Through September, spending on nonresidential construction was up 9.2%, to $883.9 billion, according to preliminary estimates by the Commerce Department’s Bureau of the Census. Sectors hard-hit by the coronavirus pandemic—including lodging, retail/commercial, and even office—were showing signs of life.
So it makes sense that a recent polling of 212 architects, engineers, contractors, and developer/owners found nearly three-fifths of respondents—59.4%—rating 2022 an “excellent” or “good” business year. Only 15.6% rated the year “mediocre” or “poor.”
The vast majority of firms, 77.7%, rated their overall health “very good” or “good.” Conversely, only 4.7% saw their firms’ financial condition as either “weak” or “very weak.” Among the firms polled, 55% confirmed their revenue had increased, and another 20.9% said their revenue was level with last year’s. Gains were achieved despite nearly three-quarters of the firms surveyed characterizing the construction/materials market hobbled by supply-chain snags as “intensely” or “very” competitive.
Euphoria, though, might be short-lived, and firms are tempering their prognoses about the future. Nearly one-quarter—23.4%—expect their revenue to be down in 2023, and another 34.4% predict a flat year. Competition ranked third, behind general economic conditions and inflation, as the most important concern AEC firms believe they will face next year. Nearly two-thirds—64%—anticipate that materials prices will continue to rise in 2023. An even higher number, 71.2%, said they were girding for increases in bid prices for projects.
Our poll also found at least one-fifth of firms are concerned about the availability of capital funding for projects, regulations, cashflow management, and keeping their staffs motivated.
When asked about what business development strategies they planned to deploy next year, more than half—53.4%—said they would hire selectively to burnish their firms’ competitiveness, and 47.1% were planning to step up their staff training and education to enhance competitiveness.
Other business strategies these firms are plotting include increasing their marketing and public relations (25.3% of firms polled currently don’t use social media, and among that do LinkedIn is their preferred platform), investing more in technology, and creating new service or business opportunity.
U.S. design and construction firms pick their battles, sector by sector
Our survey asked AEC firms to assess their prospects in 18 construction sectors. Sizable percentages (at least 30%) were hopeful about business for airports, data centers, government/military buildings, healthcare, industrial/warehouse, multifamily and senior living residential, science + technology, and university. At least 20% of respondents saw their prospects as “average” for performing arts centers, hospitality, K-12 education, and sports and recreations. AEC firms placed offices and interior fitouts, religious, and retail/commercial in the “weak” or “very weak” categories.
Here's a closer look at their responses. Keep in mind that these firms aren’t active in every sector, so the numbers providing ratings were smaller than the total in each category. It’s also worth noting that nearly one-third of the AEC firms polled generate between 25% and 74% of their annual business from reconstruction projects:
• Healthcare appears to hold out the greatest opportunities for next year. More than 45% of respondents rated their prospects in this sector as excellent or good. Multifamily received those ratings from 43.1% or AEC firms polled, industrial/warehouse from 39.7%, and data centers from 37.8%.
• Through September, construction spending in the office sector was up only 0.7%, according to Census Bureau estimates. The AEC firms that responded to our survey aren’t anticipating a rebound in this sector any time soon: 41.3% rated their prospects weak or very week. Another 23.5% gave the same ratings to office interiors and fitouts.
Even though Census estimates that the commercial sector (which encompasses retail) was up 22.4% through September, our survey’s respondents are still taking a wait-and-see approach, as 33.3% saw their prospects in retail next year as weak or very weak.
• 29% of respondents said their firms don’t build in the retail sector. And even with the uptick in firms that have expanded their practices and services, only around 10% of our survey’s respondents see mergers or acquisitions in their immediate futures. Our survey reveals an industry whose firms, in many cases, focus on a limited array of typologies and clients, and leave other sectors to specialists.
It was not surprising that 53.2% of respondent firms aren’t building airports and 41.2% aren’t active in the religious sector. Only about half of respondent firms—46.2%—engage performing arts center projects, and 44.3% keep their distances from data centers. But even some of the broader sectors, notably education, find between 30% and 33% of respondent firms absent. Nearly two-fifths aren’t active in science + technology construction, either, and more than two-fifths don’t build in the multifamily sector.
Related Stories
MFPRO+ News | Jun 11, 2024
Rents rise in multifamily housing for May 2024
Multifamily rents rose for the fourth month in a row, according to the May 2024 National Multifamily Report. Up 0.6% year-over-year, the average U.S. asking rent increased by $6 in May, up to $1,733.
Apartments | Jun 4, 2024
Apartment sizes on the rise after decade-long shrinking trend
The average size of new apartments in the U.S. saw substantial growth in 2023, bouncing back to 916 sf after a steep decline the previous year. That is according to a recent RentCafe market insight report released this month.
HVAC | May 28, 2024
Department of Energy unveils resources for deploying heat pumps in commercial buildings
To accelerate adoption of heat pump technology in commercial buildings, the U.S. Department of Energy is offering resources and guidance for stakeholders. DOE aims to help commercial building owners and operators reduce greenhouse gas emissions and operating costs by increasing the adoption of existing and emerging heat pump technologies.
Student Housing | May 28, 2024
Student housing remains strong in May 2024
Although the pace has slowed down this year, student housing preleasing for the 2024–2025 season reached 73.5% in April, 50 basis points year-over-year (YOY).
Mixed-Use | May 22, 2024
Multifamily properties above ground-floor grocers continue to see positive rental premiums
Optimizing land usage is becoming an even bigger priority for developers. In some city centers, many large grocery stores sprawl across valuable land.
Office Buildings | May 20, 2024
10 spaces that are no longer optional to create a great workplace
Amenities are no longer optional. The new role of the office is not only a place to get work done, but to provide a mix of work experiences for employees.
Contractors | May 15, 2024
The average U.S. contractor has 8.4 months worth of construction work in the pipeline, as of April 2024
Associated Builders and Contractors reported that its Construction Backlog Indicator increased to 8.4 months in April, according to an ABC member survey conducted April 22 to May 6. The reading is down 0.5 months from April 2023, but expanded 0.2 months from the prior month.
MFPRO+ News | May 13, 2024
Special multifamily report indicates ‘two supply scenarios’
Could we be headed towards a “period of stagflation?” That's the question Andrew Semmes, Senior Research Analyst, poses in the Matrix May 2024 Multifamily Rent Forecast update.
Adaptive Reuse | May 9, 2024
Hotels now account for over one-third of adaptive reuse projects
For the first time ever, hotel to apartment conversion projects have overtaken office-to-residential conversions.
MFPRO+ News | May 8, 2024
Multifamily rent growth approaches peak levels in April 2024
In its latest multifamily report, Yardi Matrix finds that the national average rent has increased for the second month in a row.