A/E industry outlook positive for 2021, future
Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they examine the A/E industry's future outlook and why it's trending positive.
Hats off to the folks at the ACEC Research Institute. They are doing a remarkable job advancing the interests of the Engineering and Design industry. Through their recent groundbreaking studies and research they are making clear the industry’s economic and strategic importance and contribution to the nation.
What the research says: Their brand new (and must read!) 2021 to 2025 Engineering Industry Forecast is predicting another down year for the industry with output sliding 4%. This follows their assessment of the industry’s decline of 7% in 2020. The ACEC research closely aligns with the work done by the team at AIA who continue to report soft business conditions for architects in general, and cautious optimism about a recovery in 2021.
Here at Morrissey Goodale, we’ve been seeing a different picture of the industry than what the research suggests. More often than not in our strategy, M&A, and executive search work we’re encountering firms that not only had record years in 2020 but who are also super optimistic about 2021 – in terms of booked backlog and pipeline of opportunities. In our experience, the biggest challenge for many firms is actually finding the people or acquiring the firms to meet current and anticipated demand in the market.
How to explain the disconnect: So, we took a deeper dive on what we have been seeing in the industry to try to match it to the big picture represented in the research. What we concluded is that the overall softness in the industry in 2020 came from dramatic declines in certain sectors (travel, leisure, entertainment, and others) and regions (field services in the Northeast and Mid-Atlantic shut down for a couple of months) that were outweighed by phenomenal performance in other sectors and regions. And while we see this disparity continuing into 2021, it will be in the context of an industry getting back on its collective feet.
Leading indicators point to a phenomenal 2021: We are very optimistic about how the industry will perform in 2021. Our assessment is based on the leading indicators of (a) inter-state M&A activity (which is at record levels and is an indication of confidence on the part of buyers), (b) new Private Equity recapitalizations (an indication of confidence on the part of investors), and (c) hiring activity. We anticipate that when all the numbers from last year are compiled and counted that the industry will report record profits in 2020, and we are confident that performance will be replicated or improved upon this year.
Five performance categories for 2021: For our strategy work, we’re allocating industry performance into the following five categories for the year ahead: Continue to boom, recovery, reimagined, question mark and challenged.
1. Continue to boom: Sectors that grew through pandemic year 2020 will continue to do so in transition year 2021. These include the red-hot residential sector. Second- and third-order sectors tied to e-commerce activity will thrive including data centers, warehouses and distribution centers, cargo facilities, cyber security, geospatial and aerospace. The Life Sciences sector will also be strong with demand for research and manufacturing facilities, campuses, and laboratory space.
2. Recovery: The moribund travel, entertainment and leisure sectors are recovering faster than the final run on the Iron Gwazi. There will be plenty of demand for designers of theme parks, timeshares, resorts, hotels, cruise facilities, and entertainment venues.
3. Reimagined: Some sectors in this category will continue to be challenged in 2021. However, the opportunities that exist will fall to those A/E firms that understand how facilities will need to be different in the future with respect to contactless interaction, access and egress, ventilation, stakeholder interaction and spacing. Sectors in this category include workplace, retail, healthcare, commercial, education, sports and entertainment.
4. The question mark: The Federal Government has once again pumped massive stimulus into the economy. Some of this will be directed by states and cities to benefit sectors of our industry. The big question now is whether there will be a Federal infrastructure bill that will further boost state and local spending for transportation, water, power and energy and coastal resiliency. If the Feds get in on the action, it could herald a golden era of infrastructure for the U.S.
5. Challenged: The commercial, office and workplace sectors overall will be challenged. While there will be some regional bright spots, firms serving these sectors will do well to pivot to adjacent markets. We also continue to be concerned about headwinds in the oil and gas sectors in 2021.
This article originally appeared on Morrissey Goodale’s website. Morrissey Goodale is a CFE Media content partner.
Original content can be found at www.morrisseygoodale.com.
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