Commercial building market for AEC firms showing warning signs

If an architectural, engineering and construction (AEC) firm largely operates in the public sector, they may be rolling through some of the best market conditions ever right now. Local funding and allocation hiccups aside, the Federal government has the motivation and the funding to make big things happen in the infrastructure space. For some more good news, even some private-sector markets that seemed to be in freefall as of late — like housing — appear to have found a bottom and are starting to stabilize, according to PSMJ’s latest Quarterly Market Forecast data. However, the hurt may be beginning in the commercial market.

“This is becoming a bit of a perfect storm for the commercial development and user markets. At first, corporate office oversupply in some major metropolitan markets seemed like a short-term post-COVID issue,” said PSMJ president Gregory Hart. “However, the reality for many owners and developers is that we’ll never go back to pre-COVID occupancy anytime soon and now we have the issue of commercial loans getting re-priced at interest rates much higher than they were a few years ago. Don’t walk, run from any exposure you have in the corporate office market. If you need a safe haven in this overall space, the warehouse/distribution market has good proposal activity on which you can build some long-term strategic growth.”

PSMJ’s quarterly market forecast revealed an overall proposal activity net plus/minus index (NPMI) value of 24.9, which marks a slight dip from 32.8 in the previous quarter and 33.3 one year prior. Courtesy: PSMJ

Any NPMI value above zero indicates that more respondents are seeing an increase in proposal activity compared to the prior quarter (+100 indicates all respondents are seeing an increase in proposal activity, -100 tells all respondents are seeing a decrease in proposal activity). Since proposal activity is a leading indicator for backlog, revenue, and — ultimately — cash flow, the latest NPMI values provide a valuable glimpse into cash flow over the next 12 to 24 months.

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