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.

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 9 employees and generates $2 million in annual revenue.

    • The industry has 21,000 firms with $43 billion in annual revenue and 190,900 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
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Oct 23, 2023 - Wage Growth Outpaces Price Increases
                              • Producer prices charged by architectural services firms increased slightly in the third quarter of 2023 compared to Q3 2022. Wage growth in the industry over the same period has been stronger – more than double the rate of pricing growth. Weaker pricing power amid steadier wage growth may suggest architectural services firms’ margins are under pressure from rising wages. In Q3 2023, industry employment increased slightly compared to a year earlier.
                              • North American engineering and construction spending is forecast to rise by 5% in 2023 compared to the 12% growth seen in 2022, according to FMI’s fourth-quarter 2023 North American Engineering and Construction Outlook. Overall growth in 2023 will be supported by double-digit gains in key segments, including manufacturing (up 58%), multifamily (+18%), and lodging (+16%). Other segments expected to post strong growth include healthcare (+9%), public safety (+9%), amusement & recreation (+8%), educational (+8%), office (+8%), transportation (7%), and commercial (+6%). With a 13% decline in spending, single-family housing is the only segment that is expected to post negative growth in 2023.
                              • Demand for building design services fell in September from the prior month, according to a September report by the American Institute of Architects (AIA). The AIA’s Architecture Billing Index (ABI) fell to 44.8 in September from August’s 48.1. Any reading of 50 or more indicates growth in architectural billings. The score for new project inquiries dropped to 53.7 compared to 54.8 in August, and the index for the value of new design contracts decreased to 46.2 from 47.9. The AIA’s Chief Economist, Kermit Baker said, “The September ABI score reflects a marked downturn in business conditions at architecture firms, with the sharpest decline observed since the peak of the pandemic. While more firms are reporting a decrease in billings, the report also shows the hesitance among clients to commit to new projects with a slump in newly signed design contracts. As a result, backlogs at architecture firms fell to 6.5 months on average in the third quarter, their lowest level since the fourth quarter of 2021. "
                              • Construction starts for apartment buildings are declining amid high interest rates, tight lending standards, stagnant rent growth, and signs of overbuilding in some markets, according to The Wall Street Journal. In August 2023, the multifamily sector added 334,000 fewer new units compared to a year earlier, according to the US Census Bureau. Some forecasts suggest that more new apartments are set to come online in 2023 and 2024 than at any time since the 1980s. The wave of new multifamily space is driving up vacancy rates and putting downward pressure on rent growth. Meanwhile, banks have cut back on lending to help support their distressed loan portfolios and have increased interest rates on the construction loans they approve.
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