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 21,000 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.

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.

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.

Industry size & Structure

The average architectural firm has about 9 employees and generates $2 million in annual revenue.

    • 83% of firms have nine or fewer 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 has 21,000 firms with $43 billion in annual revenue and 190,900 employees.
    • Non-residential services represent about 85% of firm revenue.
    • Large firms in the US include HOK, William Rawn Associates, and Skidmore, Owings and Merrill (SOM).
                              Industry Forecast
                              Architectural Services Industry Growth
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Nov 17, 2022 - Nonresidential Building Construction Outlook Improves
                              • The Dodge Momentum Index (DMI) increased 9.6% in October 2022 to 199.7 (2000=100), up from the revised September reading of 182.2. The DMI 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 commercial planning component increased by 13%, and institutional rose by 2.9%. An increase in office and lodging projects boosted the commercial planning pipeline. The institutional sector was mixed amid a growing pipeline of recreation and education projects, but the number of healthcare and public planning projects declined. Developers and project owners continue to see healthy demand, despite recession concerns, although continued inflation, high interest rates and materials costs, and labor shortages have the potential to blunt the flow of new projects.
                              • Some real estate developers are holding off on new office projects as remote work has eroded demand for new office space, and rising interest rates make projects more expensive, according to The Wall Street Journal. Office occupancy is only about half of what it was before the pandemic, which has prompted some major real estate firms, including Varnado Realty Trust; Hines, Kilroy Realty Corp.; and Brookfield Asset Management, to tap the breaks on new office development projects. The national office vacancy rate is 12.5%, up from 9.6% in 2019, according to commercial real estate data firm CoStar Group. About 37% of the office space currently under development remains available, double what it was in 2019, according to CoStar.
                              • Nonresidential construction firms’ backlogs contracted in October, according to the Associated Builders and Contractors (ABC). The ABC’s Construction Backlog Indicator dropped to 8.8 months in October, down from 9 months in September. However, backlogs were up compared to October 2021’s 8.1 months. October’s weakness was led by the commercial and institutional segment, which fell to 8.8 months in October from 9 months in September. The heavy industrial segment’s backlog grew from 8.5 months in September to 10.3 months in October. The infrastructure backlog rose from 7.2 months to 8.9 months over the same period. However, despite a shrinking backlog, the ABC’s Construction Confidence Index for sales climbed to 57.2 in October over September’s reading of 55.1. A Confidence Index sales reading of 50 or more indicates most contractors are optimistic about sales.
                              • High interest rates, elevated building materials prices, and a lack of affordable inventory pushed home builder sentiment lower in November, according to the National Association of Home Builders (NAHB). Homebuilder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), fell five points to 33 in November 2022 from 38 in October, marking the 11th consecutive monthly decline. Any HMI reading over 50 indicates more builders see conditions as good than poor. Amid weak buyer traffic, 37% of homebuilders reported cutting prices in November compared to 26% who reduced prices in September, according to the NAHB.
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