A survey of 60 principals at architecture, engineering and construction firms conducted in October and November reveals that they expect construction of health-care, education facilities and buildings related to homeland security to be the strongest markets for their profession next year, according to ZweigWhite, a design-and-construction consulting firm based in Natick, Mass., which conducted the survey.
The U.S. Department of Commerce forecasts the fastest-growing markets in 2005 will be health care, office, conservation and development, sewage and waste disposal, and water supply. Those markets are expected to grow by more than 4.5 percent, with the health care projected to grow by 7.9 percent and 7.5 percent, respectively.
The only market the Commerce Department forecasts will decline next year is transportation, which includes railroads, transit, ports, and aviation and excludes highways and bridges. The department expects this sector will decline by more than 3 percent. The department anticipates no growth in the communications industry next year and lackluster growth of 2 percent or less in the religious and amusement and recreation sectors.
ZweigWhite offers its own assessment of the hottest sectors for design and construction firms in its outlook report for 2005. It's quite a contrast to the firm's 2004 outlook report, which stated that any design or construction firm that was planning to focus on the health-care market in 2004 would be "greatly disappointed." At the time, the report's author said that baby boomers are healthier than previous generations. That, along with the legal and financial woes of industry leaders Tenant Healthcare Corp. and HealthSouth Corp. and continuing pressure from insurers to hold down costs, meant "the expected need for more health-care facilities may be overblown."
This year, however, the health-care market, which includes hospitals, clinics and assisted-living facilities, tops ZweigWhite's list of the best markets for design and construction firms in 2005. "The needs are high, and the money is there," the report says. "An aging population and advancements in technology are increasing the demand for new health-care facilities."
Construction within the health-care industry this year was a little stronger than the firm anticpated. Kindergarten through 12th-grade schools, colleges and universities, residential real estate and manufacturing projects round out the top-five hottest sectors, according to ZweigWhite.
Demographics, voter-approved bond measures, strong property-tax revenues and court-mandated programs will make school-facilities construction among the strongest next year, the report says. Enrollment in grades nine through 12 is projected to peak in 2007, thanks to the so-called echo boomers, the children of the baby boomers. Lawsuits and changes in school financing have led to court-ordered school-construction programs in poorer, urban districts in some states, such as New Jersey, according to the report.
Higher-education construction is at an all-time high, but colleges and universities will need to upgrade and expand their residence halls and educational facilities to accommodate the incoming echo boomers. The report anticipates funding for such construction projects will perk up as state budgets improve and "a rebounding stock market will be good news for college endowments at private colleges and universities."
According to ZweigWhite, the five "coldest" sectors for design and construction firms are power-related projects, which suffer from an oversupply of generating capacity and the financial decline of large energy companies; air-pollution related projects, as regulations under the Bush administration have eased; ports and waterways projects, for which funding is scarce despite the need for additional security and capacity; telecommunications projects, given that the industry has yet to rebound from its collapse a few years ago; and solid-waste-related projects, which are expected to be stagnant even through a tax credit for landfill gas-and-waste-to-energy facilities will go into effect next year.
In its report, ZweigWhite also identifies ongoing and emerging threats to the design and construction business. Among them: the high cost of building materials, mold litigation and reverse-auction systems.
While the price of lumber, steel and concrete increased sharply this year, ZweigWhite expects prices to moderate next year. As for stemming potential lawsuits involving mold, ZweigWhite notes that some builders are placing "mold clauses" in their contracts that deny any liability caused by or relating to mold growth, though training owners how to properly maintain their buildings remains the best preventive action to stem mold litigation.
The report also notes that construction companies are increasingly encountering reverse-auction systems. Under such a system, contractors give potential clients the lowest bid for which they are willing to do a project. "Other companies are able to see how much has been bid for the project, and are invited to submit a lower bid for the work, driving down the price for the project's owner," the report says.
Although this selection process is "still not the dominant method of procuring construction services," it "is gaining ground," particularly among developers of big-box retail stores, the report says. Moreover, some state governments have tried to institute this selection process for public projects, but industry associations have successfully "thwarted" those efforts, the report says.
