Commercial Construction Market Update

Lessons Learned and Emerging Opportunities

03:05:48 PM on 02/16/2011

As economic recovery progressively gains traction, now is as good a time as any to take stock of the commercial construction market. The extended down-cycle in commercial construction imposed several constraints on the industry and exposed latent inefficiencies in its activities. A synopsis of a few emerging trends that emanated or accelerated during the prolonged downturn could be instructive.

Primary among these is the industry’s relationship with its workforce. Influenced by dire market conditions, most organizations in the industry restructured during the downturn and experienced extensive productivity gains that continue to yield results.  However, an impending challenge for these organizations would be to adequately cater to their customers as the market gradually returns to relative normalcy.

A second issue concerns commercial construction credit. The tight project financing scenario and anemic public finances that accompanied the credit crisis compelled developers and owners to ascertain and avail alternate methods of obtaining financing.  The situation allowed for a steady growth of hitherto under-appreciated funding techniques like public-private partnerships and private equity. But despite a surge in such novel financing practices, commercial construction projects continue to get deferred at atypical rates.

Another industry trend accelerated by the rambling recession is modular construction. In an effort to maintain margins under increasing pricing pressure, organizations adopted technological solutions to streamline activities across the supply-chain. The potential decline in profitability was accentuated by rising material costs, especially during the latter part of the down-cycle. Consequently, several organizations had recourse to technology platforms like Building Information Modeling (BIM). The uncertain market environment necessitated predictable outcomes and dictated closer collaboration among stakeholders within the project cycle, and technologies like BIM enabled such interaction.

The recession also required companies to focus on customer initiatives. As the reserve of profitable projects in commercial construction dwindled, companies revived their focus on customers to win business. Several organizations implemented customer engagement and acquisition programs to retain strategic customers and acquire potential customers. In an effort to cost-effectively publicize differentiated, augmented service offerings to their customers, several companies in the industry tentatively espoused a variety of social media tools.

With the downturn in commercial construction slated to bottom-out in 2011, it is imperative that the industry retains the improved practices that emerged out of arguably one of the worst circumstances for the construction industry. In the event of a protracted incline, as many economists predict, to a more sustainable future, the industry will likely have ample opportunity to assimilate the lessons learned from the recession.

I’m interested to hear what lessons you have learned during this recession. Please share with me in the comments section.


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