Opinion - Financial meltdown? Don't panic
Panic and financial melt-down make a good story and the schadenfreude appeal of City bankers’ suffering hasn’t been lost on the news media.
Dig a little deeper and the gloom is less overwhelming. The dictionary definition of economic recession is two consecutive quarters of falling output.
So, although the economy is slowing down, right now we are a long way off being in recession. Mergers, acquisitions and major property transactions may be drying up but ordinary business banking continues largely unaffected.
Borrowing is more difficult but money for projects remains available. In the UK, public sector spending is still high. The resource rich nations of the Middle East and the former Soviet Union still have cash to spend and there is demand in the growing economies of Russia, India and China.
Many of those managing practices today will have survived the early 90s recession. Now things are different.
The upheaval of the 1980s began to change the UK from a low wage, lower skilled
manufacturing economy to one more focused on high added value services. Moving manufacturing to countries with cheaper salary costs has kept inflation low for a long period and Bank of England
independence has diluted political influence on interest rates. Globally, the US economy is less dominant.
China, Russia and India are increasingly important as suppliers of resources and goods as well as
markets for our professional services. In commercial property there is less speculative construction and more reliance on pre-letting. In 2008 massive oversupply of City office space and plummeting rents look avoidable. Confusingly, this new economic structure has a mischievous tendency to send mixed messages.
The UK housing market has slowed down. Some retailers are reporting record sales but some are struggling. Meanwhile, growth in employment and pay continues to be strong. At Grimshaw our workload grew throughout 2006 and on into 2007; over two years our workforce doubled
and we moved to larger premises. We do not anticipate reducing the size of the office.
Although we have more mouths to feed our enlarged office can work more efficiently. Support functions benefit from a certain critical mass and with 150 staff in London we have the flexibility to carry a wide range of projects and to run several large schemes at once.
This is not an advantage that we want to lose. A slowdown in the first few months of 2008 was anticipated, but projects for the next financial year are in a good state, about 60 per cent of our targeted work for 2008-09 is already booked in.
Meanwhile, enquiries in the UK and abroad are at healthy levels, although foreign work looks strongest.
2007 was an exceptionally buoyant year, one of several successive years of strong growth for architects, and any ‘normal’ year will suffer by comparison. The difficulty for architects now is in understanding how a general economic slowdown will translate into impact on our individual practices.
Architects are often the first to see evidence of cold financial feet as projects in early design stages go on hold. Conversely, some projects will be too late to stop. Clients will already be committed to schemes with several years still to run.
These varying time-lag effects will cause some firms to struggle whilst others will hardly notice any change at all.
As an employer I would be worried if we were reliant on one work sector, one major client or one region - but one should always be worried about these risks. A slowdown doesn’t change the rules for running a business, although this is not a good time for ventures into risky new markets. Keep on doing the right things: focus on the work that you are best at; look for more work from existing clients and keep an eye on cash flow. Whether you prefer Douglas Adams or Corporal Jones - don’t panic, and stick with your business plan. You do have a plan don’t you?