Businesses will expand as the economy recovers, driving industry demand
Los Angeles, CA (PRWEB) October 13, 2012
Few industries suffered more during the recession than Commercial Building Construction. The collapse of the housing market and its subsequent strain on the financial sector set the stage for a stifled 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. According to IBISWorld industry analyst Andrea Alegria, high unemployment and low consumer spending also crippled 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 typically lags behind the overall economy by one to two years, due in part to the length of construction contracts and industry backlog. Industry revenue began to slow in 2008, and then plummeted 29.7% and 30.3% in 2009 and 2010, respectively. During those years, most contractors' backlogs diminished to unprecedented levels, despite the influx of stimulus dollars, causing profit to shrink. As the market for construction services declined, firms resorted to bidding 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 a modest improvement as economic recovery stimulates demand for new commercial construction and as the prices of services gradually increase. “After three consecutive years of revenue decline, the industry is expected to begin recovering in 2012, with revenue projected to grow 2.1%,” says Alegria. Even more promising, over the five years to 2017, revenue is projected to increase at a much stronger rate. Improvements in the US economy will drive this growth, with demand for construction set to steadily rise as businesses begin to expand operations. Further, merger and acquisition activity will likely become prominent in the industry as the construction markets recover and more established firms compete for market share.
The Commercial Building Construction 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 establishments employ more than 100 people. These large-scale players are multi-establishment companies with branches that operate across many states and regions. For more information, visit IBISWorld’s Commercial Building Construction report in the US industry page.
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IBISWorld industry Report Key Topics
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 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.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com