Leaders at design firms around the region are reporting that construction activity is on the rise again after a mixed 2016.
Billings have grown for the first four months of 2017 for companies across the Southern U.S., according to the American Institute of Architects. The association’s monthly Architecture Billings Index (ABI) of 55.3 for April also indicates that firms in the South are reporting readings that are two to four points ahead of the other three regions. ABI scores above 50 indicate an increase in billings from the previous month.
“One of the other things we see is with interest rates so low, there’s a lot of private development going on that ordinarily wouldn’t be [happening] if interest rates were higher. And with the threat of higher interest rates in the future, since we’ve had nice low rates for some amount of time, there are folks who are jumping on projects while they can still get money for a lesser amount,” says Dan Boggio, president and CEO, PBK Architects. “Affordable money ... that’s something that’s led to a very active marketplace.”
This year’s ENR Texas & Louisiana Top Design Firms ranking features 107 companies and represents nearly $5.7 billion in reported regional revenue. This compares with 98 companies last year that reported nearly $5.1 billion in revenue. Part of that reported increase can be attributed to ENR Texas & Louisiana’s expanded regional coverage area, which now includes revenue from work in Arkansas, Mississippi and Oklahoma.
For example, Terracon Consultants Inc. boosted its reported revenue by $29 million when business from its offices in the three new states is added to its regional total. That’s on top of the 10% to 20% growth that Terracon achieved in 2016.
Acquisitions are also spurring growth. Terracon acquired several firms across the country, including Building Exterior Solutions LLC in Texas.
Meanwhile, Stantec saw a dramatic leap to a fourth place ranking from No. 18 last year after posting a gain of $124.47 million, achieved in part, by the firm’s five acquisitions in the U.S. and Canada in 2016, according to Stantec’s fiscal year 2016 financial summary.
In the Texas-Louisiana region, Stantec acquired Bury Holdings Inc. and MWH Global Inc.—the latter of which was a main contributor to the firm’s 49.5% increase in total gross revenue, according to Stantec.
Texas continues to be the strongest state in the region for growth and “the fastest-growing state in the country by numbers,” notes Boggio. “We have more people moving into Texas than any other state by far. Over 2,000 people a week are moving into Houston; there’s over 1,000 people a week moving into Dallas; and there’s hundreds of people each week moving into places like San Antonio and Austin.”
With more people comes more design work. That includes public-sector projects, which make up a significant portion of portfolios for firms like PBK.
“When the recession started back in 2007, 2008, the public sector already had bonds that were approved and so they still had two or three years of good activity,” Boggio explains. “Similarly, when a recession ends, it takes a while for the public sector to feel good about passing bonds again.”
Infrastructure projects are on the increase, says Keith Hinkebein, HNTB’s Central division president. “2016 saw a continuation of what has been a growing infrastructure market in the region. With the passage of Propositions 1 in 2014 and Proposition 7 in 2015, Texas has demonstrated its commitment to its growing infrastructure needs, and we are seeing signs of others doing the same,” Hinkebein says.
In response, HNTB has invested heavily in Texas and increased its role with the Texas Dept. of Transportation.
“In addition to our traditional DOT and tolling agency focus, we have also seen significant growth in our transit and aviation practices as HNTB continued our support at the Houston Airport System and added DFW Airport as a client,” Hinkebein says. “We have also expanded our transit practice, with assignments in each of the major Texas markets (Dallas, Austin, San Antonio, Houston) in 2016, in addition to the Baton Rouge streetcar.”
The oil-and-gas sector remains the cornerstone market for the region, and while it has not regained the peak activity of 2012-2014, the market is improving, says Leslie Duke, president and general manager at Burns & McDonnell’s Houston office.
“There are a lot of things that are in front-end planning right now, and we feel like that’s always a really good indicator,” Duke says. “We have an environmental group that gives us some nice insight into the permitting space, and that seems to be far more active right now than it has been.”
Duke notes that Burns & McDonnell’s power delivery team is growing as well, in part because engineering procurement and construction (EPC) contracts are becoming more desirable, she says. The firm’s process and industrial group is doing more front-end planning for new work than during the last 18 months, she adds.
In the midstream sector, gas and liquids projects have increased for Burns & McDonnell. “That’s been pretty strong, but it’s getting stronger and certainly the permitting side of that is also very bullish, so that’s good news moving forward,” Duke says. “Low natural gas [prices] make the chemicals market strong, and we see a big wave of projects around ethylene coming.”
Burns & McDonnell was completing several large capital projects at the end of 2015 and into 2016, which slowed the number of new projects begun last year, Duke notes. “We’ve seen backlog growth for the last six months, so that’s good news,” she says.
However, Duke says there may be fewer of the billion-dollar export terminals and more projects in the $150-million to $200-million range. “We think that we’re just going to continue to see a rise in capital projects within the refining and petrochemical market,” she says. “Our forecast is growth in that space within the next 12 months, and we expect to be hiring where we’ve been flat. We haven’t been in a hiring mode in oil and gas for about 18 months. We think that that’s about to turn.”
Gensler foresees a shift in new project activity in its regional offices moving into midyear, notes David Calkins, the firm’s regional managing principal.
“While our commercial office practice areas continue to hold strong, we are diversifying our expertise and exploring new opportunities in different areas such as health care, life sciences and the arts,” he says. “We expect these trends to continue throughout the year and well into 2018.”
As a whole, the regional design industry is optimistic moving ahead, Boggio says. “We see some good things happening in business across basically all the market sectors,” he adds. Some of the optimism comes as the stock market anticipates increased business activity in the U.S. over the next two or three years, he notes. The engineering, design and construction business is seeing much the same thing.
“We think 2017 is going to be a great year in this country for the design and construction community, and we actually anticipate that 2018 will be even better,” Boggio says. “We see people talking about projects that they haven’t talked about in years and years. So the next three or four years ought to be extremely active.”