After more than two years in the doldrums, design firms are starting to hear the rumblings of a recovery, but it could be many months before talk turns into action. With private developers still severely hampered by the credit crunch and many public entities facing budget shortfalls, the funding stream for projects remains a trickle.
The American Institute of Architects’ Architecture Billings Index surveying work on the boards at design firms showed that, in April, for the first time since activity started dropping in early 2008, billing levels were nearly flat at 48.4. Meanwhile, new project inquiries are on the rise with a positive ABI score of 59.6 in April. “It appears that the design and construction industry may be nearing an actual recovery phase,” says AIA chief economist Kermit Baker. “The economic landscape is improving, although not across the board, but doing so at a gradual pace. It is quite possible that we will finally see positive business conditions in the foreseeable future.”
But many firms remain cautiously optimistic about the outlook. Joe Brown, chief executive of Los Angeles-based AECOM, sees the current recession carrying on well into next year. “The recovery was supposed to be clean-cut and finished by the second half of 2010, but that’s not happening,” he said. “If you’ve been holding your breath until late 2010, you’ll suffocate. For 2011, the market is still unclear, but we’re expecting growth.”
Like several major firms, AECOM has used the downtime to make strategic moves. In October, the company acquired Minneapolis-based Ellerbe Becket with the aim of leveraging its experience in the health-care and sports markets. Firms also are shuffling resources to follow the work, with many U.S-based firms looking across the border for work in Canada. AECOM is part of a partnership that will design, build, finance and maintain the $379-million Waterloo Region Consolidated Courthouse in Ontario.
Omaha, Neb.-based HDR began diversifying into Canada during the lead up to the 2008 presidential elections, which historically causes a downturn in health-care work, says Doug Wignall, director of HDR’s health-care group. Still, HDR has seen its fair share of health megaprojects during the recession: In April 2009, HDR and Dallas-based Corgan Associates were hired to design a $1.27-billion replacement hospital for Parkland Health & Hospital System in Dallas. In addition, the firm is creating initial designs for the new $450-million hospital at Camp Pendleton, Calif.
But Wignall predicts the era of big-dollar hospitals could be over. “On average, most of the projects we see are half as big as they were a few years ago. By the end of this year, we could see market activity get back to about two-thirds of what we saw a few years ago.”
As many firms continue to lean on health and institutional work during the downturn, the return of the commercial market remains uncertain. Andy Cohen, executive director at San Francisco-based Gensler, says he expects the recovery to be “choppy,” with developers being extremely selective about their project plans. “We’re seeing a lot of activity but not necessarily seeing things moving forward,” he says. “Right now, we see a lot of studies and entitlement work that is preparation for the comeback.”
While some firms are hopeful about a potential recovery, Patrick MacLeamy, CEO at St. Louis-based HOK, is guarded in his assessment. HOK has leaned heavily on government work in recent years, but public work could wane next year, and private projects could be scarce. “I’m concerned that we’re seeing a false pick-up in the economy. I think 2011 is worrisome. We won’t grow out of this next year,” says MacLeamy.
|1||AECOM Technology Corp.||1,246.7|
|8||Skidmore Owings & Merrill LLP||262.6|
|10||Tetra Tech Inc.||217.0|
|12||RTKL Associates Inc.||189.9|
|16||Parsons Brinckerhoff Inc.||170.1|
|18||Terracon Consultants Inc.||156.9|
|19||The PBSJ Corp.||153.9|
|25||Professional Service Indus. (PSI)||118.0|
|*Based on 2009 contracting revenue from general building as reported in enr’s survey of leading contractors and design firms.|