Architectural Services
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 21,100 architectural services firms in the US are responsible for designing places for people to live, work, worship, learn and play. 83% of firms have nine or fewer employees. Most firms gain a significant portion of their revenue (about 81% on average) from non-residential services.
Technology Levels the Playing Field
Building Information Modeling, or BIM, has become the industry standard for projects of all sizes, because it facilitates the communication of design and construction plans across all project participants.
Green Building Supports New Development
The government has helped fuel the green building surge by providing a variety of incentives for firms and contractors who build with energy efficiency and use renewable energy.
Industry size & Structure
The average architectural firm has about 10 employees and generates $2.4 million in annual revenue.
- The industry has 21,100 firms with $51.4 billion in annual revenue and 206,200 employees.
- Sole employee firms tend to work from home-based offices in order to defray overhead expenses. Most other small to medium firms work from leased office space.
- The industry is highly fragmented with the 50 largest firms representing just 19% of industry revenue.
- Large firms in the US include HOK, William Rawn Associates, and Skidmore, Owings and Merrill (SOM).
Industry Forecast
Architectural Services Industry Growth
Recent Developments
Oct 25, 2024 - Nonresidential Building Project Momentum Slows
- The Dodge Momentum Index (DMI) decreased by 4.2% in September 2024 to 208.6 (2000=100), down from the revised August reading of 217.7. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which has been shown to lead construction spending for nonresidential buildings by a full year. On a monthly basis, the institutional planning component improved by 5.2% in September, but commercial planning declined by 7.8%. Dodge’s associate director of forecasting, Sarah Martin, said, “Despite this month’s decline, the Dodge Momentum Index remains at very robust levels. A surge in data center activity drove much of the recent rapid growth in the DMI – so as planning for that sector moderated over the month, overall commercial planning fell back. By mid-2025, the Fed’s rate cuts should spur planning projects to reach groundbreaking more quickly – leading to stronger nonresidential activity as 2025 progresses.”
- North American construction and engineering spending in 2024 is expected to grow by about 5%, according to FMI’s fourth-quarter 2024 North American Engineering and Construction Outlook. With growth of 29%, public safety will lead 2024 nonresidential building construction, followed by manufacturing (21%), amusement and recreation (10%), transportation (5%), educational (4%), and religious (2%). Commercial construction spending is expected to decline 8% in 2024 amid weaker demand for warehousing space. Lodging construction spending is forecast to drop 6%, and stubbornly high office vacancies will continue to weigh on new office construction, which is projected to see spending rise by 1% in 2024. Despite favorable demographic trends, project delays for some private hospital developments will cap healthcare construction spending growth at 1% in 2024. Amid moderating interest rates, single-family construction spending is forecast to rise 5% in 2024 as new home affordability remains competitive with existing home prices. Multifamily spending is expected to decline by 4% in 2024 amid a recent wave of fresh inventory. The rise in available apartment units has contributed to flat or falling rents in some metros, prompting developers to pause new projects.
- Demand for building design services remained soft in September, according to an October report by the American Institute of Architects (AIA). The AIA’s Architecture Billing Index (ABI) was flat at 45.7 in September. Any reading of 50 or more indicates growth in architectural billings. September was the twentieth consecutive month to see a downward trend in billings. The score for new project inquiries dropped to 51.6 in September compared to 52.4 in August, but the index for new design contracts increased from 47.3 to 48.3. The AIA’s Chief Economist, Kermit Baker said, “Despite recent rate cuts by the Federal Reserve, many clients remain on the sidelines with regard to proceeding on planned projects. And while new project opportunities also emerge, clients are cautious about which to pursue. Fortunately, architecture firms report backlogs of 6.4 months on average, which remain above pre-pandemic levels and are an indication that there is existing work in the pipeline.”
- The effort to reshore strategic segments of the US manufacturing sector is attracting investors who hope to cash in on the resurgence, according to The Wall Street Journal. US and foreign firms have earmarked nearly half a trillion dollars to construct new factories to build semiconductors, electric cars, and other products, according to real estate data analytics firm Green Street. Property developers are flocking to the Sunbelt and Rustbelt where the new manufacturing projects are springing up. Developers are betting that manufacturing investments will have knock-on effects for housing, shopping centers, and other development opportunities. The manufacturing boom is a welcome turn of fortune for developers as the office sector languishes due to hybrid work, and the retail real estate market has been lackluster in recent years.
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