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Blog/September 1, 2017

FMI’s September Houston Update: Construction Has Character-Based Leaders

Among the most positive things that can be said of any person is, “He or she has good character.” It means, the individual is reliable, honest, a person of his or her word. You can count on him or her. It used to be a base requirement for people in roles that influenced others – those natural role models, such as clergy, coaches, congressmen and commanders. Regrettably, in recent years, the requirement for impeccable character in these roles seems to be discounted or waived.

However, that is not the case in construction. The vast majority of men and women who lead construction companies have good character; it is essential to the work their firm does and the culture they create. It is the most common characteristic of multigenerational companies. They have character-based leaders designing and demonstrating character-based cultures. Everyone is clear about “true north.”

Competency and confidence, combined with courage and character, allow these leaders to assume the risks on their projects and then execute profitably. The typical construction project, no matter which specific market, requires building a prototype, one-of-a-kind structure, out in the weather, for a guaranteed maximum price. Only someone substantive, comfortable in his or her own skin, with proper intentions can repeatedly do that.  No legal document or set of plans can cover all the potential issues. Almost every project has some point where being honorable and doing the right thing obviates anything else. Contractors always step up; it is the essence of their character.

Perhaps it is the nature of construction, dirty and difficult, that produces such genuine and authentic people, understated and humble. Perhaps the requirement for bonding rules our “front-enders” and poseurs, but it is character that drives them to write a check to do the right thing; to ignore their lawyer’s advice to declare bankruptcy and, instead, sell personal assets to pay their debts; and to support an employee and his family through recovery and rehab.

Certainly, people of character strength are also flawed humans. And there are people who call themselves “contractors” who denigrate that honorable title by abusing vulnerable immigrant labor. These few deserve the most brutal consequences. But deal with the leaders in any construction company with history and success, and you will always find men and women who keep their word, who stand up for their beliefs, and who do the right thing. These people come with extra rebar in their character structure, and that makes all the difference in the world.


Houston’s Monthly Metrics

In looking at the Texas Workforce Commission’s latest employment numbers, the Houston metro area lost 18,300 jobs, a seasonal amount, in July, with construction accounting for 5,000 of those losses, in large part due to the wind down in the industrial/petrochemical work on the east side of Houston. This puts Houston’s construction employment down 4,800 jobs since the start of the year and negative year over year.  The slide above from Ken Simonson, chief economist for the Associated General Contractors, shows Houston, overall, has had positive job growth in 2017, having added 6,900 jobs year to date. According to the Greater Houston Partnership, historically, Houston begins a hiring season in the fall as the educational institutions, much of the summer-time job losses, are brought back onto the payrolls. As such, we should see a positive employment number for year-end 2017.

The American Institute of Architects (AIA) Architectural Billings Index declined to 51.9 in July, but remained above 50, thus signifying expansion. The southern region, where Houston is located, was tied with the Midwest for their strongest region at 53.8, and the new project inquiries index rose to 59.5, suggesting more work may be in the pipeline. Additionally, the AIA took a special look at the adoption of 3D printing in U.S. architecture firms. The responses show nearly 30% of architecture firms have some experience with 3D printing, with about half of those using it in-house and or testing it. This is a higher response rate than when the topic was surveyed last year, suggesting the trend is growing. When asked, the architecture firms feel the application of 3D printing will continue to grow, though concerns around the quality of the models developed and low client demand remain.

CBRE released its second quarter findings for the Houston multifamily market in August. In the report, multifamily is showing signs of recovery, with net absorption rallying in the second quarter and occupancy landing at 88.9%. Class A had a strong showing as the concessions being offered have incentivized renters, creating the lion’s share of the absorption. While roughly 11,000 units remain under construction, according to CBRE, absorption is expected to be over 22,000 units in 2018 and 2019, which should put a significant dent in the oversupply that exists in the market.

On the commercial side, we continue to see the city of Houston permit dollar volume tracking below a year ago, with July’s numbers down 21% on the nonresidential side and 15.2% residentially as there continues to be a trend toward smaller projects. 2018 is shaping up to be another lean year for the Houston commercial construction industry.

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