The good news is that the lighting industry survived last year's financial crisis and the residential sector downturn relatively intact. The bad news is that the economy is by no means out of the clear, and the coming year, particularly for the commercial sector, might be even more turbulent.
Despite the uncertainty about the commercial sector, designers and manufacturers both will tell you that they feel as if the economy is starting to level off and rebound. Any gain is seen as greatly positive, although everyone understands that the market remains volatile and will continue to fluctuate day-to-day, month-to-month. And while the U.S. unemployment rate remains around 10 percent, with the economy losing 85,000 jobs in December 2009, the rate of job losses has slowed. The number of temporary positions has increased, in part because of seasonal employment during the holidays. However, this increase does reflect a larger issue that orders for goods and project workflow remain on an “as needed” basis and that business owners are being extremely cautious. They don't want to overextend themselves by taking employees on full time.
Many lighting firms implemented different strategies last year to remain nimble and they plan to continue these plans in 2010. One of these strategies is reducing the workweek (say, from 40 hours to 32 hours), instead of cutting staff. While the number of layoffs at lighting firms in 2009 did not compare to the magnitude of the layoffs seen at architectural firms, those lighting firms that did make staff reductions did so quietly. Overall, the economy has forced offices to re-examine their business models and to evaluate staffing needs in light of what is being seen as a new era where project loads will require more multitasking and cross-disciplinary approaches than ever before. As firm principals note, it remains a tight juggling act to hold on to the good employees they have invested in while trying to predict their firm's future staffing needs.
Despite the downturn, most firms remain busy, but the type of work has been much more varied. In addition to working on projects that are still in the pipeline, designers are taking on projects that are smaller in scope than they might have considered in the past. A good portion of time also is being spent by firm principals who are responding to a steady flow of request for proposals (RFPs). Client, designer, and manufacturer—everyone wants to be poised ready to go when the recovery takes hold.
Following the Numbers Designers and manufacturers continue to monitor the construction- and lighting-specific indexes such as the monthly released American Institute of Architects' (AIA) Architecture Billings Index (ABI) and the quarterly released National Electrical Manufacturers Association's (NEMA) Lighting Systems Index (LSI). Given the lag time of reported numbers in quarterly reports, the challenge, particularly from the end of 2009 into the first quarter of 2010, has been to try to get an accurate read on which way things are heading. In a Jan. 6 press release, the AIA reported that although the general U.S. economy was showing improvement, “nonresidential construction spending is expected to decrease by 1.4 percent in 2010 with a marginal increase of 1.8 percent in 2011 in inflation adjusted terms.” Industrial buildings, hotels, offices, and retail projects will see the most significant percentage declines—ranging from 17 percent to 24 percent. Educational and healthcare projects are expected to fare much better—experiencing as much as a 5.6 percent loss. “When economies emerge from this prolonged recession, recovery for nonresidential construction activity typically takes longer,” AIA chief economist Kermit Baker said in a prepared statement.
For lighting, the numbers are all over the place. For example, in the third quarter of 2009, NEMA's index for incandescent and compact fluorescent lamps declined by 7.1 percent and 18.2 percent, respectively. However, during the same quarter NEMA's LSI increased by 3.3 percent, reflecting an overall increase in shipments of lighting equipment. Likewise, the Electroindustry Business Confidence Index (EBCI) for North America fell 5.7 points in December 2009 to 48.2. But the EBCI's numbers on future North American conditions, released in the same report, did reflect a significant rebound, posting 64.3 points, its 10th consecutive reading above 50. Readings for Latin America, Europe, and the Asia/Pacific region also reflected a similar tone: decline in December conditions, but enhanced prospects for the first half of 2010.
The Commercial Sector The EBCI's projecton for the first half of 2010 might be wishful thinking. “There is a lag factor of six to nine months,” says Brian Golden, vice president, sales and marketing, for Hanson, Mass.–based Litecontrol. “Nonresidential starts will have to come back before the lighting industry can rebound significantly.”
The most telling sign of economic recovery for architects and lighting designers whose firms are focused on commercial and institutional work might be the status of commercial real estate, particularly office space. “We should be keeping an eye on the commercial banking crisis,” Golden says. “The status of loans remains uncertain.” A Jan. 8 article in The New York Times does not paint a pretty picture. According to the article, “more than 180 major buildings totaling $12.5 billion in value … are in trouble, meaning in many cases they face foreclosure or bankruptcy, or have had problems making mortgage payments. Rents for commercial office space fell faster over the past two years than in any such period in the last half century.” For New York, Chicago, Boston, and Washington, D.C., the surplus of available commercial office space is astounding. And these vacancies don't just impact an owner's bottom line, they also affect a city's tax base. Some real estate analysts are predicting that the commercial office sector in major metropolises won't see a significant turnaround until 2014.
The issue of commercial loans is not limited to real estate; it also is affecting companies' ability to obtain financial backing to invest and grow their businesses. A recent case in point in the lighting industry is Luminus Devices, the Billerica, Mass.–based LED manufacturer that supplies LEDs to major electronics companies such as Samsung, LG Electronics, and Philips Lighting. At the end of December 2009 the company found itself in the unsettling position of imminent closure when its lender, Palo Alto, Calif.–based Hercules Technology Growth Capital, threatened not to renegotiate Luminus' $15.1 million loan and seized its bank accounts.
Luminus Devices filed suit against Hercules, citing improper declaration of default and seizure of accounts. By the beginning of January, the situation has been resolved, all suits have been dropped, and Luminus Devices was still in business, albeit with a reduction of 30 positions from its previous total of 130 employees. In an interview in the Boston Globe on Jan. 9, Keith T.S. Ward, Luminus' chief executive, indicated that the company's 2009 sales, which totaled close to $10 million, are expected to double in 2010, and that the company is focusing on all the future.
The situation with Luminus may be resolved, but the experience does illustrate the risk that companies are facing when it comes to loans and credit. Financial backing presents its own set of risks, but it is necessary, a point made by AIA chief economist Kermit Baker in a Jan. 20 press release, “The main impediment to an economic turnaround for the design and construction industry remains frozen credit markets. We continue to hear that there are numerous viable projects out there awaiting financing.”
What's on the Horizon “There is a limited upside of opportunity,” says Marc Seiber, president of U.S. operations for Erco Lighting. “The types of projects we are seeing orders for at the moment are not necessarily aligned with architectural lighting installations. Rather there is a lot of focus on infrastructure.” In addition to funds from the American Recovery and Reinvestment Act finally materializing for new infrastructure related projects, Energy Secretary Steven Chu announced on Jan. 15 that more than $37 million has been allocated to support high-efficiency solid-state lighting research, product development, and manufacturing. Until the rest of the market picks up, lighting designers and manufacturers surely will be paying attention to SSL developments and infrastructure opportunities.
But no matter what the numbers indicate or seem to indicate, the tenets of good business remain important when navigating the unpredictable days ahead: a commitment to meeting customer and client needs, focused leadership that understands the value of good lighting, and an awareness of environmentally friendly and energy-efficient products. “It's still all about value,” says Golden. So, what's the forecast for 2010? Cautious optimism.