By Jerome A. Guerra
A survey of proposal activity among architecture, engineering and construction professionals indicates that the outlook for healthcare construction remains solid, but may be showing signs of weakening.
The PSMJ Resources Quarterly Market Forecast (QMF) survey reports that proposal activity for Healthcare Facilities remained solid in the third quarter of 2019, suggesting a continuing pipeline of new projects heading into 2020. The sector bears watching however, as the overall healthcare market and the four submarkets tracked by the study were all down from the previous quarter.
The survey of approximately 200 companies conducted by PSMJ, a consulting and publishing firm dedicated to serving the architecture, engineering and construction (A/E/C) industry, tracks 12 major markets and 58 submarkets of design and construction companies. Among the major markets measured in PSMJ’s Quarterly Market Forecast (QMF), Healthcare was the second-strongest in the third quarter of 2019 with a Net Plus/Minus Index (NPMI) of 46%. It trailed only Transportation (49%) in the quarterly survey.
Despite the positive results, the NPMI for Healthcare dropped below 50% for the first time since the third quarter of 2018. PSMJ’s NPMI measures the difference between the percentage of firms reporting an increase in proposal activity and those reporting a decrease.
For all Healthcare facilities, only 6.2% of respondents said that proposal activity declined, compared with 52.6% that saw an increase. Proposal activity in Healthcare for the remaining participants was relatively unchanged, quarter to quarter.
The more than 40% of respondents who said that third-quarter proposal activity was relatively stagnant is not necessarily a negative, however, as the level of proposal activity measured over the past several years has been running at historic highs. PSMJ has been conducting the QMF survey since 2003.
“For several years, demographic trends and technological advancements have driven a strong healthcare facility market for architects, engineers and contractors,” says Dave Burstein, a director and senior consultant with PSMJ. “After a few years of substandard profitability for A/E firms in this sector, their profitability has returned to previous levels, indicating a shortage of capacity to serve the growing demand for design services.”
In another potential area of concern for the Healthcare market, however, all four of the submarkets measured in the QMF fell in the third quarter. Continuing Care Facilities, including treatment centers and nursing homes, fell to its lowest level in seven years with an NPMI of 47%. This ended a streak of 23 consecutive quarters in which the CCF submarket scored an NPMI of 50% or higher, and followed a quarter in which it topped all 58 survey submarkets with an NPMI of 70%.
Burstein says that he believes the slide is temporary and that the health care numbers will rebound. “Continuing Care Facilities (CCFs) and medical offices, in particular, have maintained exceptionally high levels of proposal activity almost since the end of the last recession. Design and construction of CCFs and medical offices should continue to be robust as demand continues to outpace the rate at which supply is being added,” says Burstein, who served for many years as an executive in a multinational engineering-construction firm before joining PSMJ.
Medical Offices was the second-best Healthcare submarket with an NPMI of 40%, but also slid in the third quarter, marking its lowest level in nearly three years. Results for Hospitals and Medical Laboratories also dipped in the third quarter, both coming in with an NPMI of 18%. Medical offices recorded an NPMI of 51% in the second quarter, while Hospitals and Medical Labs were at 27% and 26%, respectively.
PSMJ Resources, Inc., based in Newton, Massachusetts, is a publishing, executive education, and advisory company dedicated to serving A/E/C organizations worldwide. Its QMF draws responses from approximately 200-300 A/E/C professionals each quarter. PSMJ chose proposal activity to gauge the industry’s long-term outlook because it is the earliest stage of the project lifecycle.
Jerome A. Guerra is Principal of The JAGG Group.