Architectural,  Engineering  &  Construction  Outlook  2012

Construction Real Estate EngineeringFacilities

R E T A I N E D E X E C U T I V E S E A R C H

Active  SectorsTrends  in  Strategic  Initiatives

The  A/E/C  industry  has  finally  begun  to  stabilize  itself  and  although  McGraw-­‐Hill  Construction  (MHC)  does  not  see  an  overall  recovery  until  

2013  or  2014,  most  economists  agree  that  2012  will  be  a  year  of  gradual  progress.    As  A/E/C  firms  continue  shifting  their  focus  from  

sustaining  themselves  to  enhancing  their  growth,  they  are  looking  towards  markets  that  offer  significant  opportunities  such  as:    healthcare,  

higher  education,  data  centers  /  mission  critical,  power  and  energy,  and  emerging  countries.    And,  while  the  industry  will  continue  to  see  

mergers  and  acquisitions,  joint  ventures  and  public-­‐private  partnerships,  other  new  initiatives  are  gaining  momentum  including:    

technological  innovation,  alternative  project  delivery  methods  and  strategic  business  development  (BD)  processes.  

Helbling  &  Associates  is  an  executive  search  firm  that  specializes  exclusively  in  construction,  facilities  management,  real  estate  and  

engineering.    While  our  clients  are  involved  in  diverse  geographical  and  vertical  markets  with  each  having  their  own  dynamics  and  goals,  a  

commonality  among  them  is  that  they  all  took  a  proactive  approach  during  the  past  few  years.    They  analyzed  their  processes  and  

procedures  to  streamline  operations,  they  focused  upon  and  expanded  their  niche  markets  and  they  integrated  advanced  technologies  into  

their  services.    All  of  these  initiatives  are  now  paying  off,  increasing  their  level  of  sophistication  and  strengthening  their  positions  in  the  

marketplace.    

Within  this  outlook,  Helbling  discusses  the  industry’s  active  sectors  and  the  opportunities  and  trends  that  are  making  this  an  interesting  and  

exciting  time.

Markets  to  Watch  in  2012:

➡ Healthcare

While  the  healthcare  market  is  already  at  a  historically  high  level,  REED  Construction  Data  is  forecasting  an  8%  increase  in  construction  

spending  for  2012  and  a  13%  increase  for  2013.    Sharing  the  challenges  of  financing  and  

government  policy  uncertainty  with  other  sectors,  healthcare  is  seeing  the  demand  for  specialty-­‐

care  facility  construction  and  renovation  of  existing  facilities  surpassing  those  issues.    The  U.  S.’s  

aging  population,  outdated  facilities  and  quickly  advancing  technologies  are  driving  activity.    

The  U.  S.  Census  Bureau  projects  that  by  2020  the  number  of  Americans  65  years  and  older  will  

grow  from  40M  to  54.6M,  an  increase  of  36%.    If  the  number  of  hospitals  expands  in  conjunction  

with  the  senior  population  over  the  next  two  decades,  the  country  will  see  more  than  2,000  

additional  hospitals  and  about  340,000  additional  beds.  

Healthcare  reform  will  also  help  keep  this  sector  active.    According  to  National  Real  Estate  

Investor,  the  32M  individuals  who  will  be  covered  under  the  new  law  will  require  64M  sf  of  

additional  space.    The  increase  in  overall  square  footage  needed  would  be  11%  by  2019.    

73% of healthcare construction is currently

for modernization of facilities to update IT

infrastructure for greater clinical

integration, and to make them greener and more patient-friendly.

Part  I

According  to  the  results  of  a  survey  by  Health  Facilities  Management  and  the  American  Society  for  Healthcare  Engineering  (ASHE),  73%  

of  healthcare  construction  is  currently  for  renovations  and  modernization  of  facilities  to  update  their  IT  infrastructure  for  greater  clinical  

integration,  and  to  make  them  greener  and  more  patient-­‐friendly.    

It  should  be  noted  that  a  dominant  trend  is  to  focus  more  on  ambulatory  than  on  in-­‐patient  care  facilities  to  effectively  address  the  

needs  of  the  population.    Related  construction  projects  included  in  this  sector  are:    nursing  homes,  assisting  living  centers,  physician  

offices,  clinics,  outpatient  centers  and  continuing  care  retirement  communities.  

➡ Higher Education

Despite  decreased  endowments  and  continued  tight  financing,  higher  education  institutions  are  

initiating  /  continuing  their  long-­‐term  capital  programs.    Over  the  last  several  years,  this  sector  

has  become  increasingly  ambitious  towards  green  building,  sustainability  and  energy  efficiency,  which  are  the  primary  drivers  of  new  construction  and  renovation  projects.    

The  United  States  Green  Building  Council  (USGBC)  claims  that  higher  education  leads  all  sectors  

in  green  building  in  terms  of  square  footage,  having  the  highest  number  of  registered  and  

certified  LEED  projects.    The  decreased  operating  costs  that  result  from  green  building  are  the  

impetus  for  this  activity  as  this  concept  can  reduce  energy  usage  by  30  –  50%  on  average.    With  

institutions  facing  extremely  high  deferred  maintenance  costs,  effectively  managing  these  

expenditures  can  determine  their  long-­‐term  financial  stability.    Additional  benefits  of  green  

building  include  carbon  footprint  reduction,  an  initiative  to  which  many  institutions  have  

committed.    

The USGBC claims that higher education leads

all sectors in green building in terms of

square footage, having the highest

number of registered and certified LEED

projects.

Among  the  largest  college  and  university  construction  projects  in  the  

planning  phase  are:

‣ Fordham  University  Lincoln  Center  Expansion  (NY)  -­‐  $1B

‣ University  of  Maryland  East  Campus  Redevelopment  (MD)  -­‐  $700M

‣ Palomar  Community  College  District  Proposition  M  (CA)  -­‐  

$613M

‣ Bluegrass  Community  Technical  College  (KY)  -­‐  $480M

‣ Indiana  University  of  Pennsylvania  Student  Housing  -­‐  $250M  -­‐  $400M

‣ Arts  &  Transit  –  Academic  Building  for  Creative  /  Performing  Arts  (NJ)  -­‐  $300M

‣ Mixed-­‐Use  Campus  &  Osteopathic  School  (AL)  -­‐  $279M

‣ George  Washington  University  Science  &  Engineering  

Building  (DC)  -­‐  $275M

‣ New  York  City  College  of  Technology  New  Academic  Building  (NY)  -­‐  $252M

‣ Academic  Village  at  Point  Park  University  (PA)  -­‐  $244M

*Source:  ENR  11/7/11

Among  the  largest  healthcare  projects  are:

‣ Stanford  University  Medical  Center  Expansion  (CA)  –  $3.5B

‣ Medical  Lifecare  Campus  (CA)  –  $3.3B

‣ North-­‐Shore  Long  Island  Jewish  (NY)  –  Approaching  $2.5B

‣ Scripps  Health  (CA)  –  $2B

‣ Union  Center  Medical  Campus  (NV)  –  $1.5B

‣ Louisiana  State  University  Medical  Center  (LA)  –  $1.2B

‣ Howard  University  Medical  Campus  (DC)  –  $1.1B

‣ University  of  California  San  Diego  Health  System  (CA)  –  More  than  $1B

‣ Seattle  Children’s  Hospital  (WA)  –  $1B

‣ University  of  Connecticut  (CT)  –  $1B

‣ CA  Pacific  Medical  Center  Cathedral  Hill  (CA)  –  $900M

‣ Duke  University  Health  System  (NC)  –  $800M

‣ Veterans  Administration  Hospital  (CO)  –  $800M

‣ Exempla  St.  Joseph  Hospital  (CO)  –  $750M

‣ Prince  George’s  Hospital  (MD)  –  $600M

‣ Massachusetts  General  Hospital  (MA)  –  $579M

‣ Carl  R.  Darnall  Army  Medical  Center  (TX)  –  $503M

*As  of  November,  2011

➡ Data Centers / Mission Critical

Globally,  the  total  annual  value  of  data  center  construction  is  approximately  $50B  and  Microsoft  experts  say  this  market  could  reach  an  

annual  value  of  $78B  by  2020.    The  value  of  the  U.  S.  data  center  construction  market  is  currently  about  $15B  /  year  and  will  likely  grow  to  

$18B  /  year  during  that  same  time  period.    Considering  the  average  cost  of  building  a  data  center  is  

decreasingly  sharply  from  about  $15M  /  megawatt  (MW)  to  $6M  /  MW,  this  marks  significant  

growth.    At  current  prices,  annual  data  center  construction  spending  would  increase  to  $50B  per  

year  in  the  U.  S.  and  to  about  $218B  globally.    

This  sector  is  being  fueled  by  “cloud  computing”,  a  domestic  stimulus  package  that  provides  

networking  services  to  under-­‐served  markets  and  the  entire  world  becoming  more  technology-­‐

dependent.    According  to  Internet  World  Stats,  the  number  of  Internet  users  has  jumped  from  

1.043B  users  in  2006  (16%  of  the  world’s  population)  to  2.11B  in  2011  (30%  of  the  world’s  

population).    In  addition,  the  number  of  smart  phones  is  projected  to  rise  from  500M  in  2011  to  2B  

by  2015  (International  Telecommunications  Union).

➡ Power & Energy

According  to  Associated  Builders  &  Contractors  (ABC),  power  is  expected  to  be  the  leading  construction  market  in  2012  with  an  

increase  of  9%  as  it  continues  to  benefit  from  the  growth  and  demand  for  both  sustainable  energy  sources  and  traditional  power  

sources.    Driven  by  federal  legislation,  population  growth  and  expansion  into  

remote  areas,  nearly  446,000  MW  of  new  capacity  are  under  some  degree  of  

development.    

Although  natural  gas  and  coal  are  dominating  new  capacity,  the  renewable  

energy  industry  is  still  growing  at  an  impressive  rate.    In  2011,  global  spending  

on  new  renewable  energy  projects  hit  a  record  $195B.    According  to  analysts  at  Bloomberg  New  Energy  Finance,  annual  investments  in  

clean  energy  are  expected  to  reach  $395B  by  2020,  driven  largely  by  solar  and  off-­‐shore  wind.    

It  should  be  noted  that  significant  opportunities  exist  for  shale-­‐gas  extraction.    More  pipelines  and  new  major  production  facilities  may  

be  necessary  to  handle  shale  gas  from  sites  around  the  U.  S.,  which  will  provide  a  strong  boost  to  construction  in  multiple  sectors.

➡ Emerging Countries

It’s  no  secret  that  developing  countries  offer  large,  multi-­‐national  engineering  and  construction  (E  &  C)  companies  interesting  

opportunities,  especially  in  the  infrastructure  market.    Most  construction  growth  over  the  next  10  

years  is  expected  to  occur  in  China,  India,  other  Asia  Pacific  regions,  Brazil  and  the  Middle  East  due  

to  plans  for  massive  spending  on  infrastructure.    In  a  study  performed  by  PricewaterhouseCoopers  

(PwC),  25%  of  large  E  &  Cs  noted  geographic  expansion  as  a  primary  opportunity  to  grow  their  

business  over  the  next  few  years.    However,  entering  these  markets  can  be  difficult  as  each  poses  

unique  challenges  and  foreign  companies  tend  to  have  a  disadvantage  at  winning  government  

contracts.    

One  such  emerging  market  is  India.    Having  a  population  of  over  1.2B  and  experiencing  8%  average  

growth  in  real  GDP  over  the  past  decade,  India  has  become  one  of  the  fastest  growing  economies  

in  the  world.    In  fact,  PwC  predicts  that  India  will  become  the  world’s  third  largest  economy  by  

2050.    2010  revenues  of  the  Indian  engineering  and  construction  market  were  $47.8B.    While  there  

are  challenges  to  working  in  India  such  as  lengthy  lead  time  and  its  intensely  local  market,  firms  are  attracted  to  the  staggering  sums  of  

investments  that  are  planned  in  multiple  vertical  markets  and  the  popularity  of  public  -­‐  private  -­‐  partnerships  in  the  country.    

At current prices, annual data center

construction spending would increase to

$50B/year in the U. S. and to about

$218B/year globally.

In a study performed by PwC, 25% of large

E & C firms noted geographic expansion

as a primary opportunity to grow

their business over the next few years.

2011 Global Spending On New Renewable Energy = $195B

Trends  in  Strategic  Initiatives:

‣ Strengthening competitive advantage through innovation.

Today’s  technology  is  continually  encouraging  A/E/C  firms  to  consider  new  ways  of  improving  and  streamlining  their  processes.      Many  

firms  are  focusing  on  technology  because  they  believe  in  its  potential  to  increase  their  revenues  and  to  strengthen  their  competitive  

advantage.    According  to  Deloitte  &  Touche’s  ‘Mid-­‐Market  Perspectives:    America’s  Economic  Engine’  report,  technology  has  

superseded  talent  acquisition  in  middle-­‐market  firms  with  70%  of  executives  surveyed  saying  that  their  productivity  has  increased  due  

to  improved  business  processes  and  technology  developments.    Some  of  those  advancements  have  been  in  green  building,  Building  

Information  Modeling  (BIM)  and  new  software  applications.    

Much  innovation  in  E  &  C  centers  on  green  building  due  to  owners  wanting  to  integrate  sustainability  and  energy  efficiency  into  their  

projects.    Firms  that  are  unable  to  offer  these  concepts  to  owners,  especially  healthcare  and  higher  education  institutions,  are  at  (and  

will  remain  at)  an  extreme  disadvantage.    Healthcare  and  higher  education  organizations  are  particularly  performance-­‐driven  and  are  

increasingly  demanding  green  construction  and  LEED-­‐certified  projects.    In  fact,  many  major  colleges  and  universities  have  announced  

that  they  will  only  build  LEED-­‐certified  facilities  going  forward.    Also  supporting  this  initiative  is  the  U.  S.  Green  Building  Council  

(USGBC).    In  April  2011,  the  organization  added  a  healthcare  category  to  its  LEED  rating  system,  encouraging  developers,  designers  and  

contractors  of  healthcare  projects  to  implement  its  services  and  programs.

New  technologies  also  continue  to  shape  the  way  projects  are  designed  and  delivered.    Pressures  continually  mount  to  keep  project  

costs  downs  and  to  increase  efficiency  which  is  why  BIM  has  gained  much  traction  in  recent  years.    BIM  has  made  its  way  to  popularity  

with  owners,  designers  and  contractors  due  to  the  many  benefits  it  offers  and  its    market  will  only  expand.

With  tablets  being  adopted  quickly  throughout  the  industry,  a  new  generation  of  applications  is  emerging.    Some  of  the  applications  are  being  designed  by  construction  entities  using  in-­‐house  project  teams  or  by  partnering  with  vendors.    Mid-­‐sized  firms  say  there  is  a  need  

and  a  desire  to  build  applications  that  fill  gaps  currently  not  served  by  enterprise  vendors.

‣ Offering alternative project delivery methods.

The  companies  who  sustained  themselves  in  recent  years  and  who  are  now  in  growth  modes  adapted  their  services  to  meet  the  needs  

of  their  customers.    Because  the  primary  objectives  of  owners  are  maximizing  their  return  on  investment  (ROI)  and  generating  revenues  

as  quickly  as  possible,  new  alternative  project  delivery  methods  have  become  very  attractive  in  certain  situations.        

Integrated  Project  Delivery  (IPD)  is  expanding  its  presence  due  to  its  reputation  for  providing  an  efficient  construction  management  

process.    It  is  understandable  that  owners  want  to  assemble  project  teams  early  which  can  be  the  key  to  a  successful  project.    This  

method  gathers  architects,  contractors,  facilities  staff  and  major  subcontractors  together  to  easily  provide  “design-­‐assist”  services,  

mitigate  potential  problems  and  streamline  the  entire  process.    

Prefabrication  and  modularization,  effective  methods  in  Europe,  are  emerging  concepts  in  the  U.  S.  that  are  expected  to  accelerate  due  

to  owners  wanting  to  shorten  schedules,  decrease  costs  and  address  the  worsening  labor  shortage.

“Lean”  methods  caused  a  revolution  in  manufacturing  many  years  ago  and  emerged  in  the  A/E/C  industry  only  in  recent  years.    This  

method  of  construction  is  more  focused  on  control,  maximizing  value  and  minimizing  waste  and  is  effective  on  certain  types  of  complex  

projects.

Value-­‐based  contracting  is  a  collaborative  concept  that  offers  a  drastically  different  approach  to  projects.    Instead  of  negotiations  

revolving  around  costs,  they  are  based  upon  contractual  performance-­‐centered  arrangements.    According  to  the  International  

Association  for  Contract  &  Commercial  Management  (IACCM),  companies  that  have  adopted  this  approach  have  been  successful  at  

achieving  margin  improvements  of  10%  or  more.      

‣ Improving business development practices.

Many  A/E/C  firms  are  experiencing  lower  profit  margins  due  to  limited  opportunities  and  increased  competition.    Because  acquiring  

work  has  become  a  major  challenge,  companies  need  to  be  adaptable,  strategic  and  responsive.    Therefore,  they  are  redefining  their  BD  

efforts  and  implementing  practices  that  generate  the  best  ROI.

A  significant  number  of  entities  have  increased  the  involvement  of  their  principals,  senior  executives  and  owners  in  their  BD  while  

others  now  involve  key  operations  and  estimating  personnel.    Although  these  measure  can  be  helpful,  they  are  not  comprehensive  

solutions  to  developing,  building  and  nurturing  relationships  with  new  and  long-­‐term  clients.

Organizations  that  have  closely  analyzed  their  BD  processes  have  learned  that,  to  achieve  the  greatest  ROI,  they  have  to  selectively  

pursue  projects  that  support  the  long-­‐term  goals  of  the  company  and  provide  the  proper  training  and  guidance  to  employees  while    

clearly  defining  expectations  and  following  through  with  accountability.

In  closing,  there  are  many  positive  trends  in  the  A/E/C  industry  that  are  presenting  opportunities  for  organizations  to  be  innovative  and  

proactive  in  their  vertical  markets,  operations,  project  execution  and  BD.    The  companies  who  are  most  adaptable  and  progressive  in  their  

initiatives  will  experience  the  most  success.        

Learn  about  the  industry’s  trends  in  talent  management  by  reading  our  A/E/C  Outlook  2012:    Talent  Management  Strategies

Sources:American  Public  Power  Association,  American  Society  of  Healthcare  Engineers,  Associated  Builders  and  Contractors,  Bloomberg  New  Energy  Finance,  DatacenterDynamics  Global  Industry  Census  2011,  Engineering  News-­‐Record,  Health  Facilities  Management,  International  Association  for  Contract  &  Commercial  Management,  International  Telecommunications  Union,  Internet  World  Stats,  McGraw-­‐Hill  Construction,  Microsoft,  National  Real  Estate  Investor,  U.  S.  Census  Bureau,  U.  S.  Green  Building  Council,  World  Economic  Forum,  Yudelson  Associates

Authors:     Sami  L.  Barry,  Strategic  Business  Development

  Marc  K.  Datz,  Senior  Managing  Consultant

  Matthew  D.  Lesher,  Managing  Consultant

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