Looking Up

Robert Nieminen

By Robert Nieminen
While the outlook is modest for the U.S. economy, 2006 is expected to be a strong year for the A&D industry.


Just a few years ago, economists and industry experts were saying that the design and construction industry would face limited growth and see gains in the one to two percent range. Times have changed, thankfully. 2005 was probably the most turbulent year in terms of natural disasters in recent history, but the U.S. economy managed to survive mostly unscathed.

While the design and construction industry doesn't strictly adhere to growth curves of the overall economy, experts are indicating that 2006 stands to be the best year that A&D firms have seen in some time, particularly in the commercial buildings market.

"We're looking for a good year for nonresidential construction activity," said Kermit Baker, chief economist for the American Institute of Architects (AIA). "Growth in design activity at architecture firms has been strong all year, and with the traditional six- to nine-month lag between design activity and construction spending, 2006 should easily be the best year so far this decade."

This optimism is affirmed in a new report titled, 2006 AEC Industry Outlook from ZweigWhite—73 percent of respondents expect the design and construction industry to outperform the U.S. economy in 2006 as it did in 2005, while only 9 percent expect it to lag.

"Despite increasing pessimism about the U.S. economy as a whole, design and construction firm leaders are very optimistic about how their firms—and the AEC industry as a whole—will perform in 2006," said Christopher Klein, a principal with ZweigWhite. "More than 70 percent of firm leaders project their business will be 'outstanding' or 'excellent' next year. Broad-based growth in the design and construction industry should continue into 2006. Residential construction may slow somewhat, but nonresidential construction should continue to rebound and public works should grow as state and municipal budgets improve."

Hot Markets
As was the case last year, healthcare and higher education will continue to be the strongest markets for design and construction firms in 2006, according to the report. An aging population and advancements in technology, coupled with large increases in healthcare expenditures, are increasing the demand for new healthcare facilities. As Robert Wright, FASID, president of ASID, notes, accommodating the needs of baby boomers as they age will require modifications in homes, offices and public buildings. Similarly, as some minority populations reach "majority" levels in some states, their cultural values and preferences will influence the design of public and institutional environments, he adds.

Higher education construction is at an all-time high, and with the "baby boom echo" on its way, colleges and universities will need to upgrade and expand residence halls and educational facilities to deal with the coming population surge. Improvements to state budgets and a rebounding stock market will help financing.

Challenges Ahead
Other issues facing design firms in the coming year range from finding qualified staff to expanding marketing activities, the ZweigWhite report found. The inability to find qualified staff topped the list, followed by the declining use of Qualifications-Based Selection, the cost of building materials, and the cost of health insurance. Staffing issues may require design firms to enlist the help of specialists in lighting design, graphic design, branding, audiovisual technologies and other fields, particularly with the growing experience economy. Demand for building materials in the Gulf Coast and in China will continue to put a strain on material shortages, driving up costs, which could affect clients' budgets for design and construction projects.

When asked what growth strategies they plan to pursue in 2006, respondents to the ZweigWhite survey most commonly
cited expanding marketing activities. That was followed by increasing hiring and recruitment activities, introducing new
services to existing markets, teaming and entering new markets. According to David Shepherd, president of Designing Profits, Inc., key to a successful marketing campaign in the next year, is identifying: the firm's unique competitive strengths, a description of the firm's ideal prospective client and specific offers that will attract ideal prospects.

Also on the forefront of design is the continuing issue of sustainability. As the trend continues to grow (see page 20 for more), designers will need to educate not only themselves on the latest developments (and possibly become LEED-accredited),
but also educate clients about the health and cost benefits of going green. Sustainable or green products and practices will go down in cost as specification becomes more widespread, which should help sell the concept to clients.

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