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'Hesitant' Recovery Hurts Design Firms, But Some Sectors Are Picking Up

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The overall decline in the public sector took a toll on many of the New York region's design firms last year, some of which were still trying to dig their way out of the recession. The greatest demand for design services in the sector has been and is expected to continue to be fueled by numerous multi-year transportation projects and Superstorm Sandy-related work, executives say. On the private side, signs of life have returned, especially in the residential, commercial and higher education markets, they add.

Rendering Courtesy of STV
State of Repair: The $30-million-plus South Beach Psychiatric Center in Staten Island, N.Y., is one of STV's Sandy-related resiliency projects.
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The design sector had hoped that 2013 would "place it further ahead in the direction of the recovery," says Mark Regulinski, treasurer of the New York chapter of the American Institute of Architects (AIA) and managing director of Skidmore, Owings and Merrill, New York City. But "hesitancy and uncertainty" has continued, he says.

The protracted softening in demand "is a bit of a surprise given the overall strength of the market the last year and a half," said Kermit Baker, AIA chief economist, in a statement last month on the drop in the March score of AIA's Architectural Buildings Index. "Hopefully some of this can be attributed to severe weather conditions over this past winter. We will have a better sense if there is a reason for more serious concern over the next couple of months."

Regulinski says there is also "a general paralysis at the federal and state levels across the country and nothing hits businesses harder than that uncertainty." He adds that not knowing "makes everyone touch that accelerator more lightly."

That sentiment is partially reflected in the top 100 design firms that participated in ENR New York's survey this year. Nearly half of those that responded reported a year-over-year drop in regional revenue.

But Milo Riverso, CEO and president of STV Inc.—ranked No. 7 with regional revenue down 35% to $115 million—expects good growth ahead with some major contract wins. His firm was recently selected for resident engineering inspection services on the $550-million replacement of the Kosciuszko Bridge in Brooklyn. STV is also involved in several Sandy-related resiliency projects, including the more than $30-million, 47,000-sq-ft New York State Office of General Services' South Beach Psychiatric Center project in Staten Island, N.Y., as well as ongoing storm-hardening work for utility company Con Edison.

"Sandy efforts are going to supplement the industry for the next two to three years," Riverso says. He adds that STV, which has a 100-year history in New York City, was hit with the decline of the public sector, and saw the completion of some large projects last year including Avenues: The New World School.

Uptick to Come

Infrastructure projects that are in progress will continue for the next few years and create an uptick in the industry, says Denise Carter, branch manager at Greenman-Pedersen Inc., Babylon, N.Y., No. 5 in the ranking with a 9% regional revenue increase to $122 million.

Carter attributes the rise to the firm's involvement in several transportation megaprojects. These include the $2-billion New Jersey Turnpike widening project, the $1.29-billion raising of the Bayonne Bridge and work on several other bridge crossings in New York City such as the Whitestone, Verrazano-Narrows and Brooklyn bridges.

The firm's other projects include a $450-million program for the complete reconstruction of interconnected approach roadways and bicycle/pedestrian paths on a 7.5-mile stretch of the Belt Parkway—a major thoroughfare that stretches between Brooklyn and Queens and serves up to 150,000 cars per day. Greenman-Pedersen is providing program management and resident engineering and inspection services for seven bridges along the parkway.

"The bridge industry is quite robust right now," Carter says. "Cautiously speaking, the public sector is picking back up and all of the bridge projects in New York City help tilt that scale."

In the private sector, the gradual comeback that began last year continues to gain momentum. "The private sector is more than just gradually coming back—it's roaring back," says Bradford Perkins, chairman and CEO of Perkins Eastman, New York City. Despite dropping three spots in the ranking to No. 16, the firm saw its revenue grow by 13% to nearly $80 million.

"Last year was a record year for us," Perkins says. "We left the recession in the rearview mirror. This year will be even better."

The increase was helped by several factors, he says, including the steadiness in private sector work—especially for housing, health care and commercial development—as well as foreign investment and the "big push to get legacy projects that were part of the Bloomberg administration approved before he left office."

The industry also has opportunities in the health care market as many hospitals have significant building programs under way, Perkins says.

Perkins Eastman will provide programming, architecture and interior design services on the $1-billion-plus Memorial Sloan Kettering Cancer Center project in which the hospital teamed with the City University of New York's Hunter College School of Nursing to develop a 760,000-sq-ft ambulatory care center at 74th Street in Manhattan. The project is scheduled to begin before summer and is slated for completion by 2018.

While ambulatory care facilities are on the rise, new construction in the overall health care sector seems "paralyzed," says AIANY's Regulinski. "We still don't know how the Affordable Care Act is going to affect the way health care is being delivered," he says. "Companies are hesitant to build new health facilities."

Alternative Means

Among industry trends, alternative delivery methods such as public-private partnerships (P3), which were "spawned by the fiscal constraints the industry has been in for the past few years," gained a lot of momentum in a short amount of time, Carter says.

These methods "allow projects to get built more quickly and create opportunities to collaborate," she says. "It's a trend that continues to grow, but it's not a silver bullet. There will still be a lot of design-bid-build projects out there because the other methods are not always applicable to certain projects," she adds.

Use of these approaches was dampened by Superstorm Sandy work, executives say. "If Sandy never happened, you'd see a bigger discussion on P3 and alternate delivery, but federal dollars have paused that conversation," says Peter Glus, director of business development at ARCADIS U.S., New York City, which has retained the No. 2 spot in the ranking for the last two years. Instead, he says, an even bigger current trend is the incorporation of resiliency approaches into urban planning.

Regional agencies such as the Port Authority of New York and New Jersey and the Metropolitan Transportation Authority, which may not have had the funds for infrastructure projects before, are now receiving Sandy relief aid, Glus says. "It's important now to figure out how to maximize the federal funding and get high synergistic value out of those dollars. That's what clients in the infrastructure sectors are talking about."

ARCADIS's major projects include the $35.7-million Bay Park Sewerage Treatment Plant in Nassau County, N.Y., which was hard hit by Sandy (ENR New York 2/24-3/3 p. 22). The design-bid-build project, headed by the firm in a joint venture with Hazen and Sawyer, includes construction of three electrical unit substations and is set to be finished in March 2016.

Hiring Up

Some executives say staffing is back up to prerecession levels and firms are steadily continuing to hire.

Perkins Eastman has increased staff by 30% since 2012, but that hasn't been without difficulty, Perkins says. Most of the new hires have been added to the firm's New York City office, but "there is a real shortage of staff in our Connecticut [and outside offices]," he says. "It's been hard to find experienced people in those areas." Finding and retaining talent has been and continues to be a challenge. "A lot of people left the industry and didn't return," Riverso points out. "It's important to bring in younger people and train them."

Going forward, executives say they are cautiously optimistic that the economy will improve and keep both the private and public sector healthy.

What will help to contribute to that, especially in the public sector, is the push in Washington to get another transportation bill passed, they say. That will help "smaller, state-of-good-repair projects get funded, which agencies rely on," Carter says.

Firms also need to consider what their next step will be once the Sandy relief funds dry up, executives say.

"As the Sandy money dissipates, we're hoping tax programs for the public sector are replenished," Riverso says.

ARCADIS's Glus agrees, emphasizing that the industry needs "to begin to think beyond the federal dollars."

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