What the AEC Industry Will See in 2021

What the AEC Industry Will See in 2021

AEC Industry

Below is an article by Glenn Ebersole published in the Lehigh Valley Business Journal and the Central Penn Business Journal on November 9, 2020.

Members of the AEC (Architectural, Engineering & Construction) industry are looking ahead to 2021 and realize the year ahead looks challenging. However, 2021 will present opportunities for leaders who are anticipatory and think strategically. Those leaders will look for the hard trends and soft trends, identify the disruptors in the industry, and subsequently define the opportunities that will exist for them.

Assessing market opportunities and developing strategic business development/marketing plans will identify where AEC firms will invest for growth in 2021. The process of assessing the market opportunities and creating plans to pursue business will be very different than the process used in creating plans prior to COVID-19.

Several factors will complicate market analysis and plans for 2021, including the course of the pandemic and the availability of a safe and effective vaccine. The uncertainty about the vaccine and the post-election socio-political environment will further complicate planning for 2021.

The overall market for AEC services will contract in 2021 and yet there will be opportunities for growth. Some of the growth will come from existing market sectors where new needs have emerged from COVID-19. Other opportunities will be in new markets that have been created by the pandemic.

The pandemic has caused the various markets within the AEC industry to evolve into much different markets. Leaders of AEC firms must look at their markets through entirely different and new lenses to plan for 2021. One significant example is the retail market which has been going through a major evolution. This evolution is creating opportunities for AEC firms that look at redesigning, remodeling, and repurposing existing retail facilities for different product delivery systems and increased safety.

The AEC industry will face a contraction of state and municipal budgets due to revenue shortfalls caused by the pandemic. This will mean a smaller market for AEC services and more pressure on company margins.

A bright spot for 2021 appears to be in multi-family and mixed-use real estate development. Historically low mortgage rates, demand exceeding supply and an emerging trend of movement to suburban and rural areas are a combination that is providing confidence in this type of housing market. Therefore, AEC firms will see some growth opportunities in this market.

Federal markets are different than the state and local government markets primarily because they are not required to have a balanced budget. Purchasing of AEC services at the federal level will continue but spending priorities will change with a new administration. Access to the federal market may remain focused toward the largest industry players, firms with specialized expertise, or those with special designations and security clearances.

A very strong market for 2021 and beyond is life sciences. Billions of dollars are being invested in this sector in cities and on university campuses and the investment will continue for many years. This is an especially attractive market for AEC firms that provide services to meet the demands of this industry.

The industrial market is another very strong market going into 2021. Increased demand for warehouses and distribution centers will continue because of the acceleration of e-commerce due to shopping behavior changes caused by the pandemic. One example is the continued opening of distribution centers at a rate of more than 100 in one month by one of the major players. On-line retailers will drive strong demand for AEC services in this sector and associated cargo facilities at airports through 2021 across North America.

Data centers will be a strong market because of the increased need to support growing technology. The exponential acceleration of e-commerce and technology drives the need for increases in the extraordinary power needed to process all the data necessary for its success.

The prospects of government privatization and outsourcing are expected to rise due to budget shortfalls. The budget shortfalls will create incentives for state and local governments to privatize and outsource services. This trend will create growth opportunities for AEC firms.

Some construction companies may decide to specialize in target niches and segments to build competitive advantages. They will work to achieve a compelling brand that represents an organization’s distinctive attributes and values that will take on added importance.

Sustainability already is an important decision factor. The reality is that we are at the beginning of increasingly rapid development. In 2021, companies will need to: consider the environmental impact when sourcing materials; make manufacturing more sustainable, and optimize supply chains for sustainability as well as resilience.

The possibility of future lockdowns is a real “wild card” for 2021. For example, if positive things happen, construction activity could be back to pre-crisis levels by early 2021. But longer-term lockdowns could mean that it takes more than 3 years to recover. Previous crises have had an accelerative effect on trends, and this pandemic is also expected to trigger lasting change that will impact the use of the built environment.

Survival and sustainability of AEC firms in 2021 will require the development of effective strategies to deal with the disruption that lies ahead. AEC firms must act now to define the vertical markets and segments of those markets, size, and type of projects and geographic footprint they will pursue and then determine how to develop and execute their business development and marketing plans.

The planning process is critical whether an AEC firm decides to continue only in their core business and adjust or reinvent themselves to respond to the changing market environment. One of the most critical success factors for 2021 is business agility, which means rapid, continuous, and systematic evolutionary adaptation and entrepreneurial innovation directed at gaining and maintaining competitive advantage.

How critical is business agility? Bill Gates provides a great answer when he said, “Success today requires the agility and drive to constantly rethink, reinvigorate, react and reinvent.

Glenn Ebersole is a registered professional engineer and the Executive Director, Strategic Business Development/Marketing for RCS Construction, a woman-owned general construction firm in Collegeville, PA. He can be reached at gebersole@rcsconstruction.net or 610-415-1130.

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