Kermit Baker, a Senior Fellow at Harvard University’s Joint Center for Housing Studies and the Chief Economist of the American Institute of Architects (AIA), spoke at the ASLA 2009 Annual Meeting general session this morning about the economic outlook for the landscape architecture industry. Baker acknowledged that landscape architects have been “mired in a steep downturn since 2006.” While a recovery is now underway in the residential market, he said, the non-residential market is still going through a downturn. The economic conditions for the landscape design field have been “the worst in the past 50 years.”
Baker argued that firms need to develop new strategies based on demographic change and an evolving customer base, and prepare for an evolving industry structure (including increased consolidation among design firms). Emerging markets, including China, India, and Russia, present growth opportunities for U.S. firms. Also, while sustainable design is in demand, landscape architects still need to search for these sustainable design opportunities. Baker said retrofitting existing facilities was a key opportunity.
In terms of the macro-economic outlook, federal stimulus funds have yet to kick in. Only 25 percent of allocated dollars have been spent, with much more in the pipeline for 2010, 2011. Credit conditions have improved somewhat, and consumers are also more positive. However, Baker said the recovery will likely be weak. Seven million jobs have been lost, and it will take a long time to refill or replace them. The stimulus package, in total, is expected to bring 600,000 to 1.2 million new jobs.
Additionally, immense household wealth loss means consumers are cutting back spending. International economies are also weak, so export-led growth will not lead the U.S. market into growth. A huge federal debt may also raise interest rates.
For the landscape architecture market, the business conditions index for this quarter is currently at 22.9. A score of 50 indicates stable business conditions. As Baker drilled down into ASLA Business Quarterly survey results, he found that most firms don’t think the federal stimulus funds will help. Firms right now are most focused on:
- Coping with a weak economy
- Identifying new project opportunities
- The availability of financing or credit for existing projects.
In an exclusive ASLA survey of emerging business issues for the profession, firms said they are most concerned with:
- Negotiating fees
- Rising costs (including healthcare)
- Competition from other firms
- Retaining staff
- Managing credit.
Almost half of landscape architecture firms want to be smaller. Forty percent are interested in expanding services. 34 percent are looking to diversity into new markets, and 32 percent are investing in new technology to remain competitive.
On the broader U.S. housing market, Baker added that there has been a 75 percent decline in housing starts, the worst since World War II, and, possibly since the Depression. Home prices continue to fall and 30 percent of homes are selling at a loss.
On the brighter side, there will be strong household growth over the next decade, with two-thirds of this housing growth coming from minority families. Between 2010 and 2020, 31.2 million new households will be added. With Baby Boomers retiring, there will also be greater population growth in the 60-80 age group, meaning higher demand for retirement housing.
Public works are also expected to increase over the next few years. New work on streets, bridges, and dams/rivers is expected to be up 15-20 percent. Water/sewer work will be up 7-8 percent.
Internationally, the real-estate construction market is $4.7 trillion. The U.S. market is $1 trillion. Another $700 billion market is found in Japan, and there is a $1 trillion market in Europe. However, there is little growth potential in these areas. The highest growth will be in Asia, followed by Africa, the Middle East, and Eastern Europe. For Western firms seeking to enter emerging markets, Baker urged, “Find local partners who can navigate local customs, laws, regulations.” Western firms can bring “creativity, vision” but won’t be competent in the short-term on knowing how to do business.
On sustainable design, Baker said, “There has been demand for sustainable design since the 1970’s, since the first Earth Day, but it’s really just taken off in the last few years.” While sustainable building practices will continue to be a growing market, and new energy-efficient buildings will continue to be added to the housing stock replacing outdated, less energy-efficient buildings, Baker thought a key market would be retrofitting older buildings. He told designers to “look beyond obvious projects.” Futhermore, since half of the U.S. population has been born since the first Earth Day, the younger U.S. population has a “different understanding of sustainable design.” There can only be more growth in this market. Baker also said that while much of landscape architecture work is focused on energy conservation, involvement in the growing renewable energy market also presents an enormous opportunity.