by John Allen
The architecture outlook is highly segmented, with healthcare doing well and other segments not. The demographics and health needs of baby boomers is a driving factor that is creating opportunities. Approximately 10,000 baby boomers turn 65 years old each day, which will continue until 2030. In 2020, the healthcare segment increased by 2.4%, with another 3.2% projected in 2021.
Even with the approved vaccine distribution underway, the demand to redesign existing buildings that are more accommodating to the post-pandemic health concerns will be an opportunity for growth.
Many shopping malls were struggling before COVID-19. Repurposing existing malls is an opportunity for growth. Forbes Magazine estimates “about one-fourth of the nation’s 1,100 shopping malls – or roughly 220 to 275 shopping centers – will close by 2022.” The malls are being repurposed into sports facilities and apartments.
Another opportunity for growth is the result of the decayed public infrastructure. Spending to improve or replace essential public buildings, including schools and public safety buildings, is expected to continue. Governments are also facing pressure to increase spending to replace and repair airports, highways, water supply plants, sewerage systems, and other public infrastructure.
According to the Wall Street Journal, Congress sees infrastructure as a possible area of cooperation because lawmakers see an infrastructure bill as stimulation for the economy and a way to address deficient infrastructure. The American Society of Civil Engineers repeatedly rates the nation’s infrastructure a D+.
The outlook for the rest of the industry is not as favorable. According to the American Institute of Architects, spending on nonresidential facilities declined by approximately 8% in 2020. This trend is expected to continue in 2021 by retreating an additional 5%. The decline is concentrated in hotels, down 20% and projected to decline 16.5% more in 2021; amusement/recreation, down 13% and projected to drop an additional 12%; and office space, down 11% and projected to decrease an additional 7%.
The Architecture Billings Index (ABI) is a leading economic indicator for nonresidential construction activity. A score over 50 is a positive sign of strength or recovery in the broader economy, while a negative ABI can signal weakness or a coming downturn. The information comes from surveying owners of architectural firms. The values are classified into billings and design work inquiries, with inquires being an indicator of future billings. In March of 2020, billings had a value of 33.3 and inquires had a value of 27.1. This was the start of lockdowns and the country focusing on the pandemic. These numbers have improved since then. November billing yielded a value of 46.3 with inquires at 48.6, a slight retreat from October, which had a billings value of 47.5 and an inquiry value of 51.7.
In conclusion, the broader industry is improving but is still facing some challenges. The vaccine, low-interest rates, and the pending stimulus package, with the desire of lawmakers to improve the country’s infrastructure, should result in a healthier 2021.
John Allen
John Allen is the managing partner of Allen Business Advisors.
