January 18, 2016
This article originally appeared in Properties Magazine.
The results of Skoda Minotti’s eighth annual survey of the Northeast Ohio Real Estate and Construction industries are now available and the results are encouraging.Construction Survey Executive Summary In a word, the respondents of the Northeast Ohio construction industry are feeling positive. The upward momentum reflected in the 2015 survey indicates that the vast majority of respondents are generally feeling optimistic about their ability to get quality work now and in the years ahead.As we’ve slowly recovered, the Downtown Cleveland construction boon is keeping larger contractors busy, freeing up the playing field for other contractors. Contractors are seeing average job sizes increasing and the lending climate improving.We’re now three full years into Ohio Construction Reform, and it continues to be met with mixed reviews. Some of the very challenges reform was intended to address are viewed by respondents with skepticism. The lack of skilled labor continues to be a considerable concern as well.As the construction industry budget climbs back slowly but steadily to the trillion dollar range it should be in, we expect margins to improve—this is reason people are more optimistic.
Opportunity & Optimism In the eight-year history of conducting the Construction Survey, this is the first year survey respondents have broken the 50% mark when predicting more opportunities in Northeast Ohio for their businesses over the next three years. More than two-thirds of survey respondents see more opportunities for their businesses between now and 2017, a more than 20% increase over last year. Survey respondents also report more opportunities outside Northeast Ohio.
When the U.S. construction market returns to the trillion dollar mark in 2015 or soon after, it will be the industry’s biggest gain since it bottomed out in 2007. According to U.S. Census figures, construction volume this past April was up $81 billion, a 9.7% increase over March figures.Further, according to the June 2015 Bureau of Labor Statistics report, construction employment increased by 4.5% to roughly 6.4 million—its highest level since February 2009.Skilled Labor
Despite an increase in job opportunities, for the second straight year, the ability to secure skilled labor was chosen by most respondents as the greatest perceived threat to their businesses over the next 12 months—no other issue was even close. Lack of work, such a great threat in previous years, is in distant second place.These numbers aren’t surprising when viewed on a national level. The decreasing pool of skilled labor continues to be a problem across the country, one certainly echoed here in Northeast Ohio. According to the Associated General Contractors of America, the number of unemployed jobseekers in the country who last worked in construction fell by almost 200,000 from May 2014 to May 2015, ending with the lowest May total since 2005.Material Price Volatility For the first time since 2012, material price volatility was ranked by survey respondents as the political issue most likely to affect their business this year. While beating out healthcare by just a slight margin, it has been ranked as either the top one or top two most important political issues in five of the last six years.Conversely, when survey respondents ranked business threats for the next 12 months, material price ranked fourth among the choices. This suggests that “securing skilled labor” is viewed as a much larger threat with approximately 40% of the ranking.
Real Estate SurveyFor the most part, 2014 was a very good year for the region’s real estate industry. More than two-thirds of respondents believe the credit market has loosened up, reflecting even more optimism than last year. Rents are on the upswing in residential, commercial and industrial markets. While cash flow continues to be a concern for most property owners, very few are reducing expenses.Lending
Every year we take the pulse of the real estate lending and equity environments, a very good measure of the health of the industry. Overall, the results were very positive and our respondents are optimistic. Similar to last year, our respondents are experiencing mixed results from lenders, all depending on the health of their companies and their projects.We asked respondents whether the credit market has loosened up with regard to investment real estate. Eighty-one percent agreed it either had loosened up by 2014 (69%) or it will in 2015 (12%). The balance of respondents are looking for improvement in 2016 and beyond.
Cash Flow
Those reporting that their cash flow is sufficient to support existing properties and projects increased from 2014’s low of 21% to 46% in 2015. While the number is moving in the right direction, it still remains low compared to 2009-2012 figures.In addition to the highlights, this year’s report covers the hot topics of the skilled labor shortage, Affordable Care Act and tangible property regulations.To download the full report, visit skodaminotti.com/survey.