Improved credit will boost construction, reviving revenue in the latter half of the next five years
Los Angeles, CA (PRWEB) August 31, 2012
The Architects industry derives the bulk of its revenue from non-residential building design. According to IBISWorld industry analyst Kevin Culbert, “Only a small share of revenue is derived from contracts in the housing construction market.” However, many small, regionally based contractors rely on the residential real estate market. Revenue is generated from fee-based contracts from preplanning and design services for construction and building projects. In the five years to 2012, IBISWorld estimates that industry revenue will decrease an average of 2.6% annually to $42.4 billion. Industry growth slowed during the recession due to a deteriorating construction market and a decline in the number of building projects being planned. Further, business bankruptcies and pre-recession overbuilding have caused an oversupply of commercial and industrial real estate. The residential real estate market has also contracted dramatically, with the number of housing starts plummeting during the past five years.
Revenue is expected to increase 4.0% in 2012 due to marginal improvements in downstream construction markets. Profit margins are expected to increase to 7.5% of revenue in 2012, up from 6.6% in 2011. However, profit remains below prerecession levels. “To maintain margins,” says Culbert, “many large firms have taken cost-cutting measures, such as laying off workers and cutting wages.”
The Architects industry is characterized by many small-scale consultants, often individual proprietors and partners, which operate in narrow geographic markets. About half of industry establishments do not have a payroll; however, nonemployers generate only a small fraction of annual industry revenue. The fragmented nature of this industry is also evident when comparing the size of enterprises that have employees. About two-thirds of firms with a payroll have fewer than five employees and very few firms have more than 100 workers. The industry's low level of concentration means that no firm holds a dominant position in the market. In the five years to 2012, the industry has experienced a period of consolidation. During the next five years, industry concentration is not expected to increase. While more clients are expected to use larger firms that can provide a wide array of services, the number of operators is expected to increase as the construction market improves.
Small players were particularly hurt by the downturn because of their reliance on the residential real estate market. Further, they have fewer variable costs to cut than their big-name counterparts. Over the next five years, the industry will benefit from improvement in downstream industries. The volume of residential and non-residential construction projects will increase as access to credit becomes more readily available for clients. While revenue is projected to grow in the five years to 2017, it is not expected to surpass the industry's 2008 peak until 2015. Profit margins are also expected to rise during the next five years as more projects are put into firms' pipelines.
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IBISWorld industry Report Key Topics
Architects plan and design residential, institutional, leisure, commercial and industrial buildings and structures by applying their knowledge of design, construction procedures, zoning regulations, building codes and building materials. This industry also provides drafting services, which includes drawing detailed layouts, plans and illustrations of buildings, structures and systems.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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