CONSTRUCTION:WHAT’S UP AND WHAT’S DOWN?

FEBRUARY 2013

ED ZARENSKI, ESTIMATING EXECUTIVE

GILBANE BUILDING COMPANY

401-456-5495

Gilbane Construction Economics

Gilbane Building Company

Construction Economics Overview

New Starts UP slightly

Spending UP slightly

Jobs FLAT to up slightly

Productivity UP slightly

Materials Prices FLAT to up slightly

Cost of Buildings UP

Margins UP

Construction Economics OVERVIEW

Construction Economic Factors Starts up 5% 2012, expect +6% 2013 Productivity up 10% since 2007 Backlog increasing

Jobs still down 28% from peak Public work declining ABI & DMI indicate downturn in Q1’13 – Q2’13

Construction Economics OVERVIEW

Spending up since Q1 20111 but Q3 2012 was down 0.3%

260

270

280

290

300

310

320

330

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

$ annualized by historical monthly avg

Nonresidential Buildings Spending Rate Growth ($bil)

Construction Economics SPENDING ‘06-’12

Construction spending converted to VOLUMEU.S. Total Construction Spending Summary

totals in $billions adjusted to Dec 2012 U.S. dollarsActual Forecast

2006 2007 2008 2009 2010 2011 2012 2013

Nonresidential Buildings 361 404 421 379 309 292 298 294

% change year over year 5.4% 11.8% 4.3% -9.9% -18.6% -5.6% 2.3% -1.5%

Nonbuilding Heavy Engr 235 260 272 285 283 259 268 26411.7% 10.9% 4.5% 4.5% -0.6% -8.3% 3.5% -1.6%

Residential peak 545 492 405 325 255 248 251 282 321 in 2005 -6.1% -17.7% -19.6% -21.8% -2.8% 1.2% 12.3% 13.5%

Total 1088 1069 1019 919 839 802 848 880

1.0% -1.8% -4.7% -9.9% -8.6% -4.5% 5.8% 3.8%

Residential includes new, remodeling, renovation and replacement.Source: U.S. Census Bureau, Department of Commerce.

Forecast 2013 - GBCo

Construction Economics MARKETS

2013 Construction Spending Forecast‘08 to ‘11 2012 2013

Educational -20% 0% -1% Healthcare -17% +3% +2% Commercial -51% (‘07 to ’11) +6% +10% Office -50% +4% + 9%

Percent of Nonresidential Building Market Educational 28% Healthcare 12% Commercial 16% Office 12% PUBLIC Educational = 80% public & 20% private PRIVATE Healthcare = 80% Commercial = 95% Office = 70%

Construction Economics JOBS

# of JOBS: Peak ––– Bottom ––– CurrentPeak Bottom %Loss Current

CT 69,000 47,000 Aug’12 <32%> 49,000 MA 145,000 102,000 Aug’12 <30%> 106,000 RI 23,400 15,200 Mar’12 <35%> 15,300

Bos/Ca/Qu 64,800 43,800 Feb’10 <33%> 55,200 Sprng/Wrc 23,200 12,300 Feb’12 <47%> 13,400 Prv/FR/War 30,600 14,400 Feb’12 <53%> 17,600 Hartford 23,800 14,000 Feb’12 <41%> 16,700

Construction Economics INDICATORS 2013

New Starts UP

Spending UP

Jobs UP

Productivity DOWN slightly

Materials Prices UP

Cost of Buildings UP

Margins UP

Construction Economics INDICATORS 2013

Construction Economics FORECAST 2013

2013 Construction Spending Forecast

2012 2013 Residential Bldgs +14.6% +14.8% Nonres Bldgs +5.4% + 1.2% Nonbldg Heavy Engr +7.5% +2.0%

but escalation 2012 ~ 3% 2013 ~ 4%

AIA Consensus Nonres Bldgs +5.0%

Construction Economics JOBS

Jobs Growth

1 million jobs to support residential growth Exceeds historical growth rate All construction has never grown that fast Could lead to nonresidential worker shortages

Construction Economics ESCALATION

Building Cost Future Escalation

Total Escalation for 2012 = 3% to 4% Total Escalation for 2013 = 4% to 6% Total Escalation for 2014 = 5% to 7%

Construction Economics RECOVERY

When will VOLUME return to previous levels?

Volume needs to grow 30% Spending + escalation $500+ billion = ~55% Greatest Expansion Ever = 52% in 4 years

Nonresidential Buildings MINIMUM 5 years = 2017 Nonresidential Heavy ONLY 1-2 years = 2013-2014 Residential Buildings MINUMUM 5 years = 2017

Construction Economics RECOVERY

When will JOBS return to previous levels?

Volume regains peak in 2017

As work increases productivity declines

Hiring growth always lags volume grow

Construction Economics SUMMARY

What will future markets deliver? Next few years Reduced workforce but rapidly expanding As work increases productivity declines Increased rate of spendingMaterials cost inflation Spending levels dictate margins

Near-term: competitive bidding environment Long-term: building costs above materials inflation

Construction Economics QUESTIONS

???

Construction Economics RECOVERY

Gilbane Construction EconomicsMarket Conditions in Construction

http://info.Gilbaneco.com/construction-economics-winter-2012

Thank You!

CONSTRUCTION:WHAT’S UP AND WHAT’S DOWN?

FEBRUARY 2013

ED ZARENSKI, ESTIMATING EXECUTIVE

GILBANE BUILDING COMPANY

401-456-5495

Gilbane Construction Economics

Gilbane Building Company