For our 8th Anniversary issue, we decided to ask leaders from widely different areas of the field—higher education, human behavioralists, designers and those who look at the long financial future for their firms.
As with so many questions, what you find out depends on whom you ask. The one-two-three punch of terrorism, a queasy stock market and war have created an industry uncertain of when recovery will occur and how long it will take to reclaim momentum.
For our 8th Anniversary issue, we decided to ask leaders from widely different areas of the field—higher education, human behavioralists, designers and those who look at the long financial future for their firms. They’re also physically disparate. Although it’s risky to make predictions, it’s more perilous to just react instead of planning.
What follows are responses to the open-ended question:
“After a trying year, a hopeful A/E/C industry looks ahead. What could revive the economy and the construction sector markets? What could hold them back? What are the key trends to watch as we look ahead three years?”
“This is a time of great upheaval.”
As a behavioral scientist, I look for the irrationality and paradox in human affairs, and predicting the economy is rife with them. We do know that things almost never work out as planned. If economic predictions were accurate, economists would be rich. Moreover, our economic stability is largely dependent upon public trust of leaders and confidence in the system, which can change almost overnight. If the largely irrational fears about our homeland security were to subside, for example, even the seemingly certain business in constructing and remodeling high security installations could collapse. Similarly, if the public’s acceptance of the impending wars were to erode, then the extensive commitments to rebuild the bombed countries could erode with it.
This is a time of great upheaval. America’s traditional role in the world community is undergoing a revolution. A complete redirection of policies, both foreign and domestic, is taking place. The economic effects are impossible to calculate. We do not know even the short-range effects of the war, except that it will be costly. From what we know at the moment, it would probably be wise to base our short- range professional and business decisions on a continuing climate of uncertainty, and our long-range decisions on a growing gap between rich and poor.
President, Western Behavioral Sciences Institute
La Jolla, Calif.
“In challenging economic times, clients are challenged too.”
We’ve actually had a pretty good year so far at our firm—much better, in fact, than the same time last year. Biotech has been the big driver, but we’re also busy with healthcare and university projects, plus ongoing work in Las Vegas. Here’s my formula for success: In challenging economic times, clients are challenged too, so they are looking for extra value. Fortunately, design is a value-added enterprise, and there are many ways that we can help clients realize extra value on their projects. We can design buildings with higher utilization rates, so they get more useable square footage. We can design buildings that use less energy, saving operational cost. We can facilitate the approvals process, saving both time and money and preserving the maximum development rights for a given site. We can use new imaging technology to help clients make better design decisions. We can work with consultants and contractors in more creative ways to speed up the construction process, reduce change orders, and get higher quality at lower cost. This is actually a great time for a client to build, because the bidding climate is a bit soft. We see things in a very different way: “We are in the leadership business, and design is our medium.”
President and CEO
“Diminished local tax revenues which halted renovation should pick up, increasing demand by 2005”
Two things would help the construction sectors: Increasing non-military federal spending on budgeted but not yet funded capital improvement projects in the areas of Health & Human Services, Justice, Corrections, and GSA facilities would have a trickle-down effect by attracting other investment capital. Continued low interest rates could accelerate private development funded by institutional investors. However, the continued deflection of domestic revenues to fund military initiatives in Iraq, Syria, and North Korea could prolong their availability for other programs and the failure of the Federal Reserve to control both interest rates and inflation could stymie commercial development. During the next three years, pharmaceutical and biotech labs will continue to thrive, particularly in California’s San Diego to Sacramento corridor. Airport renovations to accommodate mandatory security upgrades will keep a few firms busy while terminal expansion/renovation projects will be shelved until cash becomes more abundant. Corporate build-to-suits and most non-casino hospitality projects will be put on hold. In most states, diminished local tax revenues which halted renovation projects in K-12, Higher Education and Municipal Services such as libraries, fire stations and recreation centers should pick up, increasing demand by 2005
Principal, The Talent Bank
“This is a good time for architects to find ways to lead the building industry.”
A quick Iraq War resolution will have a positive impact on the economy, but much of the A/E/C spending will be in the Middle East rebuilding Iraq and other communities there. The sluggish global market continues to show concern over “natural terrorism” such as SARS, which has diminished Pacific Rim travel and trade.
At home, investment in infrastructure will outpace commercial development. The stock market will remain lethargic. Political conditions will parallel those following the Persian Gulf War, especially if the economy doesn’t improve.
Trends to watch are: Can we extricate ourselves from Iraq before the next election? If not, political change might be the result. Watch R&D numbers to see if corporate America invests in an uncertain future. How quickly can we rebuild relations with allies and trading partners as we deal with corollary events of the Iraq War such as Syria harboring terrorists, North Korea’s WMD, and fluctuations in oil prices? Finally, our refusal to deal with trade imbalance, rising deficits and continued corporate mismanagement puts our economic future in peril.
This is a good time for architects to find ways to lead the building industry to greater efficiency and cost efficacy through augmented services that include project management, construction management and leadership in the community.
—Ambassador Richard Nelson Swett
Swett Associates, Inc.
Bow, New Hampshire
“We see now that green design and sustainable development is money in the owner’s pockets.”
Here at the Joslyn Institute we are studying the disparities of economic support for infrastructure and community sustainability between the federal government and state governments: Federal funds are flowing into the military/industrial complex, security, and war reparations, while State’s budgets are being overwhelmed by social and entitlement health and welfare programs. Urban and community infrastructure and civic construction is deteriorating, with less growth.
We see now that green design and sustainable development is money in the owner’s pockets. Government, private, institutional, and non-profit developers are finally seeing the connection between conservation, re-use, preservation, re-cycling, and economic return. Environmental accounting will soon be on a par with economic accounting.
There is another issue that is important to watch on the horizon and that is diversity in professional practice. The lines of distinction between planning, development, design, construction, and facilities/urban management are disappearing. Client profiles are also more diverse, and (when distinct from the above group) are seeking single-entity services.
How should we prepare? For the short-term, architects/designers and others in this industry need to be more engaged, strategically and in policy-making, in the above. In the longer-term, we all need to prepare for a “post-consumer” economy, locally and globally.
—W. Cecil Steward
President, Joslyn Castle Institute
for Sustainable Communities
“The current hot housing market is also due to interest rates far below normal.”
In Minneapolis/St. Paul, the three primary trend factors continue to be the general slow economy, demographics and interest rates. Continued aging of the post WW II generation will keep urban redevelopment in both downtowns and vacation/retirement housing hot for a decade, with considerable in migration augmenting this trend. But the current hot housing market is also due to interest rates far below normal, and will be cooled somewhat with higher interest rates inevitable. New major commercial and industrial projects are far off on the horizon (+ 2 years) with large blocks of space still vacant. A unique factor here is six major cultural projects now committed with $400 M in total construction costs.
—John H. Herman, Esq.
Partner, Faegre & Benson
“Delivering more effective services that yield faster, more efficiently constructed buildings could accelerate the industry from the worldwide downturn.”
Our industry should look to new paradigms for integrating the building lifecycle by connecting design, fabrication and operation, borrowing lessons from adjacent industries like manufacturing. Design information can be one of the most powerful influences in this process, enhancing the value of the design team’s work, making construction significantly more efficient, and empowering building owners to use their assets more effectively. New delivery approaches, evolving roles and fresh technologies offer a real opportunity to create economic value, and we ignore this chance at our peril. The inherent challenges of current construction are more easily ignored during upswings in the economic cycle, but beg to be resolved when the market tightens. Uncoordinated drawings and field construction errors are much more painful in a tough market. Delivering more effective services that yield faster, more efficiently constructed buildings could accelerate the industry from the worldwide downturn. Otherwise, we can simply wait out the cycle and hope that we’ll survive to see the next upturn.
—Phillip G. Bernstein
Vice President, Autodesk Building Solutions Division
Lecturer in Professional Practice, Yale University School of Architecture
“Trends in the next few years will be driven primarily by demographics.”
After the heated design and construction economy of the late 1990s and its eventual slowdown, many of us in the industry are seeking new ways to sustain success. The pace of workplace productivity increases, while the economy is driving the nature and strength of the recovery, and trends in interest rates. Because the economy is more global, recent worldwide political events may temporarily restrain expansion.
Trends in the next few years will be driven primarily by demographics. Healthcare and higher education will continue to be strong. Urban housing and mixed-use projects should see continued strength as the lifestyles of ‘boomers’ change and society becomes more conscious about sustainability. Government response to national security threats will result in greater spending, although it’s likely these dollars will mostly impact areas other than construction. Governmental budget deficits, at the state and local level, are just beginning to be felt in the funding of public sector projects.
I’m cautiously optimistic about the near-term outlook. The challenge is to sustain and grow market share in a less than robust economy. We’re striving to provide more value to clients—specifically we’re offering a broader range of services, being more creative about strategic alliances, and finding new ways to stretch the owner’s budget through more creative collaboration with contractors and builders.
COO, Hammel Green & Abrahamson, Inc.
“I see more requests for a ‘branding’ approach to interior planning.”
These are interesting questions since after a funky 2002, clients are getting off the mark with new projects. The obvious health care market is predictably busy as the past projection for new hospital building is turning out as promised. In less predictable markets, projects are coming back after being put on hold. I suspect it is a realization that in order to survive these institutions need to be different and relevant. To that end, I see a shift in how we are being asked to plan their interior projects. I see more requests for a “branding” approach to interior planning which forces cultural shifts internally as well as externally. I see it in medicine, in banking and in some select corporate markets. If this approach works, then more projects will be initiated. If it fails, who knows if there will be enough faith in the risk of failing fast and moving on.
I see the trend in building the multi-disciplinary consulting team to approach culture as well as architecture. I have also found that with an evidenced-based approach, the risk is mitigated and the client is willing to try the less obvious.
President. CAMA, Inc.
New Haven, CT
“Sustainable design will become an issue as will air quality and other quality of life issues for the stressed out employees that remain working.”
With several economic sectors in the doldrums, revival of the economy and the A/E/C industry seems distant. Depressed State revenues will continue to hold down K-12 school and government office spending and corporations will take time to expand back into their pre-2001 form. Productivity gains since 1990 and continued economic right- sizing has continued to slow new office development as well as postpone office renovations in most cities.
So the War in Iraq seems to be over. Will this be the fulcrum that Stuart Varney said would lift us from uncertainty and back into expansion? I think a couple of broader indicators will be at play. First, pent up demand from office lease rollovers and terminations and the constant geographic-economic shifts that result will buoy the markets but will not bring overall vacancy appreciably lower.
Next, apparent need for inexorable growth for growth’s sake will diminish as corporations focus on their true bottom lines (the one that CEO’s and CFO’s now have to sign for.) Business will pay more attention to their fundamentals—including their facilities, and attempt to get in better alignment with operating costs. This will mean an increase in facility management and operations spending to align systems with enterprise business systems installed over the past few years that help gain efficiency in other parts of the company.
As a result, sustainable design will become an issue as will air quality and other quality of life issues for the stressed out employees that remain working. While this does not paint a rosy picture for the production architect, it does offer hope for firms positioned to serve clients through integrated services including consulting, architecture, interior design, engineering, landscape architecture and design/build.
Principal, OWP/P Consultants
“Design firms need to hone their strategic planning skills and team with business professionals to figure out the solutions to difficult occupancy issues.”
With an eager Bush administration changing it’s focus on domestic priorities, the opportunity is available for firms to look again at newly growing tea leaves. I believe the catch phrase is “sector change,” and I see it happening in three key areas that will provide opportunities to other sectors.
As is the case during many recessions in the past, Health and Federal projects have been strong and will continue to rise over the next several years. Although much of the work will be similar to past work in those sectors, much will be focused on significant shifts within the industry itself. For example, health care reform is reaching new urgency, and that means clients in the health sector are open to fresh ideas on how to solve age old problems. Firms that may have not been exposed to this sector before may find new opportunities to look at the problems for vary different perspectives. Similarly, the Federal Government’s freedom to manage push is causing federal agencies to look at real estate problems from a business perspective—allowing perceptive A/E/C companies to help in ways never previously considered.
The corporate market is also ready for new services, but in a different way than before. After a year of accounting and ethics scrutiny, some companies will seize the opportunity to right-size real estate in order to ensure sound financial growth. Design firms in particular—now more than ever before—need to hone their strategic planning skills and team with business professionals to figure out the solutions to difficult occupancy issues; the result will be positive for everyone in the A/E/C business.
And finally, in my view, with economic stimulus from health, federal and corporate sectors will come opportunities for the commercial business—retail, especially hospitality.
Senior Vice President, The Staubach Company
“What could revive the economy and construction markets?”
Confidence in USA growth and global growth. (not money, not programs, not politics)
What could hold them back?
- A major terrorist attack (Homeland Security; significant higher interest rates; significant higher oil prices; continued lack of confidence)
What are key trends in the next three years?
The graying baby boomer work force. (Will it start to retire or continue to work?)
Dollar driven fees for architects will force architects to understand the business world.
Architects need to develop projects by leading the development team.
Design-build will continue to mature and grow.
Architects must assume more risk as clients become more adverse to risk.
Use of professional work forces in foreign countries will grow. (Same skill less wages)
—Michael E. Bolinger
President, Cochran Stephenson & Donkervoet, Inc.
“The recent revitalization of American cities and the accompanying demographic shift confirms the market demand for models of development that provide valid alternatives to sprawl.”
Business is in a lull, however demographic projections predict a steady increase in U.S. population. Furthermore, investment in real estate remains strong, especially in the wake of the stock market downturn. Yet many architects and planners in the US continue to operate with a frontier mentality that places low value on undeveloped land and overlooks the opportunities and added value that could come from coordinated planning of residential and commercial buildings, transportation, energy infrastructure and open space.
The greatest opportunities in the short term will encompass intelligent infill and adaptive re-use of under-utilized buildings, and planning for the return of large-scale construction activity. If demographic predictions are accurate, and the US population experiences a 30 to 50 percent increase in the coming generation, then our current time-out for planning activity offers an unprecedented opportunity to shape our communities of the future to re-integrate home, work and commercial activity. The recent revitalization of American cities and the accompanying demographic shift confirms the market demand for models of development that provide valid alternatives to sprawl. These models can reduce reliance on the automobile, enabling people to reclaim hundreds of hours of time per year, improve security, support family ties, and contribute to sustainable use of resources.
Vice President, HOK
San Francisco, Calif.
The Next Tech Scenario
“This is the first time in the history of the profession that we have four generations of workers under the same roof or in the same studio.”
After attending numerous global conferences over the past three years, I have been exposed to a few interesting economic sessions that speak in similar themes: geopolitical stability will be a main driver of confidence in the US economy as we move through 2003.
As geopolitical confidence grows, the focus will shift back to the U.S. economy and its growth. With plenty of cash on the sidelines for the past three years, investors are beginning to search for places to place their money. Real estate is one of the major places people are exploring again as their main investment vehicle. With the U.S. Housing sector still booming through this recession, residential design and construction continue to look strong, while commercial sector growth is in entertainment, retail and hospitality.
The areas that firms should focus on to be part of the next economic boom:
Firms must “speak the language” of their clients. Document-based computing creates silos of information that are not easily shared. Firms that move toward data-centric solutions will find they share information more easily with their clients, thus, speaking their language.
Sustain the Experience:
When Joe Pine and Jim Gilmore wrote their book, The Experience Economy, they ushered in a new “experience” vocabulary for architects and designers. Many well known firms embraced that world, but found their implementation fragile and shallow. To fully utilize the “Experience” of your firm and its architecture, you must look beyond the traditional description of “project” and move to a more comprehensive and sustainable “experience” where each and every member of your firm adds “experiential value” to your clients. When firms extend the experience, growth follows.
Firms could be held back by falling back into their “comfort zones” of performing services in traditional methods and procedures. This is the time to experiment and grow the firm into new ways of working, thinking and profiting. Leveraging the younger generation’s gifts of IT skills, firms can unlearn past unprofitable processes, while exploring new ones. This is the first time in the history of the profession that we have four generations of workers under the same roof or in the same studio. Let’s leverage this opportunity to its maximum potential. Firms that do not do this will be held back.
Geopolitical / Global Health Situations:
Firms are directly affected by geopolitical and/or global health situations that they have little to no influence over. This can be a frustrating situation. Terrorism, new military skirmishes, a SARS-like virus epidemic or a change in the U.S. government are all realistic events that could have a major detrimental effect on the American economy, thus directly affecting projects for architects and designers.
Object Model Technology: Firms must begin a process of transition from document-based Information Technology solutions to a data-centric approach to design and business. Those that fail this next great generational shift in IT will not survive. The transition process from documents to data should begin with recruiting talent that uses Object Model technology like Autodesk’s Architectural Desktop or Revit and then placing this talent into each and every studio. The transition will continue with the emergence and implementation of Microsoft .net and Java-based solutions. When these two events are in place within your firm, the flow of data to a client becomes a seamless sequence of better communication, not just better computing.
Multimedia: Every firm must begin to use multimedia technologies beyond the function of marketing that many firms use today. Multimedia technologies like the Macromedia MX Suite of tools (Flash, Cold Fusion, etc.) provide firms the greatest expression of creativity since the use of computers entered the studio. Architects that use Multimedia solutions are seen as great “storytellers” who provide vision with precision implementation. The fact that most multimedia solutions today provide a link into data gives firms the opportunity to extend the use of 3D object models beyond marketing and into design, construction, facility management and corporate real estate decision making processes. The next generation multimedia tools will become more important than CAD in a typical firm within the next 2-3 years.
Energy and fresh water will continue to emerge as the greatest challenge to our global society. Designers that can economically and aesthetically integrate alternative energy and fresh water solutions into their projects will be trailblazing the next great movement in architecture and design.
Security and Life Safety:
Each and every project that we are working on over the past two years has security and life safety issues as top priorities for their projects. These include the Jacksonville 2005 Superbowl, United States Coast Guard, 2008 Beijing Olympics and Water Desalinization plants in Malaysia, Indonesia and Singapore. Architects and designers that can deliver creative solutions for security and life safety issues will prosper and be seen as valuable team members.
Managing Director,the digit group
San Diego, Calif.