How to prepare for—shhh!!!— the 'R' word

August 11, 2010

Construction jobs, mostly in housing, are down more than 330,000 since late 2006. U.S. home prices dropped 11.4% in January, the steepest decline in 20+ years. The Conference Board said consumer confidence fell to its lowest level in five years, to 64.5 in March, from 76.4 in February—the worst reading since the 61.4 recorded in March 2003, just ahead of the U.S. invasion of Iraq.

With oil at $100-plus, with Bear Stearns fresh in our collective memory, and with the uncertainty of a Presidential election in the background, economic conditions look bleak.

But have heart, o ye of little faith! AEC firms and professionals can survive the coming hard times. Here's how:

Don't panic. Nonresidential construction has plenty of work in the pipeline. Yes, there's likely to be a slowdown in retail commercial and office construction. Office vacancies are up in Memphis, New York, Las Vegas, and Washington, D.C. Industrial construction will also be flat or down.

But prospects are bright for institutional work. The AIA reports that billings should strengthen as this sector recovers from a slowdown last summer. Healthcare, higher education, and K-12 should also be fairly solid.

Watch your inventory and staff levels. Don't jump at every project that comes along. Now's the time to be picky about what jobs you take. Don't take on projects with low margins just for the sake of paying the rent. That approach will diminish your brand and eventually threaten your business's underpinnings. Also be judicious in taking on new hires. You don't want to overextend your firm's capabilities and payroll.

AEC professionals: Document your contributions to your firm. Update your résumé and step up your networking. You don't want to get caught unprepared in the event of a “reduction in force.”

Dust off your strategic plan. What strategic plan? Business has been so good for the last five years you didn't need one. Now it's a different game. Pull that binder down from the shelf and get your management team working on your plan for the next 2-3 years.

Be cautious about expansion. Think twice about opening a new office or moving into a new sector or building type, at least for the next 12-18 months, to see how the economy shakes out.

Hold on for dear life! Long-term demographics are on your side. The U.S. will add 100 million people in the next three decades. They've got to live and work somewhere, and you're going to build those places. Be cautious, be patient, and you'll ride out this mess.

You didn't hear the 'R' word from us, but it's in the wind. The Architecture Billings Index fell to 41.8 in February, the lowest it's been since just after 9/11. Any score below 50 indicates lack of confidence in the construction market.


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