Coronavirus’ impact on the A/E industry, May 11, 2020

Morrissey Goodale is providing A/E leaders with news and perspective on the coronavirus and its impact on the industry.

COVID-19 UPDATE

National industry news

• To paraphrase Mel Brooks “It’s good to be essential”. It’s “business as usual” or “we’re hiring like it’s 2019” for firms working for the public sector in states where construction is considered essential. Multiple reports from California indicate business right now is surging. It was a good week for firms in Pennsylvania with construction starting back up.
• It’s even better if you’re working for the Feds. Firms working on federally funded projects are reporting full steam ahead. As always, though, there may be some changes in funding priorities if there is a change in administration in November.
• The A/E industry’s parallel universe is a good place to be (for now). Nationwide the unemployment rate has surged to 14.7%, and is expected to increase even more in the coming weeks. The construction industry has lost 975,000 jobs. And architectural and engineering services, which the Bureau of Labor Statistics categorizes separately from construction, lost 85,200 jobs last month. But, as a whole the A/E industry has fared relatively better than other sectors in the economy— with many firms reporting little to no change in financial performance and short-term outlook. The question is, how long will this last? And the answer is how much funded backlog each firm has in place plus any stimulus benefit (see below).
• How bad will the state and municipal cash crunch be? It’s unclear— but it’s not going to be pretty. Absent a Federal stimulus (Bueller? Bueller?), its impact on state and municipal capital projects will be painful. The lack of clarity is reflected in publicly traded firms like NV5 and Stantec withdrawing their guidance for 2020.
• No country for old men. Gen X and Baby Boomer generation professionals are getting more concerned about working in the field and returning to the office. After spending the last 10 years focused on engaging younger generations in their workforce, firm leaders now need to pay extra attention to older generations.
• Firms figuring out how to “return to the office” as states reopen. Features include: multiple surveys of workforce, lots of flexibility being offered, alternating days in the office (2 days in 3 days at home), lots of mixed feedback (by generation, by state, by role, by commute distance), at least 5% of employees in the “never coming back to the office” camp.
• Zoom presentations and pitches to clients: Are now the norm. How great is it to be able to win a $3 million design project without leaving your house?! But they are an art form and again favor those larger, forward-thinking design firms that have invested in technology and “togetherness” for their teams.
• Rent expenses WILL decline. In the transition from the end-of-pandemic phase to post-pandemic phase, firms will be balancing the need for more in-office distancing with a workforce that is now psychologically free from “the office”. The overall effect will be firms spending less on bricks and mortar and more on technology, branding and team development.
• Another banner month in April. Across the nation, utilization continued to be strong. Proposal volumes down slightly/moderately from record pre-crisis levels. April profitability robust with good cash flow.
• Silver lining for project owners. Current market conditions are driving up competition to work on projects that are moving forward, leading to lower-than-expected construction bids. Municipalities and other project owners are seizing the opportunity, getting much needed buildings and infrastructure at pricing below their anticipated budget.
• But bond market indicators are flashing red. And longer-term institutional and public projects are being pulled— the impacts of which will start showing up in Q3 and Q4.
• Double unknowns lie ahead in the higher ed sector. The outlook for colleges and universities is particularly challenging. The bond market is making it harder to move projects forward. Also, it’s unclear for many schools if their students will be back on campus next academic year. The winners in the short term— just like after the last recession— could be community colleges and workforce training schools. The losers for sure will be smaller liberal arts schools.
• All energy is not created equal. Because the economics and outlook for each segment is unique. Firms with exposure to the oil market are, in general, being hard hit unless they can bring something unique (think virtualization needed for inspections) to the table. However, firms working in solar and wind are seeing backlogs building.
• Conventional wisdom on development markets being challenged. Development varies by state— and almost by week. Some projects that slowed or went on hold in March/April are now ramping back up as state restrictions are being lifted. In the West, developers with a long-term view are in general continuing with given their read on the multi-decade demand for their product.
• There are bright spots even in down markets. While retail and hospitality markets are, overall, being hammered, design firms continue to see ongoing work with sector leaders (e.g., Target, Amazon, and Marriott) and in certain niches (e.g., retail banking). The workplace market for architects is yielding traditional design opportunities in space planning, and new consulting opportunities in how to plan for bringing employees back and risk management.
• U.S. mergers and acquisitions down 11%. While deals are down, they’re not out and they certainly are different. Whether you’re a buyer, seller or investor join us for our special livestream U.S. A/E M&A Symposium: Deal-making in turbulent times on June 11.
• Pre-crisis acquisition trends are accelerating. Buyers want to enter or strengthen their positions in resilient geographies where long-term growth is assured— Texas and the Southeast— and want to invest in technology and digital firms that can help them transform their businesses. Watch out for a new wave of overseas buyers, too.
• PPP loans may delay some in-process deals. Unless the seller has cash in the bank to pay off the loan, the forgiveness timing and process likely extend the deal timeline. Buyers and sellers are looking for clarity on loan forgiveness terms.
• Small A/E firm owners are worried. Wondering if they have the capital to weather the inevitable upcoming economic slowdown. Just like the last recession, this one will wipe out many smaller and weaker firms, and trigger a wave of mergers and acquisitions.

Status of state reopenings

While several states are beginning the long road back to something resembling normalcy (with significant restrictions and protocols, of course), the harder-hit states largely remain under lock and key. But they have one thing in common— they are all doing their own thing. Below is the latest intelligence on the reopening status of all 50 US states according to state government web sites as well as local and national news outlets:

Alabama

Starting today, non-work gatherings of any size will be allowed, as long as people maintain 6 feet of distancing, including houses of worship. Gyms, athletic facilities, barber shops, hair salons, nail salons can reopen, with certain rules. Restaurants, bars, and breweries may allow on-property consumption of food and drink, again, with certain rules. Certain entertainment venues like theaters, casinos, bowling alleys, and night clubs remain closed.

Alaska

Personal services businesses and restaurants in most parts of Alaska have been open since April 24 with restrictions. The second phase began Friday. Dine-in restaurants will be restricted to 50% capacity. Bars and indoor fitness classes will be able to reopen at 25% of capacity. Religious gatherings will be allowed, but limited to 50 people.

Arizona

Retail in Arizona began in-person business on Friday with specific social distancing rules. While the state’s stay-at-home order was extended a week and a half ago to May 15, some easing has started (e.g., elective surgeries were allowed starting May 1). Gov. Doug Ducey hopes to reopen restaurants May 12.

Arkansas

Gyms, fitness centers, and indoor athletic facilities resumed operations May 4 while barbershops and hair salons opened May 6. Restaurants will be allowed to open dine-in service at one-third capacity with an eye on two-thirds capacity if the state continues to see a downward trend of coronavirus cases.

California

The stay-at-home order given by Gov. Gavin Newsom on March 19 is still in effect with no announced end date. However, the state is expected to begin allowing critical, non-COVID-19-related surgeries. Many of the state beaches are open on a limited basis. Retail organizations like clothing stores, florists, and bookshops were allowed to reopen with curbside pickup. Companies associated with supplying for those retail businesses have also been allowed to return to work.

Colorado

The state’s “safer at home” remains in effect until May 27. Retail businesses have been allowed to reopen with curbside delivery and elective medical procedures have been green-lighted along with non-essential office work.

Connecticut

Connecticut’s mandatory shutdown remains in place until May 20. Summer camps can open on June 29 with limitations and the hope is to reopen for summer schools in July. Gov. Ned Lamont hopes to re-open a number of industries on May 20, including outdoor-only restaurants, outdoor zoos and museums, university research program, and a variety of retail operations.

Delaware

The statewide stay-at-home order will remain in effect until May 15, but could be extended. Gov. John Carney said the state will consider reopening its economy only after seeing 28 days of declining Covid-19 cases.

District of Columbia

Washington, DC’s stay-at-home order remains in place until at least May 15.

Florida

Florida reopened a number of businesses through much of the state a week ago. The exceptions are Broward, Miami-Dade, and Palm Beach counties. Restaurants are allowed to open outdoor seating as well as indoor seating capped at 25% capacity. Retail is allowed to open at 25% capacity while bars, gyms, personal services businesses (hair salons, etc.), and movie theaters remain closed. The Florida Keys remain closed to visitors until at least June.

Georgia

Restaurants, movie theaters, gyms and fitness centers, bowling alleys, and a variety of personal services businesses are open with certain social distancing and health screening rules in place. Bars, night clubs and music venues remain closed. The shelter in place order for high-risk individuals remains in place through June 12.

Hawaii

A number of businesses are now open, including retail and a variety of personal services. Elective surgery is also allowed. All businesses are expected to maintain social distancing. Beaches are open for limited use. The state is continuing to discourage visitors. Anyone arriving from out of state is required to quarantine for 14 days upon entry.

Idaho

Bars, gyms, and theaters remain closed but restaurants can continue carryout service. The second phase will allow in-house dining and personal services businesses to open, but the limit of fewer than 10 people would remain in effect.

Illinois

The state’s current stay-at-home order extends through the end of May. Residents can, however, leave their homes for activities deemed essential, such as buying necessary supplies and services, health-related activities, care-taking of others, and religious worship. State parks, golf courses, retail stores, and garden centers are beginning to open with restrictions. Non-urgent surgeries are now allowed to be performed, as well. More businesses, such as manufacturing and personal services aren’t expected to open any earlier than the end of May.

Indiana

Restrictions on essential travel have been eased and social gatherings of up to 25 people are allowed. State government offices have been opened with limitations on public access. Retail and commercial businesses can open at 50% capacity. Shopping malls are also allowed to open with capacity restrictions of 25% in common areas. Starting today restaurants and bars that serve food are allowed to open at 50% capacity. Personal services business can accept customers by appointment only.

Iowa

Of Iowa’s 99 counties, 77 allow restaurants, fitness centers, retail stores and enclosed malls at 50% capacity. The ban on religious gatherings of more than 10 people has been lifted, though the ban on social gatherings of more than 10 people remains in place. Adherence to social distancing and related health measures is still required, as well. Bars, nightclubs, gyms, and personal services businesses remain closed.

Kansas

The state’s stay-at-home order ended May 4. A range of businesses, such as fitness centers, malls, and retail stores are allowed to be open at 50% capacity. Other businesses such as drive-in movie theaters, campgrounds, and medical spas are allowed to partially open. Childcare facilities are now open, as well.

Kentucky

Today, manufacturing, construction, and car dealerships are allowed to open, as well as professional service companies at 50% capacity. Various surgeries are also now allowed. On May 20, retail and houses of worship will be allowed to reopen. On May 22, restaurants will be allowed to open at one-third capacity. Personal services businesses such as barber shops and hair salons will be allowed to reopen. Movie theaters and fitness centers will reopen on June 1, campgrounds will reopen on June 11, and childcare services will resume at a reduced capacity starting June 15. Bars may reopen and gatherings of up to 50 people may be allowed in July.

Louisiana

Louisiana’s stay at home order remains in effect until May 15. Malls remain closed but stores can offer curbside delivery. Restaurants can still do takeout and delivery orders and offer non-serviced outdoor seating. Churches can operate outdoors with tents. Personal services businesses, such as barber shops and hair salons, as well as bars and casinos remain closed.

Maine

Maine’s stay-at-home order remains in place through May 31. Some businesses, such as barber shops and hair salons, auto dealerships and drive-in religious services are open.

Maryland

Maryland’s stay-at-home order remains in place with no definitive end date. Elective medical procedures are now allowed along with outdoor activities, such as walking, hiking, running, or biking, golf, tennis, boating, fishing, and camping. State parks and state beaches can reopen, but only for those who intend to exercise.

Massachusetts

Massachusetts’ closure of nonessential businesses, stay-at-home advisory, and ban of gatherings of 10 or more people remains in effect until May 18, though golf courses did reopen. In addition, a Federal judge overturned Gov. Charlie Baker’s order to keep gun shops closed during the crisis.

Michigan

Michigan’s stay-at-home order is in effect through May 28. However, today, manufacturing businesses will be allowed to reopen. The big three auto suppliers will open for work on May 18 at 25% capacity. Outdoor activities such as golf and boating are allowed. Landscaping and nursery businesses are also allowed to operate, assuming adherence to social-distancing rules. Garden centers certain departments selling carpentry-related goods in large retail businesses are open, as well. State parks remain open.

Minnesota

The state’s stay at home order remains in effect until May 18. Retail businesses are allowed to offer curbside pickup and delivery. Starting today, elective surgeries along with services provided by dentists and veterinarians will be allowed.

Mississippi

Mississippi’s stay-at-home order is scheduled to be lifted today. But movie theaters, bars, museums, spas, gyms, and personal services businesses, such as barber shops, remain closed. Restaurants are allowed to open inside dining at 50% capacity.

Missouri

Economic and social activity started May 4. There are no limitations on social gatherings and all businesses are allowed to open as long as social distancing rules are followed. Retail businesses are limited to 25% capacity.

Montana

Retail businesses are allowed open with limits to capacity and adherence to social distancing rules. Restaurants and bars are allowed to reopen with certain restrictions. Movie theaters and gyms remain closed. Out-of-state visitors and residents returning from another state or country are required to quarantine for 14 days.

Nebraska

Restaurants are allowed open with a 50% capacity limit. Personal services businesses, such as salons, are limited to ten people at a time. Houses of worship are allowed to open, assuming adherence to social distancing rules. Bars and theaters in most of the state will remain closed through the end of May.

Nevada

The state’s stay-at-home order ended Saturday rather than May 15. Restaurants are allowed to open for dine-in services, assuming adherence to social distancing rules. Most personal services businesses, such as salons, are allowed to open by reservation only. Retail businesses are limited to 50% capacity. Casinos, bars, and bowling alleys remain closed.

New Hampshire

New Hampshire’s stay-at-home order remains in effect until the end of May. Elective surgeries have resumed, and today, barber shops and hair salons may accept customers by reservation and a 10-person limit in the establishment is followed. Retail also opens today at 50% capacity. Restaurants will be allowed to offer outdoor seating on May 18.

New Jersey

New Jersey’s stay-at-home order issues on March 21 remains in effect with no definitive end date. State parks, golf courses, and county parks are open.

New Mexico

New Mexico’s stay-at-home order remains in effect until May 15. Non-essential retail stores are allowed to offer curbside pickup. Golf courses are open, as well.

New York

New York’s “New York State on PAUSE” executive order, where nonessential businesses are ordered to stay closed, is in effect until May 15.

North Carolina

Retail stores are allowed to open at 50% capacity. Childcare facilities are open and gatherings of up to 10 people are allowed outdoors. State parks and trails are open.

North Dakota

Many businesses are open, including bars and restaurants, recreational facilities, health clubs and athletic facilities, and salons, assuming adherence to social distancing rules. Movie theaters are open at 20% capacity. Campgrounds are also open.

Ohio

Ohio’s stay-at-home order remains in effect until May 29. Certain health procedures are allowed and dentist and veterinarian offices are also allowed to open. Manufacturing, distribution, and construction companies are also allowed to open. General business offices are allowed to open, with remote working encouraged whenever possible. Tomorrow, retail-related businesses will be allowed to reopen.

Oklahoma

Restaurants, dining rooms, movie theaters, sporting venues and gyms have been allowed to reopen assuming adherence to social distancing, hygiene, and sanitary protocols. Personal care businesses are allowed to service customers by appointment. Bars remain closed.

Oregon

Oregon’s stay-at-home executive order remains in effect with no determined end date. Non-emergency health-related procedures are allowed.

Pennsylvania

Pennsylvania has begun implementing a three-phase, color-coded approach to re-opening the state. Thirty of the state’s counties are still in the “Red” phase, which means stay-at-home orders will remain in place through June 4, though that order may be lifted earlier. The stay-at-home home order and other restrictions have eased in two dozen counties. Those counties have now gone “yellow”. No counties have yet been cleared to enter the “green” phase, when restaurants and bars can resume dine-in service, casinos can reopen, and most other restrictions and bans are lifted.

Rhode Island

Rhode Island’s stay-at-home order expired May 8. Retail stores are allowed to open, assuming adherence to social distancing and sanitation rules, elective medical procedures are allowed, state parks are open, office-based businesses are open on a limited basis while remote work is still encouraged. Restaurants are still limited to delivery and takeout. Movie theaters, bowling alleys, museums, gyms, salons, and barber shops remain closed.

South Carolina

The state’s “Work-or-Home” order officially expires May 12 but was returned to voluntary status on May 4. Retail and department stores are allowed to be open at 20% capacity. Beaches are allowed to be open, but access is still determined by local governments.

South Dakota

While Gov. Kristi L. Noem did not issue a stay-at-home order, she reports many of the state’s citizens have voluntarily stayed at home.

Tennessee

Tennessee’s stay-at-home order expires May 30. Restaurants, retailers, and gyms have been allowed to reopen in most counties in the state.

Texas

All retail stores, restaurants, movie theaters, malls, museums, and libraries are allowed to reopen at 25% capacity. Salons are also allowed open assuming adherence to social distancing rules. On May 18, gyms and exercise facilities, non-essential manufacturing, and business offices will be allowed to reopen at 25% capacity.

Utah

Utah is under “moderate risk” protocols for Covid-19 until May 16. Utah has not issued a stay-at-home order. Restaurants are allowed to offer dine-in services assuming adherence to social distancing and health check rules, but encourages takeout and delivery services. Similarly, gyms are allowed to be open but the state recommends they stay closed. Personal services businesses, such as salons, are allowed to reopen assuming adherence to social distancing rules.

Vermont

The state’s “Stay Home, Stay Safe” order remains in effect until May 15, however outdoor recreational locations such as skate parks, tennis courts, ball fields, trail networks, and golf courses are allowed to open. Manufacturing, construction, and distribution businesses are also allowed to operate, given certain safety requirements. Some elective surgeries are allowed, as well. The hope is that childcare services will resume on June 1.

Virginia

Virginia’s stay-at-home order remains in effect until June 10. A separate executive order that restricts certain businesses and gatherings of more than 10 people is scheduled to expire May 14. Until then, recreation, entertainment, and personal care businesses, remain closed. Restaurants are limited to providing takeout and delivery services. Elective surgery and dental procedures are allowed.

Washington

Washington’s stay-at-home order is in effect until May 31. Most state parks and recreational areas are reopened, as well as golf courses, with restrictions to group size. Non-essential businesses are not open to the public, but some non-contact businesses, like landscaping and car washes have resumed. On May 4, Inslee said individual counties can ask for an exception to state coronavirus regulations on businesses. In order to apply, a county must have fewer than 75,000 people, with no new Covid-19 cases for three consecutive weeks.

West Virginia

While West Virginia’s stay-at-home order was lifted, a subsequent order encourages people to stay at home but doesn’t require it. Certain health care-related businesses, such as pharmacies, chiropractors, and dentists, are allowed to reopen. Small businesses with 10 or fewer people are now reopening as well as personal care businesses, such as salons and barber shops. Wellness centers and drive-in movies are scheduled to open this week.

Wisconsin

Wisconsin’s stay-at-home order expires May 26. Many state parks and forests have reopened with crowd limits and social distancing protocols. Nonessential businesses are allowed to provide curbside-drop-off service.

Wyoming

Gov. Mark Gordon reports that a statewide economic reopening will begin May 15. He anticipates that bars and restaurants will be able to reopen and provide indoor table service with occupancy limits and other protocols. Gyms and personal services businesses are also allowed to be open with certain restrictions. Wyoming’s order requiring out-of-state visitors to quarantine for 14 days expired May 8.

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