December 29, 2006

Construction

Positive outlook for U.S., Canada

U.S. construction firms expect strong 2007

PATRICIA WILLIAMS

staff writer

A report that examines future performance of U.S. construction firms shows that Canada’s industry beats to a different drummer — for the most part.

Health care and higher education will be among the hottest markets for design and construction firms in the U.S. next year. However, that performance likely won’t be reflected on this side of the border, says Jeff Morrison, spokesperson for the Canadian Construction Association (CCA).

In the U.S., parks and recreation, government and financial markets are expected to struggle, predicts ZweigWhite’s 2007 AEC Industry Outlook: Strategy and Insight for Design & Construction Firms.

The Chicago-headquartered management consulting firm said the architecture, engineering and construction (AEC) business has outperformed the U.S. economy as a whole in recent years.

The majority of those surveyed remain optimistic about the industry’s performance heading into 2007.

The survey found that 55 per cent of respondents expect the AEC business will outperform the U.S. economy in 2007, while only 12 per cent expect the design and construction industry to lag.

Jeff Morrison

“Despite a slight eroding of confidence in the performance of the AEC business heading into 2007, resulting from increased materials costs and other obstacles, the majority of firm leaders — 57 per cent — still project their business will be ‘outstanding’ or ‘excellent’ next year,’’ says Elaine Kornbau, managing editor of best practices publications and market intelligence reports at ZweigWhite.

“Strong growth in the health care, higher education and water/wastewater markets will continue to provide opportunities.’’

Morrison told Daily Commercial News that CCA believes Canada’s construction sector will outperform the overall economy.

However, CCA does not think health care and higher education projects “necessarily are going to be leading drivers in Canada.

“Part of the reason is that there were some pretty significant investments in those areas over the past several years,” Morrison said. “So, that market is starting to soften a little bit.

“Where our strengths lie are in the energy and natural resource sectors, obviously fed by oilsands development and mining and exploration activity.”

On top of that, CCA sees strength in water/wastewater and core infrastructure projects “with a lot more money coming from the feds and provincial levels.”

Based on a market-by-market analysis, ZweigWhite’s 2007 AEC Industry Outlook identifies ten hot markets to watch. The top five markets are:

• Health care: Increases in health insurance costs are good news for AEC firm leaders. The increases in health care expenditures will result in additional capital available for health care projects.

• Higher education: Construction is at record levels, and colleges and universities are still upgrading and expanding residence halls and educational facilities to deal with increasing enrollments. Improvements to state budgets should improve public funding for capital projects. A rebounding stock market will be good news for college endowments at private colleges and universities.

• Water/wastewater: Driven by sprawling populations, water scarcity, federal and state regulations and aging infrastructure, the water and wastewater sector has been strong in the environmental industry in recent years. The one potential obstacle to the market is a slowdown in residential development.

• Highways and bridges: The passage of the Safe, Accountable, Flexible, Efficient Transportation Equity Act in 2005 should continue to keep highway and bridge projects going strong.

• Power and energy: The sharp increase in energy prices in 2005 and 2006 have provided energy companies with soaring revenue and profits to invest capital in major infrastructure projects, making up for a few years of under-investment. In addition, it has pushed public support and improved the financial viability of the development of alternative energy sources.

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