In the early days of this blog, one of the more popular posts was about 31 Trends Impacting the A/E/C Industry. The genesis of the post was a lunch-n-learn program I was working on for my staff. I came up with 15-20 trends I thought were critical to the A/E/C industry – or would be soon – and then polled a bunch of my SMPS friends to see if they agreed and determine what other trends should be included.
Two years later, it seems that I’ve been getting the opportunity to speak about trends more and more. With my friend William R. Long, PE, LEED AP, FSMPS, vice president of Canuso Jorden, I’ve been able to present about the importance of trend monitoring and “environmental scanning” at several venues, including the most recent SMPS Build Business conference as well as the recent PSMJ Thrive Industry Summit 2016. More recently, I spoke about current trends at the AIA Central Pennsylvania Conference & Expo, and the topic is proving to be popular as part of my company’s AIA CES speakers’ bureau.
So I thought maybe it is time to revisit trends within the Marketropolis blog. Furthermore, as we head into the new year and update our strategic and marketing plans, it’s critical to understand what is impacting our industry now, or will be in the near future.
Some of the trends below are not new. They’ve been with us for a decade – or even much longer. But yet they are very much a “now” trend, and many firms in the industry are still behind the eight-ball when it comes to determining how to proceed. Other trends are further out in the future, and may never materialize. Or they may become huge disruptors to our industry.
With that in mind, here’s some of the major trends out there. I’ll cover many trends over several blogs. As you read them, maybe they’ll resonate. Or maybe you’ll disagree. Some trends are certainly more prevalent in certain geographic areas than others. But take a few minutes and ask yourself a few simple questions. “Will this trend impact our industry?” “Will this trend specifically impact my company – or my clients?” “How can my company effectively respond to this trend to remain competitive, or even gain a competitive advantage?”
Re-Urbanization of the Cities Continues … but not how You Think! – The “back to the cities” trend has been a boon to urban development. Millennials seeking the lure of big cities amenities and empty nesters seeking to downsize while gaining a walkable lifestyle have been drivers. But what’s next for this trend? Some cities have seen their population increases level off, and there’s a growing belief that the Millennial generation will begin leaving cities as they seek to become home owners and start families. So the re-urbanization trend may become the “urban burbs” trend – suburban developments with nearby amenities for walkability. (See more in this Fortune article.) In fact, according to some research, the “re-urbanization” of cities is a myth. Yes, cities are seeing population increases; however, most of the new population is being drawn to new greenfield developments, not neighborhoods that existed in the mid-twentieth century.
Increased Teaming of Competitors – If this election cycle has proven anything, it is that politics make for strange bedfellows! I’ve been in this industry for more than 25 year, and I see more teaming than at any time previously in my career. And it’s not just firms with complementary services that are teaming; in many cases, competitors are teaming with one another to offer a better value proposition. As the talent war intensifies, and firms are having trouble getting commissions – or delivering projects – due to workforce issues, expect this trend to increase. You can't get the work or do the work if you don't have the right staff in place!
Project Delivery Continues to Evolve – There’s a great quote I heard awhile back, but I unfortunately don’t know who said it. It was simply that “there have been more P3 conferences than there have been P3 projects!” And while that may be a slight exaggeration, the reality is that very few A/E/C firms have been directly involved with Public-Private-Partnership funded projects. But that doesn’t mean that this project delivery approach won’t grow in the future; there’s a lot of work to be done (crumbling infrastructure, anyone?) and the money has to come from somewhere. And then there’s Integrated Project Delivery (IPD), an interesting concept that combines having a fully-integrated team with risk/reward sharing on a given project. Again, most firms aren’t current involved with projects using this approach, and there’s been concerns about the limits of professional liability insurance on this type of project. But the concept of having a fully-integrated team from the onset of a project is a good one, so perhaps more of a hybrid-IPD will gain acceptance in the coming years.
Productivity Increases Finally Come to Construction – Construction productivity sucks. There’s just no better word for it. In fact, in recent years, by some metrics, it has declined. Just think about that. How many other industries have seen huge gains in productivity while construction has stagnated? And yet there are so many tools and technologies out there that should be leading to major productivity increases! One way or another, this industry needs to hit bottom and begin clawing out of it. Although some firms have reported record profitability this past year, competition is still extremely tough and margins are thin. So the path to revenue is probably not going to entail significant increases in fees, but rather increases in productivity. According to this article by McKinsey, manufacturing productivity gains have outpaced construction productivity gains by 1.7 times since 1994. Furthermore, construction productivity has slightly declined during this time. The article references several factors for this: poor organization, inadequate communication, flawed performance management, contractual misunderstandings, missed connections, poor short-term planning, insufficient risk management, and limited talent management. Any of that sound familiar?
Prefabrication and Modular Construction Become More Mainstream – When you think about it, wasn’t The Great Pyramid of Giza just a giant prefab job? The outer limestone blocks were cut to spec ten miles away, then transported upriver. So prefabrication is certainly not new. However, in recent years this trends seems to have been picking up in use and acceptance. Case in point: a mechanical contractor that has adopted a manufacturing-style approach, utilizing prefabrication and modular construction to build much of a given mechanical system in their shops, and then transport the modules to the project site. Electrical contractors and drywall installers have seen the benefits of this approach, and are now regularly asking the mechanical contractor to incorporate conduit piping and drywall hangers into their assemblies. The previous trend was about the need to improve construction productivity, and prefab and modular construction are an excellent way to do this. All you need to do is check out the 57-story building in China that was constructed in 19 days.
Profitability Continues to be Thin for Many Firms – PSMJ Resources just reported that based upon their 2016 Circle of Excellence data, the top A/E firms are exceeding 35% profit. But a lot of design and construction firms still struggle with low margins, and there continues to be scattered anecdotal evidence of A/E/C firms working for cost to keep staff busy. Certainly things are better than they were during The Great Recession, but in those areas heavily dependent upon the energy industry and fracking, the past few years haven't exactly been boom time. I recently heard an economist say that every industry is now a commodity, so suck it up and deal with it. Face it, we price shop on Amazon and Expedia and Hotels.com and how many other sites? We walk into Best Buy to check out the latest electronics, then pull out our smartphone and compare prices with online retailers. Third-party facilities management are increasingly bidding out professional services. So where is the profit going to come from if we can’t raise our prices? Productivity. New delivery models. Innovation.
Slow Growth in Nonresidential Construction Continues – A recent headline boasted that nonresidential construction had reached the highest level ever! That’s great news, right? Alas, it’s easy to lie with statistics. Have you ever noticed that each year a new motion picture, or two or ten, sets all kinds of box office records? What gives? These metrics are typically not inflation-adjusted. So yes, it is true to say that nonresidential construction recently reached record levels. It is also true to say that construction volume has a way to go before reaching pre-Great Recession levels. And Some economists believe that a construction recession is soon upon us.
Saving Coastal Cities Becomes Increasingly Important – It seems to take a natural disaster to bring this trend on our radar; but then time passes, and it recedes in importance like the tide. Sure, Hurricane Katrina and Superstorm Sandy brought this trend to the forefront of the national consciousness. Autumn hurricanes stir new fears, but then those fears are calmed with the change of seasons. However – forgetting about the politics of “why” this is happening – this will be a critical issue facing our industry in the years to come. The New York Times recently published an article about investors shying away from coastal real estate, like in areas of Florida facing increasing king tides. An article in the Scientific American noted that the sea level rise over the coming century could be the highest in human history, with the east coast of North America baring much of the brunt. Some scientists have revised their sea rise forecasts upward, and are now projecting that by 2100 many coastal cities will be abandoned. How will governments respond to protect heavily populated areas like New York and Miami? Where will the funding come from? What happens if the “rob Peter to pay Paul” approach dries up project funding away from the coasts?
Building Information Modeling Continues to Evolve as Firms Integrate 4D and 5D, but 6D Remains Elusive – As many as three-quarters of A/E/C firms have been involved with at least one BIM project, if you believe some of the surveys out there. However, what the surveys don’t reveal is how “active” the participants really were. Over the past few years, I’ve given several BIM-related lunch-and-learn programs for construction firms and even large Fortune 500 companies. The mid-sized construction firms had almost no BIM experience. Oh, they may have been “involved” with a BIM project; that is, one that was designed in Revit, but then went old-school with 2D drawings and specs, and no use of the building model during construction. And the concept of owners integrating building models for Computer Aided Facilities Management (CAFM) is still not mainstream. They don’t have qualified staff. They don’t understand the value of the model post-construction. They don’t currently own the software. They wonder if all their facilities will need to be input into a building model before even trying to move forward with BIM 6D. The promise is still there, but BIM is very much a current trend, still evolving. To respond to the growing prevalence of Building Information Modeling, many countries are seeking to implement national standards. In the United States, a number of organizations, firms, and government agencies have partnered to develop the National BIM Standard-United States (NBIMS-US).
There's a lot of trends out there to follow, and these are but a few. In a forthcoming Marketropolis post, we'll look at some more of the major trends.