2012 AEC Market Guide to California: Up in 2012

Now that 2012 is almost upon us, economists and researchers have a far clearer view of what to expect in the coming year. Many of these experts have revised downward their estimates about the strength of the ongoing recovery.

While it may be true that the overall economy will continue its slow, sluggish rebound from the worst of the downturn, the welcome conclusion of The Expanded & Revised 2012 AEC Market Guide to California is that nearly every market served by the state’s AEC firms is improving at a healthy pace heading into the new year.

To be sure, 2012 will be another challenging year for our industry – nothing will come easily, especially away from the vibrant coastal gateways and high-tech centers. But overall, there will be more work in more markets across a wider geographic spread than we’ve seen in several years.

Here’s an excerpt from our introduction to the Market Outlook section of our 342-page newly expanded and revised 2012 AEC Market Guide to California:

If you look individually at each market sector served by AEC firms, you’ll find that most show at least the promise of improvement in 2012. Some markets even held up well during the downturn and continue to provide a solid amount of work for consultants.

So why does the overall California market seem so bad for so many firms in so many places?

Part of the problem is the “haves” and “have-nots” issue. During much of the downturn, the coastal gateway cities and technology centers at least held their own, while inland areas a little too far from the action or dependent on the “wrong” economic drivers (e.g., construction, natural resources) suffered.

According to some, the gap is widening. In the report, “California: Bifurcated and Buffeted,” UCLA Anderson Forecast Jerry Nickelsburg says, “Now that the U.S. economy has stalled, the differential between Coastal California and Inland California has begun to widen and the specter of long-term economic stagnation in Inland California has reared a not very pretty head.”

In terms of markets, many firms working on health care projects continued to thrive, but most that had grown reliant on private site development experienced dramatic reductions in revenue, backlog and profit.

John Withers, a consultant with California Strategies, LLC (Irvine, CA), says he’s never seen the market so fragmented in his many years in the business. “If you ask how the state of California is doing, you have to drill way down and look at it on a project-by-project and product-by-product basis. It’s a very uneven marketplace.”

Withers said an investment banker from another state recently asked him how things were going here, and he took an even more “micro” look. “I said, ‘you know, I can only answer that question on a neighborhood-by-neighborhood basis. Some segments are just dead; nothing is happening and everybody’s waiting for the turnaround. Others are doing quite well.”

With public-sector work, Withers says that he’s instructing his design and construction clients to make sure the funding for the projects they’re pursuing have a solid footing.

“For public-dollar projects, the key concept is having a dedicated revenue stream, something where no one can get their hands on the money,” he says. “You want projects with dollars that are earmarked and directed for a  particular purpose, not something from the [general fund]. Water/wastewater projects tend to be very stable now; they usually have a steady, dedicated funding source.”

Another issue casting a pall over the outlook is that the battered single-family housing market, which was the biggest single factor in the most recent, long construction boom, indirectly affects so many other markets. A depressed housing market has implications on publicly driven markets (e.g., tax receipts, voter sentiment) and privately driven markets (e.g., the connection between residential and commercial growth, particularly retail).

Two other enormous issues affecting the California market outlook remain unresolved as of this writing – high unemployment and the state’s budget woes. The outcome of these two issues will have a major say in the overall strength of the markets in 2012.

In the latter stages of 2011, the state’s unemployment rate improved markedly. Though still among the nation’s highest, California’s seasonally adjusted rate dropped a full percentage point from January through October. The state’s budget shortfall remains a concern, though promising results from tax receipts in November diffused the crisis somewhat. Foreclosures do appear to be continuing their recent upswing, which is troubling.

With this said, even some of the markets and places that have suffered the worst during the downturn are showing signs of life.

Investor-dependent markets such as the speculative office sector are reporting results that are moving the indicators in the right direction. New building is lagging, but the metrics that typically portend a return to construction activity are solidly in place and improving.

Inland areas in Riverside and San Bernardino counties, while still facing extreme difficulties, have seen encouraging signals as well. The Inland Empire, struggling with high unemployment and too many foreclosures, is considered by some to be a national leader in the rebound of the industrial market.

Surely, as an industry and a state, we’re still climbing from the depths of the downturn after reaching such highs in the middle of last decade. So while individual markets and geographic areas are improving substantially, the mood among many in our industry is still down.

The Guide spends the next 200 or so pages analyzing 40 markets and submarkets, gauging the outlook for each market in detail. This follows a section of nearly 50 pages that discusses 12 of the most pressing issues in the industry as it heads toward 2012. 

The Expanded & Revised 2012 AEC Market Guide to California is available now in both pdf and hard-copy formats. With your paid order, you will receive an e-mail containing a pdf file of the report the same business day. A hard-copy report will follow by U.S. Postal Service mail. The cost is $299, plus shipping. Just click on the button on the home page to order via our secure PayPal site. As always, it comes with a full money-back guarantee, so there’s no risk to you.

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