Despite plummeting property prices in many parts of the world, applications vendors that focus on the construction and real estate vertical are poised to tackle new opportunities like eco-friendly housing projects, while cultivating their long-standing ties with developers, contractors, real estate management companies and other key stakeholders to ready for the next wave of residential and commercial expansion.
This applications market sizing report examines the top 10 apps vendors in the construction and real estate vertical, tracking their progress in a whole raft of infrastructure and stimulus spending projects that could result in considerable IT investment.
Top Line and Bottom Line
On the top line, the construction and real-estate applications market is experiencing a gradual recovery that could determine the future of the industry as macro forces from globalization to demographic shifts will determine how houses and workplaces will be built.
As the U.S. home building industry is showing signs of life with new housing starts picking up and inventory easing, contractors are ramping up their capacity once again with improved project pipelines. Demand for new applications for project costing and accounting will grow as well. The same applies to solutions for real-estate management companies that manage everything from military housing to shopping malls.
Vendors that cater to the vertical have already laid the foundation to meet increased demand for integrated solutions ranging from infrastructure lifecycle management to document management for project design, workflow and execution.
The bottom line is that a fair amount of construction and real estate development activities will take place in the developing world where shortages of affordable housing are acute and local governments are preoccupied with infrastructure projects.
For applications vendors, the task is to spruce up their multi-language and multi-currency capabilities in order to take advantage of such opportunities. The growing acceptance of the ondemand delivery model has become the impetus for vendors such as RealPage and Yardi to become the dominant on-demand vendors for the real-estate management applications market.
Eclipsing many on-premise software vendors, this new breed of applications providers have won over developers, apartment managers and tenants with an array of Web-based services, which have become the preferred method for them to access features from utility management to rent payment and collection.
The construction and real-estate applications market contracted 5% in 2009 as projects were either postponed or scrapped amid the global slump. Major applications vendors specializing in the vertical either saw flat or declining sales.
Still the market is expected to see some relief as government-backed infrastructure projects such as high-speed rail services between Chicago and St. Louis and other proposed lines enter the construction phase. The same applies to massive infrastructure projects under way in Brazil, China, India and Russia.
On the smaller scale, demographic shifts will spur development of senior housing and extended care facilities, all of which will drive a mini-construction boom in Sun-Belt states and elsewhere. Retrofitting existing facilities with alternative energy sources to meet environmental concerns will also be a priority for many communities.
For applications vendors, such projects will be a respite from the slump that threatens to undo much of their growth over the past decade.
The issue is whether they can return to the previous levels of double-digit growth following the path of their customers, which no doubt have become more circumspect about overbuilding and overexpansion, thusly avoiding the costly mistakes of the past.
Implications Of The Great Recession of 2008-2009
The latest recession challenged and defeated the conventional wisdom that ruled out the possibility of a national housing bust. The question is whether a national housing recovery is on the horizon. Overbuilt communities in Arizona, California and Nevada will still be under pressure, but contractors and builders have already seen tentative signs of a housing rebound elsewhere.
Some apps vendors such as Maxwell and CMIC actually saw their sales rise in 2009 because of the decision on the part of their customers to proceed with technology projects when scarce IT resources became readily available in a downturn.
Vendors on the real estate side actually fared quite well because of the cost-savings benefits of such projects from standardized property management to payment processing via electronic commerce.
In fact the intrinsic value of these solutions has prompted SAP to make a minority investment in RIB Software AG for its construction and real-estate solutions, while private equity firm Vista Equity Fund picked up the real estate management applications division of Intuit in early 2010.
If the trend continues, apps vendors that are considered undervalued will pique the interest of investors as the nascent recovery in the vertical begins to nudge a full spectrum of builders, property management companies and real estate investment trusts into action.
For most apps vendors in the construction and real-estate vertical, SMBs remain their lifeblood allowing them to amass tens of thousands of customers. With the advent of client-server implementations and more recently Web services, small to midsized contractors with employees ranging from a handful to a few dozen have continued to fuel the vertical.
Many apps vendors have benefited from the fragmented nature of these operations, securing stable maintenance revenues that have kept them going during the downturn.
As these vendors transition to on-demand delivery, the barriers that used to prevent them from selling, implementing and supporting customers in faraway places have fallen. As a result, the mainstay of the construction and real-estate management vertical applications will be heavily represented by those that have established a critical mass of SMB customers, but also an extensive ecosystem to support them either locally or via on-demand delivery. Vendors such as Sage prove to be particularly successful in selling into the SMB segment.
Large contractors such as Bechtel and Fluor, on the other hand, will continue to play a significant role in the development and implementation of advanced applications that allow them to have good visibility into different projects under construction on the global level, thus reducing cost overruns and process bottlenecks by reusing common templates and best practices. On that front, vendors such as Oracle and SAP have seen increased traction because of their global product and support capabilities.
Top 10 Applications Vendors In Vertical
The following table lists the 2009 shares of the top 10 applications vendors in the construction and real estate vertical and their 2008 to 2009 applications revenues(license, maintenance and subscription) from the vertical.
|Vendor||2009 Share(%)||2009 Applications Revenues From Construction & Real Estate($M)||2008 Applications Revenues From Construction & Real Estate ($M)|
Vendors To Watch
Vendors that are worth watching are those that could see breakout sales in the coming years because of their growing ranks of customers.
For example, RIB, which received a minority investment from SAP in January 2010, has 12,000 customers and the growing ties with SAP will help strengthen the appeal of its product RIB iTWO, which enables easy integration between computer-aided-design(CAD) applications and ERP solutions to help reduce construction costs.
Constellation Software, which has 2,400 customers in the vertical, could experience rapid growth by taking advantage of cross-selling and upselling capabilities through other divisions of Constellation including those that focus on public sector and private club membership organizations, both of which maintain multiple sites and facilities.
On the upside the construction and real estate vertical is expected to go through significant changes as the housing market begins to recover in the United States and other countries. The onslaught of these residential projects, coupled with increased infrastructure spending by governments and sovereign state funds, could have a lasting impact on applications vendors to jumpstart their research and development efforts especially in helping customers crystallize their vision of green living.
On the downside change will not come quickly as the commercial real estate market faces structural issues from overcapacity to unsustainable debt levels for developers and property owners. Additionally IT investment often comes as an afterthought in the construction and real estate vertical because of users’ perception of their existing systems – often ruggedized to fit their needs – as costly to replace.
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Construction & Real Estate Market Report 2009-2014