March 2022 - Zach's Construction Landscape

To My Valued Clients,

Inflationary pressure continues, the $9.50 turkey club I used to buy in early 2021 now costs $12.50, should probably find a new deli. Transportation, labor and availability of materials are continuing the trend and the Russia Ukraine conflict will only make things worse, Russia is a large supplier of oil and aluminum. Some examples to follow, the average price of gas today is $3.65, the Bureau of Labor Statistics shows the average hourly rate increased 5% from January 2021 to January 2022 (avg hourly rate for construction is $33.80), the producer price index which measures what suppliers charge businesses increased 9% last year, ABC reported construction input prices rose 23% from last February, Bureau of Labor Statistics report that construction costs for government buildings is up 13% year over year. According to the Wall Street Journal, the cost of construction for streets/highways increased 20%, with all this being considered, the infrastructure bill may not go as far as we expected if inflation continues.

Covid created a huge surge in the life science sector in the 4th quarter of 2021 with over 31mm sqft of space under development. According to Dodge Data, construction starts are set to rise 9% in 2022, totaling $996B, 2021 came in at $916B. Commercial construction is set to rise 15%, multifamily set to rise 2%, retail set to rise 20%, warehouse set to rise 17% and hotels set to rise 18%. The U.S. DOL has added 100 investigators to ensure workers are receiving proper wages and classifications. The long awaited purple line in MD has received $1.7B loan from the federal government to advance construction, the project is now 4 years behind schedule. The new JV, Maryland Transit Solutions formed by OHLA Group and Dragados is set to take control of the construction project.

Notable Numbers:

1. Publicly traded construction firms
2. Skanska’s 4th quarter operating income fell 45% but still made $393mm
3. AECOM’s 1st quarter fiscal year saw a large 86% increase in profits of $61mm
4. Jacob’s 1st quarter fiscal year’s profit fell 48%
5. Fluor’s 4th quarter profit fell 60% to $171mm
6. DC and VA give 1st tier subcontractors 1 year to file a payment bond claim from the date they last performed work
7. ABC indicates the construction industry needs to hire 650k workers

Zach’s Street Talk.