Michael Kaufman, AIA, describes a scenario many architecture firms in the Midwest are facing: Projects already under construction are continuing, but the market has slowed.
“I don’t think there really is a hot market right now and that’s what is really troubling to me. Virtually everywhere there is retrenchment,” says Kaufman, a partner at Goettsch Partners, a Chicago-based design firm. He’s predicting a 30 percent drop in revenues at his firm compared to record results in 2008.
Following several strong years, the market for architectural services across the Midwest has hit a lull, and no one is sure when business will pick back up. Non-residential construction spending nationwide is expected to decrease 11 percent this year, according to the American Institute of Architects. The Architecture Billing Index has sunk below 50 for 14 straight months (a score below 50 denotes a decrease in billings); in March, the score for the Midwest was 37.5.
To cope with the downturn in design activity, many Midwest-based firms are being forced to trim payroll. Goettsch Partners has cut 10 percent of its staff, and Kaufman says he hopes that is deep enough. “We are keeping our fingers crossed that we can get through this next year or two with the backlog [of projects] that we have,” he says.
HOK Group, headquartered in St. Louis, also has reduced headcount, although not at its offices in St. Louis or Chicago, says Clark Davis, the firm's vice chairman. “We are not seeing the downturn in the Midwest that we are seeing other places,” he says, noting that downturns are often more extreme on the coasts. (On the flipside, he adds, upturns are not as robust in the Midwest.)
Davis expects HOK’s firm-wide revenue to drop between 10 and 15 percent this year. “We've seen all kinds of projects canceled or deferred,” he says, noting that residential and commercial projects are suffering the most. His health-care and university clients are faring better, but he notes that even credit-worthy institutions are having a tough time lining up funding. “We are used to seeing downturns where one or two markets are down, but others go up and they tend to balance one another out,” Davis says. “I think one of the most concerning things about this current economic cycle is that everything is down.”
Some firms are putting their hope in the federal economic stimulus package. Bill Browne Jr., president of RATIO Architects in Indianapolis, says clients started contacting his firm about infrastructure improvement projects even before the stimulus bill passed Congress in February. “Clients are calling us and asking how quickly can we accomplish this or accomplish that so that we can be in the position to bid on a project,” Browne says.
Projects from the federal government are already boosting work at HDR Architecture, headquartered in Omaha, Nebraska. Michael Doiel, the firm’s senior vice president, says federal agencies are very active. His firm works for 12 such agencies, including the General Services Administration, Department of Homeland Security, and the Department of Defense. “We are cautiously optimistic,” Doiel says, noting that while his firm has a few Midwest projects on hold, nothing has been canceled outright. “We are holding our own.”
Look for more coverage of business conditions in U.S. regions. Also, for economic news, visit our Recession and Recovery special section.