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 20,800 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
Recent Developments
May 18, 2023 - Construction Spending to Drop
- North American construction spending is set to decline by 1% in 2023 compared to 11% growth in 2022, according to FMI’s second-quarter 2023 North American Engineering and Construction Outlook. Higher interest rates and a potential recession are forecast to reduce single-family residential construction spending to 0% growth or lower in 2023. The single-family market is projected to remain weak through 2026. However, several nonresidential building segments are projected to see spending growth of 10% or more in 2023, including lodging, commercial, and manufacturing. Other segments will experience spending growth of 5% or more, including multifamily, office, healthcare, and amusement and recreation. Spending growth will be between flat and 4% for education, religious, and public safety.
- The Dodge Momentum Index (DMI) decreased 5.1% in April 2023 to 180.9 (2000=100), down from the revised March reading of 190.6. 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 commercial planning component dropped by 8%, and institutional rose by 0.3%. Commercial planning weakened across several segments, including office, retail, and hotel projects. In the institutional sector, healthcare and amusement gains were largely offset by slower planning growth for education projects. Dodge’s associate director of forecasting said, “On par with our expectations, the Dodge Momentum Index continued to recede in April, due to declining economic conditions and ongoing banking uncertainty. Weaker commercial planning is driving the DMI’s decline, as it is more exposed to real-time economic changes than the largely publicly funded institutional segment.”
- The construction pipeline for hotel projects grew by 9% in the first quarter of 2023 compared to Q1 2022, according to a recent report by Lodging Econometrics. Hotel projects in the early planning stages, those scheduled to start over the next year, and projects currently underway all saw their pipelines grow in Q1. Projects in the early planning stage accounted for 44% of the pipeline in the first quarter. However, while hotel firms expect a continued recovery in travel demand, economic headwinds - including inflation and high borrowing costs - could blunt the pipeline’s full potential. Amid high construction costs, conversions and renovations are popular alternatives to new construction. With extended-stay being one of the fastest-growing lodging segments, some hotel firms are doing brand conversions on existing transient-stay properties to extended-stay formats.
- Some real estate industry insiders expect jitters in the regional banking industry to exacerbate a slowdown in multifamily starts brought on by rising interest rates and high construction costs, according to Bisnow. In the first quarter of 2023, residential construction starts declined by 29% compared to the same period in 2022, according to Dodge Data & Analytics. The failures of Silicon Valley Bank and Signature Bank, and later the seizure and sale of First Republic Bank, have chilled lending. Private developers often rely on regional banks for financing projects, and some industry experts expect tighter lending standards to slow multifamily housing starts.
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