The industry and the economy as a whole are now in a recession. As design firms are on the front end of projects, they are the first to feel the pain of a downturn, and these times are no exception. While the first half of 2008 provided a last chance for many firms to shore up their backlogs, most large design firms now are hunkering down to wait out a downturn that as of yet has no end in sight.
The current state of the market is not truly reflected in the 2008 volume numbers for ENR’s Top 500 Design Firms. For one thing, even with the dramatic slowdown in the economy beginning in September 2008, most design firms had substantial backlogs to work off before the spigots were turned off. And many firms, including a few of the largest among the Top 500, were unable to report calendar year numbers by ENR’s survey deadline, despite ENR’s strong preference for calendar-year reporting. Instead, they reported fiscal year figures. For example, a spokesperson for The Shaw Group emphasized that Shaw’s figures were from the firm’s fiscal 2008, which ended on Aug. 31, and did not purport to reflect current economic conditions.
The Top 500, taken as a group, had overall design revenue of $90.58 billion in 2008, up 12.36% from 2007’s $80.62 billion. But an indicator of the tough times to come is design revenue for domestic general building, traditionally the biggest design market for the Top 500, rose only 1% in 2008 from 2007. This reflects the fact that the contraction in credit for the private-sector commercial market predated the economic meltdown of last autumn.
For most design firms, the recession is very real and there is nothing to indicate it will end soon. “The world changed in September when the bottom fell out of the market,” says Robert Giorgio, president of CDI Engineering Solutions. “This market reminds me a little of 1980-81. But the difference between then and now is that engineering and construction firms generally are leaner and meaner and more well financed, making them better able to come out of the downturn.”
It’s pretty ugly out there,” says Carl Roehling, CEO of SmithGroup. “Riding this market feels like we have been traveling down one side of the mountain so fast that it is hard to sense where the bottom of the valley is and how far off is the other side of the valley.”
One of the consequences of the recession is that people in the industry are losing jobs. Among the ENR Top 500, 166 design firms said their domestic staff levels were lower this year than last year, including 74 that said U.S. staff levels were down by at least 10%, according to responses to this year’s Top 500 survey.
No one has a clear idea of when the market will turn around, but all are confident that the turnaround will come. “The needs of the world have not changed. It is just that their solutions have been postponed,” says Giorgio.