Trends that will impact construction businesses in 2019 continue developing in the political and economic spheres. But, certain project types are also trending among investors and owners.
From a macroeconomic view, you can expect rising interest rates, according to Goldman Sachs. Coupled with the "fading fiscal stimulus," the economy will probably decelerate in 2019, going from 3.5 percent to 1.75 percent growth. Rising inflation is also a trend expected to hit 2.25 percent by the end of next year.
Construction's trajectory toward better production will speed up as more owners and contractors recognize doing business in the same old ways is no longer an option. Innovation will lead to transformation, and the companies that set and maintain a course toward improving efficiencies will be better positioned to weather expected lower volumes of work.
"The key word for real estate's future performance is transformation—in technology, in generational choices, in a reconfiguration of preferences by geography and by property type, and in the potential for new investors in the asset class." PwC's Emerging Trends in Real Estate® 2019
1. Residential Growth
PwC's 2019 real estate report blamed the rising costs of land, financing, and materials for a topsy-turvy housing market. The upper end of the market gets served while the middle-to-lower end loses out on affordable living spaces. Even though it appears millennials have gotten the homeownership bug, the shortage of labor, fueled by immigration policies adds to housing's woes.
There are 1.3 million housing starts predicted for 2019. However, that volume of starts won't completely serve the 1.5 million new households expected next year. As demand rises, so do the prices. Unfortunately, that's going to price many more people out of not just single-family ownership, but rentals as well. While high-end apartments have performed well in recent years, 68 percent of PwC's survey respondents now say that the market is already overpriced.
Prime categories for further development in 2019 include senior housing and moderate-income apartments. Growing demand for moderately-priced single-family homes and masterplanned communities also increase the development prospects for those two sectors, along with multifamily condos and manufactured home communities. As land prices restrict development in 2019, you can also expect to see more vertical projects.
Another residential growth trend will be remodeling. In fact, the Joint Center for Housing Studies predicts seven percent growth. Rising home values are putting more equity into the hands of homeowners. Larger gains could be in store if housing starts catch up to demand.
2. Construction Tech Adoption
Look for a potential doubling in the number of contractors adopting technologies like drones, equipment monitoring, wearable technology, augmented reality, digital services, and virtual reality. The impetus is coming from the need to improve productivity in the face of labor and skills shortages. In the Q4 2018 USG Corporation + U.S. Chamber of Commerce Commercial Construction Index report, 74 percent of surveyed contractors expect to adopt new technologies over the next three years.
74 percent of surveyed contractors expect to adopt new technologies over the next three years.
3. Smart Buildings
The contractor backlog dropped to 10 months late this year, down from 10.3 in the third quarter. Shorter backlogs hint at lower construction volumes in the future. However, there are some mixed signals because contractor confidence has increased even though contractors expect their revenues to level off in the coming months.
Mixed-use properties are expected to attract more investment, according to Deloitte's 2019 Commercial Real Estate Outlook. Projects get more investment interest when they offer flexible leases and flexible spaces. The trendsetters in the commercial space will still adhere to the concept of location, location, location, but they will spend more effort in re-imagining how spaces can serve people better. Chief among their tactics is incorporating technology into buildings that improve the user experience while offering stimulating ambiance, open seating, amenities and networking options.
4. Libraries and Museums
Office projects in some cities, transportation projects, highways, streets, bridges, water projects, libraries, museums, and amusement projects top the list of fastest growing construction categories for 2019. However, the same wildcard trends that affect other construction categories will remain at work here. Labor shortages, rising interest rates, and growing input costs will all conspire to moderate growth next year.
5. Prefab and Modular Units
You should expect to see more prefabrication and modular units on projects. The labor shortage, materials prices, and interest rate increases will cause developers to look for ways to remove risk and speed up projects. Building information modeling (BIM) is on a growth trend with 5D building information leading the charge. By incorporating time and cost factors into building models, contractors will reap new efficiencies as they get deeper views into costs, productivity, and schedules.
Contractors will also look for ways to control the costs of business. They will use software technologies to improve project management and document handling. Moreover, early adopters will start using more data collection and analysis to make better decisions more quickly. Another trend is the expected continued growth in construction equipment investment, with more focus on leasing.
To learn more about which construction technology trends to look out for in 2019, be sure to check out this webinar.