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
Sep 25, 2024 - Architectural Billings Decline
- Demand for building design services declined in August compared to the prior month, marking continued softness for architectural billings, according to a September report by the American Institute of Architects (AIA). The AIA’s Architecture Billing Index (ABI) declined to 45.7 in August from July’s reading of 48.2. Any reading of 50 or more indicates growth in architectural billings. August was the nineteenth consecutive month to see a downward trend in billings. The score for new project inquiries was flat at 52.4 in August, but the index for the value of new design contracts increased from 46.5 to 47.3. The AIA’s Chief Economist, Kermit Baker said, “Unfortunately, even the impending interest rate cuts didn’t move the needle on project inquiries or new design contracts at architecture firms. Hopefully, once the trajectory of further cuts gets clarified, delayed projects will restart, and new projects will gather momentum.
- The total value of nonresidential building construction starts decreased 2% in August from July, according to Dodge Construction Network. Commercial starts were down 32% in August from July, and manufacturing starts fell 21%. Institutional construction starts increased by 32%, led by new airport terminals and educational projects. On a year-to-date basis, nonresidential building starts were up 13% through August, led by manufacturing, which saw starts increase by 16%. For the first nine months of 2024, institutional starts gained 13%, while commercial starts were flat. Dodge Construction Network chief economist Richard Branch said, “Construction starts continue to move forward at a modest pace. Now that the Federal Reserve has begun to lower rates the construction sector should begin to feel relief. The Dodge Momentum Index has been steady, indicating that owners and developers feel reasonably confident that market and financial conditions will improve. Improve they will, but it will take successive rate cuts before they feel comfortable moving these projects forward to start. Starts should show stronger and more consistent growth in the first quarter of 2025.”
- 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.
- Total nonresidential building construction spending is projected to rise 6% in 2024 over 2023, according to FMI’s third-quarter 2024 North American Engineering and Construction Outlook. With growth of 28%, public safety will lead 2024 nonresidential building construction, followed by manufacturing (21%), educational (7%), and religious (7%). Some other segments of the nonresidential building sector face headwinds. Commercial construction spending is expected to decline 7% in 2024 amid weaker demand for warehousing space, high interest rates, and tighter lending standards. Lodging construction spending is forecast to drop 6% as consumer budgets tighten and hotel occupancies wane, especially near the market's lower tier. Stubbornly high office vacancies will continue to weigh on new office construction, which is projected to see flat spending in 2024. Despite high interest rates, single-family construction spending is forecast to rise 7% in 2024 as homebuilders reduce home sizes to improve affordability. Spending for multifamily is expected to decline by 1% in 2024 after projects in development peaked at 1 million units in mid-2023. Home improvement project spending will rise 4% in 2024 as homeowners primarily focus on maintenance and repairs amid high materials costs and interest rates.
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