A dip in confidence amongst architects
How significant is the current dip in confidence among architects? The latest 澳门王中王 Future Trends report, July 2023, shows a profession increasingly downbeat about future workloads, expecting them to fall over the coming three months. Not all practices are pessimistic, but 10% more expect contraction than growth. Smaller practices, often more engaged in residential work, are having a tougher time than larger ones.
With that, it鈥檚 worth spending a little time looking at the wider economic context in which this pessimism has taken root, why some architects are probably right to be pessimistic now, how things are likely to improve quite soon (but no boom time is on the horizon), and briefly, in the name of practice resilience, at the kind of business response that might help.
The architects鈥� market has always been tied to the turning wheel of economics. The profession has been through much worse before, and although each cycle differs, the playbook for responding tends to get refined, and not rewritten, each time.
There鈥檚 a risk, of course, that a blog such as this might be proved inaccurate by the time it is read. Economic forecasts seem to be most inaccurate when accuracy is most needed, and innovation can make the established playbook obsolete, but the profession is by nature innovative and adaptive.
The medium-term future for the economy and the construction industry
The construction sector is weak and will likely shrink in 2023. It will likely improve over the next few years, but not by enough to make up lost ground.
Looking at the UK economy, in their latest Monetary Policy Report, the , describe a sluggish economy. GDP growth has only been around 0.2% in the first half of the year. In their report, we see an economy that has skirted recession but is long-term flatlining. This flatlining is to some extent planned. It’s not a freefall into the unknown, of the sort we saw when the 2008/09 financial crisis took hold, or as the pandemic hit.
The Bank of England’s given priority is to keep inflation at 2%. Inflation is high, at 7.9% (CPI) and the Bank’s central forecast is that the 2% target won’t be reached until Q2 2025. Its response to inflation is to increase interest rates; they are at 5.25% now and might rise again. Given the inflation forecast, interest rates are likely to be comparatively high for a few years, at least (that said, globally, inflationary pressures are starting to fall; external events may yet catch the forecasts out).
As inflation is brought under control, the Bank forecasts sub-1% each year until 2026. To give this context, in the 10 years to 2008, the economy grew by an average of 2.7%. Since 2016 the average growth has been less than half that, 1.2%. The UK’s growth rate is weakening and each year it weakens, our relative wealth and economic power fall.
Turning to the construction sector, forecast that the value of project starts (<£100m value) will fall by 18% in 2023, although they are likely to recover somewhat in 2024 (with a 12% increase) and in 2025 (a 3% increase). A recovery of sorts is in sight, and architects, with a focus on pre-start design work, may feel it coming sooner than others. Nevertheless, going by this forecast, at £71 billion, the value of project-starts in 2025 (£71Bn) will still be less than that of last year (£74Bn in 2022).
Private housing will be the worst affected, with a fall in the value of project starts of 33%. This looks like bad news for architects; on average, domestic work provides most of the fee income for small practices, those with 10 or fewer staff.
With similar foreboding, the (CPA) anticipate an ‘acute recession’ for the sector, with Construction output falling by 7% this year.
The CPA suggest the recovery is set to be slow, with growth of just 0.7% in 2024, and with construction output not reaching 2022 levels by even 2025. The worst affected sectors are again forecast to be those most important to small practices – private housing, and housing repair, maintenance, and improvement.
The causes of the tightened market
That was a look forward. The current and projected state of the architects鈥� market has its causes, and they can be summarized like this:
Post-pandemic, global supply chains faltered, creating inflation. The war in Ukraine made this much worse by causing energy costs to spike to new highs. Inflation hit the UK particularly badly because just as global supply chains broke down, our newly isolated, trade-based economy was less able to import from, and export to, its closest neighbours.
In response to the mounting inflation, the Bank of England and the government chose to raise interest rates, making borrowing more expensive. Higher return on borrowing-based investment became necessary so that increased borrowing costs could be met. Banks became more cautious about lending as higher borrowing costs make default more likely.
So, at just the time real wages and savings are being devalued by inflation, these tightening financing conditions constricted capital investment. Clients, both private and public, have become less able to borrow to build. In turn, fewer buildings are being commissioned, so there is less work for architects.
On the bright side: are there causes for optimism in the architects' market?
Although this description of the status quo and near future is dark, there are clear chinks of light.
Post-pandemic, the architects’ market has been dampened by supply-side constraints: a lack of products and materials, a lack of planning capacity, and a lack of skilled tradespersons, for example. As the industry contracts (particularly within the private housing sector, dominated by volume housebuilders) these constraints may abate, easing pressures on project delivery and cost.
Further, the overall contraction in construction work is a result of constraints on financing; it’s more difficult to get money to pay for projects. But there are many clients, both business and consumer, for whom getting money to fund projects isn’t a problem; they have it already.
We need more and better buildings. The government’s to build 300,000 homes a year looks both unattainable and insufficient, as , and young people struggle to purchase a decent home. Our and demonstrably need replacement and renewal. Our is not up to the job. Long-term underinvestment in our community infrastructure is expensive, as the cost of its absence grows; productivity is stifled by poor transport links, workers are lost as they wait for hospital treatment, and children’s education is stymied by unfit school buildings, for example. The country needs to build for long-term prosperity.
Finally, we need to reform our built environment because there is a climate emergency. The list of work needed is long, and it’s a list that the profession can help deliver; a safe, zero-carbon built environment, the improved thermal performance of homes and workplaces, renewable heating, clean air, better planned and walkable cities with green and public spaces. As the world heats up, we’ll also need our buildings to have greater resilience, to adapt to the changed climate.
Architecture: It's a business
The market will be challenging in the coming months and years, but there is some cause for hope. A return to growth, albeit modest, is likely next year. Longer term, in the UK and beyond, a growing economy and a sustainable future require investment in well-designed cities and buildings, now. The architects’ market has a robust future.
For practices, the route through the difficult times, to reach the better ones ahead, is there to be found in business management; the occasionally unwelcome but always present precondition of being able to design and create.
澳门王中王 is setting out this guidance in detail. It is gathered together in one area, in our Business and career resilience hub.
This guidance will help your practice adapt and grow during market change. It will include topics such as increasing revenue streams, setting fees, getting the most from your staff (and how to recruit, develop and retain them), managing client relationships (so improving the value and extent of your project pipeline), carrying out financial forecasting and , how to make the most of rapidly developing technology and finally, how to effectively market and brand your practice.
We hope this will help practices become better equipped for the challenges ahead. They keep coming.
The 澳门王中王 will soon be hosting its biannual Economics Panel with experts from Practice and the Bank of England joining us to explore in more detail the topics touched on here.
Read up on this month's Future Trends survey where we monitor the employment and business trends affecting the architectural profession.
