Bruce Tether takes an indepth look at the results of the AJ120 survey results
This year’s AJ120 data paints a rosy picture. Asked ‘what is your outlook for 2015?’, the vast majority of the AJ120 practices are optimistic (72 per cent), or very optimistic (13 per cent), with only one practice pessimistic and 15 per cent neutral. This is a considerable improvement on last year, when 9 per cent of practices were very optimistic and 27 per cent optimistic, but the majority (57 per cent) neutral.
This optimism is reflected in growth, especially in the UK. At the beginning of this year, the AJ120 practices collectively employed 6,380 architects (ARB registered or equivalent) in the UK. Comparing like with like, the 100 practices that were also AJ100 members last year collectively employed 899 more architects in the UK at the start of 2015 than they did at the start of 2014; or, in percentage terms, this is up 16 per cent. The largest increases in the numbers of UK architects employed have been at Allford Hall Monaghan Morris (up 63), Capita|ESA (up 57), Zaha Hadid (up 48), and PLP Architecture (up 46). Only 15 practices reported employing fewer architects in the UK at the start of 2015 than at the start of 2014.
The four largest practices by employment of architects in the UK remain the same: Fosters, BDP, Allford Hall Monaghan Morris and Sheppard Robson. Capita|ESA has climbed four places to fifth, replacing Aedas, which divided in two. AHR, formerly Aedas’s UK operation, is now ranked thirteenth.
The AJ120 practices also employ 11,855 architectural staff in the UK (including architects), which is slightly lower than last year’s total. This is largely due to differences in the practices included. Of those on this and last year’s lists, 68 have increased their UK architectural staff, eight have kept the same number, while 23 have contracted. Collectively, the AJ120 practices employ 37,030 people in the UK, but three firms – Atkins, Capita and Jacobs – account for more than half of this.
Asked about recruitment or contraction plans for 2015, all but three of the AJ120 practices expect to grow in the UK, sometimes substantially. If all the reported plans are realised, the total headcount in the AJ120 practices will increase by nearly 4,000 in the UK.
Fifty-two of the AJ120 practices also employ architectural staff overseas, including 2,400 architects and nearly 3,000 other architectural staff. Among the practices included in the AJ100 last year, the total number of overseas architects is down by nearly 400, but this is largely due to AHR splitting from Aedas, and changes at Atkins. Archial Norr has added 90 architects overseas, and HOK 56. The total overseas employment of the AJ120 is nearly 77,000, but Jacobs accounts for the vast majority of this. Overall, 25 practices have increased their overseas headcount, while 17 have contracted overseas. And looking forward, 35 expect to increase their overseas headcount by the end of 2015, while six expect to reduce it.
Approximately 1,850 of the UK-based architects are women, with a further 600 based overseas; the totals for black and ethnic minority architects are around half of each of these figures. In three practices in the UK, women architects outnumber men: KPF, Michaelis Boyd Associates and NBBJ.
Responses to the improving economy
Asked about responses to the improving economic situation in the UK, nearly all (94 per cent) of the practices report having increased their headcount, while 92 per cent claim to have increased salaries, 89 per cent have reallocated staff from one project to another, and nearly two-thirds have moved into areas of practice new to the firm; a quarter have moved into larger premises, while slightly fewer have opened new offices. These are very positive findings, but interestingly only half have felt able to raise their fees.
Among the AJ120, the aggregate architectural fee income to UK offices for projects being undertaken in the UK and overseas was £1.2 billion in 2014. The top 20 practices by fee income account for half of this, and Foster + Partners alone accounts for 15 per cent of the total.
Ninety-eight of the practices that appeared on last year’s AJ100 reported their fees for both this and last year, and among these the aggregate fee income was £1.08 billion, up £185.5 million – or nearly 21 per cent on last year’s total.
The three practices that increased their UK fee income most were Fosters (up £45 million), Zaha Hadid Architects (up nearly £15 million) and Wilkinson Eyre (up £12.5 million). In proportional terms Jacobs more than doubled its fee income, while Wilkinson Eyre almost doubled. Overall, 84 of the 98 practices reported higher fees, one no change, and 13 achieved lower fees.
London-based practices have done especially well. Of the £1.2 billion in fees, nearly £900 million is due to practices based or headquartered in London. These have also swallowed up the vast majority of the increased fees. Overall, of the practices on this and last year’s lists, London-based practices have seen their UK fees rise by a median of 19 per cent, while practices in the rest of the country, which tend to be smaller, have seen their fees rise by a median of 14 per cent.
Opening and closing offices
Another sign of growth is opening offices. Thirteen practices report having opened one or more UK offices, with three of these being in Manchester. Four, however, report having closed UK offices. More office openings are happening overseas, with 10 practices reporting having opened one or more new offices overseas in the last year. These include Falconer Chester Hall in Kuala Lumpur, Chetwoods in China, Fosters in Qatar, Stride Treglown in Dubai, Purcell in New Delhi, Make in Sydney (Australia), and Chapman Taylor in Baku, Azerbaijan. The most active were Archial Norr and Populous, however, both of which opening three new offices: in Edmonton (Canada), Washington DC and Hong Kong; and Doha (Qatar), Boston and San Francisco respectively. Three practices closed overseas offices, including Chapman Taylor (Bucharest and Kiev), Darling Associates (Abu Dhabi) and Avanti (Brazil).
Working abroad and seeking work abroad
Seventy-six of the AJ120 practices are currently working abroad, and 72 are actively seeking work abroad. The ‘old’ European Union and the United Arab Emirates are the most common working and hunting grounds: with more than 40 per cent of the practices either working in these countries or actively seeking work there, followed by China and Hong Kong (37 per cent). Around 30 per cent are either working or actively seeking work in the ‘new’ European Union, in Qatar, and other Middle Eastern countries, while a quarter are taking the passage to India and other Asian countries. The least common hunting grounds are Iraq, Japan and South Africa, in each of which less than one in 10 of the AJ120 practices is either working or actively seeking work. Also notable is that some firms are very choosy about where they seek work, concentrating on one or two markets, which are often off-beat, while others seek work everywhere.
What about pay? Fees are up and directors are optimistic, so are architects being rewarded with higher pay? Last year’s data revealed that pay at partner/director and associate levels had increased, but not that for architects or students. This year, we find that median pay for partners/directors is up again, to £80,000, a 4 per cent inflation-busting increase, so the bosses are rewarding themselves. Note, however, that this is still someway below their pre-crisis peak of £84,000.
Median pay for associates remains unchanged at £50,000, while that for architects has increased by 5 per cent to nearly £38,000 – which is well above inflation, and takes architects’ pay (at least in nominal terms) back to where it was in 2007 and 2008. Most Part 3 students have also enjoyed a pay rise; their median increasing by 6 per cent to £27,500, and the median for year-out students has returned to £20,000.
As before, there is striking variation in pay levels between practices. One unnamed practice – we can’t say which – claims to pay its partners/directors an average £240,000. While another pays them under £44,000. Twenty practices pay their directors £100,000 or more on average, and unsurprisingly 17 of these are London-based. Also unsurprisingly, median pay at all levels is higher for practices based in the capital compared with those based in the rest of the country, with the relative difference being greatest for associates and year-out students.
Future profit margins in the UK and overseas
Asked ‘how do you expect your profit margins for UK-based projects will fare in 2015 compared with 2014?’, almost 60 per cent of the AJ120 practices report that they expect margins on UK work to be higher, with 10 per cent expecting them to be significantly higher. Ten per cent, however, expect them to go down, with the remaining 30 per cent expecting no change.
Practices in London are more likely to be optimistic, with 61 per cent of those in the capital expecting fatter margins, compared with just over half those based outside London. Last year, optimism was mainly found among the larger practices, whereas this year there is little difference by size, so smaller practices have become more optimistic.
We can also divide the practices up according to their relative fees. The AJ survey asks practices about their fee rates across a large number of different project types, and rates vary substantially. Not all practices provide their fee rates, but 22 of those that do claim to charge rates that are typically at least one percentage point above the median for each category. Meanwhile, 29 report fee rates that are at least half a percentage point below the median rate for each category, and 30 report rates that are in the middle, or mid-range, between these.
We might expect those charging lower fees to be more optimistic about their ability to raise their margins, and this is true, but not emphatically: two-thirds of those charging below average fees expected to see their margins increase, compared with 60 per cent of those that charge higher than average fees and a very similar share of those charging mid-range fees. Oddly, it was those that do not report their fee rates in the AJ survey who were the least optimistic, with just over half of these expecting their margins to increase. Perhaps there is a lesson here, provide your fee data and see sunnier times.
Among the 79 practices with overseas income and responding on how they expect their overseas margins to develop, 37 per cent expect them to improve, while more than half expect them to remain unchanged; 11 per cent expect them to contract. There is also a positive correlation between expectations regarding UK andoverseas margins: those who expect their UK margins to improve are also likely to expect their overseas margins to improve.
Practice success factors
Finally, what is the secret of success among AJ120 practices? Asked to divide 100 points across six criteria for practice success, perhaps unsurprisingly client satisfaction came out top, with an average of 24 points, followed by creativity (20 points), being a good place to work by keeping staff morale high (19), and the ability to win new business (17). Profit margin came in fifth (14), while peer recognition is considered least important, with an average of seven points. Indeed, 13 practices gave no weight to this at all.
We can compare these answers among different groups of practices, including the groups defined by their relative fees. Interestingly, the practices that charge higher fees place slightly less weight on customer satisfaction, although for all four groups this remains the most important factor. Meanwhile, those that charge the highest fees place slightly more weight on peer recognition, although this is the least important for all four groups. Creativity and being a good place to work differ little, while the practices that don’t report their fees in the AJ survey place the most weight on profit margin.
Happiness and working conditions
How AJ120 employees feel about their…