“There’s another condo going up?” I said in disbelief a few weeks ago when I was driving through downtown Grand Rapids, Mich., with a friend from college.
And indeed, there was another high-rise, modern-looking condo under construction right in the middle of downtown Grand Rapids, joined by several other half-constructed new condominium and apartment buildings dotting the city skyline.
This trend isn’t just limited to Grand Rapids. I’ve seen condos and apartments going up all around the country. Clearly, the industry has been doing well. In fact, per the market research firm IBISWorld, it grew at an annualized rate of 4.4% over the past five years.
But will this trend continue from now until 2024?
Let’s see what the next five years may have in store for the new condo and apartment construction industry according to a new IBISWorld industry research report.
1) The industry will continue growing, but at a much lower rate.
The condo and apartment construction industry grew so much from 2014-2019 due to few factors:
- Increased investments in residential construction
- Low rates for rental vacancies
- Tepid economic growth
- An increase in the number of young professionals moving to metropolitan areas
- Because fewer Americans were purchasing or owning homes than in the past
From 2019-2024, however, IBISWorld predicts that the industry’s annualized growth will decline from 4.4% to 0.3% for three major reasons:
- An anticipated 0.9% uptick in the rates of rental vacancies per year
- A stronger economy
- More people choosing to purchase homes than rent
With this predicted slowdown in growth, IBISWorld anticipates that the industry will reach a total revenue of $39.2B by 2024.
2) The most growth will be driven by complex, large construction projects.
Unsurprisingly, the larger, more complex, and inherently, more lucrative construction projects are anticipated to bring in the most revenue to this industry even as the industry as a whole begins to stall.
Construction companies also benefit from projects with a longer timeline because they provide a steady income. Another win: Companies in this industry additionally have the ability to negotiate input costs because of their higher costs with longer, more complex projects.
Consequently, most of the anticipated annualized growth of 4.4.% for the next five years may come from these types of projects.
3) Reputation will be key for future success.
IBISWorld predicts that the importance of having a sound, successful industry reputation will continue to remain important and be key to landing future projects – especially larger contracts. Companies who have a proven or known reputation for completing projects while demonstrating managerial, technical, and financial prowess are anticipated to experience continued success from 2019-2024.
I should note that I can attest to the importance of having an established reputation in this industry. When I used to prospect as a business development specialist for COACT and would speak with potential customers on behalf of one of our AEC clients, they were always impressed by this client’s project portfolio, technology investments, EMR rating, safety awards, qualified staff, and project delivery methods.
4) Mutually beneficial relationships with outside industries = another factor for success.
Besides having a good industry reputation, IBISWorld identifies the development of symbiotic relationships with other industries as another key success factor for this industry.
That’s because relationships with outside industries like property developers and financial institutions can bring construction firms new contracts and steady funding opportunities.
As a result, to continue to succeed over the next five years, companies in the new condo and apartment construction industry would need to develop and cultivate these relationships if they haven’t already.
The new condo and apartment construction industry is predicted to continue to grow, although at a slower pace from 2019-2024. Future success will depend on a few factors including having a sound industry reputation, landing large, complex, long-term projects, and establishing mutually beneficial relationships with outside industries.
So, we can expect city skylines like that of Grand Rapids and other cities to continue to be dotted with new, expensive apartments and condos, but maybe not as many in the future – but we will see what happens!