30.2

43.2

1.8

2.0 3.01.00.5

21.8

69.9



22/35



Basis of Competition This industry is characterized by highlycompetitive conditions on a regionaland national basis and across all scalesof operation. Competition betweencontractors typically occurs on the

basis of proven quality and technicalcapacity and ef ciency, rather thansolely on the basis of pricedifferentiation. Price tends to be moreimportant on smaller-scale or lesscomplex construction projects and onpublic sector-funded contracts.

Large-scale construction projects aretypically either put to public tender (i.e.advertised in the media or throughgovernment publications) or put to aclosed tender, where the client invitesselected contractors to quote on aproject. The selection of contractors fora closed tender is based on theoperator’s reputation, past performanceand close relationships with developers

and nanciers. Tendering on extremelylarge or complex construction projectsis con ned to a few large-scale players.

Most small-to-medium-scale buildingcontractors con ne their activities to alocalized market. Several builders haveestablished solid reputations in narrowmarket segments and leveraged theirpublic perception to generate contractsacross broad geographical markets.Small-scale operators rely heavily on

word-of-mouth referrals to obtainprivate sector contracts, but they alsoadvertise in general media to promotetheir businesses. It is common forsmaller operators to establishrelationships with prime contractorsand property developers within a localregion or specialized area.

There is a growing trend for buildingcontractors to take an equity interest inthe development consortium for

Cost StructureBenchmarkscontinued

Wages as a share of revenue haveincreased because earnings derived from building projects shrank, even though thelabor force required those projects toremain the same. The increase in wages

was driven in part by the need to hire andretain highly specialized managementand executive level employees.

PurchasesOn large-scale projects, the primecontractor is directly responsible for mostmaterial purchases and negotiates

directly with suppliers for discountedprices. On small-scale projects,subcontractors are typically responsiblefor completing discrete segments ofconstruction, including the supply ofmaterials. Overall, purchases account forabout 21.8% of total industry revenue.

Purchase costs often uctuate withcommodity prices, with most costsrelated to ready-mixed concrete, glass,structural steel, concrete panels,

structural timber, metal cladding,aluminum ttings and electricalinstallations, and purchased electricpower, fuels and lubricants. In additionto material purchases, industryparticipants also buy machinery.

Other costsThe industry has a low level ofdepreciation due to its reliance on leased

vehicles and subcontractors. Additionally,a low level of costs is related to rent andutilities. Other operating expenses absorb

about 2.0% of annual industry revenueand include communication charges(particularly cell phones), repairs tomachinery and buildings, rental costs of

buildings and machinery, accounting,information technology, and legal servicecosts. Other costs include professionalexpenses, insurance premiums, andgeneral administration outlays. Marketingcosts account for about 1.0% of revenuefor this industry.

Level & TrendCompetition in thisindustry is High andthe trend is Steady


23/35



Barriers to Entry New industry entrants face a number ofchallenges, mostly related to access tocapital. Construction projects require anextensive outlay of resources, in terms of

both materials and labor. This meansthat securing ample nance forupcoming projects is something of which

new construction companies fall short.Initial nance typically comes frominvestors and bank loans. However,

business lending has tightened in thepast ve years. Strict lending standardsnow deny many business owners (largelythose that have experienced lossesduring the recession) loan eligibility.Success in the industry largely dependson the number of projects in thepipeline. New entrants will also be at adisadvantage compared to larger, moreestablished rms that maintain good

banking relationships, allow them tomore easily access capital for upcomingprojects. New construction companiesalso face the challenge of nding skilled

nancial leaders to manage cash ow when there are projects underway.

Another key constraint to entry is thedif culty that new competitors mayencounter in trying to gain a foothold inthe market by establishing a reputation.

Acquiring client relationships is criticalto the success of companies in theindustry. Existing rms work with theadvantage of a pool of skilledsubcontractors, arrangements withmaterial suppliers and arrangements

with nancial institutions and propertydevelopers. Most new entrants enter this

industry through subcontracting specialtrade workers like carpenters andconcrete contractors; therefore, they mayenter with pre-established reputationsand relationships with propertydevelopers or general contractors.

The growing trend of buildingcontractors taking an equity interest inthe development consortium on projectseffectively blocks competition from other

builders. Smaller contractors inparticular are working together oncertain projects to improve their ability tocompete with larger rms. Contractorsare increasingly working together toreduce risk. However, new entrants to theindustry – with limited nancialresources and narrow networks of

business contacts – will likely beexcluded from equity participation insuch development consortiums.

Commercial construction contractorsmust hold appropriate licensing andregistration to operate in each state,

which can be a deterrent for someentrants to the industry.

Basis of Competitioncontinued projects such as of ce complexes. Thistrend effectively blocks competitionfrom other builders and ensures the

work ow for the contractor involved.Builders’ equity involvement is apparentacross all scales of construction.

Barriers to Entry checklist LevelCompetition HighConcentration LowLife Cycle Stage MatureCapital Intensity LowTechnology Change Medium

Regulation & Policy HeavyIndustry Assistance None


Level & TrendBarriers to Entryin this industry areLow and Steady


24/35



IndustryGlobalization Globalization has a profound effect oncommercial construction companies inthe United States, as foreign rmspurchase domestic companies and asdomestic companies subcontract workoverseas. German construction rmsHOCHTIEF,which acquired TurnerCorporation, and Bil nger Berger areexamples of rms that have expandedinto the US market. Other leadinginternational construction rms includethe French giant Suez Lyonnaise desEaux (VINCI, Trigen, Elyo), Australia’s

Bovis Lend Lease and Mexico’sEmpresas ICA. At the same time, USoperators are expanding services toother markets to diversify operationsand increase revenue.

This industry’s globalization cantranslate into increased competition andcan also present opportunities to industry

rms both large and small. Even smallrms will face challenges in retaining

loyal customers that nd they cancontract similar services for less moneyas a result of globalization.

As the world economy recovers,rms based in the United States will

increasingly look to perform work inother countries, form joint ventures oreven offer consulting advice on

techniques and project management.Design rms looking to streamlinemay also consider setting upinternational branches to takeadvantage of lower labor costs.

Level & TrendGlobalization inthis industry isLow and the trendis Increasing


25/35


Other Companies The Commercial Building Constructionindustry is composed of generalcontractors that use subcontractors tocomplete projects. Due to thesubcontractor-based nature of the

business, participants are oftenrelatively small operators. The largestindustry players are global construction

rms, but these enterprises operate in a variety of industries that also includecivil, municipal, industrial andresidential construction. Theseoperators do not generate enough

revenue speci c to the commercialconstruction industry to account formore than 5.0% of its total revenue.

The Turner CorporationEstimated market share: 3.0%The Turner Corporation is owned byGermany’s largest construction rm,HOCHTIEF, and operates in the UnitedStates through its New York-basedTurner Construction Companysubsidiary. The company was foundedin 1902 and has about 50 of cesspreading over United States, Europe,

Africa, Asia and Latin America.Turner’s many commercial projectsinclude Madison Square Garden, theUnited Nations headquarters, YankeeStadium and the Taipei 101 Tower.Turner also offers services for mid-to-small-size projects and providesrenovation and interior construction.

Turner Construction Company isone of the largest general building andconstruction management rms in theUnited States, with an estimatedconstruction volume of $7.5 billion in2011. Turner Construction operates inmany market sectors, includingcommercial of ce buildings,healthcare, pharmaceutical plants,research and developmentlaboratories, education and science,correctional facilities, sports anddistribution/warehouse. Suchdiversi cation has allowed Turner to

remain strong through cyclicalchanges in building activity.Like many large contractors, Turner

entered the recession with a substantialcushion from the construction boomleading up to 2007. Strong backlogscontributed to the company’s revenue of$10.4 billion in 2008, up from$9.4 billion the previous year. As a resultof dwindling backlogs and reduceddemand for new construction, thecompany experienced a sharp revenuedrop of 24.7% in 2009, and continued to

endure revenue decreases in 2010 and2011. Turner’s estimated revenue of$7.5 billion in 2011 totaled a 3.9% dropfrom $7.8 billion in 2010. This revenuederives from construction work notincluded in this report, such ashealthcare, education and municipal

building construction. IBISWorldestimates commercial construction ofof ce, retail, hotel, warehouse andentertainment spaces generated about37.0% of the company’s revenue in 2011.

As construction spending increases over2012, Turner’s annual revenue fromcommercial building projects is alsoexpected to increase about 7.1% to$3.0 billion in 2012.

Clark Enterprises Inc.Estimated market share: 1.0%Clark Enterprises Inc. is the parentholding company of the ClarkConstruction Group, LLC, one of thelargest privately-held general contractorsin the United States. Clark ConstructionGroup began as a small excavatingcompany in 1906 and has grown tooversee projects ranging from smallinterior renovations to large recognizablelandmarks. Recent projects include a12-story of ce building at 90 K Street,NE, the rst of four buildings for theSentinel Square development in

Washington DC’s NoMa Corridor;construction of the $53-million RedlandTech Center, which includes two of ce

Major CompaniesThere are no Major Players in this industry | Other Companies


26/35


Major Companies

Other Companiescontinued buildings

totaling 672,100 square

feet inRockville, MD, and construction of theMarriot Courtyard/US Capitol hotel in

Washington DC.The company is currently working on a

390-foot, new of ce tower that will be thetallest green building in metropolitan

Washington, DC. The $117-milliondevelopment is expected for completionin 2013. The company is also working ona 10-acre mixed-use project to create apedestrian-friendly neighborhood in theheart of downtown Washington, DC,

which includes the construction of twoof ce buildings with a total of 520,000square feet of of ce space. The project isexpected for completion in 2014.

Clark Construction operates acrossmany construction markets, includingcommercial, residential, industrial,sports, municipal building,transportation and heavy construction.The company experienced continuedgrowth in 2008 and 2009, bene tingfrom a strong backlog of projects androbust growth in most commercialconstruction sectors (mostly healthcare,education and public projects). Revenueincreased 11.8% in 2008 and 4.2% in2009 as a result of high constructionactivity leading up to 2007. In 2010, thecompany saw revenue sink by 19.8% to$3.9 billion as backlogs dwindled andnew construction projects rapidlydecreased. Revenue continued todecrease by an estimated 4.7% to $3.74

billion in 2011. IBISWorld estimates thatabout 27.0% of the company’s 2011revenue, or $1 billion, was derived fromcommercial construction projectsincluded in this industry report. Industry-speci c revenue for Clark Constructionis expected to grow about 3.2% in 2012.

Tutor Perini CorporationEstimated market share: 1.0%The Tutor Perini Corporation is a largecivil and building constructioncompany offering diversi ed general

contracting and design/build services.Tutor Perini is headquartered inSylmar, CA and works on manyconstruction projects throughout theUnited States and Canada.

Tutor Perini Corporation was created by the 2008 merger of Perini Corporationand Tutor-Saliba Corporation. Thecompany structures its operations inthree groups: building group, civil groupand management services. The TutorPerini Building Group focuses on largecomplex projects in the hospitality and

gaming, sports and entertainment,educational, transportation andhealthcare markets.

The company is an especiallyprominent player in the hospitality andgaming market, specializing in theconstruction of Native Americandevelopments and high-end destinationresorts, including Project CityCenter forMGM Mirage, The Cosmopolitan Resortand Casino, the Wynn Encore Hotel andthe Planet Hollywood Tower, all in Las

Vegas, as well as the Aqueduct RacetrackCasino in Jamaica, NY.

The company’s Civil Group is engagedin public works construction throughoutthe United States, including the repair,replacement and reconstruction of publicinfrastructure such as highways, bridgesand mass-transit systems.

Tutor Perini has demonstratedrevenue growth because of recentacquisitions. The rm also gained civilconstruction contracts associated withfederal government stimulus packages ata time when commercial constructionactivity had declined. While Tutor Periniachieved signi cant growth in its civil

business in 2010, when the rm’s building group contracted sharply.Revenue from building projects dropped48.0% from $4.5 billion in 2009 as theeconomic downturn ground newcommercial construction to a near halt.In 2011, construction activity improvedas a result of economic recovery,


27/35


Major Companies

Other Companiescontinued primarily in markets such as healthcare,education and municipal buildings.Tutor Perini Building Group generatedabout $2.8 billion in total revenue that

year, up from $2.3 billion in 2010. Anestimated 39.0% of that, or $897 millionof the company’s building revenue, willcome from commercial real estateprojects as de ned in this report.IBISWorld expects Tutor Perini revenuederived from commercial buildingconstruction to increase about 4.0% to$914.2 million in 2012.

Skanska ABEstimated market share: less than 1.0%Skanska AB is Scandinavia’s largestconstruction group and operatessubsidiaries in more than 60 countries.Skanska AB operates two USsubsidiaries: New Jersey-based SkanskaUSA Building Inc. (which operates acrossa range of building markets) and SkanskaUSA Civil Inc. (which concentratesactivity in the engineering infrastructuremarket). In 2009, Skanska AB launchedSkanska USA Commercial Development,

which focuses on the initiation, leasingand selling of commercial premises,particularly of ce developments. Thenew subsidiary operates in Boston,Houston and Washington DC, alongsideSkanska USA Building.

Skanska USA Building serves a rangeof building markets in the United States,including aviation, pharmaceuticalfacilities, educational buildings, high-tech facilities, sports and entertainmentfacilities, healthcare, commercial of ceand retail construction. In 2011 SkanskaUSA Building generated an estimated$2.3 billion in revenue, down from $2.5

billion in 2010, re ecting the decreasedconstruction activity as a result of theeconomic downturn. IBISWorldestimates that $690.0 million inrevenue was derived from industry-related construction in 2011. Skanska

will likely report improved industry-

speci c revenue in 2012 to reach anestimated $700.0 million.

Gilbane Inc.Estimated market share: less than 1.0%Rhode Island-based Gilbane Inc. is afamily- and employee-owneddevelopment company. Gilbane ranksamong the largest institutional buildingcontractors in the United States andranks highly among commercial

building contractors.The rm predominantly provides

construction management services(70.0% of booked contracts), where itmanages the construction project risk. Itdiffers from many of the leadingcontractors that look to establishalliance-contracting arrangements(off-loading risk to strategic partners).

Through its subsidiary, GilbaneBuilding Company, the rm suppliesconstruction management, contractingand design services to life sciences,transportation, healthcare, convention,cultural, government, education,mission-critical, corporate, sports andrecreation and criminal justice markets.Gilbane currently focuses on institutionalmarkets that generate up to 80.0% ofcompany revenue, while commercialconstruction accounts for about 10.0% ofrevenue. Gilbane primarily operates inthe of ce construction sector of thecommercial construction market.

Recent commercial projects include aFidelity Investments of ce building inSmith eld, RI, valued at $200.0 million;the 871,000-square-foot of ce and retail

building Discovery Tower in downtownHouston, at an estimated cost of $156.0million; the $240.0-million PotawatomiBingo Casino expansion in Wisconsinand the $60.0 million, 292,000-square-foot Manpower corporate headquartersalong the banks of the Milwaukee River.

Gilbane’s annual revenue hasremained relatively steady, with thecompany gaining institutional, health


28/35


Major Companies

Other Companiescontinued and education contracts during thecurrent downturn in commercialconstruction activity. In 2011, thecompany generated about $3.0 billion intotal revenue, with industry-speci c

revenue accounting for an estimated$300.0 million. In 2012, Gilbane’srevenue from commercial buildingconstruction projects is expected toincrease to about $325.0 million.


29/35


Capital Intensity Investment in plant and equipmentrequired for ongoing operations in thisindustry is low. Most of the industry’smachinery and equipment requirementsare met by leasing on a project-by-project

basis (particularly involving heavyequipment such as cranes, graders andelevators) or subcontracting specialistproviders, like crane operators andexcavation contractors.

In contrast, this industry relies heavilyon labor, with wages absorbing 69.9% ofindustry revenue. For every $100 spent

on industry wages in 2012, $0.70 isestimated to be spent on capital.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


L a b o r I n t e n s i v e

C a pi t al I n

t en

s i v

e

Change in Share of the Economy

New Age Economy

Recreation, Personal Services,Health and Education. Firmsbenet from personal wealth sostable macroeconomic conditionsare imperative. Brand awarenessand niche labor skills are key toproduct differentiation.

Traditional Service Economy

Wholesale and Retail. Relianton labor rather than capital to

sell goods. Functions cannotbe outsourced therefore rmsmust use new technologyor improve staff training toincrease revenue growth.

Old Economy

Agriculture and Manufacturing.Traded goods can be produced

using cheap labor abroad.To expand rms must mergeor acquire others to exploiteconomies of scale, or specializein niche, high-value products.

Investment Economy

Information, Communications,Mining, Finance and RealEstate. To increase revenuerms need superior debtmanagement, a stablemacroeconomic environmentand a sound investment plan.

Glass ProductManufacturing

IndustrialBuildingConstruction Gas Stations with

Convenience StoresCementManufacturing

Municipal BuildingConstruction

CommercialBuildingConstruction

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

CommercialBuilding

Construction

ConstructionEconomy

LevelThe level of capitalintensity is Low


30/35


Operating Conditions

Technology& Systems Advancements in building technologiesand management techniques havesigni cantly altered the industry inrecent decades. New technologies suchas laser- and GPS -equipped machineshave transformed complex buildingprocesses by speeding up projectcompletion, lowering costs andimproving overall building quality. Forinstance, lasers and GPS are nowhelping construction workers quicklydelineate building perimeters – a taskthat relied on string and steel tape

measures in the past.Over the past decade, there has beena steady introduction of logisticmanagement in project design andconstruction, allowing rms to properlyalign equipment and workers from aremote location. Better managementtechniques allow rms to quicklyidentify deviations from the planningpath. Using computer-aided design(CAD), stock- ow software packages,

eld estimating technology andpersonnel skilled in logistics, thisindustry has substantially improved inproductivity and cost savings.

The recent advent of BuildingInformation Modeling (BIM) givesfast-evolving rms a new competitiveadvantage. BIM allows constructioncompanies to view every aspect of aconstruction project (fully realized andin vivid 3-D) before construction even

begins. BIM is the new game-changingtechnology in the industry, allowing

rms to calculate minute details, such ashow many light xtures are going to be

needed to illuminate a space receivinglittle sunlight. The program gures outhow a change in wall color matches upagainst the carpeting on order and how aproposed change will affectsubcontractor costs and scheduling.

Technological improvements havealso boosted the availability of high-grade materials that are better equippedto resist hurricanes and explosions inthe case of high-security spaces, such asgovernment agency headquarters ordata centers. The incremental

advancements in construction material,in terms of strength, prefabrication, reresistance and insulation qualities, haveimproved the ef ciency and exibility of

building design and construction duringthe past two decades. The principal areaof technological advancement involvesusing glass and concrete-basedproducts instead of traditional steel,timber and ceramic materials incommercial buildings.

Additionally, advanced technologieshave allowed the construction ofmodular buildings, in which buildingsare constructed at a remote location andthen brought to the site in sections.

Technological advancements areallowing the industry to construct

buildings of higher quality andfunctionality. Increasingly, commercialfacilities are integrating the latesttechnology in computer installationand climate controls, and aredemanding the latest advancements indesign and materials to promoteenergy conservation.

LevelThe level ofTechnology Changeis Medium


31/35



Regulation & Policy The planning and regulatoryenvironment that governs commercial

building activity is often complex, and itmay involve all government tiers.Construction is subject to statutoryregulations that cover buildingstandards, pollution controls, competingland usage, disruption to existing

businesses or residents and occupationalhealth and safety issues. Compliance

with this regulatory regime generallyadds to the industry’s underlyingoperating costs. Over the long term,compliance may reduce a rm’s exposureto litigation associated with faulty

workmanship and workplace accidents,lowering insurance premiums.

Health and safety regulations requirethat workers wear protective clothingand helmets on-site and that safeconditions are provided for them (e.g.scaffolding, harnesses and ventilation).

The Of ce of Safety Health Administration enforces standards forthe industry that are contained in Title29 of the Code of Federal RegulationsPart 1926. State and local buildingauthorities assess and enforce this code.

A range of building and constructioncodes govern activity in the CommercialBuilding Construction industry,including general building codes,residential codes, mechanical codes,plumbing codes, electric codes, recodes, accessibility codes, zoning codes,state codes, local codes and ordinances.Building codes are endorsed by theInternational Code Council, whichpublishes an International BuildingCode that covers building planning, reprotection, building envelope,structural systems, structural andnon-structural materials, buildingservices and special services.

Revenue Volatility The industry has a high level of volatility.The industry is exposed to wide cyclicaluctuations in demand, resulting from

movements in long-term interest rates,general economic growth and expectedrental yield. The industry was especially

volatile in the past ve years due to thesudden drop-off in demand caused by thecontraction in business activity andinvestment during the recession.Revenue dropped by as much as 30.3% in2010 after growing 3.0% in 2008.


Volatility vs Growth

R e v e n u e v o l a t i l i t y * ( % )

1000

100

10

1

0.1

Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

A higher level of revenuevolatility implies greaterindustry risk. Volatility cannegatively affect long-termstrategic decisions, such asthe time frame for capital

investment.When a rm makes poorinvestment decisions itmay face underutilizedcapacity if demandsuddenly falls, or capacityconstraints if it risesquickly.

Commercial BuildingConstruction

LevelThe level ofVolatility is High

Level & TrendThe level ofRegulation isHeavy and thetrend is Steady


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Industry Assistance In the past ve years, state and localgovernments across the country haveincreasingly encouraged “green” buildingthrough targeted nancial and structuralincentives. Developments that achievemeasurable and veri able green buildinggoals often qualify for tax exemptions orcredits. Green building projects can also

be exempt from fees during thepermitting processes and can bene tfrom an expedited review. Grantprograms or subsidies are also availablefor developers of energy-ef cient

buildings as a way to encouragedevelopers to follow green buildingpractices. These incentives are bene tingthe commercial construction industry byhelping drive demand for renovations,improvements and new construction.

Additionally, the commercialconstruction industry has been receivingassistance from educational facilities andtraining programs, which boost the

numbers of quali ed employees. Sixmajor trade and professional associationshave of cially endorsed the AmericanInstitute of Constructors’ (AIC)Constructor Certi cation program, whichquali es individuals through education,experience and examination for theprofessional designations of associateconstructor and certi ed professionalconstructor. Since 1997, the AICaccreditation program has sought tostrengthen its professional rigor andmeet international accreditation

standards. Subsequently, most majorindustry associations currently endorsethe AIC certi cation, including the

Associated General Contractors of America, American Subcontractors Association, Associated Builders andContractors, the Business Roundtable,

American Council for ConstructionEducation and American Society ofProfessional Estimators.

Level & TrendThe level ofIndustry Assistanceis None and thetrend is Steady


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Key StatisticsRevenue

($m)

IndustryValue Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages($m)

DomesticDemand

Value of Private Non-residential Construction

($b)2003 177,342.8 94,169.0 31,189 28,467 393,369 -- -- 85,301.8 N/A 343,0002004 187,885.0 94,694.1 30,873 27,971 395,318 -- -- 85,299.8 N/A 346,700

2005 190,511.2 96,589.2 31,165 27,853 407,020 -- -- 87,063.5 N/A 351,8002006 201,610.3 103,688.2 31,603 28,343 430,598 -- -- 93,607.6 N/A 384,0002007 217,759.3 104,524.5 32,293 28,897 447,005 -- -- 93,636.5 N/A 438,2002008 224,888.6 111,117.5 32,664 28,461 447,684 -- -- 99,873.0 N/A 466,4002009 158,142.0 91,406.1 32,212 28,382 380,747 -- -- 83,499.0 N/A 367,3002010 110,197.5 80,774.8 31,816 28,009 349,319 -- -- 75,264.9 N/A 309,1002011 103,749.9 76,048.7 31,537 28,186 334,927 -- -- 70,861.2 N/A 319,9002012 105,880.0 79,332.4 32,349 29,012 351,673 -- -- 74,038.4 N/A 329,5002013 111,796.0 85,455.5 33,149 29,664 373,829 -- -- 79,865.7 N/A 407,0002014 120,188.6 100,777.3 33,599 29,759 414,202 -- -- 94,767.8 N/A 439,4002015 129,924.7 102,112.9 34,909 30,758 451,480 -- -- 95,616.6 N/A 472,8002016 139,737.8 107,981.2 36,329 31,983 466,831 -- -- 100,994.3 N/A 537,8002017 147,080.5 120,968.8 36,610 32,230 499,509 -- -- 113,614.7 N/A 588,600Sector Rank 4/36 2/36 14/36 14/36 9/36 N/A N/A 2/36 N/A N/AEconomy Rank 75/706 27/706 159/705 148/705 99/706 N/A N/A 17/706 N/A N/A

IVA/Revenue(%)

Imports/Demand

(%)Exports/Revenue

(%)

Revenue perEmployee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of theEconomy

(%)2003 53.10 N/A N/A 450.83 48.10 12.61 216,849.32 0.802004 50.40 N/A N/A 475.28 45.40 12.80 215,775.15 0.772005 50.70 N/A N/A 468.06 45.70 13.06 213,904.72 0.772006 51.43 N/A N/A 468.21 46.43 13.63 217,389.77 0.802007 48.00 N/A N/A 487.15 43.00 13.84 209,475.29 0.792008 49.41 N/A N/A 502.34 44.41 13.71 223,088.16 0.842009 57.80 N/A N/A 415.35 52.80 11.82 219,303.11 0.722010 73.30 N/A N/A 315.46 68.30 10.98 215,461.80 0.622011 73.30 N/A N/A 309.77 68.30 10.62 211,572.07 0.572012 74.93 N/A N/A 301.08 69.93 10.87 210,531.94 0.582013 76.44 N/A N/A 299.06 71.44 11.28 213,642.33 0.622014 83.85 N/A N/A 290.17 78.85 12.33 228,796.09 0.702015 78.59 N/A N/A 287.78 73.59 12.93 211,784.80 0.682016 77.27 N/A N/A 299.33 72.27 12.85 216,340.17 0.702017 82.25 N/A N/A 294.45 77.25 13.64 227,452.76 N/ASector Rank 1/36 N/A N/A 7/36 1/36 16/36 2/36 2/36Economy Rank 16/706 N/A N/A 300/706 5/706 394/705 9/706 27/706

Figures are ination-adjusted 2012 dollars. Rank refers to 2012 data.

Revenue(%)

IndustryValue Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

DomesticDemand

(%)

Value of Private Non-residential Construction

(%)2004 5.9 0.6 -1.0 -1.7 0.5 N/A N/A 0.0 N/A 1.12005 1.4 2.0 0.9 -0.4 3.0 N/A N/A 2.1 N/A 1.52006 5.8 7.3 1.4 1.8 5.8 N/A N/A 7.5 N/A 9.22007 8.0 0.8 2.2 2.0 3.8 N/A N/A 0.0 N/A 14.12008 3.3 6.3 1.1 -1.5 0.2 N/A N/A 6.7 N/A 6.42009 -29.7 -17.7 -1.4 -0.3 -15.0 N/A N/A -16.4 N/A -21.22010 -30.3 -11.6 -1.2 -1.3 -8.3 N/A N/A -9.9 N/A -15.82011 -5.9 -5.9 -0.9 0.6 -4.1 N/A N/A -5.9 N/A 3.52012 2.1 4.3 2.6 2.9 5.0 N/A N/A 4.5 N/A 3.02013 5.6 7.7 2.5 2.2 6.3 N/A N/A 7.9 N/A 23.52014 7.5 17.9 1.4 0.3 10.8 N/A N/A 18.7 N/A 8.02015 8.1 1.3 3.9 3.4 9.0 N/A N/A 0.9 N/A 7.62016 7.6 5.7 4.1 4.0 3.4 N/A N/A 5.6 N/A 13.72017 5.3 12.0 0.8 0.8 7.0 N/A N/A 12.5 N/A 9.4Sector Rank 30/36 19/36 18/36 12/36 10/36 N/A N/A 13/36 N/A N/AEconomy Rank 414/706 222/706 159/705 105/705 53/706 N/A N/A 106/706 N/A N/A

Annual Change

Key Ratios

Industry Data



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Jargon & Glossary

BARRIERS TO ENTRY Barriers to entry can be High,Medium or Low. High means new companies struggle toenter an industry, while Low means it is easy for a rmto enter an industry.CAPITAL/LABOR INTENSITY An indicator of how muchcapital is used in production as opposed to labor. Level isstated as High, Medium or Low. High is a ratio of lessthan $3 of wage costs for every $1 of depreciation;Medium is $3 – $8 of wage costs to $1 of depreciation;Low is greater than $8 of wage costs for every $1 ofdepreciation.CONSTANT PRICES The dollar gures in the KeyStatistics table, including forecasts, are adjusted forination using 2012 as the base year. This removes the

impact of changes in the purchasing power of the dollar,leaving only the ‘real’ growth or decline in industrymetrics. The ination adjustments in IBISWorld’sreports are made using the US Bureau of EconomicAnalysis’ implicit GDP price deator.DOMESTIC DEMAND The use

commercial building construction in the us industry report

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