AJ100 2011: Analysis
As the profession surely knows, 2010 was a challenging year for architects. The good news is that while the industry is still contracting, it is at least doing so less quickly than before, says Bruce Tether
The total number of architects employed in the UK by the AJ100 practices was 5,825 in December 2010 – 133 fewer than the number employed by the same 97 firms that appeared on last year’s list.
This represents a decline of 2.3 per cent, a modest fall when compared to the previous year. The 85 firms that appear on both this year’s list and that of 2009 now have 996 fewer UK-based architects between them. However, 802 of these job losses occurred in 2009, while almost 200 occurred in 2010. So, although still contracting, the industry is at least doing so less quickly than before.
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Combined, the top 20 practices had 2,648 UK architects this year, down from 2,832 last year and from 3,433 the year before that. Some big players have been particularly hard hit. While Hamiltons had 170 UK architects in the 2009 list, last year its successor BFLS had 52 – now it is down to just 28. Atkins has shed 138 UK architects in the last two years – mostly between December 2008 and 2009 – while Archial’s 258 UK architects in December 2008 fell first to 200 in 2009, then again to 120 at the end of last year.
BDP, Bond Bryan, Chapman Taylor, Foster + Partners, Nightingale Associates, PRP and Scott Brownrigg are all practices that have shed at least 30 architects in the last two years. Some practices, including Woods Bagot, Allford Hall Monaghan Morris and John McAlsan + Partners, have bucked the trend and grown in the past year. But these have tended to add tens of architects to their books, rather than hundreds.
The general pattern is, therefore, rather distressing, but we should remember how much architecture grew through the 1990s and 2000s. The number of architects needed to get into the AJ100 is now 22; this is one lower than last year and eight down from the peak of 30 in 2008, but the number is still higher than in the mid-to-late 1990s, when firms with less than 20 UK architects found themselves on the list. Overall, AJ100 practices are still larger than a decade ago.
Returning to the present, and to fees, 89 firms reported UK fees this year that, when aggregated, amount to £740.2 million. Of these firms, 80 also reported their fees in last year’s AJ100. When aggregated, this income amounted to £711 million; compared with £675 million this year, this signals a decline of 5 per cent.
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Notable here is that fees have declined more than the employment of architects, which implies that overall fees per architect are down. There is also evidence that larger players are earning slightly less, while the smaller players who remain in the top 100 – an important caveat – have maintained or slightly enhanced their earnings. Overall, however, fees earned this year are very similar to those of last year.
With the help of the AJ’s editorial team, I identified different types of architectural practices, including those that are design led and directed by a strong figurehead (such as Foster + Partners), other design-led practices (such as RMJM), specialists (like Populous) that focus on particular markets multidisciplinary businesses (such as Atkins), and generalists, who offer value-driven design solutions across a broad portfolio (such as AWW). Interestingly, although fees per architect are down by 10 per cent or more in most categories, this figure sits at only 3 per cent among the design-led practices with strong figureheads.
Overall, the proportion of income due to projects conducted overseas has remained stable at 15 per cent. Collectively, the AJ100 practices employ 5,799 architects overseas, which is very similar to the number they employ within the UK. Some firms, and mainly highly internationalised businesses, have expanded considerably: Aedas is up 383 architects abroad, RTKL UK 125, Atkins 85, Jacobs 81 and Gensler 67, but much of this is due to acquisitions rather than organic growth.
Asked what actions they have taken to combat the downturn in the market for architectural services, the vast majority of firms report that they have: reallocated staff within the practice; made redundancies; lowered the costs of providing services; accepted lower fees and margins; and implemented a pay freeze or reduced pay.
Most have also moved into new areas of activity, while a minority have increased their use of freelancers or subcontractors, moved premises or merged with other practices. It is notable that, with the exception of making redundancies, all of these measures are more prevalent this year than last. Overall, however, the pattern is rather similar to that of last year.
Some interesting differences emerge when we differentiate the practices by type. Design-led businesses led by a strong figurehead are the least likely to have made redundancies and were least likely to have lowered the costs of their services (although the great majority have done so). Meanwhile specialists were the least likely to introduce a pay freeze, reduce their margins or accept lower fees. They were also the least likely to move into new areas of business for the practice. Multidisciplinary firms were the most likely to make redundancies, reallocate staff and lower their fees. Generalists were those most likely to reduce their margins.
Given the fact that, overall, margins are under pressure, it is interesting that most firms expect them to remain the same or only slightly changed in 2011. There is a bit more optimism that margins for overseas work will improve; again, some interesting differences emerge by practice type. Design-led businesses and specialists tended to be most optimistic that margins would improve, both in the UK and overseas. Generalists and multidisciplinary practices tended to be more pessimistic, especially regarding the UK.
Overall, practices expect (or hope) to see a recovery and increase their employment of architects in the UK within the coming year. Among the 92 prepared to make a forecast, they expected to collectively add 336 UK architects in 2011. The bad news is that this optimism may be unfounded; a similar view was expressed last year. Indeed, compared with their anticipated employment of UK architects, as reported in last year’s AJ100, the 93 practices that provided a forecast now employ 444 fewer architects than they had expected or hoped for. Only about a quarter of practices currently employ more architects in the UK than they anticipated last year.
The spread of optimism and pessimism is much the same as that reported last year. Two firms are very pessimistic, three are very optimistic and more than half are neutral. Compared with last year, 17 are more pessimistic, 23 more optimistic and about half have not changed their stance. Among the different practice types, those that are design led or specialist are most optimistic and showing increased optimism; generalists, on the other hand, are the least optimistic and showing increased pessimism.
In an environment of scarce workloads and declining headcounts it is unsurprising that pay is static. Indeed, median salaries for all categories except associates (directors £75,000, associates £46,000, architects £37,000, Part 2s £27,000, Part 1s £20,000) are the same as last year, with the median pay of associates down by £1,000.
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At a time of relatively high inflation, this means that architects at all levels are suffering a decline in real wages. Interestingly, while some practices are increasing pay, others are cutting it; the trend is, therefore, not universal. A close inspection of the data shows some pay convergence, overall, as higher-paying practices have tended to freeze or cut pay, while some lower-paying firms have increased their remuneration.
Also striking is the substantial variation in pay at different levels; the standard deviation (the mean variation from the mean) is around £20,000 for directors, £10,000 for associates, £5,000 for architects and £3,300 for year-out students. In other words, if you get more than the median plus this standard deviation, you are doing well (for architects on more than £42,000); if you make less than the median minus the standard deviation, you are doing badly (for architects on less than £32,000), especially if you live in London. Although, of course, you do still have a job.
Some of this variation seems to be due to the different types of practice. Design-led practices – and especially those led by a strong figurehead – tend to pay the most at director and associate levels, closely followed by specialists. For architects, specialists are marginally the most generous as, indeed, they are for year-out students. However, especially at the lower levels (ie, year-out students and those studying for their Part 3s), the differences are not large.
In conclusion, it is clear that architecture and architects are still suffering the hangover from the end of the party that lasted through most of Blair–Brown years and led to a substantial growth of the industry as a whole and the largest firms within it. Downturns are always painful, and it is not my place to give advice. I expect there will be further consolidation in the industry, both nationally and internationally, and I also expect diversification, especially among the design-led practices, who may move into other areas of architecture and design.
These moves may well squeeze the generalists further. Developing specialisations, particularly in unusual combinations of design and other activities, may be worthy of consideration as it allows firms to offer more distinctive services that are less easily replicated by rivals. Good luck for 2011.
Bruce Tether is professor of design and innovation at Imperial College Business School and analyses the AJ100 data. His research interests concern innovation and competition in design-based industries, such as architecture. He studies how these industries evolve over time, as well as their strategic management of competitiveness.