AJ100: How we’ll beat the crunch
The UK’s top 100 practices tell Damian Arnold how they are retooling their practices for an expected - and highly anticipated - economic upturn
What a difference a year makes. When the last AJ100 was published in May 2008 the credit crunch had hit, but it still seemed more like an innocuous catchphrase than a reason to panic. In hindsight, the warning signs were already there – in his prophetic AJ100 interview last year, HLM Architects chairman Chris Liddle was quoted as saying, ‘Right now the public sector is relatively safe; housing is not’. Yet no one predicted the force with which the squeeze on liquidity would hit architects.
In last year’s survey, when AJ100 practices were asked to name ‘the biggest problem facing architects today’ the credit crunch came in sixth place, after climate change and the planning system. Unsurprisingly, this year it’s considered problem number one.
Predictions notwithstanding, the credit crunch has been a queasy ride. The global banking crisis led to a crash in the housing market. Commercial developers, starved of liquidity, stalled or abandoned schemes, leaving architects in the lurch from Dublin to Deptford. And then, Dubai’s real estate market collapsed in November 2008.
By the end of the year, according to the Office for National Statistics, architects were joining the dole queue at a faster rate than any other occupation and by April 2009 nearly five per cent of UK architects were officially unemployed – an increase of 861 per cent on the previous year.
The job losses and salary cuts are revealed in this year’s AJ100 statistics. When practices filled out their forms in December 2008, 817 redundancies had been made across the AJ100 practices, and average salaries for architects and associates were down for the first time since the AJ100 began reporting salaries in 2003.
However, based on the headlines of early 2009 – including the stalling of the Learning and Skills Council (LSC) college-building programme – the true damage to the profession may only reveal itself in next year’s AJ100.
Over the past five months, redundancies have been rife. In the top 10 practices alone, Atkins cut 5 per cent of its 18,000-strong global workforce, about two-fifths of which are architects; Foster + Partners cut around 300 staff members globally and shut its offices in Berlin and Istanbul; BDP announced 40 to 50 redundancies; Archial shed 70 staff; 3DReid axed around 60 jobs; and Aedas let go of 10 per cent of its global workforce, including 50 staff in the UK.
PUBLIC SECTOR TO THE RESCUE
Redundancies aside, the AJ100 firms are not going down without a fight. And, according to the practices, the key to surviving this recession is to diversify, shuffling teams around internationally, and from poorly performing sectors into better performing ones.
In terms of sectors, with Gordon Brown and Barack Obama launching fiscal stimulus packages, many AJ100 practices have pinned their hopes on government-funded work. President Obama’s $550 billion stimulus package alone includes investment on rail, education and health, which has interested firms such as Aedas and HOK, both with established offices in the US. ‘It’s a massive market to go for,’ says Aedas chairman Brian Johnson.
Indeed, all the big players who spoke to the AJ said that the public sector had risen considerably as a percentage of their turnover, and would continue to do so for the next year. BDP chief executive Peter Drummond said the public sector will comprise 55 per cent of the practice’s turnover this year – an increase of 15 per cent.
EDUCATION AND THE LSC
Education is effectively keeping the profession afloat in the UK at the moment, notwithstanding the near-collapse of the £3 billion LSC programme – a major disappointment to practices such as Atkins. ‘We were not expecting an acceleration of work,’ says Atkins chief executive Keith Clarke, ‘but we did think they would stick to the original plan. The whole supply chain will be affected by the current delay’.
Primary school, secondary school and academy-building programmes, however, are going ahead. And while the Building Schools for the Future programme is not progressing as quickly as expected, it is still the biggest game in town, recently handing out projects to Archial in Birmingham and Aedas in Sandwell.
HEALTHCARE AND PFI
The healthcare sector is also holding up well, despite fears of a considerable shrinkage of available credit to fund PFI projects. ‘There are only a handful of the really big hospital PFI schemes coming out now,’ says Capita’s head of design Rob Firth, ‘but the primary healthcare programmes, such as NHS LIFT, are still going forward.’ Capita is just one of several firms which saw a significant fall in their UK architecture fee income from PFI projects this year, from £16.8 million in 2007 to £6.4 million in 2008.
The industry is also expecting, indeed anxiously awaiting, opportunities to arise in the social-housing sector, as the Homes and Communities Agency continues to invest in transforming stalled commercially led projects into public sector-led ones.
Meanwhile, practices such as 3DReid, which increased its PFI architectural fee income from £2.98 million in 2007 to £3.75 million in 2008, are forging new partnerships with private developers to go for PFI work in new areas of the public sector – and with some success. For example, 3DReid recently won a contract with international multi-disciplinary consultant Bilfinger Berger in Stafford to build a series of fire stations.
But the chairman of PRP, Andy von Bradsky, warns that AJ100 practices should be cautious about pinning all their hopes on the public sector. ‘We have to keep a balance of private and public sector work,’ says von Bradsky, ‘otherwise we will expose ourselves to the vagaries of politics or the market.’
Archial chief executive Chris Littlemore agrees: ‘Under a Conservative government, there could be a different attitude to the level of public expenditure,’ he says. ‘Public revenues in 18 months to two years may not be able to sustain the same level of spending.’
Another sector bucking the downward trend is infrastructure. ‘Over the past five years, there haven’t been that many rail projects in the UK,’ says the London managing partner of Grimshaw, Jolyon Brewis. ‘But it’s on the increase now, and there are a lot more things starting to happen.’
In the UK, several Network Rail projects will kick off this year, including the long-awaited £400 million rebuilding of Birmingham New Street Station by Foreign Office Architects and Atkins, and the £450 million rebuilding of the King’s Cross Station concourse by John McAslan + Partners.
The US, Europe, the Middle East and the Far East are also proving strong for work in infrastructure. President Obama recently earmarked $8 billion from his stimulus package – plus $5 billion more over the next five years – for a nationwide high-speed rail system. Last month, RMJM launched a dedicated Transportation Studio out of its Hong Kong office specifically to bid for government-sponsored infrastructure projects in China and the US.
According to Aedas chairman Johnson, rail and aviation projects are compensating for the drop-off in the firm’s commercial schemes. ‘Our work overseas was predominantly commercial,’ says Johnson, ‘but we have become very strong in transport through working on projects such as Dubai Metro. We have two big railway station projects in Hong Kong and China, and we’re bidding for aviation and rail projects in India and Saudi Arabia.’
A commission to design two big subway stations in Toronto has kept Will Alsop’s office in Glasgow going, according to Archial chief executive Chris Littlemore. And HOK has experienced a similar bounce from the transport sector. ‘We’re waiting to hear on the first round of selections for Crossrail stations within the next month,’ says HOK director of design Larry Malcic. In the meantime, HOK is working on its Indira Gandhi airport in Delhi, India.
At 3DReid, the practice’s slot on the BAA framework has provided work in the UK, and aviation is also booming overseas. ‘We’re working on a new terminal at Gibraltar Airport and have been invited to India to look at aviation projects,’ says group director Mark Taylor. ‘We’re also talking to airport operators in the Middle East.’
Arguably, if Grimshaw has managed to maintain the size of its London office, this is mainly due to the practice’s constant flow of rail and aviation work, such as a new pier for Heathrow Airport and projects for BAA at Gatwick Airport. No surprise then, that Grimshaw increased its standing in the AJ100 rankings this year, from 55th place to 38th.
In addition, the practice is working on a massive transport interchange for the New York subway at Fulton Street – which has helped boost the practice’s New York office from 35 to 55 people in the past year – and a scheme at Pulkovo Airport near St Petersburg in Russia.
Although the AJ100’s UK-based fee income increased only slightly in 2008, the most impressive result was a superlative jump in their earnings from overseas architectural fees.
This year’s practices earned £1.4 billion abroad – an increase of £330 million on last year’s international takings. Practices such as BDP saw their international architecture fees skyrocket from £17.9 million to £28.6 million – an increase of nearly 60 per cent on 2007. According to chief executive Drummond, BDP plans to further expand its work overseas.
And while Atkins, which dethroned BDP for the first time in eight years to top the AJ100 this year, saw a fall in its UK architecture fees – from £38 million to £33 million – its income from international architecture fees more than doubled, from £15 million in 2007 to more than £36 million in 2008.
According to the practices in the AJ100, the Middle East is still a good place to find work, despite the liquidity crisis, speculative housing crash and project cancellations in Dubai. Indeed, AJ100 practices working abroad forecast that the Middle East will comprise 27 per cent of their total fee income from overseas work in 2009, as opposed to 19 per cent in 2008.
Abu Dhabi, Qatar, Oman, Bahrain and Kuwait are all considered healthy markets for architecture, while Saudi Arabia and Syria are emerging. Taylor of 3DReid even predicts that Dubai will soon show signs of recovery. ‘In our view, the Dubai market has reached the bottom now.’
In Abu Dhabi, Foster + Partners is working on later phases of its enormous zero-carbon Masdar City scheme. As a result, the firm is relocating architects from its other, less busy global offices. ‘We require more and more people to relocate to Abu Dhabi,’ says Foster’s chief executive Mouzhan Majidi.
Likewise, Aedas has just opened a new office in Abu Dhabi – its Abu Dhabi Investment Council headquarters scheme will be moving to site shortly, and the firm is also expected to become involved in the huge Saadiyat Island cultural development, which features a Guggenheim Museum designed by Frank Gehry and a Louvre by Jean Nouvel. Aedas’ new office will also be bidding for the raft of education projects planned by the Abu Dhabi government, which will soon launch a rebuilding programme for 400 schools.
But while Abu Dhabi is still booming, Foster’s Majidi is pinning his hopes on Saudi Arabia, where the practice recently won a big contract for four high-speed rail stations. ‘We think Saudi Arabia is going to be a major market for us,’ says Majidi.
Aedas chairman Johnson, on the other hand, believes Iraq will soon grow stable enough to become a big international market for UK architecture firms to participate in rebuilding projects. ‘There will be an awful lot of infrastructure and public sector projects in Iraq, and commercial schemes,’ he says.
SUSTAINABILITY: GREEN SHOOTS
According to the AJ100 practices, it could be several years before the profession fully recovers from the recession. Nevertheless, the firms are already speculating about what the drivers of recovery will be.
Atkins chief executive Clarke is convinced that sustainability will be the single most important sector to lead the profession out of recession, as part of a vast new economic world order. Capita’s Firth also pinpoints the sustainability sector as an area of growth, particularly in the Far East, while HOK’s Malcic expects big opportunities for sustainability-related consultancy in the US.
According to Grimshaw’s Brewis, architects will be the drivers of change in making infrastructure schemes more sustainable. If the downtime that accompanies the recession is good for anything, it provides time to generate new green design ideas or create innovative sustainable products.
THE END OF THE RECESSION
When will the commercial market recover? Most practices are whispering very quietly that clients are slowly reactivating stalled projects. According to Majidi, Foster has received instructions to restart design work on a big commercial tower in a major city, while other commercial clients are getting in touch, looking to take advantage of cheaper construction prices.
3DReid’s design of a 50-storey residential and hotel tower in London’s Docklands is entering planning, and the practice is moving forward on a headquarters in the City for another big corporate client. HOK has been commissioned to design an office for a big developer in central London. ‘[The developer’s] view is that it needs to maintain a pipeline of development,’ says HOK’s Malcic.
But, while projects are being reactivated, PRP chairman von Bradsky warns that ‘lower construction costs are giving clients the expectation of a reduction in fees’. ‘There are many more practices going for far fewer projects,’ he says. ‘Some practices are seeking work to pay salaries and offsetting profits in the hope of just getting through the next few months without going under. It’s not untypical to see a discount in the fee level of 50 per cent.’
In response to client demands, practices are working hard to keep their established clients happy by being more efficient. ‘The best work we do is repeat work,’ says Malcic, ‘and there is no doubt that clients are looking to maximise value.’ To this end, Aedas recently announced it was reducing its overhead costs and staving off redundancies by instituting a four-day working week. ‘We want to keep our resources intact because we know the work is there in the future,’ says Aedas chairman Johnson. ‘We need to keep our skilled workforce together.’
The good news is, while 2009 is still expected to be a challenging year, it seems the green shoots of economic recovery are already in view. ‘We are starting to speak to developers again about land deals and regeneration schemes,’ says Capita’s Firth. Littlemore of Archial agrees. ‘There is a little glimmer of hope from repeat clients with whom we’ve worked for years and years,’ he says. ‘We’ll keep talking to them.’