China Beckons West Coast Architecture and Building Firms
The firms may be in the West, but the new business is now in the East -- the Far East, that is.
China's construction growth, fed by a thriving economy and a massive population movement from rural to urban areas, will dwarf that of the U.S. over the next 10 years. This should give building companies with a West Coast presence a chance to offset the effects of sluggish domestic demand by hawking their expertise overseas.
China's residential and commercial building stock will surge 61% between 2010 and 2020, compared to a 7% growth rate in North America and an 8% increase in Western Europe, Pike Research said in a report released last week.
"Hired as International Experts"
As a result, many West Coast-based architecture and engineering firms are pitching their services to China -- and getting jobs. For instance, architecture and urban-planning firm RNL, which has offices in Los Angeles, Phoenix and Denver, has been working on a master plan for a 5.3 million-square-foot mixed-use project in Wuxi, a city of about 4.5 million people near Shanghai.
And longtime Los Angeles-based architecture firm Johnson Fain, whose local buildings include the MGM Tower in the Century City district, has worked on Beijing's World Trade and World Finance Centers, and it's designing a project that will help restore the "Seven Mile Wetlands" area near the city of Tianjin.
"We have seen U.S. firms being hired as international experts for the larger, more specialized and prestigious projects. Firms from the U.S. and Europe are often prized for their specialized knowledge," says Kevin Andrew, chief operating officer at RNL. "Overseas building has provided an opportunity for some firms to survive that might not otherwise have remained viable given current economic conditions."
Spilling Over into Second-Tier Cities
About 15 million people are estimated to be moving from rural China to urban areas every year for the next decade. As a result, the Chinese government and domestic businesses are on an annual building boom that's about 30 times the size of downtown Manhattan, the U.S. Green Building Council said last year.
Because of surging growth in countries like China and India, whose building stock is expected to soar 51% by 2020, total global commercial and residential floor space will jump 26% by the end of the decade to 1.9 trillion square feet. That's the equivalent of a swath of land 260 miles by 260 miles, or slightly larger than New York State.
Such overseas building growth may be the only hope for some firms to survive a relative downturn in U.S. building. While domestic construction spending has recently been on a slight but steady uptick -- increasing for four straight months through November 2010 -- that month's $810.2 billion in construction spending marked a 6% drop from a year earlier, according to U.S. Census figures. And firms without steady government and infrastructure contracts are taking the brunt because as private construction spending fell 12% from a year earlier.
Still a Small Percentage of Total Business
As a result, many firms that hadn't previously looked at going overseas for businesses have been forced to consider it, with little hope for a substantial turnaround in U.S. construction spending anytime soon.
"Obviously, with the economy the way it is in the U.S. and the growth in India and China, there will be an increasing amount of work abroad for U.S. architects," says Scott Frank, spokesman for the American Institute of Architects. "Nevertheless, overseas work remains under 10% of the business share for most U.S. architecture firms."That number will have to grow for many firms on the West Coast as both the California and U.S. governments look to rein in spending in an effort to cut deficits. Additionally, the private sector will continue to be hamstrung as long as banks and financial institutions spooked by the financial crisis take a more conservative approach to financing new projects.
"We expect the trend to include more overseas work as federal stimulus programs wind down to bring the deficit under control," says RNL's Andrew. "Recently, there has been more interest in the commercial sector in the U.S., but financing of these projects will continue to be difficult."