A Conversation with Paul Giovannoni of FMI Consulting

The building and construction industry has experienced myriad shifts over the past two years. The outlook remains strong in 2022, but there is no doubt that some industry-wide challenges will persist, affecting both building materials manufacturers and buyers.

BLD Marketing spoke with Paul Giovannoni, head of the Building Products and Private Equity consulting practices at FMI Consulting, to uncover anticipated building industry trends for 2022.

QUESTION: What is 2022 shaping up to look like for the building and construction industry?

ANSWER: 2022 is going to be an interesting and challenging year for the industry. Fortunately, the challenges will not be coming from the demand side of the equation. All indications point to demand remaining healthy, and most of the industry is optimistic about the year.

In fact, every quarter, FMI conducts a sentiment survey of the biggest players in the industry to uncover current construction market trends. Our most recent results continue to indicate optimism and growth, and in terms of dollars, the industry as a whole is expected to experience 5% growth in 2022.

QUESTION: You mention challenges. What can the industry expect in that regard?

ANSWER: It sounds cliché to discuss the building and construction supply chain and inflation now, but each of those issues must be overcome to achieve the expectations FMI is forecasting. We are expecting these challenges to remain impactful in 2022 with a ripple effect on all stakeholders in the construction value chain. These challenges, combined with the ever-present construction labor shortages, will make 2022 a year that continues to put significant stress on the industry. With that being said, organizations that can implement adaptive strategies and innovative solutions will reap the rewards.

QUESTION: What segments are showing the most promise and opportunity in 2022?

ANSWER: We are expecting the greatest opportunity in residential construction, manufacturing, transportation, and as the year progresses, the infrastructure market. All of these will have the greatest volume of spending.

Beyond these segments, there is abundant opportunity in some niche categories such as data centers (where we expect double-digit growth), intelligent transportation, cold storage, last-mile distribution, life sciences, and portions of the healthcare industry.

QUESTION: From a geographic standpoint, what are the hot U.S. markets in 2022 and what’s driving that growth?

ANSWER: The Southeast remains a very strong growth market across all construction segments. The region continues to lure business headquarters with friendly tax policies and thriving metropolitan areas that have been less impacted economically by the COVID-19 pandemic. Markets like Austin, Raleigh, Atlanta, Greenville, and many others continue to attract highly educated workers, which contributes to the attractiveness of these markets for businesses.

QUESTION: Where do you feel we will see the biggest impact from the new infrastructure bill? What are some infrastructure market trends?

ANSWER: There is a lot of buzz around the impact of the infrastructure bill right now from owners, contractors, designers, and investors in the industry. In the near term, there are several areas that we have visibility into where it will be most impactful. Most notably, the highway and street market. This is usually a 2%- to 3%-growth segment, but as we forecast it over the next several years, double-digit growth is within reason. We expect to begin seeing dollars trickling into state coffers this year and a project-level impact beginning by the end of 2022.

QUESTION: Given the pandemic’s impact on office buildings, with employees working from home or adopting a hybrid model, what affect is this having on commercial office building construction and renovation?

ANSWER: When we experience a recessionary period, we often see an increase in tenant improvement projects as businesses seek better space at a lower rate. In addition, developers and landlords want to make their properties more attractive. We are in the midst of this right now, and it is being amplified by the pandemic and concerns over the well-being of employees. We expect to see new office spaces provide greater flexibility as well as the addition of personal spaces that still achieve an open, inviting, and collaborative environment.

We anticipate seeing office spaces become smaller or even an uptick in shared spaces (for example, WeWork). Alternatively, in some cases, we have seen large corporations add office space to spread employees out over a broader footprint.

QUESTION: Where do you see the supply chain issues and product shortages netting out in 2022?

ANSWER: The supply chain as a whole will likely remain a challenge throughout all of this year, and in some product categories, even into 2023. The biggest challenge that exists is that when there is one weak link in the overall supply chain, it has a cascading impact on the rest of the chain or project.

When I speak to my building product clients, I continually hear that demand is overwhelming. Their supply chains are fragile, and forecasting is near impossible. Variant outbreaks like Omicron will continue to put strain on the supply chain and extend the impact of these issues.

QUESTION: What is the number one consideration that architects, building owners, and developers need to address in 2022?

ANSWER: I think the most important topic for everyone to address is how to be innovative and have a strategy that allows them to be nimble in adjusting to challenges and attacking opportunities. This year will be challenging, but organizations that adapt through technology, get closer to their customers, understand the market better, and take care of their employees will come out on top. I am excited for what the year holds and optimistic that the challenges we face will make the industry stronger in the long run.