This adage has never been more relevant or more important. Changes are percolating in every dimension of designing, financing, building and managing those structures that create the “built environment.” Their potential order of magnitude is from slight modification to total disruption. The traditional delivery systems, roles, means and methods are under intensely focused study by very bright people with innovative mindsets. Much of this thinking is caused by the myriad technologies exploding onto the market. Some are just emerging and being beta-tested; other are proven and being widely and rapidly adapted. A fascinating development, adding momentum to the growth in construction technology applications, is the increasing presence of the experienced, sophisticated “Silicon Valley” investor crowd. Over $1 billion of knowledgeable money has poured into the construction-related space in the last few months.
Other things are driving this urgency for change too. Owners, particularly those with very large industrial projects in many parts of the globe, are understandably frustrated. Over 90% of these projects have schedule and budget challenges; delays and overruns prevail. They are collaboratively working with their builders through organizations like the Construction Users Roundtable (CURT) and the Construction Industry institute (CII) at the University of Texas to invent “Construction 2.0,“which, pro forma, is radical and disruptive. “Project Groundhog” is being funded by many players, including AGC and ABC, to test some of these theories and approaches. At this point, it is nascent, but a real priority, attracting full resource support to give it a valid field test. It is worth monitoring progress through these organizations’ websites or getting more directly involved.
CEOs themselves are also driving more change in their company’s practices. Equipped with much more data, both analytic and predictive, and seeking comparative information through peer groups and professionals, these enlightened leaders are leveraging the proven technologies with confidence to gain competitive advantage. Surviving organizations will have to “modify form.” But they will also have the imperative “preserve substance.” Understanding clearly what must never change in the blizzard of mandatory changes will make the real difference. What must be held sacred are the foundational values, built on the deeply held principles of the founder, now articulated, reinforced and consistently lived by the current senior leadership team, especially if some members do not have construction backgrounds. These nonnegotiable culture cornerstones will create the vital, “true north” compass points when the level 5 rapids of impending change severely test perseverance.
The soul elements of the true “construction man” must always be visible, no matter how rocky or frothy – authenticity, humility, risk-tolerance and a ferocious ethical tenacity to always “do the right thing” regardless of contract or cost. These qualities, fully lived, are powerful magnetic forces for attracting the clients, talent and other resources required to build multigenerational organization. They always have been; they always will be.
Houston’s Monthly Metrics
The construction market continues to tease a brighter future. Contractors are regularly reporting that, while still temporarily in pain, more work is on the horizon. Multiple code-named projects are in the works, and Houston leading economic indicators are pointing to continued growth, which should stir up some projects, as developers who have been sitting on the sidelines are encouraged to act.
In a recent energy survey (see chart) by the Federal Reserve Bank of Dallas, E&P firms were asked what West Texas Intermediate oil price do their firms need to profitably drill a new well. Responses range from $20 to $70 in the Permian (Midland) area, with the average price being $47 per barrel. With oil prices well above that, the Permian Basin continues to produce more crude than pipeline capacity can hold, depressing prices for West Texas Intermediate (WTI) and creating a cheaper feedstock for U.S. refiners. Refinery profits are projected to rise this year and remain strong. The new requirements for marine tankers will help bolster the refineries.
With tariffs now in effect, it should come as no surprise that the Port of Houston had a huge uptick in steel imports in May, as companies tried to beat the tariffs. Contractors began seeing price increases in anticipation of these tariffs since they were first announced at the beginning of the year. We have heard reports of contractors losing jobs over the higher material prices, as owners rebid or shelf the project until the full impact is understood. As Ken Simonson, economist for the Associated General Contractors, noted, the producer price indexes for inputs to construction has risen 7.4% year over year, much higher than the 4.2% producer price index for new nonresidential building construction, which implies a growing cost squeeze for contractors. Passing on these increases is tough, especially in Houston, as we have many companies going after the same preferred projects and must remain competitive.
The residential market is finally seeing the median home price reduce, as developers offer more first-time homebuyer products in the market, according to John Burns Consulting. CBRE Hotels recently published a report showing the occupancy spike from Harvey is quickly evaporating and should remain in the low 60% range until 2022 as new supply comes online. As our economy recovers, the availability of a future workforce to support Houston’s growth remains a primary concern.