Sometimes change for the sake of change at least provides some relief to previous concerns. And that may just be the case for the commercial roofing industry as we trade one set of issues for another. Most of 2021 and 2022 were handcuffed by challenges stemming from the Covid-19 pandemic: first supply-chain interruptions, then skyrocketing inflation. As those concerns settle into more manageable states, labor costs look poised to be 2023’s chief hurdle.
By the Numbers – Key Impacts on the Roofing Industry:
- 81% — number of contractors who reported wage increases last year (per Roofing Contractor’s 2022 survey).
- 17% — average increase of wages reported by those same contractors (per Roofing Contractor’s 2022 survey).
- 72% — the percentage of roofing contractors who rank “finding/recruiting new labor as their greatest workforce challenge (per Roofing Contractor’s 2023 State of the Industry report).
- 76% — in a 15-year reroof cycle, the internal estimate of buildings in the reroof window increased from 61% in 2021 to 76% in 2022 (per the 2018 CBES study).
- 220.0 — the Dodge Momentum Index (a 12-to-18-month leading indicator of new project starts) finished 2022 with its highest reading since 2008. Note: January did see an 8.4% retreat to 201.5.
Going with the Flow
Despite the challenges stated above, the commercial construction and roofing industries are strong with lots of momentum pushed by new warehouses, fulfillment centers, data centers, and medical facilities. A position supported by the high Dodge Momentum indices of the past several months.
Regarding the overall outlook for the low-slope commercial roofing industry, Holcim forecasts a 3-percent increase to 4.84 billion square feet. A broken-down look at roofing materials shows a continued decline in asphalt, losing another percentage point for the second time in the past four years. In 2022, PVC overtook EPDM for second place with a 16% share. And, TPO continues to dominate the industry with a 56% share.
With the labor market as tight as it is, there is certainly one significant conundrum brewing in the background. For the past couple of years, new construction starts have held an oversized portion of roofing projects. While that number is looking to return to historic norms of around 20 percent, much of the reroof activity has been postponed. As shown above, in the CBES Study numbers, there’s now also a growing percentage of existing buildings in need of a new roof. Tack on the challenge of finding skilled labor and building managers may have a difficult time finding contractors ready and able to provide reroof services promptly.
Focus on Texas
As has been the case for several years, construction prospects in Texas are better than in most other parts of the country. Much of that has to do with the business-friendly nature of the state attracting more companies who are drawing in more employees. The U.S. Census Bureau reports that Texas experienced the largest population growth in the nation, adding 470,708 people over the 12 months beginning July 2021. This influx of people stimulates all sectors of our state economy as Texas continues to provide opportunity.
Likewise, the Dallas Federal Reserve estimates that specialty trade employment increased by 0.9 percent in 2022 even as labor shortages persisted. Ironically, project slowdowns due to labor constraints have kept project backlogs high mitigating the impact of increasing interest rates as current projects are completed.
Overall, Texas construction activity in 2023 should be very similar to 2022. Even though the issues are shifting and risks are still abundant, the stubborn pride and resilience fundamental to the Lone Star state still point to a strong 2023 Texas construction outlook.
The Federal Policy Response
Nationally, the Federal Reserve’s efforts to combat inflation by raising interest rates represent the biggest current factor impacting the construction industry. Prospects of a recession have been widely reported as everything from “avoided” to “soft” to “deep.” The Conference Board 2023 C-Suite Outlook survey of CEOs ranks ‘recession’ as their greatest worry for the year.
Most recently, the warm European winter has helped shift the consensus toward a later and shorter recession duration. And, Dodge Data and Analytics forecasts that economic growth will slow to 0.7 percent in 2023.
As the timing of inflation has fallen unevenly through the economy, various segments of the construction sector show different trends. Commercial construction is highly dependent upon interest rates and, therefore, is under more pressure than most. A recent surge in warehouse construction to support increased online shopping has peaked, although data center demand remains high.
A major impact of supply chain disruption was a huge increase in manufacturing construction as manufacturers sought to reshore production facilities to insulate from various geopolitical risks. Even though manufacturing construction is poised for a large decline year-over-year, activity is still above pre-pandemic levels. And, recent federal legislation will contribute to that continued strength.
The CHIPS Act and the Inflation Reduction Act of 2022 were written to support investment in semiconductor manufacturing and other domestic manufacturing. Public sector construction is less subject to economic cycles and provides additional stability. Another institutional sector that remains strong is healthcare with underlying drivers of demographic aging and surge capacity for accommodating pandemics.
Technology for roofing contractors cannot be overlooked or understated. Technology drives efficiency and prepares contractors to adapt to more change as progress is made. Arguably, the results of Roofing Contractor’s 2023 Contractor survey are surprising in that the only technology used by a majority of contractors is estimating software. Less than half of contractors use aerial measurement, enterprise accounting software, CRM, or cloud computing.
The use of drones, however, appears to be the greatest topic of interest to contractors as this technology is being closely monitored as it matures (improving in functionality and affordability). On the horizon, AI and augmented reality are also beginning to find a place with roofers with many opportunities to implement those tools.
The macro economy has been full of surprises the past two years, but roofing contractors face internal forces of change, as well. Chief among those is the ability to find and retain labor as illustrated by Roofing Contractor’s 2023 State of the Industry report. The winners in this kind of labor race are those who will invest in their crews through training and the creation of a culture of safety. Such care in our employees not only attracts the best people but also is recognized by clients who expect skilled workers who respect the value of safety.