A shrinking pool of contracts led to intense price competition during the past five years
Los Angeles, CA (PRWEB) November 20, 2013
The Demolition and Wrecking industry has been shaken by tumbling downstream construction and land-development markets during the past five years. Demolition services are required whenever a residential, commercial or land-development project is scheduled to begin where existing structures still stand; as such, the values of new residential and nonresidential construction directly contribute to industry demand. However, land developers who prepare property for sale are generally the primary clients of standalone demolition contractors. All three major sources of revenue for industry companies struggled under the weight of the housing market collapse and ensuing recession during the past five years. As a result, the Demolition and Wrecking industry slumped as well. Industry revenue is expected to fall at an annualized rate of 1.7% during the five years to 2013 to $2.9 billion.
A shrinking pool of contracts to bid for during the past five years has led to intense price competition in which operators underbid one another for projects. As a result, the industry's average profit margin fell significantly during the recession. And, because smaller contractors are typically unable to sustain lower returns from projects, many exited the industry altogether, having been forced out by the intense price competition.
Since 2011, however, business has begun to pick up, and the Demolition and Wrecking industry is forecast to return to its prerecession size by 2018. In 2013 alone, revenue is expected to grow 6.0% as the value of residential and nonresidential construction increases, which prompts the need for demolition for new structures. As companies maintain leaner operations going forward, profit margins are also forecast to widen. Land development and construction markets are forecast to grow rapidly as economic growth encourages the construction of new retail and commercial space. Emphasis on value-added services like concrete cutting and secondary revenue streams like selling recycled material will increasingly define contractors' business models in the coming years. Furthermore, the large-scale redevelopment of former manufacturing hubs like Detroit will require the demolition of many older buildings. As a result of these trends, during the next five years, industry revenue is projected to grow.
The Demolition and Wrecking industry has a low level of market share concentration. The top four players in the industry are LVI Services Inc., Penhall Company Inc., DH Griffin and NCM Demolition and Remediation LP. No single firm has a dominant edge over its peers or over the industry as a whole. Market share differences can also change quickly because of the competition for large contracts between firms. These four players all employ at least 500 people and operate on a national scale. Their name recognition and wide range of expertise, resources and equipment allow them to tender for large, lucrative projects such as the demolition of sports arenas and recovery efforts after natural disasters.
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The Demolition and Wrecking industry primarily wrecks and demolishes buildings and structures and sometimes sells salvaged materials. Other industry services include the clearing and recycling of debris, interior strip outs, handling of asbestos and hazardous materials, site remediation (decontamination and waste disposal), concrete cutting and explosive demolition. Excavation and land clearing work is excluded from this industry.
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