It used to be that the most high-tech piece of equipment on a construction or building site might have been the back hoe or front-end loader. As Bob Dylan once sang, the times they are a changin' . . . today's residential and non-residential construction sites are employing innovative new technologies and ideas to make projects stronger, safer and smarter.

Equipment Leasing & Finance Foundation recently released their 2018-2019 Vertical Market Series Report on the Construction Market and although the construction market is not as simple as whether you're building your residential, non-residential or non-building structure with sticks or concrete, some of the same trends and ideals came through: build smartly, be innovative, and make the right investments.

Before we dive into specifics to the construction market by segment, first let's look at the overall macroeconomic environment and how it relates to construction. As we pointed out in our April 2018 blog, State of the Small Business – Optimism on Economy Remains Strong, economic confidence was bright for 2018 and small business optimism had set records in 2017.

Construction spend in 2017 was at an all-time high for the industry as the economic recovery was in full swing and the outlook for reductions in corporate tax rates allowed for investments. However, the construction market has been a little slower than other sectors to invest in and adopt innovative technologies that could improve automation. The outlook for 2018 had been favorable which could have spurred more of these investments, however, as almost any American from elementary school on up can tell you from watching, reading or listening to the news over the last several months: the issue of tariffs has heated up. Specific for the construction industry is the steel and aluminum tariff decision. According to American Iron and Steel, the Construction industry accounted for 43% of all steel shipments in 2017. This could have serious repercussions across the construction market and is causing concern from the construction and heavy equipment associations. If prices go up, profits go down.

So, what does this mean as we look out over the second half of 2018 and into 2019? So far, it's not dampening demand. According to economist Eli Lustgarten of ESL Consulting, as reported by Association of Equipment Manufacturers, the passage of a timely infrastructure bill would certainly help improve the long-term outlook for the construction sectors. Lustgarten said, “Policies matter, and an infrastructure bill would actually create a mini-boom,”

If we look deeper at the Construction forecast by segment, as forecasted by Oldcastle Building Solutions, we see Residential remains steady and in the lead at 6%.

In the non-residential segment, we see that there is anticipated overall growth with public buildings, healthcare and retail leading the increase versus a decline in 2018 in hotels and other non-residential, including stadiums, after experiencing growth in 2016-2017.

The South and Mid-West anticipate gains in building, whereas the Northeast is expected to remain stable at 3% and the West will decrease from 8% in 2017 to 5% in 2018.

There is continued optimism across the industry. In a recently released report from FMI Corp., a leading provider of management consulting and investment banking services to the engineering and construction industry, construction spending in 2018 is on track mid-year to be up 6 percent over 2017. To keep up with this construction industry growth, contractors are expecting to increase their equipment rentals and purchases as well as grow fleet sizes. American Rental Assoc. forecasted a rise of 4.5 percent in US equipment rentals, to hit $51.5B by year end.

These are some of the trends that were highlighted in the Equipment Leasing & Finance report as well as other industry publications and reports:

Building Smartly

• Smart buildings and homes, centering on the premise of using interconnected technologies to make buildings more intelligent and responsive, ultimately improving their performance and efficiencies. This covers everything from predictive maintenance to self-maintenance, wireless retrofits to convergent networks.
• Resiliency is a key trend that came out in the Equipment Leasing & Finance report. It also focuses on building smartly but in a different way -- as it relates to weather and being green. 2017 brought on extreme weather with hurricanes, floods, wildfires and other natural disasters impacting us and our homes and businesses. There is a big move to build smarter – incorporating adaptive building designs to withstand these types of extreme weather scenarios. Many in the construction field are adopting RELi, a project rating system similar to LEED which includes robust changes such as thicker walls to better withstand earthquakes or insulated better for energy efficiency and in case of power outages in extreme cold areas.

Being Innovative

• Offsite collaborations with fabricators could be game-changing for contractors to increase efficiencies. The benefits include controlled environments, safer manufacturing conditions and cost advantages with semi-skilled labor.
• Building information modeling (BIM) is becoming more sought after. Digitized constructions such as 3D printing, robotics, augmented reality and artificial intelligence are all part of reducing construction time and saving costs.
• New technologies like drones can easily get to view places where workers could be put in harm's way. When you look at the OSHA statistics for casualties in 2016, you'll see that of the 991 total deaths in the construction industry, 384 were caused by falls. At almost 39% of total deaths, falls represent the lion's share of construction-related fatalities.

Making the Right Investments

• Equipment rental is trending higher. Bulldozers, excavators, dump trucks and more are all large and expensive pieces of equipment for the jobsite. New regulations and technology innovations on construction equipment are causing a lot of companies to consider renting the equipment they need instead of purchasing it.
• Equipment purchase is also trending higher with the acceleration economic growth and construction increasing in different sectors and areas. Contractors know they need to make the investment. This was evidenced by a survey in Equipment Leasing & Finance which showed 37% of contractors indicating that they will purchase more new equipment, while 27% indicate they will purchase more used equipment.
• Equipment financing volumes are expected to grow as investment in equipment and software by U.S. businesses is to grow by 7% in 2018. The Monitor forecasts that the industry will build on its 2017 growth and in 2018 experiment with, and slowly adopt, advanced technologies. Equipment financing will continue to play a large part in enabling construction companies to invest in new technologies and equipment without fear of obsolescence or weakening their available cash flow

The times they are a changin', and those who embrace some of these current trends will find themselves able to provide safer, smarter and more innovative structures that will keep you and your company in hot demand. Investing in these new technologies and practices, and having a partner like Ascentium to help with your financing needs, will allow you to build a strong future.

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Ascentium Capital offers industrial strength financing to help you build your business. We offer fast, flexible financing options up to $1.5 million for nearly anything your construction business needs.

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