1. business and industrial
2. construction

Commercial Building Construction in the US July 2012 1
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Reconstruction era: Recovery makes its way as
vacancy rates fall and corporate profit returns
IBISWorld Industry Report 23332a
Commercial Building
Construction in the US
July 2012
Andrea Alegria
2 About this Industry
17 International Trade
33 Key Statistics
2
Industry Definition
18 Business Locations
33 Industry Data
2
Main Activities
2
Similar Industries
20 Competitive Landscape
3
Additional Resources
20 Market Share Concentration
33 Annual Change
20 Key Success Factors
4 Industry at a Glance
33 Key Ratios
34 Jargon & Glossary
20 Cost Structure Benchmarks
22 Basis of Competition
5 Industry Performance
23 Barriers to Entry
5
Executive Summary
24 Industry Globalization
5
Key External Drivers
7
Current Performance
9
Industry Outlook
11 Industry Life Cycle
25 Major Companies
29 Operating Conditions
29 Capital Intensity
13 Products & Markets
30 Technology & Systems
13 Supply Chain
31 Revenue Volatility
14 Products & Services
31 Regulation & Policy
15 Demand Determinants
32 Industry Assistance
16 Major Markets
www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com
Commercial Building Construction in the US July 2012 2
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About this Industry
Industry Definition
The Commercial Building Construction
industry includes firms that are primarily
responsible for work on the construction
(i.e. new work, additions, alterations,
maintenance and repairs) of office, retail,
hotel and entertainment buildings. The
Main Activities
The primary activities of this industry are
majority of participants are general
contractors or project managers. This
industry does not include municipal
building construction, which comprises
institutional buildings such as schools,
hospitals, and churches.
Office 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
The major products and services in this industry are
Construction management services
General contracting
Remodeling contracting
Other business activities
Other non-building construction activities
Similar Industries
23 Construction in the US
Operators in this industry perform specialized construction work.
23611a Home Builders in the US
Establishments in this industry primarily construct residential buildings.
23611b Apartment & Condominium Construction in the US
Industry establishments construct residential buildings.
23331 Industrial Building Construction in the US
This industry constructs industrial buildings.
23493 Heavy Industrial Facilities Construction in the US
Establishments in this industry construct non-building structures, such as industrial processes, power plants
and blast furnaces.
53 Real Estate and Rental and Leasing in the US
Industry operators finance and develop commercial property.
Commercial Building Construction in the US July 2012 3
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About this Industry
Similar Industries
continued
54131 Architects in the US
Companies in this industry provide architectural design for buildings.
54133 Engineering Services in the US
Firms in this industry provide engineering design and project management services.
23332b Municipal Building Construction in the US
Establishments in this industry construct institutional buildings (e.g. hospitals, schools and prisons).
Additional Resources
For additional information on this industry
www.reedconstructiondata.com
Reed Construction Data
www.agc.org
The Associated General Contractors of America
www.census.gov
US Census Bureau
IBISWorld
writes over 700 US
industry reports, which are updated
up to four times a year. To see all
reports, go to www.ibisworld.com
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Commercial Building Construction in the US July 2012 4
Industry at a Glance
Commercial Building Construction in 2012
Key Statistics
Snapshot
Revenue
Annual Growth 07-12
Annual Growth 12-17
Profit
Wages
Businesses
$105.9bn -13.4%
6.8%
$74.0bn 29,012
$1.9bn
Consumer spending
Revenue vs. employment growth
% change
There are no
Major Players in
this industry
20
4
10
3
0
2
% change
Market Share
−10
−20
−30
−40
Year 04
1
0
−1
06
08
10
Revenue
12
14
16
18
−2
Year
06
08
10
12
14
16
18
Employment
SOURCE: WWW.IBISWORLD.COM
p. 25
Products and services segmentation (2012)
7%
Key External Drivers
10%
Consumer spending
Other non-building
construction activities
Construction
management services
Office rental vacancy
1%
Other business
activities
National
unemployment rate
S&P 500
Yield on 10-year
Treasury note
15%
Remodeling
contracting
67%
General contracting
p. 5
SOURCE:
WWW.IBISWORLD.COM
SOURCE:
WWW.IBISWORLD.COM
Industry Structure
Life Cycle Stage
Revenue Volatility
Capital Intensity
Mature
Regulation Level
Heavy
High
Technology Change
Low
Barriers to Entry
Low
Industry Globalization
Low
Competition Level
High
Industry Assistance
None
Concentration Level
Low
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33
Medium
Commercial Building Construction in the US July 2012 5
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Industry Performance
Executive Summary | Key External Drivers | Current Performance
Industry Outlook | Life Cycle Stage
Executive
Summary
Few industries have been more adversely
affected by the recession than
commercial construction. The total
collapse of the housing market and its
subsequent strain on the financial sector
set the stage for a stagnant commercial
construction market. Reduced corporate
profit, high unemployment and low
consumer spending contributed to the
industry’s decline as businesses stopped
growing or even downsized, which halted
demand for new office space and
warehouse construction. High
unemployment and low consumer
Businesses
will expand as the economy
recovers, driving industry demand
spending also severely hurt the retail and
hospitality sectors. As a result, industry
revenue is expected to fall at an average
annual rate of 13.4% to $105.9 billion
over the five years to 2012.
Commercial construction tends to lag
behind the overall economy by 12 to 24
months (due in part to the length of
construction contracts and industry
backlog). The industry began to slow in
2008 and underwent steep revenue
declines in 2009 and 2010 of 29.7% and
30.3%, respectively. Especially during
those years, most contractors saw
Key External Drivers
Consumer spending
Consumer spending, as an indicator of
the total amount spent by Americans
on services and new goods as well as
net purchases of used goods, directly
impacts US businesses. High consumer
spending contributes to business
expansion, which fuels demand for new
office buildings, new retail spaces, such
as stores and shopping centers, and
new hotels. Consumer spending also
drives demand for construction of
backlogs diminish to unprecedented
levels, despite the influx of stimulus
dollars, causing profit to shrink. As the
market for construction services
declined, firms had to cut profit margins
and even bid on projects for a loss, just to
keep their crews busy. In 2009 and 2010,
profit margins dropped to less than 1.0%
from a peak of 5.0% in 2007. Margins are
expected to remain low in 2012, at 1.8%,
showing modest improvement as
economic recovery stimulates demand
for new commercial construction and as
the prices of services gradually increase.
After three years of consecutive
revenue decline, the industry is expected
to begin recovering in 2012, with revenue
expected to grow by 2.1%. Even more
promises, over the five years to 2017
revenue is projected to increase at an
annual average rate of 6.8% to $147.1
billion. Industry growth will be driven by
continued improvements in the US
economy, with demand for construction
projected to steadily rise as businesses
begin to expand operations.
Over the next five years, merger and
acquisition activity will become
prominent in the industry as the
construction markets recover and
more established firms compete for
market share. The number of firms
will grow moderately by 2.1%, totaling
32,230 in 2017.
amusement and recreational spaces
such as casinos and theaters. This
driver is expected to rise in 2012.
Office rental vacancy
The need for new commercial properties
often depends on office vacancy rates,
with higher rates signaling weak
demand or over-development. Existing
office space will usually be filled up first
(office vacancy rates will drop) before
new office buildings are constructed.
Commercial Building Construction in the US July 2012 6
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Industry Performance
This driver is expected to decrease in
2012, as economic recovery fuels
businesses expansion. Decreasing
vacancy rates are a potential
opportunity for commercial
construction industry growth.
National unemployment rate
Unemployment is an important driver of
industry performance because the need
for additional space diminishes as
businesses shed workers. Additionally,
consumer spending significantly
influences the commercial segment
because retailers and other consumeroriented businesses rely on consumers
for income. As unemployment rises,
consumer spending falls, retail
businesses contract and demand for new
commercial space drops. High
unemployment shrinks demand for
amusement parks, shopping centers and
casinos, among other commercial
buildings. This driver is expected to
decrease over 2012.
S&P 500
The Dow Jones Industrial Average is a
strong indicator of economic conditions
and corporate profit, which is important
for determining demand for new
commercial property developments and
renovations. Industry revenue generally
fluctuates with economic conditions
because the need for new property rises
during economic expansions and
contracts during recessions as
businesses and consumers increase and
decrease expenditures during these
cycles. Moreover, the financial markets
indicate the ability for investors or
businesses to purchase and develop real
estate because more capital is available
during bull markets. This driver is
expected to increase over 2012.
Yield on 10-year Treasury note
Interest rates determine industry
demand because lower rates and credit
standards increase the ability for
investors and businesses to purchase
property. Most property purchases,
developments and construction
activities in the industry are financed by
commercial mortgages, which are
related to the yield on 10-year treasury
bonds. Costs of construction fluctuate
with interest expenses. This driver is
expected to increase over 2012, making
it a potential threat to industry growth.
Office rental vacancy
Consumer spending
4
16
3
15
14
2
13
1
%
% change
Key External Drivers
continued
0
11
−1
−2
Year
12
10
06
08
10
12
14
16
18
9
Year 04
06
08
10
12
14
16
18
SOURCE: WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 7
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Industry Performance
Current
Performance
Fewer projects, less revenue and
shrinking profit are current
characteristics of the Commercial
Building Construction industry, which
was plagued by the economic downturn
of last five years. The recession slammed
the brakes on the industry’s boom
leading up to 2007, and revenue fell at
an estimated annualized rate of 13.4% in
the five years to 2012.
Demand for commercial construction
is driven by the business sector, which
was severely set back by the downturn.
Layoffs, bankruptcies and business
contraction weakened demand for the
construction of new office buildings,
retail stores, shopping centers,
warehouses and entertainment
buildings, such as casinos. The industry
continued to decline well into 2011 due
to a number of factors, including lenders’
reluctance to finance construction
projects. This is just one side-effect of
overbuilding that took place during the
construction boom between 2005 and
2006 and rising costs of key construction
materials. Commercial building
construction activity, however, is
expected to pick up slightly in 2012, and
revenue is expected to grow 2.1% to
$105.9 billion, marking the start of the
industry’s recovery.
Ripple effect
The decline in the overall health of US
businesses was triggered by the credit
crisis that ensued after the housing
market collapsed in 2006. The pressures
on the financial sector, incurred by rising
mortgage defaults, translated to
commercial businesses as losses and
write-downs, as banks reduced the
holding value of assets on balance sheets
to better align them with market value.
As the lending markets tightened,
businesses and individuals struggled to
secure financing for operations and
purchases. Expansion plans were
canceled or put on hold, hampering
demand for new construction.
Contraction in the business sector
resulted in a smaller workforce, which
increased vacancy rates in commercial
buildings, including offices, retail stores
and shopping centers. Changes within
the commercial real estate market,
including vacancy rates, property values
and credit activity, generally influence
demand for industry services. During
periods of economic contraction,
property values fall and vacancy rates
climb as demand for real estate drops.
Revenue declines
Commercial construction generally lags
behind the overall economy by 12 to 24
months, due in part to the length of
construction contracts and industry
backlogs. The Commercial Building
Construction industry in the United
States was still growing in 2007 and
2008 as many contractors entered the
recession with a cushion of projects in
the pipeline, accrued during the
Industry revenue
10
% change
0
−10
−20
−30
−40
Year 04
06
08
10
12
14
16
18
SOURCE: WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 8
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Industry Performance
Revenue declines
continued
Profit drops
construction boom of 2005 and 2006.
When the industry began to slow in
2008, revenue steeply declined,
plummeting 29.6% in 2009 as backlogs
diminished and new construction
projects were sharply reduced. In 2010,
revenue fell 30.3% because consumer
and business confidence was still poor,
resulting in little business investment in
the real estate market. In 2011 the
industry further contracted 5.9%.
Revenue from office construction
declined largely because a shrinking
workforce left vacant office space, which
drove down demand for new office
buildings. Retail construction, including
warehouses, contracted because of
operators’ decreased revenue and profit;
consumer spending declined during the
sluggish economy. This drove down
demand for new construction of shops,
malls, retail centers and warehouses. A
drop in consumer spending, triggered
largely by high unemployment, also
reduced demand for construction of
amusement, social and recreational
spaces, including casinos.
The poor economy also hindered
demand for hotel and motel construction
due to a decline in tourism as well as
consumer and business travel. During the
recession, businesses slashed traveling
budgets and conference expenses when
sales were down, and consumers cut back
on vacations and other discretionary
spending activities to save money. As
hotel vacancies rose, demand for
buildings in this sector slowed.
The rising costs of construction materials
have all but drained profit margins. Steel,
copper and aluminum prices have
fluctuated significantly in recent years,
often offsetting declines for lumber and
concrete products. Rising energy costs
have also been central to the unusual
volatility in building material prices. As
the market for construction services
declined, firms also had to cut profit
margins and even bid on projects for a
loss, just to keep their crews busy. In 2009
and 2010, profit margins dropped to less
than 1.0% of revenue from a peak of 5.0%
in 2007, largely because the industry faced
increasing competition for a limited
amount of projects. In 2012 profit margins
are expected to remain low at 1.8%.
Most industry firms contract
workers on a per-project basis, so the
decline in construction projects
during the downturn led to a decrease
in industry employment. During the
five years to 2012, industry jobs
decreased at an average annual rate of
4.7% to 351,673 people in 2012.
Industry firms decreased slightly
during the same period by 0.1% to
29,012. Although some firms went out
of business or were acquired by larger
companies during that period, the
majority of companies survived the
recession by diversifying their services
and focusing on sectors that were less
vulnerable to the recession, such as
healthcare and education.
Revenue
plummeted in
2009 and 2010 as industry
backlogs ran low and new
projects slowed greatly
Commercial Building Construction in the US July 2012 9
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Industry Performance
Diversification helps
contractors
The commercial construction industry is
comprised of general contractors, project
managers and design-builders that
primarily work on office, hospitality,
retail, warehouse and entertainment
buildings. These participants also work
on a variety of other projects, including:
institutional buildings (e.g. schools and
hospitals), industrial structures (e.g.
factories and laboratories) and
residential properties (mainly multistory
apartments). The diversification of
operations helps contractors moderate
revenue volatility, particularly during
economic downturns.
In the five years leading up to 2012,
certain construction sectors were less
impacted by the recession, such as
healthcare and education, which do not
Industry
Outlook
As the economy gradually recovers,
lower unemployment, greater consumer
spending, and a drop in office vacancies
will drive growth in the commercial
building construction industry in the
next five years. The industry’s recovery,
however, will be slow as it continues to
be plagued by high vacancy rates, which
generally spike during economic
downturns. The previous real estate
boom will initially hinder growth
because many markets remain
overbuilt. High unemployment, which
will remain elevated for most of the next
five years due to the employment
market’s slow recovery, will also
hamper industry growth. Nonetheless,
recovery in the industry is expected to
gain momentum in 2013, with revenue
forecast to grow 5.6% to $147.1 billion.
Consumer and business confidence
will need to increase significantly
before high investment activity takes
place in the commercial real estate
market. Spending on renovations of
generally move in line with economic
cycles, and government-funded projects.
Diversification helped many contractors
stay afloat. For some, the steep decline in
office, retail and lodging construction was
mitigated by a rise in hospital and
municipal development.
This diversification is important for
understanding the dynamics of
contractor income, but construction
projects in the healthcare, education,
industrial and government sectors are
not included in this industry report.
Industrial construction is discussed in
the Industrial Building Construction
industry (IBISWorld report 23331), while
municipal construction is included in the
Municipal Building Construction
industry (23332b).
The
industry will grow
strongly toward the end of
the five-year period due to
a recovering economy
existing facilities will strengthen as
corporate profit and business
operations also improve, and a growing
economy will boost demand for new
construction of offices, retail buildings,
hotels and other commercial structures.
The Commercial Building Construction
industry’s revenue is expected to
increase at an average annual rate of
6.8% to $147.1 billion in 2017, as
businesses gradually recover and begin
expanding operations, which will
increase demand for new construction.
Economic recovery will also strengthen
investment into the real estate market
as property values inch upward and
commercial rent rises.
Commercial Building Construction in the US July 2012 10
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Industry Performance
Delay in recovery
Recovery in the office building sector
will lag due to high office vacancies,
which will need to decrease significantly
before demand for new buildings picks
up. High office vacancies will drop as
labor markets improve. As the
unemployment rate declines, the need
for new office space will rise, pushing
down vacancy rates in existing
buildings. Once vacancies drop,
investment into office construction will
strengthen considerably, with profit
growth underpinning demand for
prime office stock.
Within the Commercial Building
Construction industry, the retail, hotel
and entertainment sectors will
experience the most growth, driven by
improved consumer spending and a
favorable lending market. Job growth
will support consumer-spending habits
as individuals return to work and
disposable incomes rise. Increased
consumer spending and wealth will also
pave the way for investment into the
construction of shopping malls,
department stores, food retail outlets and
Industry firms, jobs
and profit recover
Employment in the construction
industry will recover as industry
revenue increases and firms hire staff
in response to increased demand for
new developments. With a greater
number of construction projects,
general contractors will subcontract
increasing amounts of labor-intensive
work. Industry employment is forecast
to increase at an average annual rate of
7.3% over the next five years to
499,509 in 2017. Similarly, industry
firms are forecast to rise by an average
annual rate of 2.1% to 32,230 in the
next five years. Growth will be slow,
however, because the industry, which
is in its mature stage, will experience
increased competition. In addition,
larger firms will undertake a greater
entertainment facilities. Better
conditions in the global financial markets
will support industry growth, as banks
and others invest in real estate
developments at higher rates,
particularly as delinquencies improve.
Within the retail store construction
market, much of the expansion will occur
in the construction of mixed-use
commercial buildings. Operations will
expand and refurbish existing shopping
malls and construct new shopping
precincts to service new suburban
housing developments.
Industry expansion is forecast to
strengthen in a cyclical pattern. The
industry 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% in
2017 as demand stabilizes. Construction
of commercial buildings will not reach
pre-recession levels in the next five
years because property values will not
accelerate, lending standards will
remain strict, and overbuilt markets
will limit demand.
Enterprise
growth will
remain slow as the amount
of mergers and acquisitions
increases
level of merger and acquisition activity
to increase market share.
Industry profit margins will improve
gradually and reach a peak of 9.3% in
2017, as price for construction services
remain unscathed by poor demand and
an unsound business environment. A
more stable world economy will also
mitigate wide fluctuations in the cost of
construction materials; however, energy
costs will remain volatile.
Commercial Building Construction in the US July 2012 11
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Industry Performance
Life Cycle Stage
The market is driven by fairly stable growth
factors, including GDP, employment,
property values and rental yields
Advancements in construction techniques and
materials have a limited impact on demand
%Growthofprofit/GDP
Few firms are exiting or entering the
business in the five years to 2017
Maturity
30
QualityGrowth
Company
consolidation;
level of economic
importance stable
25
High growth in economic
importance; weaker companies
close down; developed
technology and markets
KeyFeaturesofaMatureIndustry
Revenue grows at same pace as economy
Company numbers stabilize; M&A stage
Established technology & processes
Total market acceptance of product & brand
Rationalization of low margin products & brands
20
15
QuantityGrowth
Many new companies;
minor growth in economic
importance; substantial
technology change
10
5
CommercialBuildingConstruction
0
GlassProductManufacturing
Shake-out
GasStationswithConvenienceStores
Decline
Crash or Grow?
–10
–10
Shake-out
IndustrialBuildingConstruction
–5
PotentialHiddenGems
TimeWasters
MunicipalBuildingConstruction
Future Industries
Hobby Industries
CementManufacturing
–5
0
5
10
15
20
25
30
%Growthofestablishments
SOURCE: WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 12
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Industry Performance
Industry Life Cycle
This
industry
is Mature
The commercial building construction
industry is in the mature stage in its life
cycle. This industry’s contribution to the
economy (industry value added) is
expected to grow at a similar rate as the
USGDP in the 10 years to 2017. During
this period IBISWorld projects that
industry value added (IVA) will grow at
an average annual rate of 1.5%, while
GDP is projected to experience
compound growth of 1.9% during the
same period.
Few companies have left or entered
the Commercial Building Construction
industry in recent years. That stability
could be further evidence of a mature
industry. In the five years to 2012, firms
increased only slightly at an average 0.1%
per year to 29,012 in 2012.
The industry will remain in a mature
stage because the growth in industry
revenue over the next five years will
likely be offset by the dramatic decline
that occurred from 2009 through 2011.
The industry’s IVA will outpace GDP
growth by a wide margin in the years
from 2012 to 2017, though IVA is
expected to grow at an annualized rate of
8.8%. Typically, an industry is
considered to be in a growth phase when
IVA outpaces GDP growth; however,
commercial building construction
activity fluctuates on a cyclical basis. No
substantial technology changes are
expected that could push the industry
back into a growth cycle.
Construction techniques and
technological advancements have
resulted in substantial advances in
productivity, building quality and
timeliness. However, these achievements
have not influenced demand or industry
growth. The move toward green
technology will not catapult the industry
back into a growth cycle, as Leadership
in Energy and Environmental Design
(LEED) buildings take the place of new
development projects.
Commercial Building Construction in the US July 2012 13
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Products & Markets
Supply Chain | Products & Services | Demand Determinants
Major Markets | International Trade | Business Locations
Supply Chain
KEY BUYING INDUSTRIES
42
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, gas
stations and drug stores.
45211
Department Stores in the US
This industry provides investment into the construction of retail stores, shopping malls and
department stores.
52593
Real Estate Investment Trusts in the US
Property trusts fund the development of commercial construction projects (e.g. offices and
shops).
53
Real Estate and Rental and Leasing in the US
Commercial property operators and developers fund the development of non-residential
building projects.
71
Arts, Entertainment and Recreation in the US
Arts, entertainment and recreational service providers fund investment into commercial
buildings such as theaters and casinos.
72
Accommodation and Food Services in the US
This industry provides investment funds for the construction of hotels, motels, restaurants,
cafes and bars.
KEY SELLING INDUSTRIES
23
Construction in the US
Special construction trade subcontractors supply a wide range of specialist services to the
Commercial Building Construction industry (e.g. electrical, carpentry and plumbing).
32721
Glass Product Manufacturing in the US
This industry supplies construction material inputs to the Commercial Building Construction
industry.
32731
Cement Manufacturing in the US
Cement manufacturers supply construction material inputs to the Commercial Building
Construction industry.
32733
Concrete Pipe & Block Manufacturing in the US
This industry supplies construction material inputs to the Commercial Building Construction
industry.
32799
Mineral Product Manufacturing in the US
Operators in this industry supply construction material inputs to the Commercial Building
Construction industry.
42
Wholesale Trade in the US
Wholesalers 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 US
These wholesalers supply capital equipment (e.g. cranes and hydraulic pumps) to the
Commercial Building Construction industry.
52
Finance and Insurance in the US
This industry provides finance facilities and insurance coverage (notably professional
indemnity, health insurance and income security) to the Commercial Building Construction
industry.
53241
Heavy Construction Equipment Rental in the US
This industry leases construction and transportation equipment for lease to the Commercial
Building Construction industry.
Commercial Building Construction in the US July 2012 14
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Products & Markets
Products & Services
Products and services segmentation (2012)
7%
10%
Other non-building
construction activities
Construction
management services
15%
Remodeling
contracting
Total $105.9bn
Products and Services
The Commercial Building Construction
industry’s principal activity is to
provide prime contracting services in
the construction of commercial
buildings. Industry firms operate as
general contractors (GCs) or designbuilders; specialist remodeling
contractors; specialist construction
management firms; and contractors
that supply other non-building
construction services (e.g. excavation
and site preparation) and nonconstruction activities (e.g. land sales).
General contractors and design-builders
About 67% of industry revenue is
derived from general contracting and
design-building activities related to new
construction. Typically, construction
firms obtain contracts through
tendering or quoting a price accepted by
the property developer. Contracts
normally require that the GC oversee all
aspects of the project from quantity
surveying, material purchase, skilled
labor and subcontractor recruitment
and construction to the lockup stage,
which is the period before construction
begins. The GC is expected to consult
with project architects, financial
providers and building regulators.
1%
Other business
activities
67%
General contracting
SOURCE: WWW.IBISWORLD.COM
There is a growing tendency for firms to
partly or fully finance property
developments with the view to accessing
above normal profit and countercyclical
cash flow. Throughout the past five
years, building firms increasingly have
taken an equity interest in large-scale
property developments, such as
shopping complexes, offices and
landmark buildings (e.g. sporting
complexes and casinos).
Revenue from general contracting or
design-builders has decreased as a share
of revenue in the past five years. The
number of new commercial construction
projects has diminished due to financial
constraints on business growth during
the down economy.
Remodeling contractors
Remodeling construction work generates
about 15.0% of industry revenue.
Property developers often choose to
upgrade an existing premise, such as a
hotel, office or department store, through
extensive remodeling rather than
construct a new building. Occasionally,
remodeling involves altering the type of
building, which may include converting
warehouses to office, but it typically
involves restoring an existing premise to
its original position within the property
Commercial Building Construction in the US July 2012 15
WWW.IBISWORLD.COM
Products & Markets
Products & Services
continued
Demand
Determinants
market. Offices are generally restored to
a class A rental accommodation through
internal renovations, new external
cladding, installing building automation
and upgrading facilities for modern data
and communication transmission.
The conversion of older premises to
multipurpose buildings, such as hotels,
shopping arcades, offices and
apartments, requires many of the skills
needed on a new building project. It also
involves maintaining the original
character of period buildings – that is,
operating in an environment where the
building remains fully or partly
tenanted; and upgrading services (e.g.
electricity and air conditioning) within
the original building structure’s confines.
The share of revenue for this segment
has increased since 2007, as property
owners opted for renovating existing
spaces instead of purchasing new
commercial facilities in the difficult
economy. Especially in the office sector,
which faced high vacancy rates,
landlords invested in remodeling work
as a way to lure high-quality tenants.
Other activities
The supply of construction management
services, which specialize in
establishment building projects, is
estimated to account for 10.0% of
industry revenue. The provision of these
services comprises many of the elements
performed by the general contractor or
design-builder; however, subcontractors
undertake all the construction activity.
Like general contractors, firms that
supply construction management
services oversee all aspects of the project,
from quantity surveying, material
purchase, skilled labor and subcontractor
recruitment and construction to the
lockup stage. The construction manager
consults with project architects, financial
providers and building regulators. In line
with the recessionary decline of new
construction projects, this segment has
also decreased as a share of revenue.
The industry generates about 7.0% of
its revenue from providing non-building
construction services, like specialized
trade. These services are typically
undertaken on land the client owns and
involve activities such as excavation and
land clearing, water and sewer
installation and traffic and pedestrian
infrastructure construction. This
segment has increased as a share of
revenue since 2007 because many firms
have looked to diversify services as a way
to ride out the stagnant construction
market. By offering additional nonbuilding activities to clients, firms
increase their revenue sources.
The key factors that influence demand
for commercial building construction
vary according to the type of building.
However, industry activity is generally
determined by current economic
conditions and investor confidence. Key
economic factors that influence
investment decisions include the
prevailing interest rate and availability
of finance; current and expected rates of
general economic growth; the expected
investment yield (long-term rental yield
and speculative capital gains); taxation
treatment of building investment
compared with other types of assets;
vacancy rates of existing building stock;
the rate of replacing aging building
stock; and changes in the structure,
distribution and population size. The
industry is also subject to unforeseen
stimuli to demand resulting from natural
disasters, such as tropical storms,
hurricanes and earthquakes, which
create new building projects.
Commercial Building Construction in the US July 2012 16
WWW.IBISWORLD.COM
Products & Markets
Demand
Determinants
continued
Major Markets
Office construction is principally
determined by growth in the service
sector work force, growth in foreign
investment inflow and developer
speculative activity. The average age of
commercial office stock is an important
determinant of demand for the addition
of new stock or the upgrade of existing
stock. New technologies in the areas of
IT and communications have negatively
influenced rapidly aging building stock,
thereby increasing demand for
premium stock.
Retail building construction is
principally determined by shopping
preference and patterns; population
growth rates and catchment areas; and
patterns in consumption expenditure.
Hotel construction is determined by
growth in international and domestic
tourism; major cultural, sporting,
entertainment and business events;
growth in casino licenses; and existing
supply of accommodation. Other
commercial building construction is
determined by population growth and
urban spread; increases in tourism and
leisure time; major cultural and
sporting events (e.g. Winter Olympics);
and popularity of new sports and
recreational activities, like soccer and
beach volleyball.
Major market segmentation (2012)
8.1%
Lodging
15%
Amusement
42.9%
Retail and
warehouse
Total $105.9bn
34%
Office
Industry revenue is derived from the
office, retail, amusement and lodging
construction markets. The value of work
done in each market fluctuates
depending on demand. Triggered of
demand include economic factors
(unemployment rates, corporate profit,
and consumer spending), and the
relative strength of the investment cycles
in each of the key markets.
SOURCE: WWW.IBISWORLD.COM
Office buildings
In 2012 the office construction sector will
constitute an estimated 34.0% of the
value of total commercial building
construction. Office construction was
hindered by the recession as businesses
contracted and the need for additional
office space declined. Commercial
lending also tightened during the
downturn, making it hard for businesses
Commercial Building Construction in the US July 2012 17
WWW.IBISWORLD.COM
Products & Markets
Major Markets
continued
to get loans to finance expansion plans.
High office vacancy rates have been a
drag on office construction in the past
five years. As vacancy rates go down,
demand for construction of office
buildings will increase in 2012.
Retail and warehouse
The construction of retail stores and
commercial warehouses accounts for
about 42.9% of the value of total
commercial building construction. This
segment includes the building of
shopping centers, shopping malls and
general merchandise stores; restaurants,
bars and fast food outlets; drug stores,
building supply stores, and commercial
warehouses. Reduced per capita
disposable income hurt retailers in the
recession. In the past five years,
companies that went out of business or
lost revenue translated into high retail
vacancy rates, which lowered demand for
new retail construction. Economic
recovery will boost retail construction
when consumer spending picks up.
International Trade
The industry is composed of companies
that construct commercial buildings and
other structures within the United States.
Consequently, there is no international
trade within this industry, since goods
are not passed from one country to
Amusement and recreation
The industry generates about 15.0%
of annual revenue from the
construction of non-institutional
amusement and recreation buildings,
such as private sports and fitness
facilities, private clubs and social
centers, movie theaters, theme parks
and casinos. In the five years to 2012
declining per capita disposable
income has brought down demand
for construction in this sector.
Lodging
Hotel and motel construction will
generate an estimated 8.1% of industry
revenue in 2012. Over the past five
years, demand for hotel and motel
construction has fluctuated dramatically
as the recession’s impact on the
hospitality sector hindered new
construction of hotels and motels. High
unemployment and low consumer
spending hurt tourism and led to high
room vacancies, which brought down
demand for new construction.
another. However, the industry provides
service to foreign owned operations,
while some US operators have offices in
foreign locations. For more information
on international operations, refer to
Industry Globalization.
Commercial Building Construction in the US July 2012 18
WWW.IBISWORLD.COM
Products & Markets
Business Locations 2012
West
New
England
AK
0.5
Great
Lakes
WA
ND
MT
2.5
Rocky
Mountains
ID
OR
1.4
West NV
1.2
1.8
SD
0.4
WY
0.8
MN
0.4
0.4
Plains
1.1
UT
CO
1.1
KY
1.0
9
OK
1.6
NC
3.1
TN
AZ
NM
2.1
0.9
Southwest
TX
7.7
HI
0.5
AdditionalStates(as marked on map)
1 VT
2 NH
3 MA
4 RI
5 CT
6 NJ
7 DE
8 MD
0.2
1.0
0.4
2.8
2.1
0.2
SC
Southeast
1.0
MS
AL
1.6
1.4
GA
3.7
0.9
LA
1.6
FL
6.3
Establishments(%)
0.3
2.1
AR
8
0.4
1.7
11.2
7
WV VA
2.7
1.3
2.1
CA
West
3.4
MO
KS
2.1
OH
1.9
6
3.6
IN
3.7
0.6
PA
2.8
IL
0.4
1 2
3
NY
6.1
5 4
MI
1.5
IA
NE
0.3
WI
ME
MidAtlantic
9 DC
0.2
Lessthan3%
3%tolessthan10%
10%tolessthan20%
20%ormore
SOURCE: WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 19
WWW.IBISWORLD.COM
Products & Markets
Establishments vs. population
30
20
10
Southwest
Southeast
Rocky Mountains
Plains
New England
Mid-Atlantic
Great Lakes
0
West
The distribution of industry activity
correlates to shifting regional populations
and economic activity. Short-term
deviations from the normal distribution
of industry activity result from
differences in the pace of population and
economic growth and one-off stimuli to
construction activity. Such stimuli
includes the staging of the Winter
Olympics in Salt Lake City, the
reconstruction of buildings following
terrorist actions in Oklahoma,
Washington DC and New York, and
reconstruction following the devastation
of Hurricane Katrina in the Southeast.
The current distribution of regional
industry activity comes from the annual
survey of County Business Patterns for
the combined commercial and
institutional building industry.
The Southeast region contains a
quarter of the industry’s employees and
establishments, reflecting the region’s
large share of population and economic
activity. These high shares are also
indicative of the significant tourism
activity in the region, which stimulates
investment into hotels, retail and
recreation facilities. The Mid-Atlantic,
which includes the economic nodes of
New York City, Philadelphia and New
Jersey, accounts for about 15.0% of
industry establishments and about 18.0%
of employment. These percentages
correspond to the region’s share of the
population and economic activity and
reflect the large-scale office and hotel
construction that takes place in major
metropolitan areas.
The West accounts for about 17.3% of
industry activity. This percentage is
below its share of the economy and
population, but it is considered
consistent with its share of nonresidential building activity in the 2000s.
Percentage
Business Locations
Establishments
Population
SOURCE: WWW.IBISWORLD.COM
The bulk of employment and
establishments is concentrated in
California, which accounts for 11.0% of
national establishments. The Great Lakes
region makes up about 13.2% of industry
establishments and employment, which
is consistent with the region’s share of
the economy and construction activity.
The Southwest makes up 11.0% to
12.5% of industry activity, which closely
corresponds to the region’s share of the
population and the economy. The Plains
region accounts for 7.4% of industry
activity, which also reflects the region’s
share of the US population and economy.
New England and the Rocky
Mountains each make up about 4% to 5%
of industry establishments, employment
and payroll, which is consistent with each
region’s share of the population and
economic activity. The slower pace of
population growth in New England
constrains demand for new commercial
building activity.
WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 20
Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks
Basis of Competition | Barriers to Entry | Industry Globalization
Market Share
Concentration
Level
Concentration
in
this industry is Low
Key Success Factors
IBISWorld
identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:
Cost Structure
Benchmarks
The industry has a low level of
concentration, with the four largest
players accounting for about 5.7% of
industry revenue. The largest industry
participants are general contractors, but
these firms often use subcontractors
and local firms to develop projects. As a
result, most participants are
subcontractors that compete on a local
or regional scale. Additionally, large
participants operate in several
construction segments outside
commercial building, including civil
projects, and municipal and
institutional building construction,
which further dilutes the concentration
of industry revenue. About two-thirds
of establishments employ fewer than 10
people, including about 47.0% of firms
that employ fewer than five people.
Only about 2.0% of industry
Access to highly skilled workforce
Ensuring ready access to skilled
workers and subcontracting building
trade specialists is essential for
success in this industry.
Ability to compete on tender
Most contracts in this market are
allocated through the tender process,
and successful contractors ensure
they secure a steady flow of new
contracts without compromising their
long-term price margins.
Establishmentsbyemploymentsize
No. of persons
Share of establishments (%)
1 to 4
5 to 9
10 to 19
20 to 49
50 to 99
100 to 249
250 to 499
500 to 999
1,000+
Total
46.6
18.9
16.3
12.1
3.8
1.8
0.4
0.1
0.1
100.0
SOURCE: US CENSUS BUREAU COUNTY BUSINESS PATTERNS
establishments employ more than 100
people. These large-scale players are
multi-establishment companies with
branches that operate across many
states and regions.
knowledge of building statutes and
regulations. They also need to have
the capacity to deal with local
government administration and
regulatory authorities throughout
the project.
Access to high quality inputs
Successful firms establish good
working relationships with suppliers
of high-quality construction materials
and fixtures.
Ability to negotiate
successfully with regulator
It is important to have construction
managers who have sound
Ability to forward sell production
when appropriate
Successful industry operators are able
to pre-lease or obtain clients before
the project is constructed.
Profit
Industry profit as a measure of earnings
before interest and taxes (EBIT)
continues to be constrained by
competition for a reduced number of
construction projects as a result of the
economic downturn. As the market for
construction services declines, cut
WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 21
Competitive Landscape
profit margins and even bid on projects
for a loss. Competition has especially
hurt general contractors in the industry
who have been frequently underbid by
larger firms with greater resources and
greater capacity to undertake projects
with little or no profit.
The industry’s profit dropped to 0.78%
in 2010 from a peak of 5.0% in 2007
because the shrinking number of new
construction projects put pressure on the
price of services. In 2012, profit margins
will remain low at 1.8% also due to the
rising costs of construction materials,
which have hurt profit margins in recent
years. Steel, copper and aluminum
remain volatile. Rising energy costs have
also been central to the unusual volatility
in building material prices.
In the past five years, firms have
especially been compelled to better
manage their performance and
fine-tune their business strategies to
improve profitability. Construction
delays or cancellations due to lack of
financing for construction projects
greatly hurt profit margins in the five
years to 2012. Contractors often bid
on projects before all aspects of a
construction project are known, so
any miscalculation or underestimate
in the amount of labor required or the
cost of materials, or any change in the
timing of the construction, frequently
results in losses.
Wages
Commercial construction is highly
labor-intensive, which industry’s cost
structure reflects. Industry labor costs
absorb about 69.9% of annual industry
revenue, including employee
compensation payments, which account
for 20.3% of industry revenue, and
payments to subcontractors accounting
for a further 49.6% of revenue.
Sectorvs.IndustryCosts
AverageCostsof
allIndustriesin
sector(2012)
100
IndustryCosts
(2012)
1.8
10.7
■Profit
■Wages
■Purchases
■Depreciation
■Marketing
■Rent&Utilities
■Other
80
Percentage of revenue
Cost Structure
Benchmarks
continued
43.2
69.9
60
40
30.2
20
0
2.0
3.7
9.5
0.7
21.8
0.5
2.0
3.0
1.0
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 22
Competitive Landscape
Cost Structure
Benchmarks
continued
Basis of Competition
Level & Trend
ompetition
C
in this
industry is High and
the trend is Steady
Wages as a share of revenue have
increased because earnings derived from
building projects shrank, even though the
labor force required those projects to
remain the same. The increase in wages
was driven in part by the need to hire and
retain highly specialized management
and executive level employees.
structural timber, metal cladding,
aluminum fittings and electrical
installations, and purchased electric
power, fuels and lubricants. In addition
to material purchases, industry
participants also buy machinery.
Purchases
On large-scale projects, the prime
contractor is directly responsible for most
material purchases and negotiates
directly with suppliers for discounted
prices. On small-scale projects,
subcontractors are typically responsible
for completing discrete segments of
construction, including the supply of
materials. Overall, purchases account for
about 21.8% of total industry revenue.
Purchase costs often fluctuate with
commodity prices, with most costs
related to ready-mixed concrete, glass,
structural steel, concrete panels,
Other costs
The industry has a low level of
depreciation due to its reliance on leased
vehicles and subcontractors. Additionally,
a low level of costs is related to rent and
utilities. Other operating expenses absorb
about 2.0% of annual industry revenue
and include communication charges
(particularly cell phones), repairs to
machinery and buildings, rental costs of
buildings and machinery, accounting,
information technology, and legal service
costs. Other costs include professional
expenses, insurance premiums, and
general administration outlays. Marketing
costs account for about 1.0% of revenue
for this industry.
This industry is characterized by highly
competitive conditions on a regional
and national basis and across all scales
of operation. Competition between
contractors typically occurs on the
basis of proven quality and technical
capacity and efficiency, rather than
solely on the basis of price
differentiation. Price tends to be more
important on smaller-scale or less
complex construction projects and on
public sector-funded contracts.
Large-scale construction projects are
typically either put to public tender (i.e.
advertised in the media or through
government publications) or put to a
closed tender, where the client invites
selected contractors to quote on a
project. The selection of contractors for
a closed tender is based on the
operator’s reputation, past performance
and close relationships with developers
and financiers. Tendering on extremely
large or complex construction projects
is confined to a few large-scale players.
Most small-to-medium-scale building
contractors confine their activities to a
localized market. Several builders have
established solid reputations in narrow
market segments and leveraged their
public perception to generate contracts
across broad geographical markets.
Small-scale operators rely heavily on
word-of-mouth referrals to obtain
private sector contracts, but they also
advertise in general media to promote
their businesses. It is common for
smaller operators to establish
relationships with prime contractors
and property developers within a local
region or specialized area.
There is a growing trend for building
contractors to take an equity interest in
the development consortium for
WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 23
Competitive Landscape
Basis of Competition
continued
projects such as office complexes. This
trend effectively blocks competition
from other builders and ensures the
Barriers to Entry
New industry entrants face a number of
challenges, mostly related to access to
capital. Construction projects require an
extensive outlay of resources, in terms of
both materials and labor. This means
that securing ample finance for
upcoming projects is something of which
new construction companies fall short.
Initial finance typically comes from
investors and bank loans. However,
business lending has tightened in the
past five years. Strict lending standards
now deny many business owners (largely
those that have experienced losses
during the recession) loan eligibility.
Success in the industry largely depends
on the number of projects in the
pipeline. New entrants will also be at a
disadvantage compared to larger, more
established firms that maintain good
banking relationships, allow them to
more easily access capital for upcoming
projects. New construction companies
also face the challenge of finding skilled
financial leaders to manage cash flow
when there are projects underway.
Another key constraint to entry is the
difficulty that new competitors may
encounter in trying to gain a foothold in
the market by establishing a reputation.
Acquiring client relationships is critical
to the success of companies in the
industry. Existing firms work with the
advantage of a pool of skilled
subcontractors, arrangements with
material suppliers and arrangements
with financial institutions and property
developers. Most new entrants enter this
Level & Trend
arriers to Entry
B
in this industry are
Low and Steady
work flow for the contractor involved.
Builders’ equity involvement is apparent
across all scales of construction.
BarrierstoEntrychecklist
Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance
Level
High
Low
Mature
Low
Medium
Heavy
None
SOURCE: WWW.IBISWORLD.COM
industry through subcontracting special
trade workers like carpenters and
concrete contractors; therefore, they may
enter with pre-established reputations
and relationships with property
developers or general contractors.
The growing trend of building
contractors taking an equity interest in
the development consortium on projects
effectively blocks competition from other
builders. Smaller contractors in
particular are working together on
certain projects to improve their ability to
compete with larger firms. Contractors
are increasingly working together to
reduce risk. However, new entrants to the
industry – with limited financial
resources and narrow networks of
business contacts – will likely be
excluded from equity participation in
such development consortiums.
Commercial construction contractors
must hold appropriate licensing and
registration to operate in each state,
which can be a deterrent for some
entrants to the industry.
WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 24
Competitive Landscape
Industry
Globalization
Level & Trend
lobalization
G
in
this industry is
Low and the trend
is Increasing
Globalization has a profound effect on
commercial construction companies in
the United States, as foreign firms
purchase domestic companies and as
domestic companies subcontract work
overseas. German construction firms
HOCHTIEF,which acquired Turner
Corporation, and Bilfinger Berger are
examples of firms that have expanded
into the US market. Other leading
international construction firms include
the French giant Suez Lyonnaise des
Eaux (VINCI, Trigen, Elyo), Australia’s
Bovis Lend Lease and Mexico’s
Empresas ICA. At the same time, US
operators are expanding services to
other markets to diversify operations
and increase revenue.
This industry’s globalization can
translate into increased competition and
can also present opportunities to industry
firms both large and small. Even small
firms will face challenges in retaining
loyal customers that find they can
contract similar services for less money
as a result of globalization.
As the world economy recovers,
firms based in the United States will
increasingly look to perform work in
other countries, form joint ventures or
even offer consulting advice on
techniques and project management.
Design firms looking to streamline
may also consider setting up
international branches to take
advantage of lower labor costs.
Commercial Building Construction in the US July 2012 25
WWW.IBISWORLD.COM
Major Companies
There are no Major Players in this industry | Other Companies
Other Companies
The Commercial Building Construction
industry is composed of general
contractors that use subcontractors to
complete projects. Due to the
subcontractor-based nature of the
business, participants are often
relatively small operators. The largest
industry players are global construction
firms, but these enterprises operate in a
variety of industries that also include
civil, municipal, industrial and
residential construction. These
operators do not generate enough
revenue specific to the commercial
construction industry to account for
more than 5.0% of its total revenue.
The Turner Corporation
Estimated market share: 3.0%
The Turner Corporation is owned by
Germany’s largest construction firm,
HOCHTIEF, and operates in the United
States through its New York-based
Turner Construction Company
subsidiary. The company was founded
in 1902 and has about 50 offices
spreading over United States, Europe,
Africa, Asia and Latin America.
Turner’s many commercial projects
include Madison Square Garden, the
United Nations headquarters, Yankee
Stadium and the Taipei 101 Tower.
Turner also offers services for mid-tosmall-size projects and provides
renovation and interior construction.
Turner Construction Company is
one of the largest general building and
construction management firms in the
United States, with an estimated
construction volume of $7.5 billion in
2011. Turner Construction operates in
many market sectors, including
commercial office buildings,
healthcare, pharmaceutical plants,
research and development
laboratories, education and science,
correctional facilities, sports and
distribution/warehouse. Such
diversification has allowed Turner to
remain strong through cyclical
changes in building activity.
Like many large contractors, Turner
entered the recession with a substantial
cushion from the construction boom
leading up to 2007. Strong backlogs
contributed to the company’s revenue of
$10.4 billion in 2008, up from
$9.4 billion the previous year. As a result
of dwindling backlogs and reduced
demand for new construction, the
company experienced a sharp revenue
drop of 24.7% in 2009, and continued to
endure revenue decreases in 2010 and
2011. Turner’s estimated revenue of
$7.5 billion in 2011 totaled a 3.9% drop
from $7.8 billion in 2010. This revenue
derives from construction work not
included in this report, such as
healthcare, education and municipal
building construction. IBISWorld
estimates commercial construction of
office, retail, hotel, warehouse and
entertainment spaces generated about
37.0% of the company’s revenue in 2011.
As construction spending increases over
2012, Turner’s annual revenue from
commercial building projects is also
expected to increase about 7.1% to
$3.0 billion in 2012.
Clark Enterprises Inc.
Estimated market share: 1.0%
Clark Enterprises Inc. is the parent
holding company of the Clark
Construction Group, LLC, one of the
largest privately-held general contractors
in the United States. Clark Construction
Group began as a small excavating
company in 1906 and has grown to
oversee projects ranging from small
interior renovations to large recognizable
landmarks. Recent projects include a
12-story office building at 90 K Street,
NE, the first of four buildings for the
Sentinel Square development in
Washington DC’s NoMa Corridor;
construction of the $53-million Redland
Tech Center, which includes two office
Commercial Building Construction in the US July 2012 26
WWW.IBISWORLD.COM
Major Companies
Other Companies
continued
buildings totaling 672,100 square feet in
Rockville, MD, and construction of the
Marriot Courtyard/US Capitol hotel in
Washington DC.
The company is currently working on a
390-foot, new office tower that will be the
tallest green building in metropolitan
Washington, DC. The $117-million
development is expected for completion
in 2013. The company is also working on
a 10-acre mixed-use project to create a
pedestrian-friendly neighborhood in the
heart of downtown Washington, DC,
which includes the construction of two
office buildings with a total of 520,000
square feet of office space. The project is
expected for completion in 2014.
Clark Construction operates across
many construction markets, including
commercial, residential, industrial,
sports, municipal building,
transportation and heavy construction.
The company experienced continued
growth in 2008 and 2009, benefiting
from a strong backlog of projects and
robust growth in most commercial
construction sectors (mostly healthcare,
education and public projects). Revenue
increased 11.8% in 2008 and 4.2% in
2009 as a result of high construction
activity leading up to 2007. In 2010, the
company saw revenue sink by 19.8% to
$3.9 billion as backlogs dwindled and
new construction projects rapidly
decreased. Revenue continued to
decrease by an estimated 4.7% to $3.74
billion in 2011. IBISWorld estimates that
about 27.0% of the company’s 2011
revenue, or $1 billion, was derived from
commercial construction projects
included in this industry report. Industry
-specific revenue for Clark Construction
is expected to grow about 3.2% in 2012.
Tutor Perini Corporation
Estimated market share: 1.0%
The Tutor Perini Corporation is a large
civil and building construction
company offering diversified general
contracting and design/build services.
Tutor Perini is headquartered in
Sylmar, CA and works on many
construction projects throughout the
United States and Canada.
Tutor Perini Corporation was created
by the 2008 merger of Perini Corporation
and Tutor-Saliba Corporation. The
company structures its operations in
three groups: building group, civil group
and management services. The Tutor
Perini Building Group focuses on large
complex projects in the hospitality and
gaming, sports and entertainment,
educational, transportation and
healthcare markets.
The company is an especially
prominent player in the hospitality and
gaming market, specializing in the
construction of Native American
developments and high-end destination
resorts, including Project CityCenter for
MGM Mirage, The Cosmopolitan Resort
and Casino, the Wynn Encore Hotel and
the Planet Hollywood Tower, all in Las
Vegas, as well as the Aqueduct Racetrack
Casino in Jamaica, NY.
The company’s Civil Group is engaged
in public works construction throughout
the United States, including the repair,
replacement and reconstruction of public
infrastructure such as highways, bridges
and mass-transit systems.
Tutor Perini has demonstrated
revenue growth because of recent
acquisitions. The firm also gained civil
construction contracts associated with
federal government stimulus packages at
a time when commercial construction
activity had declined. While Tutor Perini
achieved significant growth in its civil
business in 2010, when the firm’s
building group contracted sharply.
Revenue from building projects dropped
48.0% from $4.5 billion in 2009 as the
economic downturn ground new
commercial construction to a near halt.
In 2011, construction activity improved
as a result of economic recovery,
Commercial Building Construction in the US July 2012 27
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Major Companies
Other Companies
continued
primarily in markets such as healthcare,
education and municipal buildings.
Tutor Perini Building Group generated
about $2.8 billion in total revenue that
year, up from $2.3 billion in 2010. An
estimated 39.0% of that, or $897 million
of the company’s building revenue, will
come from commercial real estate
projects as defined in this report.
IBISWorld expects Tutor Perini revenue
derived from commercial building
construction to increase about 4.0% to
$914.2 million in 2012.
Skanska AB
Estimated market share: less than 1.0%
Skanska AB is Scandinavia’s largest
construction group and operates
subsidiaries in more than 60 countries.
Skanska AB operates two US
subsidiaries: New Jersey-based Skanska
USA Building Inc. (which operates across
a range of building markets) and Skanska
USA Civil Inc. (which concentrates
activity in the engineering infrastructure
market). In 2009, Skanska AB launched
Skanska USA Commercial Development,
which focuses on the initiation, leasing
and selling of commercial premises,
particularly office developments. The
new subsidiary operates in Boston,
Houston and Washington DC, alongside
Skanska USA Building.
Skanska USA Building serves a range
of building markets in the United States,
including aviation, pharmaceutical
facilities, educational buildings, hightech facilities, sports and entertainment
facilities, healthcare, commercial office
and retail construction. In 2011 Skanska
USA Building generated an estimated
$2.3 billion in revenue, down from $2.5
billion in 2010, reflecting the decreased
construction activity as a result of the
economic downturn. IBISWorld
estimates that $690.0 million in
revenue was derived from industryrelated construction in 2011. Skanska
will likely report improved industry-
specific revenue in 2012 to reach an
estimated $700.0 million.
Gilbane Inc.
Estimated market share: less than 1.0%
Rhode Island-based Gilbane Inc. is a
family- and employee-owned
development company. Gilbane ranks
among the largest institutional building
contractors in the United States and
ranks highly among commercial
building contractors.
The firm predominantly provides
construction management services
(70.0% of booked contracts), where it
manages the construction project risk. It
differs from many of the leading
contractors that look to establish
alliance-contracting arrangements
(off-loading risk to strategic partners).
Through its subsidiary, Gilbane
Building Company, the firm supplies
construction management, contracting
and design services to life sciences,
transportation, healthcare, convention,
cultural, government, education,
mission-critical, corporate, sports and
recreation and criminal justice markets.
Gilbane currently focuses on institutional
markets that generate up to 80.0% of
company revenue, while commercial
construction accounts for about 10.0% of
revenue. Gilbane primarily operates in
the office construction sector of the
commercial construction market.
Recent commercial projects include a
Fidelity Investments office building in
Smithfield, RI, valued at $200.0 million;
the 871,000-square-foot office and retail
building Discovery Tower in downtown
Houston, at an estimated cost of $156.0
million; the $240.0-million Potawatomi
Bingo Casino expansion in Wisconsin
and the $60.0 million, 292,000-squarefoot Manpower corporate headquarters
along the banks of the Milwaukee River.
Gilbane’s annual revenue has
remained relatively steady, with the
company gaining institutional, health
Commercial Building Construction in the US July 2012 28
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Major Companies
Other Companies
continued
and education contracts during the
current downturn in commercial
construction activity. In 2011, the
company generated about $3.0 billion in
total revenue, with industry-specific
revenue accounting for an estimated
$300.0 million. In 2012, Gilbane’s
revenue from commercial building
construction projects is expected to
increase to about $325.0 million.
Commercial Building Construction in the US July 2012 29
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Operating Conditions
Capital Intensity | Technology & Systems | Revenue Volatility
Regulation & Policy | Industry Assistance
Capital Intensity
Investment in plant and equipment
required for ongoing operations in this
industry is low. Most of the industry’s
machinery and equipment requirements
are met by leasing on a project-by-project
basis (particularly involving heavy
equipment such as cranes, graders and
elevators) or subcontracting specialist
providers, like crane operators and
excavation contractors.
In contrast, this industry relies heavily
on labor, with wages absorbing 69.9% of
industry revenue. For every $100 spent
on industry wages in 2012, $0.70 is
estimated to be spent on capital.
Level
The level
of capital
intensity is Low
Capital intensity
Capital units per labor unit
0.5
0.4
0.3
0.2
0.1
0.0
Economy
Construction
Commercial
Building
Construction
Dotted line shows a high level of capital intensity
SOURCE: WWW.IBISWORLD.COM
ToolsoftheTrade:GrowthStrategiesforSuccess
InvestmentEconomy
Recreation,PersonalServices,
HealthandEducation. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labor skills are key to
product differentiation.
Information,Communications,
Mining,FinanceandReal
Estate.To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.
GlassProduct
Manufacturing
TraditionalServiceEconomy
GasStationswith
ConvenienceStores
WholesaleandRetail. Reliant
MunicipalBuilding
on labor rather than capital to
Cement
Construction
sell goods. Functions cannot Commercial
Manufacturing
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.
Industrial
Building
Construction
Building
Construction
ChangeinShareoftheEconomy
CapitalIntensive
LaborIntensive
NewAgeEconomy
OldEconomy
AgricultureandManufacturing.
Traded goods can be produced
using cheap labor abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialize
in niche, high-value products.
SOURCE: WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 30
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Operating Conditions
Technology
& Systems
Level
The level
of
Technology Change
is Medium
Advancements in building technologies
and management techniques have
significantly altered the industry in
recent decades. New technologies such
as laser- and GPS -equipped machines
have transformed complex building
processes by speeding up project
completion, lowering costs and
improving overall building quality. For
instance, lasers and GPS are now
helping construction workers quickly
delineate building perimeters – a task
that relied on string and steel tape
measures in the past.
Over the past decade, there has been
a steady introduction of logistic
management in project design and
construction, allowing firms to properly
align equipment and workers from a
remote location. Better management
techniques allow firms to quickly
identify deviations from the planning
path. Using computer-aided design
(CAD), stock-flow software packages,
field estimating technology and
personnel skilled in logistics, this
industry has substantially improved in
productivity and cost savings.
The recent advent of Building
Information Modeling (BIM) gives
fast-evolving firms a new competitive
advantage. BIM allows construction
companies to view every aspect of a
construction project (fully realized and
in vivid 3-D) before construction even
begins. BIM is the new game-changing
technology in the industry, allowing
firms to calculate minute details, such as
how many light fixtures are going to be
needed to illuminate a space receiving
little sunlight. The program figures out
how a change in wall color matches up
against the carpeting on order and how a
proposed change will affect
subcontractor costs and scheduling.
Technological improvements have
also boosted the availability of highgrade materials that are better equipped
to resist hurricanes and explosions in
the case of high-security spaces, such as
government agency headquarters or
data centers. The incremental
advancements in construction material,
in terms of strength, prefabrication, fire
resistance and insulation qualities, have
improved the efficiency and flexibility of
building design and construction during
the past two decades. The principal area
of technological advancement involves
using glass and concrete-based
products instead of traditional steel,
timber and ceramic materials in
commercial buildings.
Additionally, advanced technologies
have allowed the construction of
modular buildings, in which buildings
are constructed at a remote location and
then brought to the site in sections.
Technological advancements are
allowing the industry to construct
buildings of higher quality and
functionality. Increasingly, commercial
facilities are integrating the latest
technology in computer installation
and climate controls, and are
demanding the latest advancements in
design and materials to promote
energy conservation.
Commercial Building Construction in the US July 2012 31
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Operating Conditions
Level
The level
of
Volatility is High
The industry has a high level of volatility.
The industry is exposed to wide cyclical
fluctuations in demand, resulting from
movements in long-term interest rates,
general economic growth and expected
rental yield. The industry was especially
A higher level of revenue
volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilized
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.
volatile in the past five years due to the
sudden drop-off in demand caused by the
contraction in business activity and
investment during the recession.
Revenue dropped by as much as 30.3% in
2010 after growing 3.0% in 2008.
VolatilityvsGrowth
1000
Revenuevolatility*(%)
Revenue Volatility
Hazardous
Rollercoaster
100
CommercialBuilding
Construction
10
1
0.1
Stagnant
–30
–10
BlueChip
10
30
50
70
Fiveyearannualizedrevenuegrowth(%)
* Axis is in logarithmic scale
SOURCE: WWW.IBISWORLD.COM
Regulation & Policy
Level & Trend
he level of
T
Regulation is
Heavy and the
trend is Steady
The planning and regulatory
environment that governs commercial
building activity is often complex, and it
may involve all government tiers.
Construction is subject to statutory
regulations that cover building
standards, pollution controls, competing
land usage, disruption to existing
businesses or residents and occupational
health and safety issues. Compliance
with this regulatory regime generally
adds to the industry’s underlying
operating costs. Over the long term,
compliance may reduce a firm’s exposure
to litigation associated with faulty
workmanship and workplace accidents,
lowering insurance premiums.
Health and safety regulations require
that workers wear protective clothing
and helmets on-site and that safe
conditions are provided for them (e.g.
scaffolding, harnesses and ventilation).
The Office of Safety Health
Administration enforces standards for
the industry that are contained in Title
29 of the Code of Federal Regulations
Part 1926. State and local building
authorities assess and enforce this code.
A range of building and construction
codes govern activity in the Commercial
Building Construction industry,
including general building codes,
residential codes, mechanical codes,
plumbing codes, electric codes, fire
codes, accessibility codes, zoning codes,
state codes, local codes and ordinances.
Building codes are endorsed by the
International Code Council, which
publishes an International Building
Code that covers building planning, fire
protection, building envelope,
structural systems, structural and
non-structural materials, building
services and special services.
Commercial Building Construction in the US July 2012 32
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Operating Conditions
Industry Assistance
Level & Trend
he level of
T
Industry Assistance
is None and the
trend is Steady
In the past five years, state and local
governments across the country have
increasingly encouraged “green” building
through targeted financial and structural
incentives. Developments that achieve
measurable and verifiable green building
goals often qualify for tax exemptions or
credits. Green building projects can also
be exempt from fees during the
permitting processes and can benefit
from an expedited review. Grant
programs or subsidies are also available
for developers of energy-efficient
buildings as a way to encourage
developers to follow green building
practices. These incentives are benefiting
the commercial construction industry by
helping drive demand for renovations,
improvements and new construction.
Additionally, the commercial
construction industry has been receiving
assistance from educational facilities and
training programs, which boost the
numbers of qualified employees. Six
major trade and professional associations
have officially endorsed the American
Institute of Constructors’ (AIC)
Constructor Certification program, which
qualifies individuals through education,
experience and examination for the
professional designations of associate
constructor and certified professional
constructor. Since 1997, the AIC
accreditation program has sought to
strengthen its professional rigor and
meet international accreditation
standards. Subsequently, most major
industry associations currently endorse
the AIC certification, including the
Associated General Contractors of
America, American Subcontractors
Association, Associated Builders and
Contractors, the Business Roundtable,
American Council for Construction
Education and American Society of
Professional Estimators.
Commercial Building Construction in the US July 2012 33
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Key Statistics
Industry Data
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Sector Rank
Economy Rank
Industry
Revenue Value Added Establish($m)
($m)
ments
177,342.8
94,169.0
31,189
187,885.0
94,694.1
30,873
190,511.2
96,589.2
31,165
201,610.3 103,688.2
31,603
217,759.3 104,524.5
32,293
224,888.6 111,117.5
32,664
158,142.0
91,406.1
32,212
110,197.5
80,774.8
31,816
103,749.9
76,048.7
31,537
105,880.0
79,332.4
32,349
111,796.0
85,455.5
33,149
120,188.6 100,777.3
33,599
129,924.7 102,112.9
34,909
139,737.8 107,981.2
36,329
147,080.5 120,968.8
36,610
4/36
2/36
14/36
75/706
27/706
159/705
Enterprises Employment
28,467
393,369
27,971
395,318
27,853
407,020
28,343
430,598
28,897
447,005
28,461
447,684
28,382
380,747
28,009
349,319
28,186
334,927
29,012
351,673
29,664
373,829
29,759
414,202
30,758
451,480
31,983
466,831
32,230
499,509
14/36
9/36
148/705
99/706
Exports
---------------N/A
N/A
Imports
---------------N/A
N/A
Wages
($m)
85,301.8
85,299.8
87,063.5
93,607.6
93,636.5
99,873.0
83,499.0
75,264.9
70,861.2
74,038.4
79,865.7
94,767.8
95,616.6
100,994.3
113,614.7
2/36
17/706
Enterprises Employment
(%)
(%)
-1.7
0.5
-0.4
3.0
1.8
5.8
2.0
3.8
-1.5
0.2
-0.3
-15.0
-1.3
-8.3
0.6
-4.1
2.9
5.0
2.2
6.3
0.3
10.8
3.4
9.0
4.0
3.4
0.8
7.0
12/36
10/36
105/705
53/706
Exports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Imports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Wages
(%)
0.0
2.1
7.5
0.0
6.7
-16.4
-9.9
-5.9
4.5
7.9
18.7
0.9
5.6
12.5
13/36
106/706
Annual Change
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Sector Rank
Economy Rank
Industry
EstablishRevenue Value Added
ments
(%)
(%)
(%)
5.9
0.6
-1.0
1.4
2.0
0.9
5.8
7.3
1.4
8.0
0.8
2.2
3.3
6.3
1.1
-29.7
-17.7
-1.4
-30.3
-11.6
-1.2
-5.9
-5.9
-0.9
2.1
4.3
2.6
5.6
7.7
2.5
7.5
17.9
1.4
8.1
1.3
3.9
7.6
5.7
4.1
5.3
12.0
0.8
30/36
19/36
18/36
414/706
222/706
159/705
Key Ratios
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Sector Rank
Economy Rank
IVA/Revenue
(%)
53.10
50.40
50.70
51.43
48.00
49.41
57.80
73.30
73.30
74.93
76.44
83.85
78.59
77.27
82.25
1/36
16/706
Imports/
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Exports/Revenue
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Figures are inflation-adjusted 2012 dollars. Rank refers to 2012 data.
Revenue per
Employee
($’000)
450.83
475.28
468.06
468.21
487.15
502.34
415.35
315.46
309.77
301.08
299.06
290.17
287.78
299.33
294.45
7/36
300/706
Wages/Revenue
(%)
48.10
45.40
45.70
46.43
43.00
44.41
52.80
68.30
68.30
69.93
71.44
78.85
73.59
72.27
77.25
1/36
5/706
Employees
per Est.
12.61
12.80
13.06
13.63
13.84
13.71
11.82
10.98
10.62
10.87
11.28
12.33
12.93
12.85
13.64
16/36
394/705
Value of Private NonDomestic residential Construction
Demand
($b)
N/A
343,000
N/A
346,700
N/A
351,800
N/A
384,000
N/A
438,200
N/A
466,400
N/A
367,300
N/A
309,100
N/A
319,900
N/A
329,500
N/A
407,000
N/A
439,400
N/A
472,800
N/A
537,800
N/A
588,600
N/A
N/A
N/A
N/A
Domestic Value of Private NonDemand residential Construction
(%)
(%)
N/A
1.1
N/A
1.5
N/A
9.2
N/A
14.1
N/A
6.4
N/A
-21.2
N/A
-15.8
N/A
3.5
N/A
3.0
N/A
23.5
N/A
8.0
N/A
7.6
N/A
13.7
N/A
9.4
N/A
N/A
N/A
N/A
Average Wage
($)
216,849.32
215,775.15
213,904.72
217,389.77
209,475.29
223,088.16
219,303.11
215,461.80
211,572.07
210,531.94
213,642.33
228,796.09
211,784.80
216,340.17
227,452.76
2/36
9/706
Share of the
Economy
(%)
0.80
0.77
0.77
0.80
0.79
0.84
0.72
0.62
0.57
0.58
0.62
0.70
0.68
0.70
N/A
2/36
27/706
SOURCE: WWW.IBISWORLD.COM
Commercial Building Construction in the US July 2012 34
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Jargon & Glossary
Industry Jargon
COMPUTER-AIDED DESIGN (CAD) The use of
computer technology to aid the design and drafting of a
part or product using software tools that can create twodimensional drawings or three-dimensional models.
DEVELOPER An enterprise that prepares a real estate
site for residential or commercial use. A developer raises
capital, gains zoning approvals and hires contractors to
design, construct and develop property.
GENERAL CONTRACTOR (GC) An individual or
company that manages the construction or
improvement of a structure for a property owner or
developer; a GC may retain a labor force or use
subcontractors for projects.
LEADERSHIP IN ENERGY AND ENVIRONMENTAL
DESIGN (LEE An environmental building certificate
program established under the US Green Building
Council that certifies buildings that meet energyefficiency and green requirements.
WRITE-DOWN A deliberate reduction in the value of an
asset to reflect its current market value.
IBISWorld Glossary
BARRIERS TO ENTRY Barriers to entry can be High,
Medium or Low. High means new companies struggle to
enter an industry, while Low means it is easy for a firm
to enter an industry.
CAPITAL/LABOR INTENSITY An indicator of how much
capital is used in production as opposed to labor. Level is
stated as High, Medium or Low. High is a ratio of less
than $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 of
depreciation.
CONSTANT PRICES The dollar figures in the Key
Statistics table, including forecasts, are adjusted for
inflation 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 industry
metrics. The inflation adjustments in IBISWorld’s
reports are made using the US Bureau of Economic
Analysis’ implicit GDP price deflator.
DOMESTIC DEMAND The use of goods and services
within the US; the sum of imports and domestic
production minus exports.
EARNINGS BEFORE INTEREST AND TAX (EBIT)
IBISWorld uses EBIT as an indicator of a company’s
profitability. It is calculated as revenue minus expenses,
excluding tax and interest.
EMPLOYMENT The number of working proprietors,
partners, permanent, part-time, temporary and casual
employees, and managerial and executive employees.
ENTERPRISE A division that is separately managed and
keeps management accounts. The most relevant
measure of the number of firms in an industry.
ESTABLISHMENT The smallest type of accounting unit
within an Enterprise; usually consists of one or more
locations in a state or territory of the country in which it
operates.
EXPORTS The total sales and transfers of goods
produced by an industry that are exported.
IMPORTS The value of goods and services imported
with the amount payable to non-residents.
INDUSTRY CONCENTRATION IBISWorld bases
concentration on the top four firms. Concentration is
identified as High, Medium or Low. High means the top
four players account for over 70% of revenue; Medium
is 40 –70% of revenue; Low is less than 40%.
INDUSTRY REVENUE The total sales revenue of the
industry, including sales (exclusive of excise and sales
tax) of goods and services; plus transfers to other firms
of the same business; plus subsidies on production; plus
all other operating income from outside the firm (such
as commission income, repair and service income, and
rent, leasing and hiring income); plus capital work done
by rental or lease. Receipts from interest royalties,
dividends and the sale of fixed tangible assets are
excluded.
INDUSTRY VALUE ADDED The market value of goods
and services produced by an industry minus the cost of
goods and services used in the production process,
which leaves the gross product of the industry (also
called its Value Added).
INTERNATIONAL TRADE The level is determined by:
Exports/Revenue: Low is 0 –5%; Medium is 5 –20%;
High is over 20%. Imports/Domestic Demand: Low is
0 –5%; Medium is 5 –35%; and High is over 35%.
LIFE CYCLE All industries go through periods of Growth,
Maturity and Decline. An average life cycle lasts 70
years. Maturity is the longest stage at 40 years with
Growth and Decline at 15 years each.
NON-EMPLOYING ESTABLISHMENT Businesses with
no paid employment and payroll are known as
non-employing establishments. These are mostly set-up
by self employed individuals.
VOLATILITY The level of volatility is determined by the
percentage change in revenue over the past five years.
Volatility levels: Very High is greater than ±20%; High
Volatility is between ±10% and ±20%; Moderate
Volatility is between ±3% and ±10%; and Low Volatility
is less than ±3%.
WAGES The gross total wages and salaries of all
employees of the establishment.
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