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

Construction was recently completed on a 325-acre luxury farm resort in Franklin, Tenn., that is dedicated to agricultural innovation and sustainable, productive land use. With sustainability a key goal, The Inn and Spa at Southall was built with cross-laminated and heavy timber, and a geothermal variant refrigerant flow (VRF) heating and cooling system.

Architects | May 23, 2023

DEI initiatives at KAI Enterprises, with Michael Kennedy, Jr. and Gyasi Haynes

Michael Kennedy, Jr. and Gyasi Haynes of KAI Enterprises, St. Louis, describe their firm's effort to create a culture of diversity, equity, and inclusion—and how their own experiences as black men in the design and construction industry shaped that initiative.

Multifamily Housing | May 23, 2023

One out of three office buildings in largest U.S. cities are suitable for residential conversion

Roughly one in three office buildings in the largest U.S. cities are well suited to be converted to multifamily residential properties, according to a study by global real estate firm Avison Young. Some 6,206 buildings across 10 U.S. cities present viable opportunities for conversion to residential use.

Francisco Perez-Azua, Ware Malcomb, Miami

Architects | May 23, 2023

Ware Malcomb hires Francisco Perez-Azua as Director, Interior Architecture & Design, in its Miami office

Ware Malcomb hires Francisco Perez-Azua as Director, Interior Architecture & Design, in its Miami office.

The revival of single-building schools Walsh PK-12 Main Entry

K-12 Schools | May 22, 2023

The revival of single-building K-12 schools

Schools that combine grades PK through 12 are suddenly not so uncommon. Education sector experts explain why.

Architects | May 19, 2023

Snøhetta architects make a bid to unionize the firm's New York studio

Employees at the New York office of architecture firm Snøhetta have filed a petition with the National Labor Relations Board (NLRB) to unionize the studio. Snøhetta employees’ action marks the third time architects at a private-sector architecture studio in the U.S. took that step.

Cordilleras Health System Replacement Project Rendering courtesy CannonDesign

Healthcare Facilities | May 19, 2023

A new behavioral health facility in California targets net zero energy

Shortly before Mental Health Awareness Month in May, development and construction firm Skanska announced the topping out of California’s first behavioral health facility—and the largest in the nation—to target net zero energy. Located in Redwood City, San Mateo County, Calif., the 77,610-sf Cordilleras Health System Replacement Project is slated for completion in late 2024.

Arenas | May 18, 2023

How can we reimagine live sports experiences?

A Gensler survey finds what sports fans' experiences have been like returning to arenas, and their expectations going forward.

Government Buildings | May 18, 2023

GSA launches first biennial construction award program

Today, the U.S. General Services Administration (GSA) announced the new biennial GSA Construction Award program, which is seeking submissions this summer. The program was created to honor outstanding achievements in construction, with a focus on quality and craftsmanship, collaboration and team dynamics, sustainability, innovation, and technology. The first Construction Awards ceremony will take place in 2024.

K-12 Schools | May 17, 2023

Designing K-12 schools for students and safety

While bullying, mental health, and other acts of violence are all too common in schools today, designers have shown that smart and subtle preventive steps can make a big difference. Clark Nexsen’s Becky Brady shares how prevention and taking action at the design level can create safe and engaging learning environments.

Currently Reading

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

TOP ARCHITECTURE FIRMS

TOP ARCHITECTURE/ENGINEERING FIRMS

Tags

Mass Timber | May 23, 2023

Architects | May 23, 2023

Multifamily Housing | May 23, 2023

Architects | May 23, 2023

K-12 Schools | May 22, 2023

Architects | May 19, 2023

Healthcare Facilities | May 19, 2023

Arenas | May 18, 2023

Government Buildings | May 18, 2023

K-12 Schools | May 17, 2023

Most Popular Content

Magazine Subscription

Get our Newsletters

Follow BD+C: