AJ100 2013 Analysis + data
Design sector analyst Bruce Tether picks out the key trends and performance indicators from the AJ100 survey
At the beginning of this year, the 105 practices included in this year’s AJ100 collectively employed 4,825 ARB-registered architects in the UK. Just over a quarter of these were women, with fewer than one in eight being black or another ethnic minority. The profession is still very predominantly white, and male.
The UK’s largest employer of architects remains Foster + Partners, with 274 ARB-registered architects, followed, as last year, by BDP and Capita Symonds. Sheppard Robson, Aedas and PRP also employ more than 100 ARB-registered architects in the UK. Meanwhile, the AJ100’s four smallest practices each employed 19 ARB-registered architects, the same number as last year. The total UK employment of the AJ100 practices was 35,600, although two-thirds of this was accounted for by four multidisciplinary firms: Atkins, Capita Symonds, Jacobs and URS. Among the 91 practices that were included in both this and last year’s AJ100, total employment in the UK has declined slightly, by 315 jobs, or by 749 jobs if these ‘big four’ multidisciplinary firms are excluded.
A notable feature of this year’s AJ100 is the consistency of membership, compared with last year. IBI Group is included for the first time, but this largely comprises past AJ100 stalwarts Nightingale Associates and Taylor Young. IBI aside, the highest new entrant, or re-entrant, is Ryder Architecture at =48, followed by RHWL Architects at =60, Berman Guedes Stretton at =72, Flanagan Lawrence and URS Infrastructure & Environment UK, both at =75, and bptw partnership and TODD Architects and Planners, both at =83. TateHindle and five other smaller practices are also newcomers at the bottom end of the list. Congratulations to all of these. Firms not included this year compared with last include the troubled RMJM (ranked 10th in 2012), Architecture PLB and Gensler.
Just under half (48) of the AJ100 practices employed at least one architect overseas and some, fundamentally multinational businesses, many more. Canada-based IBI Group employs more than 1,000 architects overseas, Jacobs nearly 550, Atkins and Woods Bagot more than 450, Aedas and HOK more than 300, and Chapman Taylor 172. The range of names here reflects an interesting mix of businesses, including multinational, even global architecture practices, as well as large, multidisciplinary consultancies. Collectively, the AJ100 practices employed almost 4,000 architects outside the UK.
One hundred and two of the practices included in this year’s AJ100 provided details of their fee income for 2012. Total fees paid to UK offices for projects undertaken both in the UK and overseas amounted to just under £910 million, with almost three-quarters of this being due to UK-based projects. For the 87 firms that were included in last year’s AJ100 and which reported fee income for both years, aggregated fee income to UK offices rose slightly, by 1.8 per cent, from £824 million to £834.6 million. This is welcome news, although tempered by the fact that inflation is running at more than 2 per cent. Further analysis shows that the fee income to UK offices for the top 20 firms, 19 of which provided fee information, grew by 3.5 per cent (from £451 million to £467 million), twice the overall rate, while fee income for smaller firms shrank marginally.
Aggregated overseas fee income was a little under £600 million, significantly lower than last year’s total of £943 million. Some of this difference is due to different companies being included in the AJ100, but confining the analysis to companies in both this and last year’s lists shows a £35 million decline in aggregate income, a drop of about 5.5 per cent. This is a disappointing finding, as many companies have looked overseas for work, given the stagnant situation in the UK.
Indeed, seven in ten of the AJ100 practices report that they are proactively looking for work abroad. More than half are seeking work in the ‘old’ European Union, the Middle East - especially the United Arab Emirates and Dubai - and China, including Hong Kong. The ‘new’ EU member states and India are not far behind, with 43 per cent actively seeking work there. Less popular locations to seek work included Africa, North and South America, and Australasia. The extent of seeking work overseas is even higher among the 20 largest firms, almost all of which report they are proactively seeking work abroad.
More than half are seeking work in Russia and elsewhere in Eastern Europe, in North America and most of Africa, with Central Asia not far behind, and two in five reported seeking work in Iraq. The two least frequently mentioned international markets among the 20 largest firms are South Africa (35 per cent) and Japan (18 per cent).
However, while in general the proportion of firms seeking work abroad remains high, there has been a general drop compared with last year, with some substantial declines.
For example, there has been a 19 per cent point reduction in firms seeking work in the United Arab Emirates, and a 15 per cent point drop in those seeking work in the ‘new’ members of the EU. It seems there are just too many firms chasing a limited amount of available work.
The AJ100 survey has continued to ask firms what actions they have taken in response to the on-going economic crisis. Fees and margins clearly remain under pressure, with 78 per cent of firms claiming they are accepting lower margins on work (slightly fewer than last year’s 84 per cent), while 71 per cent are lowering fees and the same proportion are lowering their costs of providing services (both of these were higher, at around 80 per cent of practices, last year). A major cost is, of course, people, and just over half the firms reported having made cutbacks in their headcounts through redundancies and having implemented a pay freeze or reduced salaries. Again, the extent of these actions has been reduced from last year. Concerning salaries, 86 firms provided more specific details on these, which indicate median salaries were £75,500 for partners and directors, £49,000 for associates, £36,000 for architects, £27,000 for Part 3 students, and £20,000 for year out students. These last three figures are identical to those of last year, while the figure for partners and directors is very slightly up, and that for associates up by £2,000.
Median pay for associates is the only pay level that exceeds the previous peak recorded in 2007; all other pay levels are either flat or down compared with 2007. As before, the data shows that those firms which pay their upper echelons more also tend to pay the lower ranks more.
All this indicates that those who remain in employment are being expected to work much harder for their pay. But firms are also seeking the flexibility of using outsiders, with a quarter of practices increasing their use of subcontractors and/or freelancers, an action that has been creeping up over the years: only 10 per cent reported doing this in 2009. Firms are also looking for new opportunities, with 62 per cent claiming to have diversified into new areas of practice for the firm, a proportion slightly down on last year’s 63 per cent. The vast majority are also being flexible, with 86 per cent reallocating staff from one project area to another, a proportion that has been growing over the past few years.
The behaviour of the 20 largest firms differs somewhat from their smaller counterparts, with the former less likely to accept lower margins and fees, but more likely to make cutbacks in headcount through redundancies (but less likely to implement a pay freeze) and more likely to increase their use of subcontractors and freelance consultants. Meanwhile, the largest firms seem to be more proactively diversifying into areas of practice new to the firm, and in reallocating staff from one project area to another. Pay levels also tend to be marginally higher, especially for directors and associates, but not for architects or students.
A simple benchmark of performance is income per head. Before the recession, analysts suggested that design firms should look to achieve at least £80,000 of income per employee. This year, the average just squeaks over that, at £80,100 amongst the 97 firms providing information. Meanwhile, the median is lower, at £73,900. Both of these figures are slightly up on those of last year (£79,300 and £73,000 respectively). Overall, just over a third of the firms achieved this £80,000 per head target, with larger firms more likely to be in this group, including half of the top 20.
Indeed, among the 20 largest firms, average income per employee in the UK was £89,600 (median £81,000), compared with £78,000 (median £73,600) for those outside the top 20. This again indicates some advantage accruing to the largest practices over their smaller counterparts.
Another important business issue is margins. Asked to compare their profit margins in 2012 with those in 2011, just over half the AJ100 practices reported no change, but an encouraging 8 per cent reported a substantial improvement, while 28 per cent reported a slight improvement. Meanwhile, 11 per cent admitted a decline, including 3 per cent that reported a substantial decline. Again, the larger practices seem to have fared slightly better, with the 20 largest firms more likely to have unchanged margins (65 per cent), while fewer experienced reduced margins (6 per cent). None, however, had substantially increased their margins.
Looking to the future, the majority (60 per cent) of AJ100 practices are not anticipating any substantial change in their margins, but an optimistic 2 per cent are expecting their margins to substantially improve in 2013 compared with those of 2012, while a little over a quarter are expecting a slight improvement. Just over 10 per cent are anticipating reduced margins, including 4 per cent expecting substantially reduced margins. Again, the largest firms also tend to be a little more optimistic that margins will improve, with nearly half expecting a modest improvement. Only one in eight is expecting their margins to contract, with two fifths expected no change.
Asked to allocate 100 points across six attributes relating to ‘what makes a good architecture practice’, client satisfaction and repeat business came top, taking an average 24 of the points among the 88 practices that answered this question. Creativity was second, averaging 20 points, closely followed by ‘being a good place to work with high staff morale’ (18) and having the ability to win new business (18). All of these scores are within one percentage point of those reported last year, although having the ability to win new business is gradually creeping up in importance. Profit margin was fifth, taking 13 points, down two on last year, while peer recognition took just eight points, the same as last year. These allocations did not differ much between the largest 20 firms and their smaller counterparts, although the biggest practices placed slightly more weight on profit margin and peer recognition, to the (slight) detriment of ‘being a good place to work’ and ‘client satisfaction and repeat business’.
Overall, the picture that emerges is one of little change, at least on aggregate, while beneath the surface there is more turbulence in terms of individual firms faring better or worse. Perhaps the good news is that the industry is largely bearing up through this long and painful recession, which is particularly hard on the construction industry. Many have looked abroad for salvation, but those markets are also struggling and over-supplied. The UK government is going to implement some measures to support the construction of infrastructure and the housing market, but the measures are relatively small and implementation has barely begun. Despite all this, AJ100 practices appear to be remarkably optimistic. Each practice participating in the AJ100 is asked to anticipate how many architects it will employ in the UK in a year’s time. All but two practices made a forecast. Eighteen expect no change, while nine anticipate employing fewer architects in the UK next year. But remarkably the remaining 76 anticipate growth, sometimes substantial growth. Indeed, if everyone realised their expectations, this would add 600 more architects to the collective UK payroll of the AJ100 by the end of this year, an increase of around 12 per cent. While I admire it, I cannot share this optimism. Here’s hoping for some ‘green shoots’.
Bruce Tether is Professor of Innovation Management and Strategy at Manchester Business School at the University of Manchester. Bruce’s research interests concern innovation and competition in design-based businesses.