Which markets look strongest for AEC firms in 2008? For insight on that question, let's turn to two respected authorities: Building Design+Construction's chief economist, Dr. Jim Haughey, and ZweigWhite's 2008 AEC Industry Outlook. Here's what they're saying about the coming year:
Consensus hot markets for 2008 (from ZweigWhite's AEC Business Trends Survey, based on responses from 44 firms): healthcare, higher education, K-12 schools, and commercial office buildings. (ZweigWhite also lists highways and bridges, a sector we do not cover in BD+C.)
Healthcare: Both ZweigWhite and Haughey see healthcare as their #1 market, although our economist sees the sector more as “steady” than “hot.” Still, not a bad market to be in. As ZweigWhite put it, “The needs are high, and the money is there.” Greater revenue from healthcare insurance reimbursement will translate into more capital for construction projects. Demographic factors, particularly the aging of the population as baby boomers start retiring and going on Medicare, will be huge. Technology advances will just keep pushing competing hospitals to keep upgrading their facilities: Who's going to go to a hospital with an outdated CAT scanner when another hospital down the street has the latest gadget?
Higher education: Again, an easy choice for ZweigWhite and economist Haughey. “Higher education construction is at record levels, and colleges and universities are still upgrading and expanding residence halls and educational facilities to deal with increasing enrollments,” ZweigWhite reports. The driving force: competition for students. Prospective students and their parents are basing the choice of which college to attend at least in part on how high the new rock-climbing wall is.
K-12 schools: Haughey says elementary school construction, primarily replacement facilities, has picked up in the last few months,. At the high school level, says Haughey, the bulge in the student population is in the 10th grade, so school districts will be building to meet that demand. ZweigWhite sees the K-12 market flattening somewhat, but still “large and solid” for design and construction firms, with enrollment beginning to grow again. Both Haughey and ZweigWhite see a potential downside in declining tax revenues (both property taxes and other state revenues) hitting school budgets and other public building budgets in '08.
Commercial office buildings: Haughey is sanguine here, pointing to recent trends that show improvement in the office, retail, and hotel sectors.
Finally, Haughey says there has been an uptick in the cost of building materials in the last few months, and construction wages were up 1% in November 2007 (the last reporting period), both factors that could be bode ill for keeping project costs in line. Labor and materials are still in relatively tight supply. In short, 2008 is not going to be a walk in the park. Just thank your lucky stars you're not designing or building single-family homes.
To order the ZweigWhite report ($295 + $8 s/h), go to: www.zweigwhite.com/bookstore .