Real Estate Development & Construction

In addition to affecting revenues and profitability, the Great Recession significantly impacted how this sector is structured. Operators have become more vertically integrated to fully encompass site preparation all the way through selling a finished property. Investment in property development has also evolved with the private sector’s improving strength in recent years, thereby enabling it to replace decreased investments from the government. An accommodative interest rate environment and improving access to credit have contributed significantly to the sector’s recovery over the last few years. Still, fundamental growth derived from improved corporate profits and greater disposable income have also benefited the sector, hopefully providing a more stable foundation for future growth than there had been leading up to 2008.

 

Value of Closed Domestic M&A Transactions ($mm)

 

Sector Performance vs. National GDP

The staying power of any sector improvement resulting from depressed interest rates will be tested as rates are anticipated to start rising back to historical norms. Demand for properties and investment in required heavy machinery will both be tampered by this dynamic. This will be all the more concentrated in the real estate development segment as operators remain subject to more restrictive lending standards, limiting growth while also increasing competition for smaller projects. Furthermore, though homeownership remains lackluster, healthy consumer confidence, low unemployment metrics, and improved corporate profits will likely propel strong growth for the foreseeable future as some segments work their way back to pre-recession levels. These factors will be key as government investment in infrastructure is expected to remain somewhat stagnant.

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