Architecture, as a profession, is highly cyclical in nature. It ebbs and flows with the tides of economic conditions, and is especially hard hit during times of downturn. We’ve all heard stories or experienced it ourselves, or layoffs during the Great Financial Crisis in 2008, or even more recently the significant cutbacks architecture firms went through during the uncertainty of the COVID-19 pandemic. Projects went on hold and new business opportunities declined almost overnight. Now, two years later, firms are keeping a close watch on global supply chain issues and rising inflation rates, especially with increased pressure to meet the needs of a growing urban population. Will architecture be recession-proof as we enter a bear market?
Inflation is the general increase in the prices of goods and services in an economy over time. Historically, low, steady, and predictable inflation has been correlated with low unemployment rates, normal interest rates, and a mixed environment for investment appetite. Pre-pandemic, inflation in the US averaged at around 2-3% but is expected to hit around 7% by the end of 2022. There’s another important term to consider in the economic outlook, which is stagflation- something that many financial industry experts are predicting we are likely to see in the coming months- Stagflation. Stagflation describes a period of high inflation, high unemployment, and an economy that remains flat.
While economists are working to find the right levers to pull to keep things in check, architecture firms are doing the same as a means to lessen the impact on their margins. In a report from the AIA, firms are looking to add revenue, compared to cutting expenses as they did in 2020. But why should architects care about inflation and the drastic rate at which it has increased? Think back to a year ago, when many people predicted that inflation was transitory and that the high prices of food, gasoline, and services would quickly decline again. Coupled with supply chain issues, it seemed that there would be no end in sight. Now think about how this impacted the architecture and construction industries, perhaps in your everyday life working at a design firm. Lead time for products increased, giving projects longer timelines, and creating difficulties in coordinating construction with contractors. Hard costs increased, meaning that clients were looking for other ways to cut costs- sometimes looking to negotiate down architectural fees.
Architects are anticipating a significant jump in the cost of doing business, but unlike in 2020, want to retain their talent and take extra steps to mitigate layoffs. Historically, many firms have cited the cost of salaries, supplemental liability insurance, and high office rents as the main concern for the financial well-being of their businesses during times of economic downturn. Now, firm leaders are stating that healthcare will be the cost that increases disproportionately compared to projected revenues. The workforce has spoken over the last few years- they want better healthcare, the flexibility of when and where to work, and other benefits that will help to attract and retain talent in an industry that has increasingly seen people leave for other design-adjacent professions.
So what are firms doing to combat inflation this next year? Nearly 1/5th of those surveyed in an AIA poll said that they’d look to outsource IT, HR, and other overhead services. Around 13% said they’d consider moving offices in search of cheaper, more flexible, and short-term leases- also considering downsizing their overall space as the work from home trend continues. However, a majority of the respondents said that they would do something else not listed in the survey to offset rising costs- namely being more aggressive in business development and increasing future pipelines of work. Instead of being on the defensive, they’re going on the offensive, being hyper-aware of how competitive the employment environment has been.
While there are no guarantees, and unexpected events always have the potential to rise at any moment, it seems that architecture firms are more aware of the economic conditions than ever- and they’ll do what it takes to grow their fees, instead of cutting back on their expenses, making for an employee-friendly workplace.
This article is part of the ArchDaily Topics: Cities and Living Trends. Every month we explore a topic in-depth through articles, interviews, news, and projects. Learn more about our ArchDaily topics. As always, at ArchDaily we welcome the contributions of our readers; if you want to submit an article or project, contact us.
