PSMJ Research Finds Uneven Impact of COVID-19 on A/E Proposal Activity

April 8th, 2020

Latest survey of architecture and engineering executives points to only minor construction delays and some markets seeing robust proposal activity

Countering uncertainty and confusion roiling world markets and economies, hard data from leading architecture, engineering, and construction (A/E/C) industry research and consulting firm PSMJ Resources, Inc. details the exact near-term and long-term impacts of the COVID-19 crisis.  

Published consistently since 2003, PSMJ’s Quarterly Market Forecast asks A/E/C executives about their projected quarterly revenue expectations, backlog changes, and their current outlook and proposal activity across major client markets. The data is reported in a Net Plus/Minus Index (NPMI). An NPMI value of 0% indicates an equal number of respondents are reporting growth as are reporting a decline. Data was collected from March 24-30, 2020, which means that COVID-19 impacts were a major factor in this data.

NPMI Values: Do You Expect Q2 Revenue to Increase or Decrease Compared to Q1?

While Q2 revenue projections show a sharp decline in market confidence, the outlook for proposal activity by client market is quite variable.  Unlike near-term revenue expectations, proposal activity is the most leading indicator of financial health since proposals lead to backlog which leads to revenue and then cash flow. Proposal activity in the Healthcare market turned in the highest NPMI value of 27%.  This means that more executives are seeing proposal growth – even in the COVID-19 crisis – than those who are seeing decline.  On the other end of the spectrum, the Commercial Development market came in at a -51% NPMI value – a clear indication of near-term trouble in this market.

Following are the five markets returning the strongest NPMI values:

“Close analysis of proposal activity reveals very sharp divisions in outlook by markets, some plummeting to levels not seen since the Great Recession.” said PSMJ Senior Principal Davis Burstein, P.E., AECPM.  “As A/E/C firm leaders plan for recovery and growth investments such as mergers and acquisitions, it is critically important to understand how strategic plans align with this data.”

It is worth noting that PSMJ’s research also showed that 61% of respondents reported either none or only minor project delays cancellations due to the virus. Additionally, 81% reported that they have not conducted any layoffs or furloughs due to the virus.  “44 out of 50 states have deemed construction an ‘essential’ activity” commented PSMJ Founder and CEO Frank A. Stasiowski, FAIA. “Particularly on public-sector and critical infrastructure projects, many of the CEOs we speak with report some near-term constraints due to physical distancing requirements, but they remain bullish about project funding and longer-term growth prospects.”

“I expect to see a rapid rebound in housing and commercial development once the health crisis passes and the impact of record-low interest rates starts to be felt,” says Burstein. “Pent up demand should make it’s presence felt by the end of Q3, and even more so in Q4 if we see movement on an infrastructure bill.”

To learn more about PSMJ’s Quarterly Market Forecast or to participate in the next survey, visit www.psmj.com/qmf.

Taylor Design Names Kevin Hinrichs President; Randy Regier Moves to Chairman

December 5th, 2019

Kevin Hinrichs (left) and Randy Regier

Irvine, Calif. (December 5, 2019) —Taylor Design, an employee-owned architectural, interior design and design strategy firm, is pleased to announce that Kevin Hinrichs, AIA, LEED AP, principal and Northern California office leader, is the firm’s new president. D. Randy Regier, AIA, ACHA, who served as president for the past 16 years, becomes chairman of the board.

This leadership transition takes advantage of the skills and strengths of Hinrichs and Regier, and builds on their experience working together.

Hinrichs joined Taylor Design in 2013 and has 20 years of experience in architecture and design. In his role as president he will focus on the firm’s operations and infrastructure, including financial planning, business activities, organizational performance, and daily operations. Both Hinrichs and Regier will continue to serve in project leadership positions as well.

One focus for Hinrichs in his new role will be on the mutually beneficial relationship between Taylor Design’s staff and their clients. “As an employee-owned firm, we know that the contributions each one of us make not only impact the success of our clients, but also of everyone else in our company. I am passionate about inspiring and enabling our staff at Taylor Design to deliver value to our clients, which ultimately benefits us all,” said Hinrichs.

Regier joined the firm in 1994 and became its second president in 2003 when Linda Taylor, AIA, transitioned to chairman of the board. Regier will continue to focus on key client relationships, new business development, and special projects within the firm. Under his leadership, Taylor Design has grown from one office location to five across California, and expanded beyond healthcare design to include the higher education and science and technology market sectors.

Throughout its 40-year history, Taylor Design has embraced projects that contribute to positive experiences for people and the creation of greater possibilities. Its work includes modest facility remodels, new construction, and infrastructure improvements, as well as large-scale hospital replacements and master planning.

“The culture at Taylor Design has always been very entrepreneurial-minded, and it continues to be,” says Regier. “Our focus is evolving to provide the intangible aspects of success that include strategy-based design solutions, places and services. I look forward to continuing the growth of this firm as we enter this new phase of leadership.”

About Taylor Design: Taylor Design is a strategy-based design firm with practices in Architectural Design, Interior Design and Design Strategy; with offices in Northern and Southern California. Since 1979 the firm has built a national reputation in the healthcare design industry and has since established a growing presence in the education, science & technology, and senior living market sectors. Taylor Design works with clients to discover, develop, and design solutions for the built environment. Clients of the firm have included: UCSF Medical Center, San Francisco; Stanford University; SLAC National Accelerator Laboratory; UC Berkeley; San Mateo County; Scripps Health, San Diego; UC San Diego Health System, San Diego; Sharp HealthCare; UC Irvine Health, Orange County; Hoag Health Network, Orange County; as well as numerous service areas for Kaiser Permanente, among others. For more information on the firm visit www.WeAreTaylor.com

Multifamily Market Solid – PSMJ via BD&C

November 14th, 2019

The Multifamily housing market has been remarkably steady and strong for several years, and the most recent Quarterly Market Forecast (QMF) from PSMJ Resources suggests more of the same going forward. Click on the link to read the article in Building Design & Construction. https://www.bdcnetwork.com/multifamily-construction-market-remains-strong-heading-2020

No Signs of Downturn for Construction Industry

September 5th, 2019

NEWTON, Massachusetts – Despite talk of recession sparked by weakening economic indicators, the outlook for the construction market remains strong and shows no signs of a slowdown, according to a survey of proposal activity among design and construction industry leaders.

The Quarterly Market Forecast (QMF) for the 2nd Quarter of 2019, produced by consulting and publishing firm PSMJ Resources, reports that over half (51.4 percent) of the nearly 200 surveyed architecture, engineering and construction (AEC) professionals said that proposal activity across all markets increased in the quarter. This is compared with only 12.0 percent that saw a decrease. The remaining 36.6 percent reported that proposal activity stayed about the same in the April through June survey period.

The healthy 39 percent Net Price/Minus Index (NPMI) in the 2nd quarter matched the index level from the 1st quarter. PSMJ’s NPMI measures the difference between the percentage of firms reporting an increase in proposal activity and those reporting a decrease. It has proven to be a solid predictor of market health for the AEC industry since its inception in 2003.

“In the longest economic expansion in U.S. history, it is only natural to contemplate when it will end,” says PSMJ’s Greg Hart. “Similarly, A/E/C firms have enjoyed a long stretch of prosperity that has the worriers among us anticipating when the proverbial other shoe will drop. Even though some economic indicators suggest a weakening confidence in the outlook for our industry, the QMF tells us that there is still plenty of fuel in the tank for A/E/C firms enjoying a prolonged boom market.”

PSMJ has been using the QMF as a measure of the A/E/C industry’s health every quarter for the past 16 years, assessing the results overall and across 12 major markets and 58 submarkets. The company chose proposal activity to gauge the AEC industry’s long-term outlook because it represents the earliest stage of the project lifecycle.

The QMF faltered in advance of the Great Recession, dropping 15 percentage points in the 3rd Quarter of 2006 and sinking to its lowest level in the index’s history at the time. It also presaged the recovery, with the index returning to positive territory six months before the downturn ended.

Among the major market sectors measured, Energy/Utilities recorded the highest NPMI at 62 percent, with Housing (59 percent) a close second. Healthcare (52 percent), Environmental (49 percent) and Transportation (47 percent) rounded out the “Hot Five” markets in the 2nd quarter.

Continuing Care Facilities (70 percent) and Medical Offices (51 percent) were the two highest-performing submarkets in Healthcare, while Utility Distribution (62 percent), Renewables (58 percent) and Telecom/Cable (51 percent) were standouts in Energy/Utilities. Senior Living Facilities (69 percent) and Multifamily for Rent (52 percent) drove the Housing market’s strong results. Retail Buildings for Lease (-4 percent) was the only submarket reporting a negative NPMI among the 58 assessed, but other submarkets in that category picked up the slack, including Warehouse Distribution facilities with an NPMI of 31 percent.

As Predicted in 2018 A/E/C Firm U.S. Market Forecast, Warehouses Are On A Roll

August 13th, 2019

In ranking “Industrial/Warehouses” as the strongest market of the 41 assessed, the PSMJ 2018 A/E/C U.S. Market Forecast stated, “All the latest retail trends – skyrocketing use of ecommerce, last-mile delivery, robotics and so on – leave the warehouse sector woefully undersupplied. Best market hands down and it should last a while.”

This was borne out recently in a June 2019 report released by real estate company CBRE. It noted, “Demand continues to outpace a four-year surge in warehouse development—much of it speculative—and allay any fears about overbuilding. There currently is more than 255 million sq. ft. of warehouse space under construction, 70.2% of it on spec. Since 2015, however, warehouse demand has outpaced new warehouse completions by 169 million sq. ft. and rents have increased by 19.2%,” according to CBRE Econometric Advisors.

CBRE reported that 5 of the top 10 markets for speculative development have market conditions that justify adding more big-box warehouses: vacancy rates below or slightly above the national average (4.4%) and aggregate net asking rent growth of 7.8% annually. So the boom is unlikely to end any time soon.

The remaining five markets were well above the national vacancy average and their aggregate rent growth averaged 4.6% due to more available supply.

“With demand not likely to diminish, speculative big-box developments in those five markets are expected to lease up shortly after completion. E-commerce, food & beverage, wholesaler and third-party logistics users, which have dominated pre-leasing activity, are the best candidates to occupy these new modern warehouse facilities,” the report concluded.

PSMJ Survey Predicts Continued Strength in 2019

May 31st, 2019

The sluggish fourth-quarter results in 2018 suggested that the good times for the AEC industry might be coming to a close, but the PSMJ Quarterly Market Forecast (QMF) of proposal activity rebounded in the first quarter of 2019, allaying fears of a near-term downturn. At least temporarily.

After sliding 12 percentage points in the fourth quarter, to its lowest level in three years, the Net Plus/Minus Index (NPMI) for all markets climbed back to 40 percent in the period from January through March of 2019. The NPMI value is calculated by subtracting the number of participants who responded negatively from the number who responded positively to whether proposal activity has increased or decreased in the markets they serve.

The five hottest markets in Q1 were Water/Wastewater, Energy/Utilities, Environmental, Transportation and Healthcare. Industrial markets performed the worst in Q1, but still had respectable numbers.

The survey assesses the health of 12 major markets every quarter, (with data reaching back to the survey’s origin in 2003. The QMF also analyzes results from 58 submarkets, as well as regional strength. See the list of markets and submarkets below.

PSMJ chose to use proposal activity to gauge market health because it is the earliest indicator of project activity for firms in the AEC space. The historical data the QMF has captured for 16 years has provided invaluable advance notice to firms working in the industry.

The second-quarter QMF results will be extremely telling, as they are likely to indicate which of the prior two quarters was more illustrative of the market strength to come. Second quarter results should be available in July.

For more information or to participate, go to
https://www.psmj.com/surveys/quarterly-market-forecast-2

List of QMF Markets and Submarkets:

Commercial Developers – Office Buildings (For Lease Facilities), Retail Buildings (For Lease Facilities), Warehouse Distribution (For Lease Facilities)

Commercial Users – Office Buildings, Hotels/Motels, Warehouse/Distribution Facilities, Restaurants, Call Centers/Data Facilities

Education – K-12 Schools, Laboratories, Support Facilities (Gyms, Dorms, Libraries, Etc.), Higher Education Facilities

Energy/Utilities – Renewable Energy (Wind, Solar, Hydroelectric, Wave), Telecom/Cable, Power Plants, Pipelines, Utility Distribution

Environmental – Waste Disposal (Landfills, Etc.), Wetlands Delineation, Site Clean-Up (Site Remediation, Nuclear, Etc.), Environmental Permitting (EIS, EIA, Etc.), Resource Management (Water Conservation, Etc.), Air Pollution, Site Characterization

Healthcare – Hospitals, Medical Offices, Continuing Care Facilities (Treatment Centers, Etc.), Medical Laboratories

Heavy Industry – Mining/Resource Extraction (Includes Oil Drilling), Primary Materials Manufacturing (Steel Mills, Refineries, Etc.), Petroleum Facilities, Product Manufacturing (Food, Auto, Etc.), Chemical Plants, Pharmaceutical Production

Housing – Condominiums, Multi-Family Housing, Single Family Development (Subdivisions), Single Family Property (Individual Houses), Senior and Assisted Living (Independent Living)

Light Industry – Warehouse/Distribution Facilities, Component Assembly/Fac. (Telecom/Consumer Goods), Repair Service Facilities

Other Government Buildings – Justice Facilities (Courts, Jails, Etc.), Public Recreation (Parks, Athletic Fields, Etc.), Public Safety (Fire Stations, Police Stations, Etc.), Sports Facilities (Arenas, Stadiums, Etc.)

Transportation – Roads, Airports, Bridges, Transportation Planning (Includes ITS), Rail, Traffic

Water/Wastewater – Water Supply, Wastewater Treatment, Water Distribution, Wastewater Reuse, Wastewater Collection, Water Treatment

Multifamily-for-Rent Market on a Sustainable Roll [As Seen in PSMJ Newsletter – May 2018]

May 30th, 2018

[The following article led the May 2018 issue of PSMJ Newsletter. For subscription information or to learn more about the 2018 A/E/C Firm U.S. Market Sector Forecast, go to psmj.com.]

In March 2018, analysts reported that rents were rising nationally at a rate unseen in two years. This could signal an extension of the long bull market for A/E/C firms in this space, as rising rents typically indicate room for growth in new apartment construction. Ostensibly, if landlords can raise rents, then vacancy must be low enough to support these increases without triggering competitive moves such as contract concessions and rent decreases.

By all indications, the multifamily apartment market is still strong. As 2017 turned to 2018, the term “multifamily boom continues” appeared in headlines coast to coast. Record-setting numbers of construction cranes dot the skylines of major metros from Boston to Denver to Seattle, according to Rider Levett Bucknall’s RLB Crane Index.

PSMJ’s 2018 A/E/C Firm U.S. Market Sector Forecast notes that multifamily-for-rent has been a leader among A/E/C firm markets for nearly a decade and is likely to maintain this status through 2018 and beyond. “A joint study by Hoyt Advisory Services, the National Multifamily Housing Council and the National Apartment Association found that the U.S. needs to add 4.6 million apartment units through 2030 to keep pace with population and demographic projections.

“Alex Carrick, chief economist for ConstructConnect, predicts a 28 percent gain in the residential construction market from 2017-2021. Even at this rate, however, the market would still fall short of the 1.4 million units he believes is needed annually to keep up with demand,” the Forecast states.

Despite the positive outlook, the first quarter saw apartment vacancy rates nationally continue the trend of slow, steady upticks, according to real estate data firm Reis. At the same time, while new multifamily permits have eased since the peak in 2015, construction activity remains strong. Contrary to other indicators, this combination often precedes a dip in demand.

Which is it? Does the multifamily market have a few strong years left, or is this the beginning of a hard fall?

One theory is that developers are too focused on luxury properties, leaving low- and mid-range renters with fewer choices and higher payments. While the number of new apartment units set records in 2017, researchers estimate that three-quarters to four-fifths of these were in the upscale category.

This lean toward luxury is driven as much by financial factors as by demand. The increasing expense of land, materials and labor impact construction costs relatively equally across all market segments, so developers are opting for the greater yields and higher values of upscale properties.

This results in low- and mid-range renters taking the brunt of rising costs as demand in these segments outpaces supply. “While the market has responded to rental housing needs for higher-income households, there are alarming trends that suggest a growing inability to supply housing that is affordable for middle- and working-class renters, let alone those with very low incomes,” said Christopher Herbert, Managing Director of Harvard’s Joint Center for Housing Studies, in a CNBC report from February 2018.

In that same report, Toby Bozzuto president and CEO of multifamily management and development company The Bozzuto Group, said residents in his primarily high-end portfolio of 70,000 units spend a relatively low percentage of their income on housing. “It is a tale of two cities,” he adds. “In the middle-income and the lower-income markets, people are spending proportionally more on their rent — so much so I believe there’s an acute crisis headed our way.”

The takeaway is that demand should continue to drive the multifamily market in desirable locations, but that the focus may need to shift toward the middle- and lower-end markets if it is to sustain its roll.– Jerry Guerra

A Trillion Short on Infrastructure Plan

December 13th, 2017

It is safe to say that the Trump presidency, thus far, has been a disappointment when it comes to infrastructure investment. Trump, the candidate, promised a $1 trillion, 10-year program to address some of the massive needs of our transportation, water/wastewater and other infrastructure systems. Trump, the president, has failed to deliver on it.

Worse, the centerpiece of Candidate Trump’s plan — which was that private investment would increasingly supplement (and possibly supplant) public money — is at odds with comments made by President Trump to a group of Democrats and Republicans at a meeting in late September.

Even worse, Trump’s first budget sought to slash transportation and environmental spending, with the US DOT’s discretionary budget dropping by 13 percent and the EPA losing more than 30 percent. The House and Senate have since passed their own versions, which aren’t nearly as damaging, but the intent is still clear, as evidenced by this passage: “The Administration’s goal is to seek long-term reforms on how infrastructure projects are regulated, funded, delivered, and maintained. Simply providing more Federal funding for infrastructure is not the solution. Rather, we will work to fix underlying incentives, procedures, and policies to spur better, and more efficient, infrastructure decisions and outcomes, across a range of sectors.”

As noted in PSMJ’s 2018 A/E/C Firm U.S. Market Forecast, industry trade groups and advocates aren’t happy. The American Road and Transportation Builders Association (ARTBA) reported that OMB Director Mulvaney said, in a conference call with them, “People might say, well, goodness gracious, that doesn’t line up with what the president said about a commitment to infrastructure. That was done intentionally. What we’ve effectively done is try to move money out of existing, more inefficient programs, and hold that money for what we expect to be more efficient infrastructure programs later on.”

In a statement, ARTBA said, “While ARTBA continues to support and advocate for a large infrastructure package along the lines of what the President promised on the campaign trail, we do not support cutting current infrastructure investment as a down payment to some future infrastructure measure. While Director Mulvaney is suggesting the funds will be used later for the infrastructure package, we should be clear his proposed infrastructure spending reductions would be used now to supplement increases in defense and security spending.”

With public-private partnerships apparently out of the picture, other issues taking precedence (tax reform, health care), and Trump’s difficulty in rallying his own party to pass legislation, it will likely be some time before any kind of infrastructure package is passed. Moreover, the Democrats — smelling blood after making gains in November and yesterday’s Alabama special senate vote — are unlikely to cooperate and hand the Republicans a win with the midterms less than a year away.

Sometimes forgotten in the talk about the Trump Trillion is that Congress passed and President Obama signed the FAST Act in December 2015, so enabling legislation is in place through 2020. Nonetheless, the high hopes the industry had after Trump’s unexpected win in 2016 are fading fast, likely signaling a return to the battle for sufficient funding to repair, maintain and improve the worsening U.S. infrastructure system.

One saving grace is that many states and metropolitan areas have passed laws providing new sources of funding for infrastructure projects. In other words, they’re not waiting around for the federal government to come through. This issue is examined extensively in the Forecast, which you can purchase at http://store.psmj.com/2018-a-e-c-firm-u-s-market-sector-forecast/.

“Charting” and “Graphing” the A/E/C Firm Forecast for 2018 and Beyond

December 6th, 2017

The 285 pages of the recently published report, The 2018 A/E/C Firm U.S. Market Forecast, include almost 90 tables and graphs to help illustrate the book’s analyses and projections. Published in November by PSMJ, the Forecast assesses seven major markets and more than 40 sectors and subsectors for their outlook heading into 2018. The thoroughness of the research is indicated by the more than 30 pages of references in the Appendix — over 200 sources total.

Though the book focuses on 2018, it seeks to provide insight into years 2-5 in the cycle as well. It also looks at the industry’s outlook and the various market sectors from the outside in, addressing how geopolitical, economic and societal indicators will affect the markets going forward.

As for the tables and graphs, I’d like to share a few of them to give some sense of how they contribute to the overall product (which is available for purchase at http://store.psmj.com/2018-a-e-c-firm-u-s-market-forecast).

Chart 1, Page 9. After the introduction, the book begins with 10 trends in the industry. These include several technology-based issues, including The Internet of Things, big data, autonomous vehicles and building information modeling (BIM). One of the trends in this year’s version of the book, which has been included as a trend all seven times I’ve written a book like this, is about hiring (“Hiring Challenges Rise Up”). A few years ago, the gist of the story was how the recession and post-recession economy offered opportunities for staff upgrades. Now, we’re back to the war for talent. The chart below shows how the number of U.S. architecture grads has flatlined over the years, even decreasing some. Engineers, meanwhile, experienced a notable dip beginning in the 1980s and carrying through to about 2010, at which point the line starts a slow, steady climb.

The data comes from the informative, recently released Projections of Education Statistics to 2025, from the National Center for Education Statistics. Graduation rates for architects, in particular, are forecast to remain muted, while engineers may continue to see small gains across all disciplines, according to the publication.

The chapter delves into other hiring challenges, including gender issues, immigration and demographics. As with all of the trend chapters, it includes strategies as well.

Here are two of the nine strategies in this section:

  • Reward your superstars inordinately. Don’t worry about upsetting your average employees by taking care of your above-average ones. If you don’t reward for performance, you’ll end up losing the high performers and keeping the mediocre (or worse) ones.
  • Make sure your office is a place people want to be. Take a fresh look at the environment that your people are working in. If you weren’t used to it, is this a place you would want to come to every day? Are you taking measures to build a corporate culture that fits the firm and meets your people’s needs? Is your firm hospitable to women and minorities?

Table 17, Page 105. Because many A/E/C firm sectors and subsectors are driven by local and regional factors, the book focuses on “where” things are happening as much or more than “why” and “when.” For the multifamily market, as well as some of the commercial (e.g., office, industrial) and transportation markets (e.g., airports, ports), we included a table or bullet list that addresses the status and outlook by city or state. Below is an example.

Sources for the multifamily and commercial markets include the exceptional research arms of real estate companies such as Marcus & Millichap, Colliers, CBRE and Cushman & Wakefield. Table 17 includes a similar analysis for over 40 metros.

 

Graph 41, Page 212. A major finding of the health care section of the book is that the trend toward smaller, more flexible space in the sector is likely to continue. Medical office buildings and urgent care centers appear to be on the upswing, while major hospital projects — still occurring at times — are not expected to be as common. The continued reduction of time that patients spend in a hospital bed is an indicator of why this is so.

Graph 25, Page 152. In the final chapter of the book, each of 41 sectors and subsectors are ranked “best to worst.” In reality, most of the markets appear to be in at least decent shape heading into 2018. The purpose of the rankings is to put some context into the relative strength or weakness of each market, so it includes a “grade” (A-F) and an arrow indicating if it is heating or cooling, and by how much.

This is, of course, an imprecise exercise, but based in the knowledge and insight gained through hundreds of hours of research and discussions with industry owners, experts and practitioners.

Among the highest-rated of the markets is “Industrial/Warehouse,” which is benefiting from the e-commerce boom and its various practices. This includes robotics technology, “last-mile” delivery and so on. In addition to moving ever closer to the end user, warehouses are also a prominent piece of the increasing buzz around ports and their distribution networks.

The graph below illustrates how strong the warehouse market has been, nationally speaking.

Speaking at the ACEC Fall Convention

November 30th, 2017

I recently spoke at the 2017 ACEC Fall Conference in Orlando. The presentation was titled “Top AEC Markets: Sectors, Strategies & Trends for 2018.” The 75-minute talk was at 10 am on Wednesday, October 18, 2017.

The presentation was based on the results from the recently published market research report, “The 2018 A/E/C Firms U.S. Market Forecast,” which was published by PSMJ in November.

ACEC’s 2017 Fall Conference was at Hilton Bonnet Creek & Waldorf Astoria.