This video blog features a conversation with William R. Long, PE, LEED AP, FSMPS about the state of the AEC industry, where the vertical markets are headed, and what AEC firms should be doing right now to prepare. Bill is associate vice president with P. Agnes Construction, trainer with PSMJ Resources, and adjunct faculty with Drexel University.
Here’s a general outline of our conversation, along with video clips about the specific market sectors.
Three Scenarios to Consider
Immediate (Post-Quarantine)
- 40% of contractors have furloughed or terminated employees (AGC Survey)
- Backlog of building inspections is growing
- Backlog of drawings reviews / approvals is growing
- Shortage of materials from shuttered manufacturing plants – US and overseas
- Shortage of PPE – shifted to health care
- Not enough skilled labor limits ability to work in shifts 24/7 to expedite projects
18-Months (Until Vaccine)
- What does design and construction social distancing look like?
- Modular / prefab?
- Testing of all employees? Students? Etc.?
- Rolling waves of open/closed communities
- Design-build for expedited projects?
- Already most common delivery method
- Owner fears that project will go on hold based upon COVID return
- Commercial lending restrictions
Next Decade – Long Term Trends / Changes
- What behaviors will be permanently altered?
- How will this impact design and construction?
Education
- Virtual schooling happening right now
- K-12 challenges with all students having Internet access
- 12 million students don’t have broadband access in US
- Students learning that virtual is an option
- College of the Future – Virtual?
- Lessons financial burden
- Impact to facilities like residence halls, classroom buildings, etc.
- Student Housing projected to drop
- Many of these facilities are owned by 3rd parties
- Can these spaces be repositioned?
- College endowments losing money with stock market
- Colleges not seeing revenues from sports
- Family wealth being lost – limiting contributions to capital campaigns
- State funding to K-12 will decline
- Delayed receipt of taxes
- Reduced taxes because of unemployment, business closures
- Money being spent elsewhere
Manufacturing
- Short-Term
- Current state = worst contraction since 2009 according to PMI – Purchasing Manager’s Index
- Booming in some areas (medical devices, essential goods)
- MIA in others (automotive)
- Long-Term
- China – supply chain disruption; COVID-19 caused disruption of global supplies
- America counts on China for medical devices, medicines, etc.
- Reshoring to US?
- Labor is too expensive.
- Could Mexico become the new China?
Health Care
- Short-Term
- Flexible spaces
- Adaptive reuse of non-medical spaces (e.g., unused surgical spaces Javits, McCormick, etc.)
- Long-Term
- Program flexibility into design
- Rapid conversion for more patient spaces, ICU beds
- Airborne isolation rooms
- Elective surgery backlog
- Readying for next pandemic
- Overall, health care market will be strong
Office Buildings
- Companies learning they can work virtually
- Will some companies forego office space in future?
- Smaller space with hoteling / conferencing areas
- Employees work at home, at least part-time
- Will this drive office vacancies and depress the market?
- Office building developers seeing loss of wealth
- What is the future of the open office?
- Already getting a lot of blowback from unhappy workers
- Studies have found that less communication happens
- Will employees feel safe in open offices because of proximity?
- How can they be retrofitted?
Logistics
- With country staying at home, logistics network has never been more important
- “Last Mile” delivery highly critical
- Focus on greater enhancement of logistics networking, including last mile
- e.g., warehouse clubs moving from retail to last mile delivery
- Retail spaces converted to e-commerce fulfillment
- Gaps in non-retail logistics made apparent
- Testing kits
- PPE
- While other markets stutter, warehouses/distribution centers will continue to do well
Infrastructure
- Highways/Bridges will fall this year because of construction stops, but should bounce back in Q3/Q4 and 2021
- Forthcoming stimulus package to include infrastructure?
- Think shovel-ready initiative from Great Recession
- Major need – horrible condition of nation’s infrastructure
- D+ grade with trillions in needed repairs/updates
- Congress Jan 2020 was already considering $760 billion/5-year infrastructure bill
- Where will the money come from?
- Other stimulus already in the trillions
- How to fund infrastructure with major expenditures in other areas and delayed/loss tax revenues
Multi-Family
- Market was already in decline before COVID-19
- Funding Issues
- Developer-Driven
- Loss of wealth in stock market
- 1/3 of renters didn’t pay last month – will rent be forgiven? Paid back at a later date?
- Market need?
- Developer-Driven
- Behavioral changes over the long term
- Urban dweller issues with pandemic
- Hit urban areas hardest
- Will this drive move to the ‘burbs to limit exposure in the future?
- Open spaces
- Urban dweller issues with pandemic
- Work-from-Home model – more space?
- Coworking space amenities w/in complexes
- Redesign of individual units to allow work-from-home
Single Family Residential
- Funding Issues
- Loss of wealth from unemployment, stock market decline
- Short-term vs. long-term demand
- Mortgage Issues
- March mortgage availability 16% lower than February
- Market is tightening
- Generational Differences
- Millennial generation had already delayed home purchases compared with prior generations
- College debt
- Underemployment
- Unemployment
- Millennial generation had already delayed home purchases compared with prior generations
- Redesigning of the “family house”
- Two offices?
- Stay-At-Home lessons
- Two offices?
- Spaces for parents
- Move away from long-term care facilities because of pandemic?
- Children take care of parents in their later years?
- 80% of AEC industry feeds off of single family residential developments
- Important bellwether for the industry
Retail
- Further movement to home-delivery vs. physical retail stores
- Closing of “mall chains”
- Repurposing retail to logistics for last mile delivery
- E-commerce growing – integration of logistics/retail markets
- Empty spaces – acceleration
- What will become of these spaces?
- Examples of repositioning retail spaces
- Grocery
- Change to home delivery and pick-up … temporary or permanent?
- Convenience
- Continued growth – gas, food, alcohol, staples…
Hospitality
- Next 18 months
- Far less demand
- Fewer vacations, more staycations
- Loss of $ cancels vacations
- Unwillingness of people to travel
- Business travel
- Virtual meetings vs. in-person
- Fewer conferences and trade shows
- Fewer vacations, more staycations
- Far less demand
- Long Term
- Rebound, but when? After vaccine?
- Business behavior changes?
- Virtual vs. in-person
- Hotels largely built by developers
- Loss of wealth
- Sports/Recreation
- When will people gather again?
- 18 months without crowds?
- What about colleges that rely upon sports for revenue?
- Amusement Parks
- Disney furloughing 43,000 employees
- No revenue – what does that mean for park expansions / upgrades?
- Restaurants
- Many won’t survive
Mixed-Use
- Tied closely with fate of office, retail, hospitality, multi-family
- All these markets will decline steeply in short-term
- Developer-driven, financial challenges
- Next 18-months
- Stalled or cancelled projects
- Funding challenges
- Changing consumer behaviors
- Long Term
- Live / Work / Play – all in one complex
- May be attractive, safe
- More mixed-use in the suburbs?
What Should AEC Firms Be Doing?
- Environmental Scanning
- Target Markets
- Client’s Clients
- STEEP and other tools
- Follow the money
- Help connect client to money
- Grants
- Incentives
- Agile Marketing
- Market Focus – follow the work
- Do you have the:
- Relationships?
- People?
- Firm experience?
- References?
- Network?
- Knowledge base?
- Do you have the:
- Positioning for changing markets
- Website
- Social Media
- Content Marketing
- Test marketing
- Engagement
- Opportunities Identified
- Hit Rate
- Reacting to data
- Modify tactics
- Iterative approaches
- Multiple concurrent initiatives in different markets
- Market Focus – follow the work
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Aecumen is continuing to provide resources to AEC firms to weather the pandemic. Here’s two video blogs about remote working:
How to be More Engaging When Presenting Virtually
Conducting Business Development from a Distance
Connect with Scott
LinkedIn: https://www.linkedin/in/scottdbutcher
