IN THIS ISSUE:

• Updates• Trends• Challenges• Opportunities

UPDATEWorldwide, improving market conditions are helping boost construction investment and driving demand for architectural services. A 3.6% compound annual growth rate for the global architecture services industry is expected through 2015 (from 2011), according to Infiniti Research.

The U.S. architecture industry includes about 26,000 establishments (single-location companies and units of multi-location companies) with a combined annual revenue of about $33 billion.

Architecture firms reported a jump in June 2015 billings as year-over-year growth returned to pre-recession levels, according to the American Institute of Architects. The strong sixth month follows five months of disappointing Architecture Billing Index (ABI) results. An ABI score above 50 indicates an increase in firm billings from the previous month. June’s national ABI score of 55.7 is the result of the growing volume of new architecture work. Taking into account data for the period of June

2014 to June 2015, the Midwest region logged the most rapid growth for firms, followed by the South, the West, and to a much lesser extent, the Northeast. Institutional firms saw demand increase at near-record levels; commercial/industrial firms trailed closely behind. Residential firms have lost their footing so far this year because construction has increased for entry-level single-family homes, which typically do not require much design involvement.

Architectural services firms may want to adjust marketing efforts and staffing to reflect increased demand from institutional clients.

Revenue for U.S. architectural services is forecast to grow at an annual compounded rate of 6% between 2015 and 2019.

Total US revenue for architectural and related services rose 14.9% in the first quarter of 2015 compared to the previous year.

The value of U.S. nonresidential construction spending, a demand indicator for architectural services, rose 7.6% year-to-date in June 2015 compared to the same period in 2014.

The value of U.S. residential construction spending, which impacts demand for architectural services, rose 8.8% year-to-date in June 2015 compared to the same period in 2014.

TRENDSMore architects are teaming up with engineers in so-called architect/engineering (AE) firms, as the line

INDUSTRY NEWSLETTER

ARCHITECTURE

SEPTEMBER 2015

GLOBAL CORPORATE

REAL ESTATE ADVISORS

Unique Approach. Unparalleled Results.

GLOBAL CORPORATE

REAL ESTATE ADVISORS

Unique Approach. Unparalleled Results.

between the two has blurred. More project work is of the “design-build” type, where one firm does both the design and building work to ensure good project integration. Larger firms, especially, have adopted this format to offer a broader line of service to clients; among the 100 largest design firms in the country, only a handful are pure architectural firms.

Architects are finding security and evacuation systems to be a higher priority in the design of buildings and other facilities. Lobbies are larger to accommodate enhanced security functions, protective barriers are often included, while adjacent or underground parking areas are avoided. More attention is paid to engineering upgrades, such as better fireproofing, improved structural supports, and impact-resistant stairwells.

U.S. spending on green home construction is expected to reach between $87 billion and $114 billion by 2016, according to McGraw-Hill Construction. Green building,

or environmentally sensitive architecture, is benefiting from more government incentives, grant programs, success stories, and better marketing strategies. Design and construction teams can meet Leadership in Energy and Environmental Design (LEED) standards in order to have buildings reach green certification, which is highly desirable in the marketplace. Architectural services firms that can design new homes and buildings with environmentally sound features are in demand.

Architects are deploying the latest technology, materials, and design techniques when planning new homes, schools, office buildings, and other structures. Many are choosing to use concrete, cement, and steel in their residential designs, as clients want buildings to be fire-resistant and able to withstand strong winds and other conditions.

CHALLENGESThe industry greatly depends on the amount of building construction in the US, which often changes in multi-

year cycles. US construction activity, which fell during the recession of the late 2000s, has since begun to increase, especially in the residential and private sectors. Construction spending increased by about 5% in 2013 from the year before. Demand in specific segments, like schools or office buildings, can be volatile. Public spending on highway and construction projects also depends on legislative action.

Technology and security considerations have affected building design, and state and local building codes have become more complicated. Tracking and complying with all regulations can be difficult for architects, especially if they work on a project outside their usual territory.

Because work in the industry is on a project basis, work demands can be very uneven, especially for smaller firms. Cash flow is also uneven, even for firms that have continuous work, because the bulk of payments are typically made upon completion of a project. Small firms cannot usually afford to cut their workforce when activity is slow.

Most architecture firms are small and receive a substantial amount of work from a few large customers. Most firms rely heavily on repeat business.

OPPORTUNITIESSince larger firms are better able

Industry Output Forecast

INDUSTRY NEWSLETTER

ARCHITECTURE

SEPTEMBER 2015

GLOBAL CORPORATE

REAL ESTATE ADVISORS

Unique Approach. Unparalleled Results.

to provide a constant work supply and offer a greater range of services than smaller firms, many firms have an active consolidation strategy. The number of firms with more than 20 employees has risen recently as smaller firms merge with larger ones.

Spending to improve or replace essential public buildings, such as schools and hospitals, is likely to continue. Many public schools are in poor physical condition. Hospital rehabilitation and replacement are also expected to continue. Governments also are facing pressure to increase spending to replace and repair airports, highways, water supply plants, and other public infrastructure.

Architects can find alternative financing for projects through web-based crowdfunding. The increasingly popular method of raising money through online portals can attract investors to various real estate and design projects and get them off a designer’s drawing board. The US Securities and Exchange Commission has proposed final rules to allow startups to sell stakes in their ventures to ordinary investors.

ABOUT MOHR PARTNERS

Mohr Partners, Inc. is a global corporate real estate firm offering tenant advisory and consulting services. Mohr Partners has 19 offices in North America, providing corporate tenants with portfolio services including strategic planning, portfolio and lease administration, research and site selection, project and construction management, comprehensive demographic analysis, and economic incentive negotiation. Since 1986, Mohr Partners has been managing real estate portfolios for corporations in all 50 U.S. states, all Canadian provinces, and many locations around the world through its strategic alliance partners.

For more information please visit our website at www.mohrpartners.com.

Data for this newsletter was sourced from First Research® Industry Profile, 09.09.2015. First Research forecasts are based on INFO-RUM forecasts that are licensed from the Inter-industry Economic Research Fund, Inc.

INDUSTRY NEWSLETTER

ARCHITECTURE

SEPTEMBER 2015