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
Jun 28, 2024 - Multifamily Development Slows
- Some multifamily developers are pulling back on project plans amid high interest rates, tighter lending standards, and increased construction costs, according to The Wall Street Journal. In April, multifamily starts dropped to 322,000, marking the weakest April for starts since 2020, according to Yardi Matrix. In 2023, about half a million new apartment units came online, and some industry observers expect a similar influx of apartment supplies in 2024. The surge in new apartment supply may mean having to reduce rent to fill them, which gives developers of new projects pause. Some regional banks have less money to lend as their existing portfolios of commercial real estate loans are marked down.
- Demand for building design services slipped in May from the prior month, as architectural billings remain soft, according to a June report by the American Institute of Architects (AIA). The AIA’s Architecture Billing Index (ABI) fell to 42.4 in May from April’s reading of 48.3. Any reading of 50 or more indicates growth in architectural billings. The score for new project inquiries fell to 52.1 in May compared to 54.8 in April, and the index for the value of new design contracts decreased from 49.2 to 45.6. The AIA’s Chief Economist, Kermit Baker said, "The decline in the May ABI score continues a year and a half of weakness in design billings at U.S. architecture firms. However, firms only reported modest declines over the first half of this period. Over the past nine months, volatility has increased, and scores have softened more significantly, with the May score the weakest reported since the end of the pandemic recession."
- Hybrid work models continue to put downward pressure on demand for office space. In April 2024, the national office vacancy rate rose to 13.8%, according to the National Association of Realtors (NAR). The second-quarter 2024 12-month net absorption rate in the office sector was -54 million square feet, as more office tenants continue to move out than move in. Cities with some of the highest office vacancy rates include San Francisco (22.6%), Houston (18.6%), Dallas/Fort Worth (17.6%), Denver (17%), and Washington DC (16.9%).
- The Associated Builders and Contractors (ABC) Construction Backlog Indicator fell 0.1 months to 8.3 months in May compared to April. Backlogs were down 0.6 months compared to May 2023’s 8.9 months. The infrastructure segment saw the biggest drop in May as backlogs slipped to 8 months compared to 9.8 months in April. The heavy industrial backlog rose by 1.3 months, and the commercial and institutional backlog was flat. The ABC’s Construction Confidence Index for sales rose to 59.9 in May from 59.7 in April. A Confidence Index sales reading of 50 or more indicates most contractors are optimistic about sales. ABC Chief Economist Anirban Basu said, “Over a year has passed since the Federal Reserve raised the target range of the federal funds rate above 5%. Despite widespread expectations that rates will remain elevated through at least the end of the year, contractors remain confident about the future.”
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