What's in store for 2013?

January 2013 » Features » 2013 CEO Outlook
Despite national and international economic worries, architects and engineers are optimistic.
Christina M. Zweig

Lack of work, stagnated salaries and increased competition all have been some of the hallmarks of the design industry since 2008. Optimism of a turnaround is rising, however.

When leaders in the A/E industry were asked about some factors in their 2012 performance and what they expected for the upcoming year, there was a mood of general positivity, although some firm leaders share only guarded optimism.

For many firms, 2012 has been a tough year. Salary increases, often a sign of positive business performance and outlook, had no clear trends. Recent ZweigWhite salary surveys show little in the way of pay increases, especially in lower level positions. At many firms, upper management positions have continued to see decreases over the past four years. External as well as internal factors are to blame, placing many firms in a financial bind.

Still, new technology, predicted new projects and staff hires are all great signs of hope for the industry going into 2013. According to WANTED Analytics (www.wantedanalytics.com), the leading source of real-time business intelligence for the talent marketplace, demand for engineers is growing. In the report, construction and infrastructure projects are shown to have grown during the past several months, bringing an increased demand for engineering professionals. In September, more than 184,000 job listings for engineering jobs were posted online. Though some external factors may be in play, the number of job ads has still grown compared to last year, representing a 12 percent year-over-year increase and 17 percent growth from two years ago.

Many other organizations report some favorable economic signs.

The Bureau of Labor Statistics (BLS) reported on Dec. 7 that the U.S. economy added 146,000 jobs in November. Despite Hurricane Sandy and worries about the "fiscal cliff," the report was better than expected, and unemployment was reported to have dropped to 7.7 percent.

According to the American Institute of Architects, firms have reported improving business conditions during the second half of the year, with the Architecture Billings Index (ABI) reaching 52.8 in October. One year ago, the ABI was a dismal 47.3.

Lawrence Yun, economist for The National Association of Realtors, reports that housing starts reached an 894,000 annualized unit pace in October, the highest in over four years, and up 42 percent from a year ago. The National Association of Home Builders also reports a continued upward trend in multifamily production, with October starts in buildings with five or more apartments at a seasonally adjusted annual rate of 285,000, up 10 percent from September and up 63 percent from a year ago.

Perspective
Degrees of recovery will vary regionally as well as among market sectors. Firm leaders from both large and small firms in varying locations across the United States offer their opinions and expectations for 2013.

For many firms, 2012 has been a tough year. Salary increases, often a sign of positive business performance and outlook, had no clear trends. Recent ZweigWhite salary surveys show little in the way of pay increases, especially in lower level positions. At many firms, upper management positions have continued to see decreases over the past four years.

Josh Carney
President, Carney Engineering Group
www.carneyengineeringgroup.com
Headquarters: York, Pa.
Number of offices: 1
Number of employees: 10 to 20

Our number one challenge will be dealing with the rapid revenue growth seen this year, and continuing through next. Significant work has finally broken out from behind the dam, and while we intend to take advantage of the growth opportunity, there is still a significant shortage of top talent and reduced graduation rates from our colleges.

We are in the process of adjusting back office roles and positions, including addition of new positions to enable us to continue to function efficiently, and we will be moving to new space due to our growth. Our challenge will be to maintain quality, consistency, and schedule in the face of these distractions.

We are finally seeing more than 50 percent of firms working in BIM on most projects, and expect this to continue to grow. I also feel that with the backlog returning to the construction market, we will see a resurgence of design-build delivery over hard bid. I expect federal and local municipal work to continue to slow. Health clinics and medical offices will continue to do very well, as will corporate office and manufacturing.


Tom Hendrick
Principal and COO, Wallace Engineering Structural Consultants, Inc.
www.wallacesc.com
Headquarters: Tulsa, Okla.
Number of offices: 4
Number of employees: 135

I am an optimistic person. I expect 2013 to be better for us than 2012. We are a structural and civil engineering firm that works primarily in the architectural building world. We hope to add some  bridge work and more industrial building work in 2013.

I assume many firms are similar to us. Revenue and profit margins have decreased the last couple of years. We anticipate they will bounce back. We have many great people that we want to keep. In order to keep everyone, we have had to cut expenses and reduce salary increases.

Overall, the ABI has been positive three months in a row. That is a good sign. The housing market seems to be headed in the right direction. With new home building comes new roads, new utilities, and other new commercial buildings. I expect things to start to turn around in 2013.


Steven Baldridge
President, Baldridge & Associates Structural Engineering
www.baseengr.com
Headquarters: Honolulu, Hawaii
Number of offices: 4
Number of employees: 23

Some of the biggest external factors/challenges impacting business in 2013 will be resolution of the path forward in addressing the federal budget deficit, increased employee healthcare costs and increased taxes/regulations. Some of the biggest internal factors/challenges are predicted to be employees' reactions to tax changes and increased healthcare costs that directly impact them. Some employees may incorrectly blame reduced take home pay on their employers, leading to undeserved compensation dissatisfaction.

Some new trends expected to take off in 2013 are increased integration of smartphone and tablet technology into our work processes.

We see the multi-story residential market coming back, but federal design-build work will likely slow down due to both a reduction in overall federal construction budgets and some federal agencies moving back to design/bid/build procurement.

"Some of the biggest external factors/challenges impacting business in 2013 will be resolution of the path forward in addressing the federal budget deficit, increased employee healthcare costs and increased taxes/regulations."


John C. Hogan
CEO/Principal Hall & Foreman Inc.
www.hfinc.com
Headquarters: Tustin, Calif.
Number of offices: 4
Number of employees: 65

 

We expect our business overall to be more favorable in 2013 through moderate growth.

We see trends in three areas. First, from a market sector standpoint, we believe 2013 will bring moderate growth from the residential sector. We operate in Southern California and expect to see an increase from both single family and multifamily development. Second, on the business front, we anticipate that the A/E industry will see an increase in merger/acquisition activity as firms look to increase business and address ownership transition. Hall & Foreman will be looking to acquisitions as a way to grow our business. The third trend we see is the growth in water quality management services. As builders who have been out of the construction game for a while start moving dirt again, they will face water quality regulations that have become more stringent. In California, the General Construction Permit means ample opportunity for consultants like Hall & Foreman to provide consulting services to keep sites compliant.

Over the last few years, salaries declined as a reflection of the overall economic decline and the resulting slowdown in our business. Since 2010, we have been steadily increasing salaries and we expect to see that continue in 2013.

"Our view for 2013 is one of cautious optimism. Economic forecasts for the Southern California area show modest growth, an uptick in job creation, and increased housing starts."


Frank St. John
President, Applied Engineering Services Inc.
www.applied-e-s.com
Headquarters: Indianapolis, Ind.
Number of offices: 1
Number of employees: 32

We are a 32-person MEP engineering business located in Indianapolis, Ind. We have been in business for nearly 15 years. The past four years have been challenging ones. We expect business in 2013 to be about the same as 2012, which is turning out to be nearly a 10 percent decrease when compared to 2011.

We are seeing an increasing emphasis on energy saving and utility cost management programs. We continue to see more owners using the design-build approach for new construction.

Salaries are flat because fees are decreasing. The design-build approach typically reduces the value placed on engineering and drives lower fees. The current state of the economy has meant a lack of capital investment in facilities, which results in less design work available for the same amount of firms (more competition for each project). The increased use of a competitive bid process to select engineering services is also a major contributor to low fees and flat salaries.

"Some of the biggest external factors/challenges impacting business in 2013 will be resolution of the path forward in addressing the federal budget deficit, increased employee healthcare costs and increased taxes/regulations."

Christina M. Zweig is a contributing editor. She can be contacted at christinaz@zweigwhite.com.

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