Proposal Activity for Commercial Projects Takes a Hit

Proposal activity for the U.S. commercial building markets in the second quarter continued to perform worst among the 12 major markets assessed in PSMJ Resources’ Quarterly Market Forecast (QMF) of architecture, engineering and construction professionals. Coming off historic net plus/minus index (NPMI) lows in the first quarter (commercial developers at -51% and commercial users at -47%), both markets improved slightly (-45% and -37) in the second quarter.

PSMJ’s NPMI expresses the difference between the percentage of firms reporting an increase in proposal activity and those reporting a decrease. The QMF has proven to be a solid predictor of market health for the A/E/C industry since its inception in 2003. A consistent group of more than 300 firm leaders participate regularly, with 171 contributing to the most recent survey. Following are some of the highlights from the organization’s most recent report, as noted in a recent press release.

The Commercial Users market, which plummeted to an abysmal -72% in PSMJ’s supplemental survey in April, includes the three submarkets that performed worst of the 58 measured in Q2 —restaurants (-73%), hotels/motels (-68%) and office buildings (-58%, tie). It also had the quarter’s highest-ranked submarket (warehouse/distribution) at +30%.

When Q1 results of the QMF were published, PSMJ Senior Principal David Burstein, P.E., AECPM, said, “I expect to see a rapid rebound in housing and commercial development once the health crisis passes and the impact of record-low interest rates starts to be felt. Pent up demand should make its presence felt by the end of the third quarter, and even more so in the fourth quarter if we see movement on an infrastructure bill.”

While the commercial markets continued to struggle in the second quarter, the housing market and some of its submarkets (e.g., multi-family, single-family properties) rebounded. Housing was one of only four major markets in positive territory in Q2, recording an NPMI of 2%, up from -19%.

Fewer than 5% of the respondents who work in the restaurant, hotel/motel and office buildings (by users) markets said that they saw more proposal opportunities in the second quarter than they did in the first quarter. On the opposite end of the spectrum, 75% reported a proposal activity decrease in restaurant projects, 72% said that it decreased in hotel/motel projects, and 62% said proposal activities were down in the office buildings (by users) submarket.

The commercial developers submarkets were split, with warehouse/distribution centers for lease reporting a solid NPMI of 21%, up substantially from -11% in Q1. But office buildings for lease (-58%, tied for third-worst) and retail properties for lease (-57%) were exceptionally weak. Of the respondents working in the warehouse/distribution for lease submarket, 35% reported an increase, but only 6% said the same about retail for lease and a mere 3% for office for lease.

“It is interesting to note that the commercial markets were showing signs of weakening even prior to the COVID-19 pandemic,” says Greg Hart, a PSMJ consultant and manager of the QMF survey. “Both commercial markets dropped to NPMI levels in the third and fourth quarters of 2019 that they hadn’t seen since just after the recession, in the 2010 to 2012 time period. This probably explains why the commercial markets fell faster and harder than the other major markets in the first quarter, even though the crisis didn’t really begin until March.”

For more information, including expert quotes, detailed historical information on the commercial market or its submarkets, or a copy of the full report, contact Jerry Guerra.