2012 State of the Industry
Paul Deffenbaugh,
Posted
Panelists
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Bernard Markstein
U.S. Chief Economist
Reed Construction Data
Norcross, Ga.
|
Brad Robeson
President
NCI Buildings Group
Houston
|
|
Chuck Haselbacher
Chairman
Varco Pruden Buildings
Memphis, Tenn.
|
Mike Epstein
National Metal Roofing Manager
Firestone Metal Products
Anoka, Minn.
|
|
Pat Marcouiller
National Sales Manager
Firestone Metal Products
Anoka, Minn.
|
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Metal Architecture: Big picture. What kind
of growth or lack of growth do you expect to see next year in your
business? Will there be particular bright spots?
Bernard Markstein: The outlook for commercial
construction is positive. Overall, we forecast construction
spending to increase 4.4 percent. Breaking it down to major
categories, new residential construction will rise 3.9 percent off
of a low base, with multifamily construction doing the best;
nonresidential building construction will be up 5.3 percent; and
heavy engineering (non-building) construction will do the best,
advancing 5.9 percent.
The bright spots within these categories are:
- Residential construction- multifamily (apartment)
construction
- Nonresidential building construction- manufacturing and office
construction
- Heavy engineering construction- power construction
Brad Robeson: We are optimistic that there will
be several areas of increased activity in the coming year. While
state fiscal constraints will result in a digression in the amount
of growth witnessed in the public work sector over the past two
years, there are indicators that private design-build work will
begin to accelerate, especially in the areas of industrial
manufacturing and warehouse distribution. A combination of factors,
such as increased import-export activity in support of the global
market, as well as a surge in business related to the rise in
natural gas production, will contribute to steady growth in the
building construction arena.
Chuck Haselbacher: We expect 2012 to be similar
to 2011. There has been moderate growth in demand this past year
and we see that continuing in the coming year. However, we do not
see strong demand returning until 2013 or later.
Energy and agriculture have been good growing markets in 2011
and we expect that to continue in 2012.
Mike Epstein: Since the metal roofing industry
relies heavily on new construction projects, from the architectural
metal standpoint, I anticipate moderate growth. The architectural
index is essentially flat, and the private sector is still not
participating in new construction projects to a level that
represents significant growth.
Bright spots will still include institutional, hospital/medical
and government projects. We are still hearing about educational
projects and military base projects even though the money for the
stimulus and recovery act is spent. Additionally, more of our
contractors participating in private negotiated work express a
higher confidence level based on bigger backlogs.
Pat Marcouiller: I expect the metal wall panel
segment to grow at a rate slightly above commercial construction.
Bright spots will include the institutional segment, particularly
schools and universities, hospital/medical and government
projects.
MA: For the last couple of years, the
industry has been focused on retrofit work. How do you see that
trend moving over the next 12 to 18 months? Will it continue to
sustain us, or can we look to other types of projects for increased
activity?
Markstein: I do expect retrofit work to be an
important area in the coming year, but to a lesser degree than has
been the case over the past few years. There is just so much that
you can retrofit before it is more sensible and economical to build
new. As I indicated previously, we can expect improvement in most
areas of new commercial construction.
Robeson: While many of our customers engaged in
the retrofit market throughout the economic downturn, it is likely
that interest in pursuit of these projects will wane in favor of
new construction projects that are core to our metal building
systems business. However, in certain regions and markets, retrofit
demand will continue to grow, especially for projects requiring a
higher degree of energy efficiency than offered by the current
structure. It is also likely we will see a growth in demand for
retrofit projects in concert with photovoltaic solutions, as
"solar" energy panels are ideally suited to be used in tandem with
metal roofing applications.
Haselbacher: Retrofit has been a good market in
2011, and we see continued interest in rehabilitating existing
structures rather than larger capital investments for new
buildings. While this is a good niche market, it can't support the
manufacturing infrastructure that we have in place for producing
complete building products.
Epstein: The retrofit trend will definitely
continue for metal roofing. There will be a growth in opportunities
over the next decade based on a number of factors: promotion from
the metal industry, a higher level of confidence from the design
trade and influencer (architect, consultant, building owner) with
respect to performance, and the impact of life cycle performance
from the resurgence of metal roofing during the '80s.
This will not be enough to sustain us considering the
participating contractor base is still somewhat limited, and the
current demand will not utilize a significant amount of capacity
industry wide. Most likely, new construction activity will need to
increase for the industry to return to more robust production
levels especially since the manufacturing footprint on an industry
level is still expanding in capacity.
Marcouiller: The metal wall panel market is
highly concentrated in new commercial construction. I do not see
that changing over the next few years.
MA: What are the major threats you see to
the growth and profitability of the industry today?
Markstein: It is an old refrain and an obvious
one, but the health of the general economy determines stumble in
the economy will hurt the industry. The foremost threat is the
problems in the European Union. At the moment, those problems seem
to be contained, but they certainly are not solved. A major default
in Europe would hurt not only the EU, but the U.S. as well. A
serious recession in Europe would send us into recession due to a
significant drop in exports and the fallout for U.S. banks.
Gridlock in Washington is hurting the economy. It's hard to see
how it can get worse, but the politicians always seem to find a
way. The dust up over the extension of the payroll tax reduction
and unemployment benefits is just the latest example.
Beyond that, there is always the old favorite-a spike in oil
prices. That saps consumer spending, which is just now showing some
improvement. We also have to keep our eye on the housing market. It
appears to be slowly recovering, however we know that there will be
more foreclosures in the next several months, adding to the
headwinds that the industry already faces. Stay tuned.
Robeson: Historically, it has been the tendency
of our industry to rely on a healthy economy and steel pricing to
achieve profitable growth. I believe that as designers and
fabricators of building solutions, we have a great deal to offer,
and need not base our success on factors outside of our immediate
control. Our biggest opportunities for profitable growth rest in
our ability to successfully convert projects away from conventional
building materials to steel. By promoting solutions that are fit
for purpose and architecturally appealing, then focusing our sales
efforts on the value of our offering, we can ultimately set a price
that is both appealing to the end user and the manufacturing
company. Adopting a less traditional approach to market development
will enable us to overcome external circumstances that threaten the
prosperity of our industry.
Haselbacher: Continued gridlock in Congress and
lack of available financing for small businesses is limiting the
growth of the nonresidential construction market.
Epstein: There is a higher level of confidence
in utilizing metal from the design trade and influencer in lieu of
more common products: membrane, glass and stone/masonry. But from a
purely growth standpoint, it essentially boils down to the
condition of the economy.
Profitability will be the biggest challenge. Raw material price
increases and pricing volatility for metal are requiring more
resources dedicated to managing effective purchasing and inventory
control. At the same time the industry becomes more competitive
with the addition of more regional and contractor-based
manufacturing.
Marcouiller: Certainly the economic environment
has had the greatest impact on overall market growth. Competition
for existing business is extremely strong, particularly at the
contractor level where the drive for work has resulted in very
significant margin compression. Metal price increases and
volatility continue to create significant challenges for
manufacturers.
MA: If you could wave a magic wand, what
would be the one thing you would want to change about the current
business environment?
Markstein: That's easy-increase demand. The
problem is how do you get there without a magic wand? To some
extent we just have to give it time to let the economy continue its
healing process. But there are things we can do to help things
along. Yes, the federal debt and deficit are too high. But with the
unemployment rate still well north of 8 percent and the Federal
Reserve with few reasonable options, fiscal stimulus is necessary.
This means increasing the deficit in the short run. At the same
time, we need to put in place the structure to reduce the deficit
and bring down the debt relative to GDP a few years from now.
There are sensible ways to provide fiscal stimulus. Given
current low interest rates and the underutilization of resources in
construction as evidenced by the high level of unemployment in the
industry, it makes sense to invest in infrastructure repairs and
improvements. This represents investment in the future not current
consumption. There are a whole host of needs in the country
including repairs and upgrades to highways, bridges, rail,
airports, the power grid, water treatment plants and on and on.
While providing an immediate stimulus to the economy, the benefits
will last for many years and help increase the nation's potential
for economic growth.
Here we are, more than 70 years after the Great Depression, and
we still benefit from many of the facilities that were built as
part of programs back then aimed at putting people back to work.
Many of those projects were derided as wasteful spending at the
time. We need to get beyond rhetoric and ideology and start
rebuilding and improving our infrastructure. It's time to invest in
America.
Robeson: One of the most significant hindrances
to our business is the lack of available financing for projects
spanning multiple industries. Thus, if I could change one thing, it
would be for the banks to increase the number of construction loans
they are willing to facilitate. In my opinion, consumer confidence
is up and there are many businesses that wish to proceed with
construction projects, but are unable to do so as a result of the
banks' lack of support for these types of loans. If financing were
more readily available, both our industry and the U.S. economy
would benefit from increased construction activity and related
commerce.
Haselbacher: Easier financing available to
small and medium size business to fund capital expenditures for
expansion of their businesses would be at the top of the list.
Epstein: There is a lot more confidence in the
construction industry than a year ago. It is the same old story
though; "good news" is harder to sell. A little help from the
national media regarding positive strides in the economy would
help!
Marcouiller: The key driver of success in the
current business environment is the availability of funds.
MA: Are customers still interested in green
buildings? If so, will this trend continue?
Markstein: Most definitely. If anything, the
interest in green building is growing. The concept of exactly what
is green building is still a bit amorphous, but concepts like
reducing energy costs, controlling storm water runoff, and reducing
water usage are all of interest to developers and businesses.
Technological developments are occurring at a rapid pace.
Businesses and consumers will pay reasonable upfront costs if they
promise real returns.
Robeson: The interest and pursuit of
energy-efficient solutions will continue to sustain. However,
whether or not it accelerates will depend on our commitment to
better collaborate on and package these options in service of
building consumers. In general terms, our industry-like others-has
taken a silo approach to marketing our green offerings, essentially
focusing chiefly on what our specific products could bring to the
LEED and ASHRAE table. In this approach, we have missed an
opportunity to work outside our respective industry to better
package a complete "green" building solution that combines multiple
construction elements to form the ideal green building option. If
we put forth a greater effort to collaborate and tailor our
construction offerings into a more synergistic model, the potential
for the green building market will far exceed its current
scope.
Haselbacher: Customers continue to be
interested in green solutions, but are becoming more focused on
return on investment rather than simply being "green." We expect
this trend to continue to grow for nonresidential buildings.
Epstein: Green is here to stay. The initial
knee-jerk reaction to green construction did not necessarily ensure
a building owner would benefit from the intended gained
efficiencies and long-term sustainability promised by the
conceptual designs of green construction. Today, construction
manufacturers and contractors are more influential in the design
and implementation of green products and systems. The growing
partnership between the influencers (building owner, architect,
consultant), the manufacturers and contractors with respect to
green construction is a sustainable model that will continue to add
value to green design.
Marcouiller: Yes, we continue to see strong
customer interest in green products and building practices, and we
expect that interest will continue to grow.
MA: Technology is influencing every
business, but construction seems always to lag a bit. What
technology- from materials to information-do you think will have
the biggest effect on our industry?
Markstein: As indicated in my answer about
green trends, many of the advances are occurring around green
building-energy conservation, water management, etc. Energy
conservation, in particular, benefits both from advances in
hardware and software. Granted, many in the construction industry
are slow adopters, but the current economy puts the squeeze on
profits forcing many builders to utilize new, cheaper technology.
Most developers now use pre-assembled components in their projects.
These components, which used to be built on-site, are produced in
factories under controlled conditions where specifications,
tolerances and quality can be better controlled and weather is not
a factor. Look for this approach to increase in the future.
Haselbacher: Tools that assist owners in
assessing the effectiveness of different construction products in
reducing energy consumption are going to become more important in
the decision process. These tools will show the value that our
industry's solutions mean in improved energy costs.
Epstein: Material technology will have less of
an impact than information technology. The roofing industry is very
mature from a materials standpoint.
Photovoltaic technology seems to be getting better and perhaps
is the most recognizable improvement from a materials technology
standpoint. Industry feedback supports the idea that PV
manufacturers are developing more reliable systems. And access to
the power grids appears to be getting better on a national
basis.
Additionally, manufacturing technology is improving. Especially
in the area of manufacturing equipment designed for the
contractor.
The biggest impact will be the implementation of Building
Information Modeling (BIM) and Revit across a broad range of users,
primarily the architect/designer and manufacturing segment. BIM and
Revit will create measurable efficiencies in construction by
creating better communication along the construction chain.
Additionally, we will see shortened lead times from design to
construction due to faster communication and the elimination of
mistakes, design and manufacturing errors.
MA: Presidential elections tend to dampen
economic growth due to uncertainty. In 2012, we can add an even
more fractured political landscape. How big do you think the impact
of the political landscape will be on businesses in the metal
industry?
Haselbacher: We believe that many business owners will delay
capital expenditure decisions until they know the
outcome of the November elections. We believe the effect will be to
limit construction opportunities through much of 2012.
Epstein: The metal industry will not be
affected any differently than the construction industry as a whole.
Lending practices/policies and tax policies will dominate building
owners' decision processes to build, expand or renovate. Only time
will tell if it will take a perceived improvement in one or both
categories to improve the construction climate.
Building owners that might be considering renovation instead of
larger expansion or new construction will wait and see.
With that said, many economic indicators influencing
construction suggest a very high level of stability even though
growth is limited. Stability will remain through the election
cycle.
Marcouiller: The level of uncertainty that has
driven the construction industry over the past several years will
continue through the election cycle, and it will also be aligned
with the economic outlook. The metal industry will not be any
different.
MA: Paint a long-term picture. What will
our industry look like in five to 10 years?
Markstein: I expect the economy to show
increasing strength over the next five to 10 years. We have had
several years of sub-par investment in our capital stock. We need
to address that along with the needs of an expanding economy.
Commercial construction, by addressing those needs, will benefit.
Meanwhile, technological advances will mean more energy-efficient
structures and better control of storm water runoff and water
usage. The future looks bright for commercial construction.
Robeson: While the recession presented us with
many challenges over the past few years, it also created a
significant opportunity for us to evaluate the quality of our
businesses and industry as a whole. As a result, we have enacted
many changes focused on elevating our performance in support of
enhanced customer service and satisfaction.
It is my belief that these changes, centered on the faster and
more accurate delivery of metal building systems, will drive a
shift in focus and expansion in flexibility that enables us to
better service a variety of customer types spanning multiple
industries. Ultimately, this will support a future state in our
industry where exceptional service in steel building systems is the
norm, which will create more business opportunities for our
industry's offerings than ever previously experienced. Thus, in 10
years time, I foresee metal building systems accounting for much
more of the overall construction market with a reputation for
quality, service and dependability more widely recognized in
construction than ever before.
Haselbacher: Long term, we believe the outlook
for the industry is very positive. Eventually, financial markets
will begin lending again, and there is significant long-term
pent-up demand. Our industry will be positioned well if we are
prepared to market our sustainable energy-efficient solutions.
Epstein: We will continue to see a number of
trends that will change our industry look. The trends include
expansion of building envelope solution, expanded scope within
contractor segments, contractor-based manufacturing and
codes/testing influences.
As construction complexity grows, the building envelope solution
concept-which is not new-is more attractive than ever. The desire
to have more coordination, fewer contracts and fewer contractors on
a project can be more efficient with respect to many aspects. For
example, better communication at the design level drives
well-written specifications to better field management at the
construction level. New partnerships at the manufacturing level are
developing at a much faster pace.
The trend to add scope to a subcontractor's business, especially
among the commercial roofing trade, has been prevalent for years.
This trend aligns with the building envelope solution concept at
the construction level. Today some commercial roofing contractors
are among the best installers of metal roofing-both architectural
and structural-and metal wall cladding across a wide range of wall
panel products. As competition becomes fiercer, subcontractors will
need to add scope to maintain a competitive edge in their
respective markets.
We will continue to see an expansion of contractor-based
manufacturing. Just visit the international trade show METALCON and
observe the expansion of equipment manufacturers and their
offerings directed at the contractor trade. Contractors today are
expanding their manufacturing capabilities for the right reasons,
and the advancement in equipment technology and quality are
phenomenal.
The influence of codes and testing requirements will impact the
industry in many ways. From this aspect, the metal industry is
experiencing more uniformity than in the past. Uniformity will
reduce complexity for specifiers who struggle sometimes to
determine which product will meet the correct performance standards
and still meet the design intent. If it's easier to specify, we
hope to sell more metal applications. From a contractor
perspective, installing code approved and/or engineered systems
will reduce liability, which is a contractor's single largest
concern.
Marcouiller: Looking across the industry, I
believe we'll see trends develop on several levels: buildings,
manufacturing and contractors. On the buildings front, there will
likely be an increased emphasis on green products and building
systems, energy-efficient practices, and integrated
air/energy/moisture management systems in the overall building
envelope. On the manufacturing level, the industry is so
fragmented, I would expect some contraction.
Contractors can expect to see two metal wall panel business
trends, including more sophisticated building products/systems that
require increased skills, and fabricating less sophisticated metal
wall panels at local and regional levels. The net effect will be a
greater share of the business concentrated with fewer
contractors.