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
Recent Developments
Mar 27, 2024 - Wage Growth Outpaces Price Increases
- Producer prices charged by architectural services firms increased slightly in the fourth quarter of 2023 compared to the same period in 2022, according to the US Bureau of Labor Statistics (BLS). BLS data show that wage growth in the industry has been more robust – nearly three times 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 Q4 2023, industry employment growth was flat compared to a year earlier, according to the BLS.
- Apartment buildings are getting taller amid sustained demand for rentals, scarcity of land, and some cities’ willingness to change zoning rules to attract development, according to The Wall Street Journal. Between 2021 and 2023, US cities added more than 2,900 buildings with more than 200 units, a 17% increase of the number built between 2018 and 2020, according to property data firm Yardi. High interest rates and single-family home prices continue to prop up demand for rentals, even among those with relatively high incomes. Some cities are easing some zoning rules, such as minimums for parking. The economics of multifamily development have also changed. Higher construction costs mean buildings need to have more units to be profitable.
- The total value of nonresidential building construction starts decreased a seasonally adjusted 16% in February from January, according to Dodge Construction Network. The drop was led by a 28% decrease in manufacturing projects. Commercial construction starts were off by 3% in February amid fewer warehouse starts, and institutional projects saw a 19% decline in starts amid weakness in the transportation and education buildings segments. Dodge Construction Network chief economist Richard Branch said, “Construction activity was hit hard by higher rates and more restrictive credit standards. Starts struggled over the past several months as the lagged effect of higher rates impacted projects moving forward through the planning process. Additionally, the significant deficit of skilled labor led to further delays – especially in the manufacturing sector. While optimism should prevail in the second half of the year as the Federal Reserve begins to cut rates, some sectors like commercial, will make little headway over the remainder of the year.”
- Demand for building design services rose in February from the prior month, but remained in contraction territory, according to a March report by the American Institute of Architects (AIA). The AIA’s Architecture Billing Index (ABI) rose to 49.5 in February compared to January’s reading of 46.2. A reading of 50 or more indicates growth in architectural billings. The score for new project inquiries rose to 56 in February compared to 53.8 in February, and the index for the value of new design contracts increased to 51.1 from 49.7. The AIA’s Chief Economist, Kermit Baker said, “There are indicators this month that business conditions at firms may finally begin to pick up in the coming months. Inquiries into new projects grew at their fastest pace since November, and the value of newly signed design contracts increased at their fastest pace since last summer. Given the moderation of inflation for construction costs and prospects for lower interest rates in the coming months, there are positive signs for future growth.”
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