What is top of mind for the construction and real estate (C&RE) industry in 2021? LBMC’s fourth annual Business Outlook Survey Report addresses this question and offers insight into business trends, challenges, and levels of optimism across seven major industries in the U.S., including construction and real estate.

C&RE organizations made up about 10% of the survey’s 500 respondents, mostly in C-level positions. More than half of the participants represent companies with 15 million plus in revenue. The report provides insight into the business landscape over the last 12 months and expectations for the new year. Specifically, the report focuses on current business challenges, impacts of the pandemic, election sentiment, and economic conditions and highlights businesses’ goals for the coming year.

Current Business Challenges

According to the survey, COVID-19 was the top external challenge in the construction & real estate industry in 2020, followed by domestic economic conditions, employee benefits, and materials/supplies/equipment costs, all of which tied for second. Last year, the top external challenge was domestic competition. This year, domestic competition dropped by 20 percentage points into next to last place.

COVID-19 impacts to the industry were far-reaching, including new requirements for job site safety, project shut-downs due to contact tracing, increased lead times for certain materials, and office personnel adjusting to working remotely. In addition, some believe that some of the changes in how and where people work and how they shop will be permanent and could have long-term impacts on new construction in the commercial office, hospitality, and retail market.

Impacts of COVID–19

Three out of four construction & real estate businesses were negatively affected by COVID-19. When asked what part of their business was most impacted by COVID-19, C&RE companies’ top three responses were loss of sales/revenue, employee health, and business closures. Employee health suffered more than in other industries. When asked which operating assumptions they plan on revisiting as a result of the pandemic, C&RE leaders responded that remote work/office setup was number one, followed by staffing/recruiting.

 

Election Sentiment

Of the industries in the study, construction & real estate was least optimistic about the impact of the election on their business. 87.5% of negative responders cited increased taxes and regulations as their chief concern. Less than one in five C&RE companies believe the result of the recent election will have a positive impact.

Many in the C&RE industry believe the uncertainty that comes with a new administration regarding potential changes to existing tax laws and other regulatory changes may result in some owners postponing new construction projects until they have a better understanding of what changes to expect. Some are strategically looking to enter or expand activity in markets that are expected to expand under the new administration, such as the alternative energy market.

Future Outlook/2021 Goals

The economic outlook is grim among construction & real estate companies, especially for the global economy. Of the three perspectives, optimism about the regional economy has dropped the most over the past year. Top construction & real estate business goals for 2021 include growing sales, improving financials, and increasing business value. 87.2% of C&RE companies believe they will achieve revenue growth in 2021.

While most of our Tennessee C&RE clients continue to have strong backlogs going into 2021 and are optimistic they will achieve revenue growth in 2021, we have noted some clients saw a drop in bidding activity in the 3rd and 4th quarters of 2020. It is too early to predict whether this is isolated to a few markets or industries, an election cycle pause, or an early indicator of an overall economic slowdown.

Sales & Profitability Strategies

When it comes to strategy for increasing profitability, construction & real estate companies are most focused on improving their productivity and efficiency in 2021, followed by increasing margins and revenue.

In 2021, C&RE companies are most focused on selling existing products to existing markets. Historically, C&RE companies have focused most heavily on entering new markets, so 2020 is a striking change in strategy.

Capital Spend

The C&RE industry plans to substantially increase capital spend heading into 2021. When it comes to allocating their 2021 capital spend, C&RE companies are most likely to use it to acquire new locations or facilities. Growing C&RE companies are substantially more likely to increase capital spend in both employee training and IT.

“Is your firm looking to acquire another company? If you are, understanding the structure of the entity you are acquiring is important. A quick review of the organization type before LOI should indicate whether tax basis step-up will be difficult (or possibly not even possible).” – Jayme Parmakian, CPA, Shareholder, Tax Services

Acquiring/Retaining Talent

While a majority of construction & real estate companies kept their number of employees the same in 2020, growing firms were much more likely than No Growth firms to expand their workforce. In 2021, over half (52.4%) of C&RE companies plan to prioritize acquiring and retaining talent. In 2020, 43.5% of growing C&RE companies increased their employee base, while only 16.7% of no growth firms increased theirs. Nearly all C&RE companies plan to maintain or increase their workforce in 2021. When it comes to acquiring and retaining talent, the top strategy is to offer flexible or remote work arrangements.

Technology Usage

Unlike most industries, construction & real estate companies are more likely to manage their business technology by replacing systems rather than improving existing ones. When it comes to technology investments in 2021, most C&RE companies plan to invest in cloud technologies.

26.2% of C&RE companies plan to prioritize technology in 2021, a lower percentage than most other industries in this study. Growing C&RE businesses are twice as likely as their no growth competitors to invest in cloud technologies in 2021.

The industry’s relatively low technology investment rates could represent a golden opportunity to build a competitive advantage. Investing in the right technology can dramatically increase your productivity and strengthen your bottom line.

“More important than ever is the ability to track and measure projects to see if they’re on time and on budget. Having modern cloud accounting solutions, document management automation, and a secure IT environment enables businesses to access real-time data and deliver clear and measurable results.” Stacy Schuettler, President, Technology Solutions

Cyber & Data Security

In 2021, cybersecurity is not a high priority among construction & real estate companies. Only 13% of C&RE companies plan to prioritize cybersecurity in 2021. This was the lowest among all industries in the study. Over the next 12 months, of those C&RE companies that prioritize cybersecurity, two- thirds plan to use new software security tools.

“Given the rapid increase, sophistication, and cost of ransomware attacks, IT security issues are now operational issues that can halt the ability to conduct business. Without proper preparation and investment in cybersecurity protections, a company’s bottom line can be greatly impacted.” – Bill Dean, CCE, GPEN, GCFA, GCIH, PCIP, Shareholder, Information Security

To see more insights from the C&RE industry, download the LBMC 2021 Business Outlook Survey Report.

About the Business Outlook Survey Report

The report was based on results from the national Business Outlook Survey, where more than 500 business leaders, mostly in C-level positions, reviewed business activity over the past year and provided insight into the business landscape over the next 12 months. More than half of the participants represent companies with $15 million plus in revenue and at least 50 employees. For the first time, this year’s report also surveyed high growth companies – businesses with a growth rate of at least 20%.