Booming Green Opportunities in U.S. Construction · Green Jobs Key to Future Construction Workforce...

April 26, 2012

Booming Green Opportunities in

U.S. Construction “Patience, focus, and… keep rowing for shore!”

2012 Construction Outlook

Keven Andrew McCook Integrated Solutions and Consulting [email protected]

mailto:[email protected]

2 2 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2012. All rights reserved.

Agenda

The U.S. Macroeconomic Environment U.S. Construction Market Outlook and Green Building

Market Opportunity U.S. Green Retrofit & Renovation Market U.S. Green Residential & Remodeling Market Concluding Thoughts Discussion

2 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2009. All rights reserved.


The U.S. Macroeconomic Picture


Inflation overall was subdued; oil prices have moved up, down, now up again. U.S. Macroeconomic Picture

• Fed expects inflation will settle back in coming quarters; however,

price of energy remains volatile, affected by instability in the

Middle East.

Consumer Price Index

-3-2-10123456

01 02 03 04 05 06 07 08 09 10 11 12 13

Percent Change, Year-over-Year

CPI

Core CPI

U.S. Dollar vs. Major Currencies

60

70

80

90

100

110

120

01 02 03 04 05 06 07 08 09 10 11 12 13

Exchange Rate, Indexed, 1973=100

Price of Oil

0

25

50

75

100

125

150

01 02 03 04 05 06 07 08 09 10 11 12 13

Dollars per Barrel, West Texas Crude


Federal budget – $1.3 trillion deficit in fiscal 2011. Appropriations for fiscal 2011 and 2012 included cuts for many programs. Provisions of debt ceiling agreement mean more cuts likely going forward.

U.S. Macroeconomic Picture

Federal Budget Surplus/ Deficit

-1,600-1,400-1,200-1,000

-800-600-400-200

0200400

90 92 94 96 98 00 02 04 06 08 10 12

Billions of Dollars, CBO Projections

Fiscal 2012 Appropriations • Not finalized by October 1st

• Transportation bill finalized on Nov. 18 Federal highway program trimmed 5% to $39

bil. High-speed rail gets zero funding again

Mass transit account increased 5%

• Other accounts covered in Omnibus spending bill signed on Dec. 23 Clean Water SRF’s cut 4%

Drinking Water SRF’s cut 5%

GSA new construction account cut 39% GSA repairs &renovation account

unchanged

DOD base closure account cut 77% DOD other military construction cut 8% VA major construction projects cut 45%

Corps of Engineers construction increased 5%


State fiscal health remains weak, even with recent revenue gains. U.S. Macroeconomic Picture

State & Local Governments

0

2

4

6

8

10

12

90 92 94 96 98 00 02 04 06 08 10 12

Year-end Balance, Percent of Expenditures

Note: For fiscal year 2012, if TX and AK excluded, then year-end balance is 3.7%.

For fiscal 2012, 12 states enacted budgets with balance levels below 1%, while 19 states

enacted budgets with balance levels between 1% and 5%.

Adequate fiscal cushion for a state is when year-end balance is at least 5%.

• Many states have faced large budget shortfalls, including the following states and

the gaps closed when fiscal year 2011 budgets were adopted:

– California ($17.9 billion) – Illinois ($13.5 billion)

– New Jersey ($10.7 billion) – New York ($8.5 billion)

– Florida ($4.7 billion) Source: Center on Budget and Policy Priorities

• Significantly – State Fiscal Stabilization Fund support under ARRA has diminished

substantially – 2010: $61 billion 2011: $50 billion 2012: $ 3 billion

Trends

US & Global – Sustainability/Green Building – Interoperability and BIM – Workforce/Labor – Innovation – Materials – Project Delivery Methods

Access to Capital

Market Innovation

Job Creation

Caution remains… •Low interest loans remain one of the positives in 2012

• Most of TARP paid back but lenders remain cautious; loan availability will be gradual •Of 8100 US banks, 2988 small banks at risk due to pending commercial mortgage defaults

• Between 2010 and 2014 $1.4 trillion loans coming due; nearly half at values below borrower’s loan… loan restructuring underway!

Access to Capital Low interest loans exist, but caution remains high…

-40

-20

0

20

40

60

80

100

90 92 94 96 98 00 02 04 06 08 10 12

Survey of Bank Lending Officers Percent Reporting Tighter Lending Standards for Commercial Real Estate Loans

-80

-60

-40

-20

0

20

40

60

90 92 94 96 98 00 02 04 06 08 10 12

Survey of Bank Lending Officers Percent Reporting Stronger Demand for Commercial Real Estate Loans


No double dip… but modest recovery with limited job growth expected Real GDP Growth - Quarterly

-8-6-4-202468

01 02 03 04 05 06 07 08 09 10 11 12 13

Annualized Percent Change '11 Q4 +3.0% GDP Pattern:

History Forecast 2009 2010 2011 2012 -3.5% +3.0% +1.7% +2.3%

Shape of Recovery: • Chance for “double-dip” has eased

for the moment. • Early months of 2011 saw energy

price hikes; supply chain issues.

• Also, credit rating downgrade, Federal spending cuts,

European debt concerns Pervasive uncertainty. Is early 2012 a replay?

• One plus – corporate profits healthy


Job Creation Slow and cautious… Change in Total Employment

-750

-600

-450

-300

-150

0

150

300

450

01 02 03 04 05 06 07 08 09 10 11 12 13

Thousands of Workers Mar. '12

+120,000Unemployment Rate

3456789

1011

01 02 03 04 05 06 07 08 09 10 11 12 13

Percent Mar. '12 8.2%

• Jobs lost from Feb.’08 to Feb. ’10: 8.8 Million.

• Job creation so far in 2010-2012: 3.6 Million. Unemployment rate at 8.2%

• Job growth in Jan.-Apr. ’11: 207 K /mo. Job growth in May-Aug.’11: 80 K /mo. Job growth in Sept.’11-Mar.’12: 190 K /mo.

• Can recent improvement continue in 2012?

Employment growth decelerated at mid-2011, followed by

improvement. March 2012 (up 120,000 jobs)

came in weaker than expected.


2011 (July) 2014 (est)

661.0

2011 (July) 2014 (est)

881.6661.0

2011 (July) 2014 (est)

Trades: – 15% in 2011 – 25% in 2014

Green Jobs Key to Future Construction Workforce

Number of AEC Construction Jobs

(in thousands)

1869.0 1975.3

Total Jobs

Green Jobs 35.4%

44.6%

Source: McGraw-Hill Construction Workforce/Green Jobs survey, October 2011; total Jobs # from the U.S. Bureau of Labor Statistics

MHC Green Job Definition: For architects, engineers and general

contractors = 50%+ of green building project work

For craft workers and subcontractors = Requires significant training or different skills to meet green goals

OR Involves designing or installing a

uniquely green system


Firms that Report Having Green Construction Industry Jobs

National Average Reporting Green Jobs • Architects/Engineers: 47% • Contractors: 39%

West South Central— Lowest % of architects/engineers report green jobs: 40%

Mid-Atlantic—Highest % report green jobs:

• Architects/ Engineers: 58% • Contractors: 46%

New England— Lowest % of architects/ engineers report green jobs: 36%

Pacific—Lowest % of contractors report green jobs: 27%

Source: McGraw-Hill Construction Workforce/Green Jobs survey, October 2011


U.S. Construction Outlook and Green Building Market Opportunity


Billions of Dollars 2007 2010 2011 2012

Total Construction 640.9 -7%

431.2 +1%

426.4 -1%

433.6 +2%

Commercial Bldgs. 100.7 +8%

41.7 -12%

44.9 +8%

49.3 +10%

Institutional Bldgs. 117.7 +6%

110.8 -1%

97.1 -12%

95.0 -2%

Manufacturing Bldgs. 20.8 +51%

9.4 -3%

15.6 +65%

15.2 -2%

Single Family Housing 201.2 -26%

100.0 +6%

97.6 -2%

109.1 +12%

Multifamily Housing 60.3 -13%

21.2 +18%

26.6 +26%

33.5 +26%

Public Works 121.3 +8%

119.6 -3%

102.2 -15%

97.5 -5%

Electric Utilities 19.0 +7%

28.5 +35%

42.5 +49%

34.0 -20%

U.S. Total Construction Starts for 2012


Billions of Dollars 2007 2010 2011 2012

Total Construction 640.9

431.2 +1%

426.4 -1%

433.6 +2%

Commercial Bldgs. 100.7

41.7 -59%

44.9 +8%

49.3 +10%

Institutional Bldgs. 117.7

110.8 -6%

97.1 -12%

95.0 -2%

Multifamily Housing 60.3

21.2 -65%

26.6 +26%

33.5 +26%

Single Family Housing 201.2

100.0 -50%

97.6 -2%

109.1 +12%

Total Vertical Buildings (Commercial and Residential)

479.9

273.7 -43%

266.2 -3%

286.9 +8%

U.S. Total Construction Starts for 2012


2005 2008 2010 2015

= Nonresidential Market

$172 billion

$3 billion 2% of

market

$54 billion 38% of market

$212 billion = Green Market

$153 billion

$255 billion


Source: Green Market Size: 2011Green Outlook Report, McGraw-Hill Construction; base value of construction market from McGraw-Hill Construction Market Forecasting Service, updated February 2012

2015 Offers Significant Opportunity for Green Building in Nonresidential Starts

$142 billion



2011


A Green Building Project is… All green building

projects are energy-efficient projects

One built to LEED or other green building standard

OR Is Energy-efficient and Water-efficient

as well as… – Resource-efficient (e.g., recycling, reuse,

rapidly renewable materials) AND/OR – Improves indoor air quality

McGraw-Hill Construction Definition


Education Construction: Total and Green Share

• Portland, OR: Oregon Health & Science University Life Sciences Building; $194M (LEED Gold); 2012

• New Haven, CT: Yale School of Management; $189 M (LEED Certified); 2011

• Binghamton, NY: State University of New York Binghamton East Campus Housing Dormitories; $140 M (LEED Gold); 2011

Examples of Large Green Education Projects

0

10

20

30

40

50

60

2008 2010

$ bi

llion

s

Education

Green Share

$58 billion

15% of market

$47 billion

$17 billion $9

billion 36% of market

Green Building Share of Education Starts

2011 Final $42 billion $19 billion

45% of market

Billions of Dollars 2007 2008 2009 2010 2011 2012

Education 53.2 +7%

58.0 +9%

48.4 -17%

47.1 -3%

41.9 -11%

40.6 -3%


Healthcare Construction: Total and Green Share Billions of Dollars 2007 2008 2009 2010 2011 2012

Healthcare 24.4 +1%

30.0 +23%

20.4 -32%

24.2 +19%

22.5 -7%

23.0 +2%

0

5

10

15

20

25

30

2008 2010

$ bi

llion

s

HealthcareGreen Share

$30 billion

13% of market

$24 billion

$8 billion $4

billion 33% of market

Green Building Share of Healthcare Starts

• Dallas TX: Parkland Hospital; $690 M (LEED Silver); 2010

• Celebration, FL: Nicholson Center for Surgical Advancement; Barton Malow Company$13 M (LEED Silver); 2012

• Little Rock AR: Southwest Health Unit; $1 M Heiple + Wiedower Architects (LEED Certified); 2012

Examples of Green Healthcare Projects in the South

2011 Final $22.5 billion

$8 billion

35% of market


Office Construction: Total and Green Share

• Cambridge, MA: Biogen Idec New Office Building; $150 M (LEED Silver); 2012

• Melville, NY: Canon USA Corporate Headquarters; $636 M (LEED Silver); 2010

• Plainsboro, NJ: Novo Nordisk American Headquarters; $150 M (LEED Certified); 2011

Examples of Large Green Projects in the Northeast

Green Building Share of Office Starts

0

5

10

15

20

25

30

2008 2010

$ bi

llion

s

Office

Green Share

$28 billion

30% of market

$17 billion

48% of market

$8 billion

$8 billion

Billions of Dollars 2007 2008 2009 2010 2011 2012

Office 32.6 +7%

27.8 -15%

20.2 -27%

16.8 -17%

16.1 -4%

17.5 +9%

2011 Final $16 billion $8 billion

50% of market


ENR Top 100 Green Firm Lists Show Green Revenues Nearly Doubling Over Last 4 Years

Source: Engineering News-Record, Top Green Design Firm List, 2008 and 2011, based on revenues of green projects reported by design firms in the U.S. in 2007 and 2010 respectively.

Firm Revenue

from Green Projects

Green Share of

Total Revenue

#1 HOK St. Louis, MO $151.5 M 23%

#2 URS Corp. San Francisco, CA $150.8 M 3%

#3 Gensler San Francisco,CA $126.6 M 19%

#4 HKS, Inc. Dallas, TX $115.0 M 30%

#5 Fluor Corp. Irving, TX $92.5 M 3%

TOTAL $636.4 M

Top Five Green DESIGN FIRMS 2008

Firm Revenue

from Green Projects

Green Share of

Total Revenue

#1 URS Corp. San Francisco, CA $333.2 M 7%

#2 Gensler San Francisco, CA $321.5 M 49%

#3 AECOM Los Angeles, CA $192.5 M 3%

#4 Perkins+Will Chicago, IL $171.5 M 43%

#5 HOK St. Louis, MO $158.2 M 34%

TOTAL $1,176.9 M

2011


Source: Engineering News-Record, Top Green Contractor List, 2008 and 2011, based on revenues of green projects reported by contractors in the U.S. in 2007 and 2010 respectively.

Top Five Green CONTRACTORS 2008

Firm Revenue from

Green Projects

Green Share of

Total Revenue

#1 Turner New York, NY $4,229.1 M 56%

#2 Gilbane ** Providence, RI $2,541.7 M 85%

#3 Clark Group Bethesda, MD $2,408.9 M 53%

#4 Hensel Phelps Greeley, CO $2,026.2 M 80%

#5 Tutor Perini Sylmar, CA $1,678.0 M 53%

TOTAL $12,883.9 M

2011

Firm Revenue from

Green Projects

Green Share of

Total Revenue

#1 Turner New York, NY $1,808.1 M 19%

#2 Webcor San Mateo, CA $1,604.8 M 79%

#3 Skanska USA Whitestone, NY $1,242.3 M 22%

#4 Bovis Lend Lease New York, NY $1,075.5 M 20%

#5 Swinerton San Francisco, CA $1,046.0 M 52%

TOTAL $6,776.7 M

#9 Gilbane Providence, RI $651.9 M 22%

ENR Top 100 Green Firm Lists Show Green Revenues Nearly Doubling Over Last 4 Years


Appearance of LEED In Project SpecificationsNumber of Projects versus Value of Projects

0%

10%

20%

30%

40%

50%

60%

2004 2005 2006 2007 2008 2009 2010

Spec

ifica

tion

Rat

eLEED Has Influenced Green Building Market Beyond Certification

Projects

Dollar Value


Large firms are moving exclusively toward green business

Focus on the following to gain green work: – Office: Driven by competitive advantages,

transparency rules and wellbeing • Highlight how your products/services improve

asset value and building performance • Be able to address attributes of products/ impact of services

– Education: Shift fully to green in 10 years, driven by wellbeing, operational cost savings/durability and demands of the next generation

• Have figures on utility savings • Provide information on connections of services to occupant well-being

– Healthcare: Heavy growth from need for energy savings and health improvements

• Offer energy savings data of products/services • Provide health effects and benefits of products/services

U.S. Construction Outlook and Green Building Market Opportunity Key Takeaways

Turner Construction Example:

• Over half of work green

• 200 LEED certified projects (through 2010)

• 250 for 2011 (actual) and 2012 (planned)


U.S. Green Retrofit & Renovation Market


Most Commercial Projects Retrofit & Renovation

Source: McGraw-Hill Construction, Construction Starts Database, 2006-2011

Commercial Construction Based on Value Started (2006 - 2011)

0%

10%

20%

30%

40%

50%

60%

70%

80%

2006 2007 2008 2009 2010 2011

Perc

enta

ge

RenovationNew Additions

Commercial Construction Based on Number of Projects Started (2006 - 2011)

0%

10%

20%

30%

40%

50%

60%

70%

2006 2007 2008 2009 2010 2011

Perc

enta

ge

RenovationNew Additions


$44.1

$57.5

$0

$20

$40

$60

2010 2015

Bill

ions

Source: Green Outlook 2011, McGraw-Hill Construction Dodge Analytics, 2010

GREEN SHARE

High

Low

$4.4 (10%)

$14.4 (25%)

$19.0 (33%)

Projected Major Renovation/Retrofit Market Size for Energy Efficiency

ENERGY-EFFICIENCY

SHARE

$29.1 (66%)

$51.7 (90%)

$43.1 (75%)

& Green


Influencing Green Retrofit Purchasing Decisions of Building Managers

15%

37%

37%

26%

35%

59%

87%9%

13%

2%Public Pressure

Tenant Demand

LEED-EBConsultant

ManagementCompany (e.g.,

CBRE)

Building Owner

Influential

VeryInfluential

96%

50%

17%

72%

85%

Important to target more than just

building owners to influence the green

building purchasing

decisions for tenant improvements

Source: Business Benefits of Green Buildings SmartMarket Report, McGraw-Hill Construction/CBRE, 2010


What Do Owners Value When Making High Performance Retrofits? It Depends on the Goal…

To Increase PERFORMANCE…

To Increase ASSET VALUE…

To Meet SUSTAINABILITY Objectives…

Source: Survey of existing building owners (office, higher education, healthcare), Siemens/MHC (October, 2011)


Increased Building Values: Improvement in ROI: Increased Occupancy: Rent Rise: Decreased Operating Costs:

2009 4.8% 4.1% 5.3% 1.0% 8.0%

2010

*Higher ROI expected in 2009 Study versus 2010 Study due to the inclusion of some Class B upgrades to Class A buildings, where ROI improvement would be greater Note: 2009 & 2010 retrofit surveys include similar populations of commercial building owners

MHC Green Retrofit SMR

CBRE/MHC/ USD survey

6.8% 19.2%* 2.5% 1.0% 8.5%

Business Benefits of Building Improvements (according to Office Owners)

10% 13% 16% 13% 10% (1 yr) 16% (5 yrs)

2011

Siemens/MHC survey

Green Improvements

Performance Improvements WINDOWS, DOORS, CARPET,

AUTOMATED BLDG SYSTEMS…ETC.

Higher Education: 15% higher

ROI

Healthcare: 18% higher

ROI


Important to target more than just building owners to influence the green building purchasing decisions for tenant improvements

Find the motives driving decisions—and then make the case using the appropriate metrics

Be able to connect your products/services to business benefits, including:

– Operating cost savings

– ROI and building value

– Occupant benefits

U.S. Retrofit/Renovation Market Opportunity Key Takeaways


U.S. Green Residential & Remodeling Market


2005 2008 2016

= Single Family Residential Market

$315 billion

$6 billion 2% of

market

= Green Market

$98 billion

$300 billion


Source: Green Market Size: calculation McGraw-Hill Construction; base value of construction market from McGraw-Hill Construction Market Forecasting Service, as of February 2012

2012–2016 Offer Significant Opportunity for Green in Single Family Starts (New Homes)

$145 billion


2011 2013

$122 billion

$32-$36 billion 22%-25% of market

$87-$114 billion 29%-38% of market

Five-Fold Increase from 2011


17% of builders

19% of builders

33% of builders

New Home Builders Focus on Green Is Strong and Growing

2005 2011 2016

Source: Green Home Building survey, McGraw-Hill Construction, December, 2011

2013

Less than 16% of projects green

16%-30% of projects green

31%-60% of projects green

61%-90% of projects green More than 90% of projects green

20%

40%

60%

80%

100%

20%

40%

60%

80%

100% Study sample represents over 23,000 NAHB

builders and remodelers doing green


$0

$20

$40

$60

$80

$100

$120

$140

11%

11%

14%

20%

20%

45%

34%

43%

77%

65%

34%

22%

78%

66%

35%

23%

Source: Remodeling Market (2009 & 2011, Harvard Joint Center on Housing Studies, Leading Indicator of Remodeling Activity (Q4 2011); 2013-2016 (estimate based on compounded annual growth rate of 3.5%)). Share of green: Green Home Building survey, McGraw-Hill Construction, December, 2011

2011 2009 2016 2013 2009 2016 2013

Home Remodeling Market and Share of Green on the Rise

Home Remodeling Market 2009 to 2016 (projected) ($ billions)

More than 60% of projects green

16%–60% of projects green

Less than 16% of projects green

$130 billion


More than 60% Find Customers Are Willing to Pay More for Green

31%

28%

18%

4% 9% 16%

41%

30%

Builders

Average – 3%

Dedicated Green Average – 6%

31%

28%

7%

Remodelers

Average – 5%

Dedicated Green Average – 6%

18%

18%

16%

18%

61% 66%

Source: Green Home Building survey, McGraw-Hill Construction, December, 2011


Green has been the silver lining in the downturn for home builders

Gain opportunity in the market by highlighting the following for builders/remodelers:

– Experience in green

– Payback benefits of your services/products

– Ability to help the builder/remodeler make case to the homeowner

Educate non-green builders on the advantages of green to help them get more business

Include remodelers as target customers—their involvement in green is increasing at a faster rate

Green Residential and Remodeling Market Opportunity Key Takeaways


Concluding Thoughts


The construction market will improve…but slowly

On the other hand…the green building market is growing dramatically:

– Nonresidential green will be 48% of new construction by 2015

– Single family green homes up to 38% of new homes by 2016

Tangible business benefits—such as ROI, occupancy and rent increases—from green are reported by commercial building owners…and consistent over time

Green intersects with other major construction industry trends—so tracking overall trends is critical

Conclusions: Green Building is Providing Market Opportunity


70

85

100

115

130

145

160

175

190

T T+2 T+4 T+6 T+8 T+10 T+12 T+14 T+16 T+18 T+20 T+22

1982-91

1975-82

Based on Constant DollarsCyclical Trough (T) = 100, as determined by Total Construction pattern

Years from Cyclical Trough

Nonresidential Building by Cycle

1991-2011

A new cycle emerging? The cyclical nature of business & construction

Trends

US & Global – Sustainability/Green Building – Interoperability and BIM – Workforce/Labor – Innovation – Materials – Project Delivery Methods

“Overall, industry specific innovation does not follow,

but creates expansion” “The Instability of capitalism”

- Joseph Schumpeter – 1928


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