The construction industry is seeing steady growth despite of the labor shortage for skilled construction workers. While growth looks good now, not solving for the labor challenges could be a problem that slows the industry down.

1. Volvo
E
conomic uncertainties and a shaky
finance sector dampened the
construction industry’s rebound
last year – but this year should
be different. Industry researchers pre-
dict strong growth across the country in
2015 driven by a variety of sectors that
include residential, office, manufactur-
ing, lodging, power, conservation and
development and transportation.
Consumer confidence is on the rise,
inflation and energy prices are low, un-
employment rates are steady at just over
6 percent and banks have loosened their
purse strings.
In its Construction
Outlook 3rd Quar-
ter Report, FMI
projects “continued
growth for manu-
facturing, ending
up around 7 percent
growth in construc-
tion put in place for 2014 with that rate
continuing through 2016 until the mar-
kets work off some pent-up demand and
slow slightly to 6 percent for 2017-2018.”
After a steep downturn in production
output during the recession, the manu-
facturing sector has recovered admirably.
Industrial production averaged gains of
almost 4 percent per year over the past
four years – the strongest four year per-
formance since the late 1990s. Lower en-
ergy costs play a key role in making do-
mestic manufacturing more attractive,
particularly for energy-intensive indus-
tries like steel and chemicals.
The Associated
General Contractors
of America reported
(Insert AGC Report
qr code) that con-
struction employ-
ment “expanded in
236 metro areas,
declined in 53 and was stagnant in 50
between September 2013 and September
2014.” Overall, growth will come from
the private sector, but the largest chal-
lenge rests in finding the right workers
with the appropriate skill sets.
The industry is full of near-retirees, and
younger generations do not seem as ea-
ger to enter the construction sector. As
the number of trade schools decrease,
schools focus less on technical skills and
students look for jobs with higher start-
ing salaries, the construction industry
faces a growing problem – there aren’t
enough talented people to do the work.
John Gillian, a Vice President at Au-
rora, Illinois-based Abbey Paving Co.,
Inc., said the shortage of skilled workers
is concerning since business is booming.
Abbey Paving, which specializes in on-
site general construction, asphalt paving,
concrete and excavation, works with edu-
cation entities, park districts, municipal-
ities and the private sector in the Chicago
area. While business started out slowly
in 2014, it has since taken off.
Gillian said his company experienced
material shortages this past year, par-
ticularly concrete, and a shortage of
trucks and drivers. He said there was a
lot of pent up demand, and he doesn’t
expect that to stop anytime soon. Abbey
Paving predicted $45 million in revenue
for 2014 (it has already surpassed this),
which was a 25 percent increase from the
previous year. As projects grow in dol-
lar value and margins start to return to
pre-2009 levels, Gillian predicts $55 mil-
lion in revenue for 2015 – a 10 percent
increase.
Due to the recent and predicted growth,
Abbey Paving has started to look into
alternative methods of recruiting – in-
cluding employing apprentices – as less
millennials pursue careers in the trade
industry.
Another AGC-
released survey
(Insert AGC Survey
qr code) shows re-
sults in the fall of
2014 stating that
83 percent of firms across the country
have a hard time filling a variety of craft
positions and onsite construction jobs.
Roughly 61 percent find it hard to fill
professional positions, including project
supervisors, estimators and engineers.
The survey also found that the South-
east faces the highest degree of worker
shortages, and 86 percent of contractors
reported difficulty in finding qualified
workers. Roughly 84 percent of contrac-
tors in the Midwest, 82 percent in the
West and 67 percent in the Northeast re-
ported difficulty finding workers.
With construction expected to grow or
at least remain steady across multiple
sectors, employers will compete for tal-
ent as the pool of qualified workers con-
tinues to diminish.
Here are a few construction sectors to
watch:
Lodging
FMI predicts that growth will hit 12
percent in 2015 with the largest amount
of growth coming from upscale buildings
and event facilities. The tourism industry
has actually recovered ahead of the econ-
omy for the first time in history, which
contributes to the positive forecasts. As
financial performance among businesses
improves, business travel will continue
to increase and drive this sector.
Office
FMI reports a 7 percent office con-
struction growth rate for 2015 to $43.6
billion. Vacancy rates should have little
variance. According to the National As-
sociation of Realtors, office rents are
projected to increase 3.2 percent in 2015,
and the net absorption of office space
(including leasing of new office space as
well as space in existing properties) will
likely total 50.7 million square feet in
2015.
As employment rates increase, GDP
rises and business investment increases,
the office sector will drive growth in the
commercial sector. We will continue to
see vacancy rates drop in the large metro-
politan areas. Much of the recent growth
stems from new data centers, govern-
ment offices and corporate buildings.
Commercial
While consumers have increased their
spending, they don’t yet spend at pre-
recession levels. FMI expects 6 percent
growth in 2015. As the rate of online
shopping increases and consumers de-
mand convenience, quality and a lower
cost, it’s tough to predict exactly how the
commercial sector will respond.
Many of the economic indicators would
lead to a more robust prediction in this
sector if not for the major changes ahead
in the retail sector that focus on meeting
the new demands of the consumer. We
will likely see an increase in store remod-
eling, which could stall new construction
in this sector.
Jim Voelz, the President and Co-Owner
of The Redmond Company in Waukesha,
Wisconsin, a commercial design-build
firm that serves clients across the Mid-
west, including auto dealerships, banks,
credit unions and retailers such as Wal-
Sikich 2015
Construction Outlook
Steady Growth Expected Across Multiple Sectors
Despite Skilled Labor Shortage
By Joe Kulek
January 2015 N5 N4 January 2015

2. greens, McDonald’s and Best Buy, pre-
dicts roughly 10 percent growth for his
business in 2015.
He said the market continues to grow
stronger coming out of the recession,
and one of the biggest challenges lies in
ensuring there’s enough material to keep
up with all the business.
The other challenge is a lack of talent.
The firm offers design, construction and
both business and real estate consult-
ing services. Due to this, The Redmond
Company looks for a variety of special-
ists – including architects, construction
managers and project superintendents
– that work together as a team. Voelz
recently reviewed 566 resumes to find
a qualified project superintendent. He
doesn’t see that changing anytime soon.
He said a lot of people left the construc-
tion field altogether in the depths of the
recession – and never came back.
Amusement and Recreation
FMI expects amusement and recreation
construction to grow by 5 percent in
2015. Work at large sports stadiums will
fuel the growth, but many small towns
and colleges have started to invest in
their athletic facilities, as well. States will
likely invest additional funds in gaming
due to the tax benefits. The availability
of state and federal funds along with pri-
vate financial support will drive this sec-
tor. As the economy and consumer con-
fidence continues to strengthen, so will
the construction growth in amusement
and recreation.
Healthcare
In the midst of a rapidly changing
healthcare environment, FMI predicts
4 percent construction growth for 2015
to $44.5 billion. Overall, healthcare con-
tractors will look to make their processes
more efficient and leaner post-Affordable
Care Act as the number of beds per 1,000
people decreases and hospitals prepare
themselves to serve a greater number of
insured patients. Construction will likely
focus on modernizing existing buildings
and incorporating appropriate technol-
ogy. With the significant changes due to
healthcare reform coupled with the ag-
ing population, this sector will continue
to face challenges as it tries to meet the
demand and adjust to the new world of
healthcare delivery.
Education
As state and local budgets shrink, FMI
predicts 3 percent growth in education
construction to $80.3 billion. Student
debt levels are higher than ever, and
schools face serious repercussions if they
increase tuition costs. As a result, indus-
try experts expect to see more online
classes and alternatives to typical educa-
tion, renovations to existing buildings as
opposed to new facilities, greater atten-
tion to energy reduction and construc-
tion designed for safety following recent
school shootings.
There is too much uncertainty to ex-
pect anything other than slow-to mod-
est growth in this sector. On the positive
side, many colleges and universities have
started to explore alternative ways to
project funding, including endowment
funds and deferred capital spending
plans.
Public Safety
Despite severe overcrowding of pub-
lic safety facilities, FMI predicts pub-
lic safety construction will grow only
by 2 percent in 2015. According to the
Congressional Research Service, “The
number of inmates under the Bureau of
Prisons’ jurisdiction has increased from
approximately 25,000 in FY1980 to over
219,000 in FY2013. Since FY1980, the
federal prison population has increased,
on average, by approximately 5,900 in-
mates each year.”
The institutional sector, which in-
cludes public safety, has not benefited
the construction industry over the last
four years. Until federal, state and local
governments ramp up their spending in
these areas, construction growth in insti-
tutional sectors won’t exceed the rate of
inflation.
Transportation, Highways and Bridges
One sector that should see significant
growth is transportation. FMI reports
that transportation construction will
grow roughly 8 percent in 2015 to $45.9
billion. Work on large public transit sys-
tems and increased freight rail-car load-
ings along with a strong aviation indus-
try will continue to boost construction.
This past February, the president an-
nounced $600 million in TIGER grants
to fund transportation projects.
The nation needs more highway fund-
ing, but it’s difficult to identify how to
facilitate this, manage the budget and
complete the backlog of work. Accord-
ing to FMI, the president’s 2015 budget
includes “$199 billion over four years to
continue critical investments in high-
ways in addition to the creation of a new
freight program as well as a new ‘Fix-it-
First’ program, which is aimed at repair-
ing structurally deficient bridges.”
The current Highway Trust Fund was
extended through May 2015, which
will support future sector growth and
stability. Due to the continued congres-
sional gridlock and an uncertain future,
though, FMI predicts only 2 percent
highway construction growth in the next
couple of years.
Power
FMI, the leading provider of manage-
ment consulting, investment banking
and people development services to the
engineering and construction industry,
expects power construction to hit 6 to
8 percent growth through 2018, with
spending totaling $102.5 in 2015. FMI
predicts increased consolidation as con-
sumers reduce their power usage, but
overall demand will continue due to pop-
ulation growth.
Kevin Breen, the Vice President and
CFO at CJ Drilling, a national drill shaft
and foundation construction contractor
that works with numerous utility trans-
mission companies around the country,
said the outlook for the power sector
looks strong for 2015. He said the sector
experienced strong growth over the last
few years and doesn’t show any signs of
slowing down. He attributes the growth
to two factors: the aging infrastructure
and a wave of renewable energy projects
as companies invest in wind energy and
solar farms.
Breen anticipates 10 percent growth
in 2015, although the shortage of skilled
workers along with a shortage of need-
ed heavy equipment poses significant
concerns. Breen’s company recently
launched a training program to combat
the worker shortage. The program fea-
tures a multi-year curriculum that aims
to teach young workers the ABCs of the
business, expose them to a variety of rel-
evant skill sets and empower them to act
as leaders moving forward. The company
even hired a seasoned professional to
lead the program.
Phil Rose, the President of Roman Elec-
tric Co., Inc., a diversified electrical ser-
vices contractor headquartered in south-
east Wisconsin, said he sees a trend in
the industry to ‘build it bigger and build
it faster.’
Roman Electric experienced 40 percent
growth from 2013 to 2014, and it already
has a backlog going into 2015 that’s more
than twice what it had going into 2014.
Rose said that he expects another big
growth year in 2015 with the caveat that
the company can find skilled employees
to do the work.
Moving Forward
Growth is always uncertain in the con-
struction industry and predictions of-
ten rely on previous experience, but the
overall landscape looks significantly bet-
ter than it did over the past few years.
Rising consumer confidence, low interest
rates and declining unemployment are
driving
demand and growth in residential and
commercial construction. This will likely
yield increased demand for products in
other sectors, such as building materials
and consumer durable goods. If weaker
construction sectors make a comeback in
the next few years, we might be able to
say the industry as a whole is once again
hitting on all cylinders. Only time will
dictate whether we’ll see a comprehen-
sive industry comeback, though.
One thing is clear – the shortage of
skilled labor will continue to threaten
the health of construction. Perhaps
Breen said it best. “This industry is only
as strong as its people, and construction
will only grow as fast as it can attract a
competent workforce. It won’t be suc-
cessful in the long-term unless it figures
out a sustainable solution to the current
crisis.”
Due to the recent and predicted growth, Abbey
Paving has started to look into alternative methods of
recruiting – including employing apprentices – as less
millennials pursue careers in the trade industry.
Ko
ma
tsu
January 2015 N7 N6 January 2015