As ENR Southwest’s recently published annual Top Starts ranking showed, 2022 proved to be an especially strong year for construction firms working in the states of Arizona, Nevada and New Mexico. That strength came largely from the industrial/manufacturing, energy and infrastructure markets, but that annual ranking also showed a diversity of project types driving work for Southwest contractors and design firms alike.

This year’s Southwest Top Design Firms ranking reveals the degree to which the region’s architectural and engineering firms took advantage of these rising markets during 2022, with numerous survey participants reporting significant year-over-year increases in revenue from the three-state area.

Overall, this year’s Southwest Top Design Firms ranking reflects nearly $1.71 billion in 2022 revenue for ranked firms. By comparison, last year’s ranking showed that Southwest firms earned roughly $1.24 billion in 2021 revenue from the three-state area.

EPS Group provided civil engineering services for the Valley Metro Light Rail extension project in Mesa, Ariz.
Photo courtesy EPS Group

That surge in revenue is especially evident at the top of this year’s ranking. For example, a year ago, the top 10 firms collectively reported approximately $635.1 million in Southwest revenue for 2021.

By comparison, the collective 2022 revenue total for this year’s top 10 Southwest firms soared to $957.9 million, a jump of more than 50%.

Riding that revenue wave to the top of this year’s Top Design Firms ranking was WSP, which reported $176.74 million in 2022 Southwest revenue, vaulting it from 6th place a year ago, when it reported $61 million for 2021.

But WSP wasn’t alone in reporting remarkable revenue increases. Kimley-Horn, which repeated its ranking at No. 2, saw its revenue rise from $91.84 million in 2021 to $134.41 million in 2022.

Last year’s top-ranked firm, Stantec, similarly increased its revenue, from $96.1 million for 2021 to the $118.2 million it reported for 2022. Despite the gain, the firm dropped two spots and placed third.

Merrick & Co. was the biggest climber on this year’s ranking, jumping 14 spots from its ranking of 19th last year to land in the 5th spot, with more than $101.2 million in 2022 Southwest revenue.

A relocation of the Valley Metro Gilbert Road Extension trimmed $1.5 million from the project’s cost.
Photo courtesy EPS Group

Slowdown Ahead?

With a revenue surge like one experienced by Southwest design firms in the past couple of years, the question arises whether it can be sustained. With interest rates continuing to rise, the possible tightening of lending practices and even a possible recession looming, as some economists predict, the possibility of a market slowdown is real.

Data provided by Dodge Data & Analytics—as included in this issue’s City Scoop report—shows, for example, that project starts in Phoenix will slow considerably in 2023. That data shows that the Phoenix metro area’s total starts figure is forecast to drop from the $33.5 billion recorded for 2022 down to just under $20.5 billion in 2023.

Kathey Wagner, CEO with EPS Group, Mesa, Ariz., says that while single-family housing construction has definitely slowed, “We’ve continued to see a surge in the build-to-rent communities, the industrial and the mixed-use and commercial markets.”

The prospects for continued strength in the build-to-rent market are improved given that metropolitan areas such as Phoenix and Las Vegas are still enduring an overall housing shortage due to population increases.

A tightening of bank lending looms as a potential barrier for some sectors, Wagner adds, though she doesn’t yet see an impact on industrial projects. Still, she anticipates reductions in lending could begin to hinder funding of projects.

“With regional banks being impacted by what’s happened with interest rates, they are tightening up their portfolio and a lot of their lending is done to the commercial markets,” Wagner says. As a result, she adds, “We are anticipating further restriction of dollars for any kind of lending or lines of credit. I think that is already happening.”

John F. Kane, founding partner with Tempe-based Architekton, agrees that numerous markets continue to show strength despite some of the various economic headwinds. And while noting that Arizona “got hit really hard in the last recession,” Kane instead sees “a strong resurgence and consistency across the board” in terms of future project opportunities.

“Most of our work is in public-sector, community projects and all of that is going really strong,” he says, adding that Architekton has been adding “a lot of private work” to its portfolio.

Additionally, Kane says, “Arizona seems to be strong on all fronts, and the Valley is growing fast.” At the same time, the market for office projects has slowed overall, he says, and environmental issues, especially related to water, could begin to impact future projects.

“There are a lot of issues with water, and heat and climate change are making a big difference,” he says. “We’re trying to figure out how we can help solve those issues and be part of the conversation.”

Wagner with EPS concurs about the water issue, adding that “We’re hearing a lot about water in all of our building communities, regardless if it’s the commercial sector, the industrial sector or in the residential sector. Water is a big concern.”

Firms SPS+ Architects, Watermarc Design and EPS Group helped design Creighton Academy in Phoenix.
Photo by Larry Kantor Photography

More Stats

On a state-by-state basis, there were similarly sizable revenue increases. Projects located in Arizona produced $867.4 million in 2022 design revenue, compared to the $681.7 million recorded last year.

Placing second in the state-by-state tally was New Mexico, where design firms reported just over $484.02 million in revenue for 2022, well up from the year-ago figure of $297.1 million for 2021.

Running third was Nevada, with ranked firms collectively reporting $356.3 million in revenue from that state, an increase of nearly $100 million from the $257.1 million represented on last year’s ranking.

For this year’s Top Design Firms section, readers will first find the main ranking, which includes revenue and information about each firm’s primary sectors and the largest projects that commenced during 2022. Readers also will find breakout rankings for each state, along with numerous project sectors and work disciplines.

Additionally, readers will find a profile of the 2023 Southwest Design Firm of the Year, Tempe, Ariz.-based architectural firm Architekton.