Practicing ArchitecturePracticing Architecture
2012 AIA Firm Survey: Economic Downturn Cut Architecture Firm Revenue by 40 Percent, Employment by Almost a Third
The Great Recession erased the all the gains seen in the mid-decade construction upturn—and then some
Looking back at the downturn in the national economy that began in early 2008, it’s now clear just how destructive the Great Recession has been for architects. Since the beginning of the recession, architecture firms have collectively seen their revenue plummet by 40 percent, and have been forced to cut architecture firm employment by nearly a third. And even though overall economic output began recovering nationally by the middle of 2009, construction activity continued to spiral downward, according to the recently released 2012 AIA Firm Survey, now available for purchase at the AIA Store.
Total construction spending levels, which exceeded $1 trillion in 2008, fell to under $800 billion in 2011. With less construction, of course, comes less building design. Additionally, there were efforts by owners and developers to more aggressively manage the design and construction costs of the projects that were built, creating pressure on design fees and construction bids. As a result, gross revenue at architecture firms declined from more than $44 billion in 2008 to $26 billion by 2011, a 40 percent decline over this three-year period (Figure 1).
Such a significant reduction in firm revenue produced a comparable reduction in employment. Construction payrolls peaked in early 2007 and steadily declined through mid-2011 due to the housing downturn. Since then, there has been very little recovery. Positions at architecture firms have generally followed the path of the broader construction industry. Due to the heavy reliance of architecture firms on nonresidential construction activity, payroll positions continued to grow through mid-2008. But at that point they dropped sharply through early 2011 and have not recovered much since. Between 2007 and 2011, more than 28 percent of positions at architecture firms disappeared, more than erasing the 18 percent increase in architecture positions seen during the 2003–2007 upturn.
Changing design sectors, smaller firms
This dramatic upheaval at architecture firms has had serious implications for professional practice. One change is the mix of projects at firms. Billings for residential projects averaged 14 percent of total firm billings over the past decade, commercial/industrial projects averaged 27 percent, and institutional projects averaged 53 percent, with the remaining 6 percent divided among other construction and non-construction activities.
By 2011, residential billings had returned to their decade average, having grown to 18 percent in 2005 during the peak of the housing market, and fallen to 11 percent in 2008 as the housing market was crashing and the nonresidential construction sector was just beginning to peak. Commercial/industrial design activity tends to be extremely volatile over the entire business cycle. Activity fell off sharply with the overall economic downturn, and was still near its bottom in 2011. Institutional activity tends to be more stable, with shares that are generally a bit lower during upturns and higher during downturns. By 2011, the institutional share was near its decade high, mostly because other sectors had fallen off more dramatically (Figure 2).
The overall loss of payroll positions during this downturn has been greater than the closures of architecture firms. As a result, the average number of payroll employees at a typical firm decreased from 10.3 in 2008 to 8.8 in 2011. Currently, according to AIA estimates, almost a quarter of architecture firms are sole practitioners, and more than 60 percent have fewer than five employees on their payrolls. In contrast, only 1.4 percent of offices have 100 or more employees. However, a relatively small number of architecture firms employ a disproportionally large number of employees. Firm locations with 100 or more employees account for more than 20 percent of all staff at architecture firms nationally, and 50-plus-employee firms account for more than a third of all employment. Since revenue per employee tends to be higher at large firms, 100-plus-person firms account for more than a quarter of professional fees generated nationally, while 50-plus-person firms account for well over 40 percent (Figure 3).
Fewer support staff, more architecture staff
The general downsizing of firms has also produced a change in staff compositions. In the 2009 AIA “Business of Architecture” report, 60 percent of payroll positions were architecture positions (including interns and students), 21 percent were other design professionals (with engineers and interior designers accounting for the largest shares), and the remaining 19 percent were technical and support staff. By the beginning of 2012, these proportions had changed significantly. The largest losses were in technical and nontechnical staff, positions that generally were not directly billable on projects. Architecture staff positions increased their share somewhat over this period, while the share of other design professionals remained essentially unchanged.
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The Business of Architecture: 2012 AIA Survey Report on Firm Characteristics is available for purchase through the AIA Store in PDF format only. The full 40-page report is available for $79.98 for AIA members and $129.95 for non-members. Six individual chapters from the report are available for $29.98 each for AIA members and $49.95 for non-members, while firm size reports by small, medium, and large firm sizes are available for $39.98 each for AIA members and $59.95 for non-members.