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    2016 IBISWorld architecture report: integrated firms to prosper in growing commercial building market

    Nathan Johnson

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    The demand for architectural services will increase over the next five years due expected growth in the commercial, institutional and residential building markets as well as the increased demand for higher priced sustainable building designs.

    This is according to the IBISWorld Architectural Services market research report which was released in the final quarter of 2015 offering strategic industry analysis of the factors influencing companies like economic, policy and demographic influences as well as distribution and supply chain factors and pricing issues.

    According to the report, the growth of demand for architectural services in the past five years has been boosted by an upswing in housing construction activity spurred on by lower interest rates and reportedly higher yields from new dwellings. Notably, multi-unit apartments and townhouses have steadily increased as a proportion of dwelling commencements over the past five years which is significant to architects as apartments generally require more architectural design than traditional single-unit housing.

    This assertion mirrors one by Avdiev consultants whose 2015 half-yearly survey of 22,000 people working across 150-plus property companies shows that the average salary of senior architects working on medium- and high-density projects is up five per cent this financial year.

    However, the performance of the housing construction market has been offset a little over the past five years by a slump in institutional construction due to the winding down of the Government’s BER program as well as an only marginal level of growth in the commercial construction market.

    But IBIS is reporting that this is set to change in the next five years as demand for architectural services is forecast to grow exponentially in the commercial sector and return to growth in the institutional building market thanks mainly to increased healthcare construction.

    Growth in demand for architects is also expected to move with trends towards incorporating environmentally sustainable elements into both new and existing buildings. IBIS reports that rising energy prices and environmental concerns have stimulated interest in green building design over the five years through 2015-16, which is anticipated to translate into increased revenue for architecture firms that have developed strong green building credentials.

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    WHAT YOU NEED TO DO: DIVERSIFY AND INTEGRATE, OR SPECIALISE

    Building services firms and engineering consulting firms are increasingly offering vertically integrated services and are expected to capture an increasing share of the architectural services market from industry participants.

    According to IBIS, these one-stop shop firms are likely to place financial pressure on traditional architectural firms as their vertically integrated operations can deliver cost savings and more straightforward contractual relationships for their clients through economies of scale.

    These broad-based companies are also placing pressure on the lower end of the architectural services market by acquiring or merging with small architectural practices and employing drafters that are increasingly providing many lower priced or lower value services.

    As a result of increased competition, traditional architecture firms are expected to change to remain competitive. Some firms have already broadened the range of services they provide to clients by developing their in-house capabilities through acquisitions while others have associated themselves with diversified construction companies or are pursuing strategic alliances with other companies to help them bid for larger projects.

    On the other side of the coin, some industry players are expected to continue segmenting into areas of specialisation so they can distinguish themselves from other firms. This is especially important in the Australian architectural services industry which is characterised by such a low ownership concentration, with the four largest firms estimated to contribute less than 5 per cent of annual industry revenue.

    JOB ROLE BREAKDOWN

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    Of the major services offered by architects, contract documentation will continue to be the number one earner for the industry.  This includes developing building specifications for tender, including working drawings, specifications and estimations of construction costs, and cost controls. IBIS says this sector will remain constant as a share of revenue due to the need for these services on every project.

    Of the other job roles, design development is expected to increase its share of revenue the most over the next five years as more complicated mechanical and electrical requirements are implemented and building code regulations change. This may include changes, addressing building issues, further drafting and issuing certain specifications to builders for costings.

    KEY SUCCESS FACTORS (courtesy of IBIS)

    Ability to communicate and negotiate effectively - Companies need to communicate and negotiate effectively with clients, builders and suppliers to maintain valuable working relationships, and ensure smooth operations and healthy profit margins.

    Access to the latest available and most efficient technology and techniques - Firms with access to the latest computer and communications technology and CAD software will be more efficient.

    Proximity to key markets - A niche operator will be more likely to gain contracts if they are close to targeted customers and markets.

    Provision of development programs for personnel - Suitable and ongoing training and development programs for staff across all areas of an architectural firm ensures high levels of skill, knowledge and productivity.

    Effective cost controls - Companies must have systems in place to ensure all projects are delivered according to agreed specifications and within the time and cost budget.

    Recommendation or accreditation from authoritative source - Firms must meet all ongoing association accreditation requirements


    Images: IBIS

    The full report can be downloaded from the IBIS website

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