The following article originally appeared in the February newsletter to clients of Kiley Advisors, LLC and was intended to provide the latest leading indicators and industry issues to those clients. It is a summary of the Kiley Advisors 2014 Forecast with a focus on the outlook for Houston. Reprinted with permission.
Houston is off to a running start in 2014. The typical slowdown seen in the winter months has yet to occur as construction marches on around the city. New construction projects continue to be announced each week, and it looks to be a year of steady growth for all construction markets in 2014. Retail remains strong as grocery-anchored centers persist. Aldi is halfway to reaching its 30 store goal for Houston, Trader Joe’s is seeping into the suburbs, and Krispy Kreme is reentering the Houston market after a seven year hiatus. FMC is rumored to be planning a campus on the northeast side of town that will rival Exxon, and development of the recently opened stretch of the Grand Parkway, along with the soon to follow segments F and G, are being discussed. A great article in The Houston Chronicle detailed the impact of all the construction in northern Houston and the additional construction it will spawn. While other cities across the nation are increasingly recovering, Houston is still a great place to be.
Nationally, the Architecture Billings Index, a leading indicator of construction activity, remained below 50 in December (a score below 50 indicates a decrease in architecture billings), but the national numbers seems to be dragged down by the Northeast, possibly due to the weather, coupled with the holiday season. The Southern region continues to show expansion with a 51.2.
The December McGraw-Hill numbers came in, and they made a large revision to their 2012 numbers (nearly $400 million added to non-res), as we expected. We anticipate that trend will continue for the 2013 numbers, as McGraw-Hill’s December non-residential numbers came in much lower than expected, at 3.5 billion.
Construction materials, for the most part, remained flat in 2013. Whether the trend will continue in 2014 is unknown, but we do know that labor costs, which began rising in 2013, are expected to continue to rise this year. The industrial sector is booming and big jumps in their labor costs are expected. Commercial contractors will need to compete in order to attract and retain human capital. The “war for talent” will escalate in 2014.
The Kiley Advisors LLC 2014 Market Forecast is now available online, and will also be presented by Pat Kiley and Candace Hernandez, co-founders of Kiley Advisors, on March 6th at the WCA March Luncheon.
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