Architecture, Engineering, and Related Services [NAICS 5413]

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NAICS 541310 - ARCHITECTURAL SERVICES NAICS Description: “This industry comprises establishments primarily engaged in planning and designing residential, institutional, leisure, commercial, and industrial buildings and structures by applying knowledge of design, construction procedures, zoning regulations, building codes, and building materials.” From the US Census SMALL BUSINESS MARKETPLACE The industry as a whole is fairly fragmented. The majority of businesses are smaller entities, which include consultants, sole proprietors and partnerships (IBIS, 2012). In fact, enterprises with 0-4 employees account for 64.7% of the players in the architectural services industry (IBIS, 2012). Companies with 5-9 employees account for 18.6% of enterprises. The largest firms, with 500+ employees only make up .2% of the players in the industry. While the 2012 U.S. industry report produced by IBIS indicates that larger players in the industry do not generate a substantial amount of industry-wide revenue, a survey conducted by the AIA in 2009 found that firms with 100+ employees accounted for 30% of all employment and over 30% of all revenue (Overview, 2009). In contrast, IBIS reported that firms with 100+ employees account for only 1.1% of all employment in the industry. It is unclear why there such a substantial statistical discrepancy between these reports, however the AIA survey used a substantially smaller sample size. The architectural services industry is currently recuperating from the economic downturn of the past several years. The economic health of the industry is closely tied to the health of the overall economy. Thus, funding for design and construction projects decreases along with organizational budget cuts. Construction was the sector most severely affected by the recession and is the slowest to recover. The Architecture Billing Index (ABI) of February 2012 indicates that billings for the industry overall are on the rise, with strong growth in the Midwest and modest growth in the Northeast and South. Firms located in the West are still experiencing revenue declines (Baker, 2012). The most growth has taken place in the commercial/industrial sector, while firms focusing on the residential sector are also seeing some increase in business. The institutional sector of the industry, which includes healthcare and educational projects, is normally the slowest to recover during an economic downturn. Despite a recent increase in billings, the recession took a substantial toll on the industry during which architects across the country experienced salary freezes or reductions or worked fewer hours. Compensation is still relatively stagnant, but higher in larger firms compared to small and medium-sized firms (AIA Compensation Survey, 2011). INDUSTRY OUTLOOK In recent years there has been some consolidation, with several large mergers and acquisitions taking place in a partial attempt to deal with the economic downturn. In some cases, these mergers are international ones, such as when UK-based RMJM merged with US-based Hillier in June 2007 (Lynch, 2012). Others are domestic, such as the case of the merger of OWP/P, previously one of 1
Chicago’s largest architectural and engineering firms with Upstate New York-based Cannon Design (Lynch, 2009). At the time of the merger, the combined revenues of the two firms would have made it the 14th largest architectural firm in the U.S. The majority of mergers and acquisitions taking place in this environment are motivated by the quest to increase financial, operational and geographical opportunities. Those transactions that are driven by growth rather than financial rescue are more likely to thrive moving forward. Another strategy that firms have taken to deal with the loss of business in recent years and increased competition for existing projects is to create strategic alliances (Beck, 2012). Strategic alliances are partnerships established between firms that do not involve money. Each firm maintains a separate identity and its autonomy, but the strategic alliance provides the organizations involved with the opportunity to leverage each other’s resources to generate new business ideas and take advantage of opportunities in a more integrated manner. This has been a popular alternative to the merger & acquisitions approach in dealing with the economic downturn. Some strategic alliances involve the creation of a completely new legal entity to facilitate cohesiveness and build credibility with clients. SIGNIFICANT TRENDS & CHALLENGES There are several current developments in the industry that will continue to have a significant impact on the state of the industry moving forward. • Sustainable energy and design is necessary and expected. It is no longer a question of whether a building should be designed sustainably, but rather how sustainability can be integrated into the design, construction and long-term maintenance of a building. The National Architectural Accrediting Board has begun to include mandates which require architecture schools to include sustainable design within their curriculum, meaning the next generation of architects and designers will be taught to consider sustainability in every aspect of their projects (NAAB, 2011). • Increased globalization will prompt greater collaboration between firms. Larger architecture firms may have branch offices in various countries and a substantial amount of clients and projects abroad. Yet many international architects who wish to design projects within the U.S. will continue to partner with U.S. based firms. Because licensing requirements in the U.S. are significantly different than those in other countries, a U.S. based firm may serve as “architect of record” for a project, which means the name of this firm will be listed on the building permit and assumes the responsibility and liability “of a project including the design, the production of construction documents and construction observation” (AIA Code of Ethics, 2004). • Technical knowledge about Building Information Modeling (BIM) becomes a requirement for architects as projects become increasing data driven. The buildingSMARTalliance, the nonprofit, non-governmental council which is developing national standards for BIM defines Business Information Modeling (BIM) as “a digital representation of physical and functional characteristics of a facility. A BIM is a shared knowledge resource for information about a facility forming a reliable basis for decisions during its life-cycle; defined as existing from earliest conception to demolition.” BIM is increasingly becoming the way that stakeholders such as architects, engineers and contractors manage a building throughout its lifecycle. The 2
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Architecture, Engineering, and Related Services [NAICS 5413]

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