Taking the pulse of the A/E industry

The A/E industry is powering into Q4. Your firm is on track for either another blowout year or one very close to it. You personally have been busier than a salmon swimming upstream since January 2. Your work-life balance can be better described as a work-life blur. Now it’s October (How did that happen?), and you’re in the middle of business planning for 2022. To help you with that, here are some of the trends and issues that our team is seeing around the industry. We hope that this will provide you with some additional context for what your firm is experiencing and what could lie ahead next year.

There’s no slowdown in sight: In fact, from what we’re seeing things are only going to get busier for you and your team in 2022. Each and every single one of our strategy clients—regardless of geography, market type, or technical expertise—is maxed out with work with growing backlogs. And it’s leading to some poor habits. Some leadership teams are not even responding to new opportunities because they don’t have the bandwidth to process them and are afraid of overloading their production staff. Don’t let this happen—it will irreparably damage your brand.

The peril of printing money: The problem with doing so well right now is that you start to believe your own press clippings. (Do they even have those anymore? Maybe it should be “You start to believe your own TikTok.”) You get complacent. You assume that what’s working for your firm now will work in the future. Maybe it will—but probably not. Today’s good times are an impediment to strategic thinking. (Check out Mark Goodale’s article Are You a Strategic Thinker? These Days, You’d Better Be below.) Why change when everything’s working so well?! (Narrator: It’s really, really easy to change when there’s red ink all over your income statement.) Leaders need to carve out the time and the space to think long-term and craft their firm’s post-pandemic vision.

Which infrastructure sectors are booming? W-A-T-E-R. Any firm anywhere doing anything with H2O is being deluged (ahem) with work. Firms with coastal and marine experience are having a year and then some. Same for transportation (including highways, transit, and aviation). Sure, there was a slowdown in DOT work in Florida and Texas in the fourth quarter of Fiscal Year 2021—but both states are back on track. Firms in the power delivery sector are also humming. The renewable energy sector—particularly in the Mountain West region—is keeping firms there super busy. Planners, engineers, field staff, and scientists around the country are (a) way past the point of complete career burnout, (b) considering getting out of the business entirely to go work the land or do something equally Zen-like as they take stock of their lives, and (c) getting offers of crazy financial packages from competitors to go work for them, which quickly put to rest any ideas of becoming farmers or getting too Zen.

Which buildings sectors are booming? She blinded me with science! As we predicted last year, the life sciences, biotech, science and technology, mission critical, and data center sectors are keeping architects busy with rewarding, high-profit work. What’s more of a shock is how quickly corporate campus work—greenfield and repositioning and repurposing of existing facilities—is coming back and putting designers back in the black after a horrendous 2020 and first half of 2021 for many of them. The residential boom continues to make millionaires out of architects, engineers, and surveyors (more on the lattermost below) around the country. Higher education work is rebounding this year as administrators realize they must invest in reimagined campuses for a smaller student population. Healthcare is holding its own. Industrial parks and distribution centers are making 60-plus hour weeks the norm at many site development firms. If there’s a weak spot in the buildings space right now, it would appear to be corporate interiors.

Which environmental sectors are booming? Everywhere you look the environmental market is red-hot. From EHS to geotechnical and construction materials testing to remediation, it’s close to 24/7 in the U.S. And the demand is across the board—federal, state, and municipal government as well as commercial. It’s good to be green.

Which regions are hot? It’s hard to find a part of the country where the market is cool or slow. Sure, the conventional wisdom is the Southeast, Southwest, and Texas are booming. And yeah, they are. But you’d be hard-pressed to find an architect, engineer, or surveyor (again, more on this below) anywhere to return your call about a new project opportunity within 24 hours. They are just so busy—everywhere. The universal refrain from a sample of our clients in Maine, Massachusetts, New York, South Carolina, Florida, Texas, New Mexico, Colorado, Illinois, Pennsylvania, Indiana, Ohio, New Jersey, Minnesota, Arizona, and California is that they have never seen such levels of demand for their services and see no slowdown ahead. Good times indeed. For those of you more “seasoned” professionals, at the risk of sounding like a curmudgeon, you’d do well to let your mentees know that it wasn’t always like this and that invariably the economy is going to tank.

Go (Mountain) West, young man: Firms in the Mountain West region are experiencing a year like no other. The long-term growth projections for cities in Utah, Wyoming, Idaho, Montana, and Colorado are robust, to say the least. Any one of these cities could grow to become the next Denver over the next 25 years, and design firms want to put boots on the ground to ride that wave of future work. So, we are seeing many West Coast and Midwest firms, in particular, opening offices in these states and looking to make acquisitions. Indeed, last year saw a total of 19 transactions in the Mountain West region. This year we’ve already seen 20!

When is the cavalry coming? Think you are alone in being frustrated that you cannot find people to hire? Well, think again. It’s a universal sentiment among your peers. CEOs everywhere say, “We can’t find the good people to do all the work.” (And yet it gets done anyway—just with less quality and more potential for errors). There are firms with Priority #1 staff-level requisitions that have been open since pre-pandemic days. And it’s not just professional and technical staff. Firms are having difficulty finding administrative and support people with the required skills. And don’t get me started on surveyors. If you are a licensed surveyor, you are worth your weight in gold. But sightings of a surveyor for hire are rarer than those of Bigfoot. We’ve seen a flurry of small surveying firm acquisitions this year. Many of those deals are being made not for the clientele and contracts, but for the licensed and experienced staff. We predicted this three years ago before the pandemic and are seeing it play out in real time.

Firms are in GREAT financial shape: Not just yours—everyone’s. Balance sheets are strong. Everyone is flush with cash. Clients are paying quickly. (They don’t want their A/E firms to have any excuse to be upset and slow down on the projects). ESOP valuations are increasing 20% or more. Bonuses will be off the charts for a second year running. How leadership teams choose to invest that capital during these extraordinary times will play out when things start to slow down after 2022. (Note to CEOs: This would be a great time to make like George Costanza and leave on a high note as a new study confirms that when things get financially challenging again—and they will—it’s the CEO’s health that gets most impacted.)

Vaccination vs. Integration: Vaccination mandates and policies are providing an interesting wrinkle in Q4 industry M&A. Most (not all) acquirers (check out last week’s article What can we learn from the thirteen most prolific acquirers in the A/E industry?) are of a size or have enough exposure to federal work that they are either requiring or strongly encouraging their employees to be vaccinated to work in the office or on specific contracts. But many of their acquisition targets don’t have such policies, and indeed, many key managers and employees in those targets refuse to be vaccinated. This is becoming a sticking point in negotiations, due diligence, and assessment of cultural fit.

Q4 momentum? The A/E industry is accelerating in this fourth quarter and is maxed out. Even without a federal infrastructure bill, all indicators are for yet another record year in 2022. What could go wrong? (Narrator: What could go wrong this time feels eerily similar to the fourth quarter of 2019.)

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.

Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our CFE Media editorial team and getting the recognition you and your company deserve. Click here to start this process.