By Michael Drost
In the immortal words of the great American philosopher and New York Yankee Yogi Berra, “It’s tough to make predictions, especially about the future.” Nonetheless, contemplating the future and game-planning for changes to the AEC industry because of the COVID-19 crisis is essential for our industry. These discussions prepare us as an industry to begin contemplating the ways in which we might engage our employees, stakeholders, clients, and society at large to deal with the current crisis and its aftermath.
Additionally, we are human, and we all are experiencing some level of discomfort with the unknown and the drastic change we’ve personally experienced because of the pandemic. These feelings are complex and can often lead to inaction, indecision, and at the extreme – depression and conflict. As such, game planning likely scenarios as well as creating the space for our teams to think through impacts and changes to our industry is critical. This not only allows people to reset their mindset and think about the future, but ultimately it helps the AEC industry prepare to lead the change needed by our clients and society during and after the COVID-19 pandemic event. As a result, it is critical we begin to think about what the “new normal” might look like, and to position our industry to tackle the challenges and opportunities the crisis has given us.
Healthcare & Vulnerable Populations
One thing has become abundantly clear during the COVID-19 crisis – our hospital system is not designed for rapid large-scale pandemic events. The surge of non-critical and critical patients outnumbering our healthcare facilities’ capacity was one of the major factors for the “stay at home orders” issued by state and local governments. Additionally, while not specifically healthcare, the pandemic has exposed weaknesses in the systems supporting America’s vulnerable populations – including the homeless, those in nursing or elder care homes, correctional facilities/inmate care, and indigenous or Native American communities. We have also seen failures to protect those workers supporting jobs considered essential in our supply chain like grocery, warehouse workers and food processing facilities.
Given the gaps exposed in our healthcare system and the pressure on vulnerable populations, we can expect to see movement by our government on improving the resiliency or the “hardening” of our medical and other critical care facilities to deal with the future spikes of COVID-19 outbreaks and new epidemic or pandemic challenges that may arise. As highlighted in many news outlets, recently added capacity has come through build-outs of temporary facilities, such as the adaption of city convention centers or underutilized hospitality/hotel facilities by the United States Corps of Engineers (USACE) and state-level departments of emergency supported by the Federal Emergency Management Agency (FEMA) through the Stafford Act emergency dollars.
However, it’s important to remember that these are short-term emergency solutions, and these commercial venues must return to revenue-generating activities in the future. As such, longer-term solutions will have to be implemented. Solutions are likely to entail modifications to existing healthcare and facilities that support vulnerable populations to add capacity for a surge setting. Perhaps most concerning is that many doctors are reporting long-term health implications for patients who have recovered from COVID-19. These survivors will have long-term requirements that will need to be addressed, and therefore, new types of facilities or modifications to existing facilities will likely be necessary. In addition, we are likely to see further embracing of containerized, mobile or field hospital units that can be quickly stood-up, broken down, disinfected/cleaned, and moved to the next “hot spot”.
From an AEC industry perspective, construction and design firms should be keying in on future opportunities in supporting healthcare and vulnerable populations around new build, rehabilitation/renovation of existing facilities, and modular construction and design to address this potential need in the market. Moreover, companies that do not necessarily cater to the healthcare industry or support vulnerable populations should look to set strategic partnerships now as well as look at innovation in these spaces to allow them to enter the market and help meet what appears to be a critical long-term societal need. Lastly, for those construction and design companies fortunate to have excess capital, acquisitive strategies may be used to enter this market.
Manufacturing & Supply Chain
The pandemic has clearly exposed weaknesses in our country’s ability to pivot and ramp-up manufacturing for personal protective and healthcare equipment/supplies, as well as shortfalls in consumer goods and food supply production and distribution capabilities. In addition, the AEC industry should be prepared for supply chain interruptions. Many vendors, both domestic and international, may face ongoing worker and material shortages plus significant financial hardship and liquidity issues. As such, the industry may experience short- and long-term materials and equipment shortages. Smaller suppliers and companies exposed to high levels of debt prior to the pandemic are particularly vulnerable and we are likely to see several firms unfortunately fail.
Because of these gaps and impacts on the manufacturing industry and supply chain, we are likely to see additional pressure from the federal government on domestic companies to “on-shore” production of necessary goods, including critical construction materials and supplies. Moreover, we may see a shift in owners’ and construction companies’ buying habits over the long term as they look to domestically-produced equipment, supplies and materials to shore-up or protect their supply chain. The effect is that we may see these trends drive the demand for additional domestic manufacturing and warehousing facilities as well as the logistical/transport support that comes with them. We will also need to manufacture and distribute a COVID-19 treatment or vaccine at some point, thus creating demand for large-scale pharmaceutical production and distribution hubs. All of this points to the need for AEC firms to begin looking at how they can support the potential shift in this market.
Transportation & Infrastructure
From a market segment perspective, the infrastructure and transportation markets may be one of the most dynamic of the bunch during this crisis. On one hand, we can expect to see project cancellations in some localities as municipalities deal with revenue shortfalls in their budgets due to the reduction of revenue-generating taxes and tolling. Also, the focus of these localities will be heavily affected as priority shifts to dealing with agency personnel and layoffs, as well as addressing and supporting the citizens who are unemployed in the area. On the other hand, some states and municipalities are “taking advantage” of the reduction in traffic on the roads and in the transit systems to accelerate design and construction to save dollars on existing projects or to fast-start opportunities. Additionally, there have been calls by the AEC industry and many in the federal government to look at providing further stimulus to the economy through an infrastructure bill or a “New Deal”-like program focused on large-scale or transformational projects that potentially could put tens of thousands back to work. The AEC industry would benefit enormously from such a focus.
One of the most challenging aspects is the impact COVID-19 is having on passenger air, rail, and ship travel. All these modes of travel are done in a relatively confined space and therefore cause significant concern that traveler habits will be dramatically curtailed for the foreseeable future. We can assume that without a vaccine, the levels of travel previously seen before the pandemic will take a substantial amount of time to return to pre-pandemic levels. Therefore, investment in these types of infrastructure and the design and construction associated with them may drop-off precipitously.
Nonetheless, owners of these facilities and infrastructure will need to reinvent the way travelers engage with the respective modes of transport in order to provide people with confidence that travel is safe again. In this vein, we are likely to see acceleration of redesign of open spaces and incorporation of innovative materials into these settings that are easily cleaned or provide some level of protection against germs and contagions. Plus, the introduction of touchless entry/exit or check-in systems and the usage of technologies associated with screening for passengers affected by the virus are likely to rise. Not to mention modification to the planes, railcars, buses, ships, etc. themselves in order to provide some level of social distancing and protect passengers from the transmission of germs and viruses.
As such, the AEC industry is likely to see opportunities around the reinvention of travel and the associated physical renovation/modification at airports, embarkations/ports, rail/transit stations, tolling booths, and the like that will be necessary to facilitate travel in a COVID-19 environment. Given the dynamism in this market and the looming specter of further stimulus by the federal government, it is important that AEC firms in this market focus on workforce nimbleness and the introduction of innovation and technological solutions. These actions will help firms take advantage of the acceleration in work as well as help the market return to some level of normalcy for commercial travel.
Commercial Real Estate & Telecommuting
Social distancing and the widespread governmental stay at home mandates and the overwhelming response of many companies to embrace telecommuting or working from home full time for its employees may have long-lasting impacts on the commercial real estate market. Having the predominance of a company’s workforce working remotely has been a grand experiment for many operations. However, many companies are finding that, while the challenges have been high, this “new” way of work has not affected their productivity and, in some instances, increases to productivity have been seen. Combine the employee health safety issues with the fact that real-estate costs can be one of the most significant capital expenditures for a business, it is highly likely that many companies are coming to the realization that the amount of their commercial, retail, and office space may not be needed or practical in the future.
While most companies will undoubtedly maintain a physical office space, they must now grapple with social distancing in the workplace and dealing with sick employees in perhaps a much more aggressive fashion than previously imagined. For example, testing-tracing-quarantining is a major workplace challenge that will need to be addressed. The issue of employee health is further compounded by the “open” office space concepts that have recently dominated the design of commercial real-estate spaces where customers interact openly, and employees are often working shoulder to shoulder with their coworkers.
Given the health and safety concerns, the pressure on reducing capital expenditures, and the large-scale migration of employees from an office environment to a work-from-home situation, the AEC industry is likely to not only see impacts to design and construction projects in the commercial real estate market, but also in the way their offices operate. These dynamics are tricky, but the AEC firms that support this market space should be prepared to help clients redesign and renovate their spaces to accommodate workforce health and safety concerns as companies look to reintroduce their staff to commercial real-estate or office environments. Furthermore, office dynamics may lead to overall streamlining of processes/procedures, back-office support, and personnel for many AEC companies in our industry. Finally, the pandemic has highlighted that investments into the country’s digital infrastructure is a wise investment, so we are likely to see further investment in broadband and information systems. Therefore, innovation and new ways of doing business will play a key role in developing the solutions for the future for both our clients and the AEC industry at large.
Acceleration of Digital Solutions & Technology
A common theme or thread throughout this article is the need for the AEC industry to be prepared to look at things in a new or different way. The AEC industry is not necessarily known for its cutting-edge approaches when compared to other industries. However, in recent years the industry has seen dynamic change and growth in digital design, BIM modeling, digital twins, new construction materials and processes, robotics or autonomous equipment, modular construction, and broader use of automation and artificial intelligence in delivering AEC services. The COVID-19 pandemic has upended or called into question much of the traditional methodologies that businesses have grown accustomed to. And in time of crisis, such as in wartime or disasters, we have historically seen rapid advancements in new technologies and drastic innovation. The AEC industry is in such a moment.
For firms that are looking at what’s next and to the future, now is the time to embrace digital transformation and leverage technological solutions that reduce workforce exposure to health and safety and improve efficiencies and quality, while helping to accelerate client’s projects and timelines as they reinvent or retool their business for the future. Firms within the AEC industry who are earlier adaptors to many of the items previously mentioned above are likely to have a tremendous advantage in the next phase of the COVID-19 pandemic.
The COVID-19 pandemic will drive change and have similar long-term large-scale impacts to our society. However, given the scale and severity of the COVID-19 crisis, it is likely that we may experience deeper and longer change than at any other time in our lifetime. It is critical we begin to think about what the “new normal” will look like, address the market changes seen to date caused by the COVID-19 pandemic as well as explore the potential challenges and opportunities that face the AEC industry in a post-COVID-19 world.