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

A new permanent home for Hudson Valley Shakespeare, a professional non-profit theater company, recently broke ground in Garrison, N.Y. The Samuel H. Scripps Theater Center includes a 14,850 sf performance venue that will serve as a permanent home for the theater company known for its sweeping open-air productions of classics and new works.

Sustainable Design and Construction | Oct 10, 2024

Northglenn, a Denver suburb, opens a net zero, all-electric city hall with a mass timber structure

Northglenn, Colo., a Denver suburb, has opened the new Northglenn City Hall—a net zero, fully electric building with a mass timber structure. The 32,600-sf, $33.7 million building houses 60 city staffers. Designed by Anderson Mason Dale Architects, Northglenn City Hall is set to become the first municipal building in Colorado, and one of the first in the country, to achieve the Core certification: a green building rating system overseen by the International Living Future Institute.

El Cosmico campground hotel, Marfa, Texas. Rendering courtesy ICON and Bjarke Ingels Group

3D Printing | Oct 9, 2024

3D-printed construction milestones take shape in Tennessee and Texas

Two notable 3D-printed projects mark milestones in the new construction technique of “printing” structures with specialized concrete. In Athens, Tennessee, Walmart hired Alquist 3D to build a 20-foot-high store expansion, one of the largest freestanding 3D-printed commercial concrete structures in the U.S. In Marfa, Texas, the world’s first 3D-printed hotel is under construction at an existing hotel and campground site.

University Buildings | Oct 9, 2024

Des Moines University Medicine and Health Sciences opens a new 88-acre campus

Des Moines University Medicine and Health Sciences has opened a new campus spanning 88 acres, over three times larger than its previous location. Designed by RDG Planning & Design and built by Turner Construction, the $260 million campus features technology-rich, flexible educational spaces that promote innovative teaching methods, expand research activity, and enhance clinical services. The campus includes four buildings connected with elevated pathways and totaling 382,000 sf.

Student Housing | Oct 9, 2024

University of Maryland begins work on $148 million graduate student housing development

The University of Maryland, in partnership with Campus Apartments and Mosaic Development Partners, has broken ground on a $148.75 million graduate student housing project on the university’s flagship College Park campus. The project will add 741 beds in 465 fully furnished apartments.

Healthcare Facilities | Oct 9, 2024

How healthcare operations inform design

Amanda Fisher, Communications Specialist, shares how BWBR's personalized approach and specialized experience can make a meaningful impact to healthcare facilities.

AEC Tech Innovation | Oct 8, 2024

New ABC technology report examines how AI can enhance efficiency, innovation

The latest annual technology report from Associated Builders and Contractors delves into how artificial intelligence can enhance efficiency and innovation in the construction sector. The report includes a resource guide, a case study, insight papers, and an essay concerning applied uses for AI planning, development, and execution.

Currently Reading

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

TOP ARCHITECTURE FIRMS

TOP ARCHITECTURE/ENGINEERING FIRMS

Tags

AEC Tech | Oct 16, 2024

University Buildings | Oct 15, 2024

Higher Education | Oct 14, 2024

Performing Arts Centers | Oct 10, 2024

Sustainable Design and Construction | Oct 10, 2024

3D Printing | Oct 9, 2024

University Buildings | Oct 9, 2024

Student Housing | Oct 9, 2024

Healthcare Facilities | Oct 9, 2024

AEC Tech Innovation | Oct 8, 2024

Most Popular Content

Magazine Subscription

Get our Newsletters

Follow BD+C: