Grading Our 2012 Projections

Market researchers like to make predictions, assigning projected growth percentages to everything from market subsectors to the global economy. Yet, how often do they look back to see how they did when the next year rolls around…especially if their prediction was off?

It’s like taking a test, but never getting a grade.

In late 2011, we ranked 26 U.S. sectors and subsectors based on their anticipated growth and activity in 2012. We did not assign projected growth rates, just a ranking, top to bottom, from the market that our data indicated would be healthiest in 2012 to the one we expected to be least healthy.

We don’t do estimated growth rates because, simply put, we think they’re all but useless and not worth the trouble. How valid is the numerical estimate from even the most competent economist when we’re talking about volatile design and construction markets in a turbulent national economy?

Even if these numbers could lay claim to some accuracy, how important is it really to the average AEC firm? Does it matter to a 50-person West Coast architecture firm if the $17 billion healthcare construction market ticks up 2.1% or 2.2%? Sure, that 0.1% is a lot of money in the big picture, but if this firm is only capable of capturing $5 to $10 million of it, there are far more important factors to consider.

All you need to do is look at the massive differences among the various prognostications to question their relevance. For example, for 2012, IHS Global Insight (Englewood, CO) called for 9.6% growth in the retail and other commercial sector for 2012 off $32 billion in 2011 spending put-in-place. Wells Fargo Financial (San Francisco, CA) predicted only a 3.6% gain on $43.4 billion in 2011 spending put-in-place. Almost a third less growth on a 35% differential in 2011 spending put-in-place. (This is according to the AIA Consensus Construction Forecast.)

Let’s face it; these things are hard to quantify. We don’t even try. (If you like these numbers, though, we do report on how others see the markets growing, though the results are often contradictory.)

Instead, we prefer to consider factors such as whether the right metrics are in place for growth in the sector, the overall economic health of a geographic area, and trends and developments in the industry. Most importantly, we want to find out and assess what owners and investors are saying, seeing and feeling about specific markets.

So let’s look back at a few of our rankings for 2012:

1. Apartments. We ranked apartments at the top of the list simply because the market was strong when others weren’t and it showed no signs of slowing. Our comment at the time was “The good times aren’t over yet for the surprisingly strong multifamily-for-rent sector.” This was especially true amid the struggles of single-family housing.

How’d we do?  The National Association of Home Builders (NAHB) (Washington, DC) Multifamily Production Index rose for the eighth straight time in the second quarter of 2012. While the highest rate of activity has been concentrated in the strongest metropolitan areas, and production is far better in market-rate units than affordable, we’d be hard pressed to find a market that has done better.

2. Wastewater. “Despite a likely reduction in federal funding, the wastewater market is back near the top due to increasing demand, aging infrastructure and government mandates,” we wrote.
How’d we do? Experts say it has been flat through the first half of 2012, and we didn’t get the regulatory push we thought we might. Yet, given the intense need, growing municipal and industrial demand, and potential for catastrophe if we don’t act, we’re not conceding this one yet. At minimum, it is certainly a solid long-term market.
3. Health Care. “Not without its issues, and reform has the industry in limbo, but still good in the short term and great long term. A caveat: if the GOP wins the presidency and tries to repeal reform, the limbo could linger.”
How’d we do?  We were a little optimistic on this one, though it is still in the top tier. We’ve talked with health care design firms who experienced their first down period in years in 2011-2012. Health care construction grew only slightly through the first half of 2012, and projects continued to be delayed and canceled. It remains a good market overall, but the stagnation brought on by reform and other pressing issues held it down more than expected. On the plus side, Modern Healthcare reported that capital investment is climbing among health systems.

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