After a year of watching market opportunities narrow because of the pandemic, construction design firms and contractors are starting to see what could turn out to be a dramatic expansion of the playing field. With mass vaccinations beginning to corner the virus, economic stimulus flowing through the economy, and big expenditures on infrastructure looming, signs point to demand for new, postponed, or suspended construction projects kicking into higher gear across an array of market segments.
One popular gauge, the Net Plus/Minus Index from PSMJ Resources, Inc., points to a sharp turnaround in proposal activity for the architecture/engineering/construction sector from Q4 2020 to Q1 2021, and a possible broadening out of market opportunities. Each of 12 major markets the index monitors showed a positive change between quarters, and each posted a high positive number — an indication of net reported increases in proposal activity from firms — for Q1 2021. In addition, all but nine of 58 major submarkets followed registered a positive number in the first quarter.
The major markets (see Table 1) with the highest positive NPMI number for Q1 were housing; energy/utilities; light industry; water/wastewater; and environmental. But the markets with the biggest positive turnarounds from Q4 were commercial users; education; commercial developers; transportation; and government buildings. Submarkets (see Table 2) with the highest Q1 numbers were renewable energy; warehouse/distribution; multifamily; single family developments; and utility distribution. The sharpest positive turnarounds were in retail for lease; transportation planning; restaurants; K-12 education; and water treatment/wastewater. High turnaround numbers are concentrated in markets that were negatively impacted by the coronavirus in 2020, suggesting they’re now taking a cue from quickening progress in corralling the virus in the United States.
Another mid-Q1 2021 survey of members of the American Council of Engineering Companies (ACEC) to some extent mirrored PSMJ’s findings. It found respondents most optimistic about prospects over the next 12 months (see Charts below) in roads and bridges; energy and utilities; water/wastewater; health care facilities; and industrial/manufacturing facilities. Markets projected to be the weakest over that time span were convention centers and sports/cultural facilities; courthouses/corrections facilities; airports; commercial real estate; and education. A high percentage of firms surveyed, however, said they were uncertain about what the next year holds and declined to rate prospects for any individual markets. Still, the recent ACEC survey, the ninth conducted since the start of the pandemic, found the number of firms expecting a return to normal in six months reaching a new high of 31%.
“The good news from our recent survey is that we’re seeing a gradual improvement of economic sentiment among engineering firms, but the recovery appears uneven across our industry,” says ACEC Research Institute Board Chair John Carrato. “There’s a recognition that business is slowly returning to normal and cash flow has improved, but uncertainty still prevails.”
Engineering and design firms that generate substantial revenue from electrical design work, those ranked in EC&M’s annual listing of the top 40 electrical design firms based on a survey, listed health care; education; government; renewable energy; and utilities/transmission & distribution as the most active markets in 2020. The weakest were hospitality; education; retail; food and beverage; and private office. They weren’t queried on individual market prospects for 2021, but almost a third said “business as usual” wouldn’t return until early 2022. Some, however, agreed that proposal activity is picking back up this year, and that markets that were down last year are reviving.
“We have definitely seen this flood of proposal requests in all our markets,” says Kevin Rettich, technical resource group leader at Smith Seckman Reid, Inc., Nashville. “Our health care market has seen the biggest increase in request for proposals. This increase seems to be coming from a pent-up demand for work that was put on hold during the pandemic and the uncertainty with the election last year, which dragged on into the new year. After the election was final, the gates opened up. In conversations with clients, there is a bigger sense of optimism than there was throughout 2020.”
Mark Torre, principal at another Top 40 firm, Jaros, Baum & Bolles, New York, says conditions improved dramatically in the year’s first quarter, laying the groundwork for an eventual big rebound in revenue.
“We have seen our opportunities (proposal written) increase 29% Q4 20 to Q1 21 overall; so it appears that a rebound is coming,” he says. “Although, due to ‘standard industry delays,’ from the time a project is awarded until the time we start seeing revenue flowing, 2021 revenue, for us, will likely be flat overall, but 2022 revenue should increase significantly.”
Another leading electrical design firm, P2S, Inc., Long Beach, Calif., has seen a rebound in its proposal activity, but is uncertain how much of it will convert to business.
"While the number of our opportunities have increased 56% in 21Q1 over 20Q1 and the dollar value of those opportunities has increased 63% in 21Q1 over 20Q1," says president/CEO, Kevin Peterson, "we are experiencing longer times to decisions on most of these opportunities."
