AEC PROPOSAL ACTIVITY SLIPS, BUT STAYS POSITIVE IN 4TH QUARTER 2020

NEWTON, Massachusetts – Proposal activity for architecture, engineering and construction (A/E/C) firms remained positive, but slipped slightly in the 4th Quarter of 2020 as the COVID crisis resurged across the U.S. and Canada. The 4th Quarter Net Plus/Minus Index (NPMI) of 5% in PSMJ Resources’ Quarterly Market Forecast was half of the 3rd Quarter NPMI, but still a substantial improvement over the near-record-worst result of -22% in the 2nd Quarter.

PSMJ’s NPMI expresses the difference between the percentage of firms reporting an increase in proposal activity and those reporting a decrease. The QMF has proven to be a solid predictor of construction market health for the A/E/C industry since its inception in 2003.

Among other financial indicators tracked by the survey, respondents saw revenue fall 5% from the prior quarter, but anticipate a revenue increase of 16% for the 1st Quarter of 2021. Backlog was a flat 0%, although 20% of respondents said they expect backlog to increase by more than 5% in the 1st Quarter.

Quarterly Market Forecast – Proposal Activity NPMI, 3rd Quarter 2003 to 4th Quarter 2020

Of the 12 major markets measured by the QMF, Energy/Utilities leaped to the top with an NPMI of 47%, up from 28% in the 3rd Quarter and even higher than the pre-COVID NPMI of 43% in the 4th Quarter of 2019. Its surge is attributable to a huge bounce in the Renewable Energy submarket, which reported an NPMI of 75% in the 4th Quarter. Utility Distribution (59%) and Telecom/Cables (39%) were also strong.

Housing continues to show exceptional promise for the near- and long-term future, with an NPMI of 43%, up from 38% in the prior quarter. All five subsectors did well, with Single-Family Individual (59%), Multifamily (58%) and Single-Family Development (51%) all equaling or exceeding pre-COVID levels. The NPMIs for both Single-Family sectors were the highest ever recorded since submarkets were added to the survey in 2006. Even Condos, which has been a drag on Housing, improved to an NPMI of 15%.

Water/Wastewater, another stand-out during COVID, slipped to 6th among the 12 markets measured. Its NPMI of 23% is down from 37% the prior quarter. Healthcare’s outlook remained steady at 35% (up from 30%), as did Light Industry (35%, up from 27%). Heavy Industry had the greatest gain, rocketing to 32% from 0% due to strong scores in Product Manufacturing (40%) and Pharmaceutical Production (35%).

Proposal activity for Education projects trailed again at -29%, though it improved from -37%. Commercial Users (-29%, up from -31%) and Commercial Developers (-13% from -23%) were also negative, but doing better. The Warehouse/Distribution submarkets continue to show outstanding promise in the age of Amazon, with the Light Industry subsector recording 64%, the Users subsector 45% and the Developers subsector 40%. Even Restaurants and Hotels/Motels, which have suffered in the COVID crisis, reflected a slight upgrade in outlook with NPMIs of -60% (up from -77%) and -63% (up from -67%), respectively.

The number of submarkets with a negative NPMI continues to fall, dropping to 20 from 26 reported in the 3rd Quarter. Renewable Energy, Warehouse/Distribution (Light Industry), Utility Distribution, Single-Family Individual and Multifamily were the five submarkets with the highest NPMI. In another good sign for the A/E/C industry’s outlook, all five exceeded the highest NPMI from the previous quarter.

PSMJ’s Quarterly Market Forecast – Best/Worst Submarkets
4th Quarter 2020

PSMJ has been using the QMF as a measure of the design and construction industry’s health every quarter for the past 17 years, assessing the results overall and across 12 major markets and 58 submarkets. The company chose proposal activity because it represents one of the earliest stages of the project lifecycle. A consistent group of over 300 firm leaders responds each quarter, including 132 for the most recent quarter.

For more information or to receive a copy of the full 51-page Quarterly Market Forecast report, contact Jerry Guerra at 781-718-2403 or at jguerra@jagg-group.com.

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