As we mentioned in our industry report last month, we’ve entered the season that we in the Midwest like to call “construction season.”
And in addition to road and highway construction, it’s prime time for the municipal building construction of schools, hospitals, other healthcare facilities, civic centers, places of worship, prisons, and other institutional buildings.
If this is an industry you’re involved in, sell to, or perform services for, here’s a quick look at this industry’s current performance and what its future could be as highlighted in a February 2018 IBISWorld report by John Madigan.
1) The annual growth of this industry will decrease by -0.5%.
From 2013-2018, the municipal building construction industry grew at an annualized rate of 1.6%. But IBISWorld predicts that this industry will decrease over the next five years to $172.6 billion due to two main factors.
Firstly, local and state governments are anticipated to invest less and less in municipal projects, although there is some good news: investment is still expected to continue growing.
Secondly, healthcare and education projects may wane as investments slow down as well. It should be noted that the healthcare and education sectors positively affected the municipal building construction revenue from 2013-2018.
2) Input prices will go up.
Inputs are defined as: “Resources such as people, raw materials, energy, information, or finance that are put into a system (such as an economy, manufacturing plant, computer system) to obtain a desired output.” In the construction industry, inputs include materials and commodities like cement and lumber.
IBISWorld anticipates that input prices will go up as to meet the increased demand of global markets. And as a result, purchasing costs will rise. To stay price-competitive, construction companies will have to have a renewed focus on profit margins.
3) Industry competition is high and will rise steadily over the next few years.
Competition is especially steep between small and medium-sized contractors that serve specific regional markets. But they’re not only competing against local businesses of the same or similar sizes; national companies compete against small and medium-sized contractors as well. IBISWorld believes that this trend will only continue from now to 2023.
4) Regulatory expertise and compliance are key for success.
In a highly competitive industry which is expected to decline, success comes from far more than who has the cheapest bid or the best reputation. IBISWorld highlights several key success factors with an emphasis on regulatory expertise and compliance.
Since the municipal building construction industry involves local governments, the industry’s regulation level is high. Companies in this industry must follow numerous regulations including building codes and OSHA requirements.
Therefore, to be successful, IBISWorld recommends that contractors be adept at negotiating with regulators during the construction process and establish records of compliance with regulations.