The AEC industry is poised for an excellent '06

January 01, 2006 |

The coming year is expected to be a strong one for the AEC industry, with firms working in the healthcare and higher education sectors primed for a particularly good 2006, according to consultant ZweigWhite. The firm compiled its 2006 AEC research into a report called the 2006 AEC Industry Outlook, Strategy and Insight for Design & Construction Firms, which was released in December.

According to the report, overall AEC business in 2006 is expected to be outstanding, but its growth will be slightly less than that experienced in 2005. The nonresidential construction market, however, should see its best year since 1998.

In the coming year, AEC business concerns will focus on a tightened labor market, the rising cost of building materials and energy, green building, Gulf Coast reconstruction efforts, and the AEC industry's globalization.

An overview of select AEC markets:


Travel is on the rise, but the market is considered weak because its vulnerability to airline bankruptcy, high energy prices, and terrorism. The $60 billion aviation bill Congress passed in 2003 continues to fund aviation projects; $3.6 billion is allocated for 2006 and another $3.7 billion will come in 2007.


Growth is predicted for the commercial construction sector, which includes lodging, manufacturing, office, and retail, although some areas look better than others.

The outlook for lodging is positive, with estimates showing construction could increase 12.7%. The majority of the work in 2004 and 2005 consisted of upgrades and modernization, so 2006 is likely to be the year of new construction.

The manufacturing sector, which had a banner year in 2005, is expected to level off some in 2006, but the market outlook remains bright. The leveling off is natural; the market bottomed out in 2002 and showed little growth through 2004, so 2005 showed tremendous growth because the market had nowhere to go but up.

The office sector, buoyed by sustained employment growth, is poised for moderate growth in 2006. Projections indicate 43.2 million sf of new office space over the year, up slightly from 2005, and office starts are projected to total 167 million sf. National office vacancy rates are expected to drop below 12% by end of 2006.

Retail has been very strong in recent years and is the market least affected by the recent recession because consumer spending patterns remained strong, as did residential construction, which influences the retail market. The sector is expected to continue growing, but the outlook is cautious. Specialty retailers and big-box retailers, however, are planning significant growth. Vacancy rates are expected to drop and rental growth is expected to rise.


Design and construction firms see the overall education market as one of the biggest and brightest markets. The market overall will continue to grow because of steadily increasing student populations and continued access to funding. Education starts in 2006 are expected to see a 6% increase over 2005, which equates to 225 million sf.

The K-12 market continues to grow, but at a slower pace than higher education. Spending is expected to rise slightly, from $29.4 billion in 2005 to $30.7 billion in 2006.

Higher education construction is hot. Colleges and universities are adsorbing great numbers of students and will continue to do so for years; the graduating high school class of 2009 will be the biggest in U.S. history. Between 2005 and 2007, the higher education sector will complete $42 billion in projects; $29 billion in new construction, $8 billion in modernizations, and $5 billion in expansions. Projects of greatest importance: residence halls.


The market was strong in recent years, but the 2006 outlook is mixed. Brownfields and water/wastewater sectors are expected to remain strong, while the air pollution, solid waste, and hazardous waste sectors should be weak. The conservation and development market should see an increase of about 15%, mainly due to rebuilding necessitated by hurricanes Katrina and Rita. Environmental public works starts should increase 3% in 2006, reaching $31.8 billion. Long-term prospects for environmental engineering remain strong, although with more firms entering the market, changes will come with the increased competition.


It looks like healthcare could be 2006's hottest market. An aging population, aging facilities, new medical technology, and hospital consolidation are driving the market. While all healthcare sectors look healthy, some stand out more than others: hospital starts are predicted to increase 21% while nursing homes and clinics are expected to increase 6%. In all, 107 million sf are expected to be put in place in 2006. One possible snag: rising interest rates that could squelch future funding.


Overall, the market has been flat and is not expected to show much growth. Only three new Federal prisons are slated for construction in 2006, and overall, detention facility projects are expected to decline 18%. Courthouses are in the second year of a two-year moratorium on planning, budgeting, and authorizing. Police and fire stations are expected to increase in 2006, possibly by 18%, but still well below levels in recent years.


The multifamily sector has failed to match the growth of the single-family sector, but few markets have. In 2006, expect multifamily to post modest gains, possibly a 4% increase in housing starts. The condominium market should remain strong, as should condo-conversion projects.

The report, 2006 AEC Industry Outlook, Strategy and Insight for Design & Construction Firms, is available for $295 at ZweigWhite's online bookstore. Visit:

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