Health Care and Education Should Be Hot Design Markets in 2005

By Consulting Specifying Engineer Staff December 6, 2004

Consulting-Specifying Engineer — 12/6/2004

Health care, K-12 and higher education will be among the hottest markets for design and construction firms in 2005, say analysts from Natick, Mass.-based A/E consultant ZweigWhite. Power, air pollution and ports markets, however, will struggle.

According to ZweigWhite’s latest report, 2005 AEC Industry Outlook: Strategy and Insight for Design & Construction Firms, the architecture, engineering and construction business has outperformed the U.S. economy as a whole in recent years, including in 2004. The general opinion of the design and construction industry is that 2005 will bring similar results.

In the survey, 40% of respondents expect the AEC business will outperform the U.S. economy in 2005, while only 20% expect the design and construction industry to lag behind the U.S. economy.

Respondents indicate that 2004 produced strong results for their firms, and they predict their businesses will improve in 2005. Fifty-seven percent of respondents expect their businesses to be “outstanding” or “excellent” in 2005, an increase from the 47% of respondents who report in 2004.

The survey also asked respondents to rank 25 markets in terms of expected strength in 2005. Respondents named health care, K-12 schools and higher education as having the strongest outlook for 2005.

Health care
In addition to the design and construction leaders who ranked the health care market first, the U.S. Dept. of Commerce also projects that health care construction put in place will grow 7.9% in 2005, the fastest of any market sector. The needs are high, and the money is there.

Double-digit increases in health insurance costs are providing capital, and an aging population and advancements in technology are increasing demand for health care facilities.

The K-12 market
Demographics, voter-approved bond measures, strong property tax revenue and court-mandated programs will make the K-12 market one of the strongest in 2005. Many school systems in the South and West will need to expand to deal with rising populations, while changes in school-finance formulas have led to court-ordered school construction programs in poorer, urban districts in some states.

Higher education
Construction at universities and colleges 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.

Among the markets projected to have down years in 2005, the power market tops the list, as it is still suffering from an oversupply of generating capacity and the financial decline of large energy companies. Utilities went on a building boom between 1999 and 2001, and the federal government projects that the excess supply will not subside until 2010.

The regulatory driver of the air pollution market, which will also be down next year, has weakened under the Bush administration, and there are few signs it will reappear in 2005. Congress may push changes to the Clean Air Act in 2005 that favor industry, and the downturn of power plant construction will put a further damper on the market.

Finally, while the need for security and capacity enhancements for ports and waterways is immense, money is scarce. The federal government is providing only minimal funding, and attempts to impose fees on shippers have been rejected, placing the market in limbo.

The report also identifies the key trends that will affect the AEC business in 2005 and provides information on the strategies AEC firms will use to grow in the coming year.

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