In an era of mixed signals, architects embrace cautious optimism [2013 Giants 300 Report]

Are architecture firms finally pulling out of the doldrums? The answer is a tentative yes, according to AIA Chief Economist Kermit Baker, PhD, Hon. AIA.

Baker points to the AIA’s Architecture Billings Index, a leading economic indicator of construction activity that reflects the approximate nine- to 12-month lag time between architecture billings and construction spending. The ABI experienced its first drop in nine months last April (to 48.6), but bounced back in May to 52.9 (any score above 50 indicates an increase in billings). The new projects inquiry index was 59.1, up slightly from the reading of 58.5 in April.

“This rebound is a good sign for the design and construction industry and hopefully means that April’s negative dip was a blip rather than a sign of challenging times to come,” says Baker. “But there is a resounding sense of uncertainty in the marketplace—from clients to investors and an overall lack of confidence in the general economy—that is continuing to act as a governor on the business development engine for architecture firms.”

On a regional basis, the Northeast (at 53.7), West (52.1), and South (50.9) were still positive, while the Midwest lagged, at 47.5. Multifamily residential remains strong, at 52.8, as do institutional (52.2) and mixed practice (51.0), but the commercial/industrial sector is still hurting, at 47.5.

TOP ARCHITECTURE FIRMS

2012 Total Revenue ($)

1 Gensler $807,143,550

2 Perkins+Will $360,300,000

3 NBBJ $187,017,000

4 Kohn Pedersen Fox Associates $153,821,100

5 Perkins Eastman $145,000,000

6 Callison $134,112,565

7 ZGF Architects $107,412,274

8 Corgan $85,377,040

9 Populous $84,000,000

10 HMC Architects $77,986,678

SEE FULL LIST

TOP ARCHITECTURE/ENGINEERING FIRMS

2012 Total Revenue ($)

1 Stantec $467,254,421

2 HOK $406,780,000

3 HDR Architecture $325,900,000

4 Skidmore, Owings & Merrill $281,686,000

5 IBI Group $252,552,343

6 HKS $240,300,000

7 RTKL Associates $202,823,000

8 Cannon Design $202,000,000

9 SmithGroupJJR $166,600,000

10 DLR Group $116,400,000

SEE FULL LIST

“All the roadblocks are easing a bit, but they’re still they’re,” says Baker. “Financing is still a big problem, and banks are still hesitant to make a real estate loan. They’re still gun-shy, so they’re setting the bar high for loan approvals.”

SEVERAL SECTORS STILL CLICKING

Looking more closely at specific sectors over the next three years, Baker sees vacancy rates for apartments increasing, from 5.0% today to 5.2% in 2015, and rental rates declining, from 3.8% now to 2.8% in a couple of years—in other words, somewhat negative fundamentals for the multifamily sector.

Giants 300 coverage of Architecture Firms brought to you by Sage www.sageglass.com

Similarly, revenue per available room at hotels is expected to drop from a high of 6.8% in 2012 and 5.5% currently, to 5.0% in 2014 and 2015. But occupancy rates should remain steady, in the 63% range.

Overall, Baker foresees positive fundamentals for several key sectors. The office market should witness declining vacancy rates, from 15.4% in 2012 to 13.6% in 2015, and improved rental rates increases, to 4.0% over the next two years, from 3.5% today. Ditto for retail and industrial/warehouse, where market fundamentals also look positive through 2015, in Baker’s analysis.

As for the healthcare sector, the AIA economist says that, in his opinion, the Affordable Care Act can only benefit construction of new facilities. “With 30 or 40 million more Americans coming on to the system, it’s hard to come up with a scenario that’s bad for healthcare construction,” he says. “You’ve got to increase it.”

As for education, Baker says he wonders if universities are going to be able to keep up the construction wars for fancy new student unions, recreation centers, and the like. “The little echo boom demographic bubble has passed, and institutions are going to have to be more reasonable” in what they can afford to build, he says. In the K-12 arena, Baker says many schools that were built in the ’60s and ’70s may have to be replaced, whether or not the demographics support the case.

GOOD TIME FOR DESIGN FIRMS TO GET INTO ACTION

What do all these numbers mean to architecture firms, whether a boutique or midsize emerging firm, or a Giants300 market leader?

According to Baker, larger firms survived the downturn the best. “We heard a lot of stories of clients trading up, getting big firms to do work for them, firms that wouldn’t have bothered with such clients in the past,” he says.

Baker sees the possibility of more consolidation in coming years. “The classic case was the big engineering/architecture firm buying up an architecture firm to broaden the base of its offerings,” says Baker. He thinks more alliances may also be formed in years ahead—an East Coast firm that’s strong in the education sector linking up with a West Coast healthcare leader, for example, to strengthen their overall positions in the national market.

Baker, who has been through his share of recessions in his 28-year career as an economist, remains optimistic about the profession of architecture. “I do think it’s a great time to be in the profession, and if you own a firm, you’re going to see modest to firm growth in the next few years.”

The downside risk of taking aggressive action has begun to diminish, says Baker. His advice to management of architectural firms: “To the extent that they’ve been thinking about doing something for a while—opening a new office in a promising geographic market, making an acquisition—this is probably a good time to pull the trigger.”

Read BD+C's full Giants 300 Report

For most of human history, design has mostly considered “typical users” who are fully able-bodied without clinical or emotional disabilities. The problem with this approach is that it offers a limited perspective on how space can positively or negatively influence someone based on their physical, mental, and sensory abilities.

Mass timber lab prototype designed by SGA.

Mass Timber | Jan 2, 2024

5 ways mass timber will reshape the design of life sciences facilities

Here are five reasons why it has become increasingly evident that mass timber is ready to shape the future of laboratory spaces.

Giants 400 | Jan 2, 2024

Top 120 Hotel Architecture Firms for 2023

Gensler, WATG, HKS, DLR Group, and HBG Design top BD+C's ranking of the nation's largest hotel and resort architecture and architecture/engineering (AE) firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report.

Resiliency | Jan 2, 2024

Americans are migrating from areas of high flood risk

Americans are abandoning areas of high flood risk in significant numbers, according to research by the First Street Foundation. Climate Abandonment Areas account for more than 818,000 Census Blocks and lost a total of 3.2 million-plus residents due to flooding from 2000 to 2020, the study found.

MFPRO+ News | Jan 2, 2024

New York City will slash regulations on housing projects

New York City Mayor Eric Adams is expected to cut red tape to make it easier and less costly to build housing projects in the city. Adams would exempt projects with fewer than 175 units in low-density residential areas and those with fewer than 250 units in commercial, manufacturing, and medium- and high-density residential areas from environmental review.

Urban Planning | Jan 2, 2024

Federal Highway Administration releases updated traffic control manual

With pedestrian deaths surging nationwide, the Federal Highway Administration released a new edition of the Manual on Uniform Traffic Control Devices for Streets and Highways. The manual contains standards for street markings and design, standardizing signage, and making driving as seamless as possible.

Adobe Founders Tower in San Jose, Calif.

Designers | Dec 25, 2023

Redefining the workplace is a central theme in Gensler’s latest Design Report

The firm identifies eight mega trends that mostly stress human connections.

Contractors | Dec 22, 2023

DBIA releases two free DEI resources for AEC firms

The Design-Build Institute of America (DBIA) has released two new resources offering guidance and provisions on diversity, equity, and inclusion (DEI) on design-build projects.

Currently Reading

In an era of mixed signals, architects embrace cautious optimism [2013 Giants 300 Report]

TOP ARCHITECTURE FIRMS

TOP ARCHITECTURE/ENGINEERING FIRMS

Tags

MFPRO+ Special Reports | Jan 4, 2024

Giants 400 | Jan 3, 2024

Designers | Jan 3, 2024

Mass Timber | Jan 2, 2024

Giants 400 | Jan 2, 2024

Resiliency | Jan 2, 2024

MFPRO+ News | Jan 2, 2024

Urban Planning | Jan 2, 2024

Designers | Dec 25, 2023

Contractors | Dec 22, 2023

Most Popular Content

Magazine Subscription

Get our Newsletters

Follow BD+C: