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Outlook 1999 | 25
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Outlook 1999

 The 1990's are shaping up to be one of the best decades on record for the housing market. Moreover, the homeownership boom is one of the fundamental forces sustaining the long-lived economic expansion. The State of the Nation's Housing 1998 by Harvard University's Joint Center for Housing Studies concurs with NAHB confidence. Not only is housing a "hot" industry for landscape designers and contractors, but it is having an important and lasting effect on the overall economy.

Total Housing Units (in thousands of units) constructed nationwide are divided into Single Family and Multi-Family homes. This graph (chart, top left) breaks down the housing outlook between the years 1996-1998, and projects the forecast for 1999. NAHB economics figures indicate that remodeling again represents a strong sector of the residential market for Landscape Architects (chart, top right), accounting for $115-120 billion per year in a combination of landscape and building improvements, maintenance and repairs.

This graph breaks down the "cyclical business" of commercial office construction, ranging in thousands of square feet of completed space from 1996 to 2001. LASN forecasts that the commercial market is still in the positive part of its current cycle, and should remain so through 2002.

Four-year colleges saw the greatest increase in construction activity last year (chart, top right). In 1998, almost all funding for school construction went toward new construction, and the largest concentration of building was in the Southeast (chart, top left). According to the Policy Clearinghouse for the National Association of State Boards of Education, more than half of the construction funding was spent in these three regions.

When compared to the total value of the U.S. construction industry ($522.6 billion), Landscape Architects still only contribute to a fraction of the monetary value of the industry. However, CLARB maintains these figures are growing each year, as Landscape Architects play significant roles in transportation and community design (See "Construction Spending," chart, page 30.)

While design firm profits over the past few years have been healthy, ranging from 8% to 10% of net revenues, they climbed to over 11% in 1997, the highest of the decade. Almost a third of the 300 responding firms were very profitable, reporting rates of greater than 20%, while only 13% reported negative gains. Many of the financial indicators reported for 1997 are the best this decade, including the average Net Revenue, which reached its highest point in ten years: approximately $72,800 for each staff member in a design firm.

What has changed dramatically over the past few years is not what Landscape Architects practice, but rather, where they practice. More and more practitioners are leaving traditional landscape architectural firms for the larger offices of multidisciplinary firms.

 
The construction economy, riding an historic wave of expansion, is poised for new growth through the year 2002, reports William D. Toal, former Senior Economist for the Federal Reserve and current Chief Economist with the Portland Cement Association. Toal's forecast was presented to a group of construction industry analysts attendees (design and construction professionals, manufacturers, economists and government agencies) gathered for a briefing jointly hosted by CMD Group and The Construction Specifications Institute. The 1999 North American Forecast Conference reported on the underlying socio-economic trends driving the construction economy-- Canada, the United States and Mexico-- into 1999 and the new millennium.
According to Toal, with the economy in its longest "non- inflationary" expansion on record, U.S. economic performance from a worldwide vantage point is "a sight to behold... a superstar... boasting low inflation with strong economic growth."
 
Specifically, although the United States construction economy is expected to dip slightly in 1999, it remains at a high level of activity. What's more, it has now come into balance in terms of demand and supply, and will rebound after the year 2000-- achieving new growth into the new millennium. How long can this miracle last, particularly with economic turmoil in the Asian markets of the world? In Toal's opinion, "Apparently longer than many analysts, including myself, had thought. Strong, steady economic growth continues unabated."
 
All of this is positive for the design and construction industries. "After reaching new record highs in 1997 and 1998, construction should expand by approximately two percent over the next few years with only a mild two percent retrenchment expected. For now and for the foreseeable future these are, for the construction and materials industries, truly the best of times."
 
In particular, residential construction and housing starts have performed better than expected, and will continue to do so in early 1999. Demographic trends will continue to put some downward pressure on residential construction, particularly single-family construction. In 1998, residential construction comprised 40% of total construction and 60% of all private construction. According to David F. Seiders, Chief Economist and Senior Staff Vice President of the National Association of Home Builders, "The performance of the 1998 economy is exceeding last year's expectation." Job growth, the pace of the economy, and low inflation all are playing integral parts in this strong showing. "Single-family units should account for nearly 80% of total housing starts throughout the 1999-2000 period," Seiders continues. He explains that this sector of the industry is "doing as well as in the best parts of the 1980s." Mobile homes comprise another important segment of the residential market. According to Seiders, this industry is "turning out as many units as multifamily construction-- and this trend should continue on its current pace. In fact, many 'stick-built' homebuilders are foraging into the mobile home market, and are able to compete."
 
Not surprisingly, remodeling also represents a strong sector of the residential market, accounting for $115-120 billion per year in a combination of landscape and building improvements, maintenance and repairs. According to Seiders, "There's lots of money here. This segment moves the exact same way that new construction does, even though it isn't quite as sensitive. I see remodeling eking out even more growth next year," he forecasts. The amount of money spent on residential fixed investment next year will be slightly higher than it was in 1998. Residential fixed investment includes the dollar volume of construction put-in-place for new single and multifamily structures, mobile home production, brokerage commissions on new homes, and improvements to existing structures, such as landscaping, alterations, and major additions. Seiders expects this number to keep climbing, albeit slowly, through the year 2000.
 
On a different front, nonresidential construction has taken a small pause in its rebound. But the fundamentals for most areas of commercial and industrial construction remain positive. Office vacancy rates have dropped to under ten percent, their lowest level in fifteen years. Hotel construction may be about to correct slightly from extremely high levels. Steven Laposa, National Director of Real Estate Research with Price Waterhouse, told attendees of the 1999 North American Construction Forecast Conference that "this year, altogether, was a good year for office construction," and that "in 1999 to 2001, there will be more increase." Laposa described commercial construction as a "cyclical business." In 1985, the square footage of completed office buildings was six times what it is today. From 1992 to 1996, "it was pretty flat." But the market today remains in the positive part of its cycle and should continue through 2002. Laposa stressed the existence of several regional office markets. Not only must each region be looked at separately, but it's important to understand the differences between Central Business Districts (CBDs)-- downtown areas across the nation where low interest loans and matching funds are available for renovation of buildings, streetscapes, urban plazas and landscape-- and suburban markets. For example, 66% of the absorption of the office space is currently happening in suburban markets. But CBD absorption is expected to improve. Overall, Laposa projects an office growth rate of 3.2 percent through 2001. Looking further out, he sees the next big demographic boom favoring office construction beginning in 2005.
 
Furthermore, education is one of the strongest areas of construction, especially primary and secondary schools. The school age population began to turn up at the beginning of this decade and is assured to continue to rise through the early years of the next century. As a result, this area of construction is up more than twenty percent, and will remain strong for the foreseeable future. "School construction is one field where demand does not lead to supply. $112 billion needs to be infused to restore current schools to good condition. And that's just in renovations, not new construction," relates Carla Claycomb, Director of the Policy Clearinghouse for the National Association of State Boards of Education.
 
In addition to educational facility renovation, Claycomb explains, "Six thousand new schools need to be built over the next decade in order to meet the demand." Four-year colleges saw the greatest increase in construction activity last year. In 1997, almost all funding for school construction went toward new construction, and the largest concentration of building was in the Southeast (Arkansas, Florida, Georgia, South Carolina, North Carolina, Kentucky, Tennessee, Mississippi, West Virginia, Alabama, Louisiana, and Alabama); West (Nevada, Washington, California, Alaska, Oregon and Hawaii); and the Midwest (Idaho, Montana, Colorado, Utah, and Wyoming). "Regionalism makes a huge difference when deciding what kind of construction will take place," Claycomb concludes. "School construction is dependent on local needs and local lawmakers."
 
Along with the recent surge in construction of public schools, highway construction has trended upward through the mid-nineties as a result of the passage of major federal transportation legislation. When President Clinton signed the Transportation Equity Act for the 21st Century (TEA-21) last June, it meant that at least $195 billion in federal funds will be flowing into highway and mass-transit projects over the next six years. The TEA-21 federal transit program presents tremendous opportunities for Landscape Architects and designers with community-planning skills. In particular, the Transportation Enhancements Activities program is projected to grow to an average of about $630 million annually, explains Roy Kienitz, Director of the Surface Transportation Policy Project. This category uses Highway Trust Fund dollars for bikeways, walkways, and historic preservation projects. Constructing bus and transit shelters, public art, and landscape design are certainly eligible activities, as the program carries forth the "big picture" of building communities.
 
Harper and Shuman, a provider of project control and financial management software, has announced the results of the seventeenth annual Operating Statistics Survey, which reports on financial performance indicators. Compiled in mid-1998, the 1997 fiscal year survey contains responses from 197 architectural, landscape architectural, engineering, environmental and interior design firms. Although profits were not as high as reported for 1996, most firms still did quite well. The survey results show a median profit figure of 8.5% of net revenue, a 20% drop from the 1996 profit of 10.8%. Overhead increased from 152% in 1996 to 155% in 1997, producing an increase in the break-even rate from 2.52 to 2.55. Specifically, the environmental firms responding to the survey have traditionally had higher overhead rates, higher effective multipliers, and the lowest charge rates. Engineering firms report just the opposite: the lowest overhead, lowest multipliers, and highest rates. These patterns, which reflect the different business nature of the three firm types, are consistent from year to year. Architectural and landscape architectural firms came in with the highest profit figure in this year's survey, while engineering firms were second and environmental firms third. However, companies shared their financial success with their employees more than ever in1997. Over 75% of the profitable firms reported giving bonuses to their employee, while the magnitude of the bonus increased from $2,650 per employee in 1996 to $3,200 in1997.
 
"Summing up," explains Toal, "with continued economic gains, construction sectors fundamentally in balance, and new federal funding for transportation-- record levels of construction activity should continue in 1999 and into the new millennium." lasn
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