Hot in ’06: Health care, highways, and higher ed

Health care, highways and bridges, and higher education will be among the hottest markets for design and construction firms in 2006, while the air pollution, solid waste, and telecommunications markets will struggle, according to 2006 AEC Industry Outlook: Strategy and Insight for Design & Construction Firms, a new report from ZweigWhite. The AEC (architecture, engineering, and construction) business has outperformed the U.S. economy as a whole in recent years, including in 2005.

For TFM‘s coverage of this topic, see “Conservative Optimism” by Dr. Tim Springer.

The general opinion of the design and construction industry is that 2006 will bring similar results. In an exclusive survey conducted in conjunction with the ZweigWhite report, 73% of respondents expect the AEC business will outperform the U.S. economy in 2005, while only 9% expect the design and construction industry to lag behind the U.S. economy.

“Despite increasing pessimism about the U.S. economy as a whole, design and construction firm leaders are very optimistic about how their firms– and the AEC industry as a whole– will perform in 2006,” says Christopher Klein, a principal with ZweigWhite. “More than 70% of firm leaders project their business will be “outstanding” or “excellent” next year. Broad-based growth in the design and construction industry should continue into 2006. Residential construction may slow somewhat, but nonresidential construction should continue to rebound and public works should grow as state and municipal budgets improve.”

Based on a market-by-market analysis, the 2006 AEC Industry Outlook identifies five hot and cold markets to watch in 2006. The five hot markets projected for 2006 are:

HEALTH CARE: The double-digit increases in health insurance costs that are bad news for AEC firm leaders trying to control costs are good news for firms working in the health care market. The increases in health care expenditures will result in additional capital available for health care projects. In addition, an aging population and advancements in technology are increasing the demand for new health care facilities.

HIGHWAYS AND BRIDGES: The passage of the new federal surface transportation bill, nicknamed SAFETEA-LU, in August 2005 will provide a significant boost to the highways and bridges market. There is a pent-up demand in the market due to the nearly two years that passed before a long-term surface transportation bill could be agreed upon. Now that federal funding is secure through September 2009, project owners have more certainty on long-term funding of projects and will move ahead on them.

HIGHER EDUCATION: Higher education construction is at an all-time high, and with the ”baby boom echo” on its way, colleges and universities will need to upgrade and expand residence halls and educational facilities to deal with the coming population surge. Improvements to state budgets and a rebounding stock market will help financing.

TRANSIT: Like highways and bridges, the transit market will see a significant boost from the passage of SAFETEA-LU. Public transportation is seeing increased demand due to rising concern about the environment, higher energy costs, and the revitalization of urban areas. Now, SAFETEA-LU will increase the money that will be available.

WATER/WASTEWATER: The water and wastewater sector has been the one strong sector in the environmental industry in recent years. It has been driven by sprawling populations, water scarcity, federal and state regulations, and aging infrastructure. Strong residential development has driven demand and improving municipal budgets are providing the money. These drivers should continue in 2006. Among the markets projected to have down years in 2006 are air pollution, solid waste, telecommunications, religious, and railroads.

2006 AEC Industry Outlook examines all of the major markets served by design and construction firms. The report also identifies the key trends that will affect the AEC business in 2006 and provides information on the strategies AEC firms will use to grow in the coming year. This report is available from the publisher for $295, plus $8 shipping and handling. Copies can be ordered online.