Summary: On October 30, AIA Chief Economist Kermit Baker, PhD, Hon. AIA, led a discussion session with CEOs of allied associations and industries about trends in the economy and their possibly more permanent implications after the current economic downturn has abated. The session was part of the two-day Green Buildings Product Summit, a workshop hosted by the AIA and the AIA-founded 2030 Coalition and sponsored by Reed Construction Data at AIA national headquarters in Washington, D.C. The event convened industry experts to discuss product safety, product life cycle, and energy and water impacts in the development, manufacture, and use of green building materials.

Based on research and surveys (including the AIA’s Architecture Billings Index) he has conducted over the last year, Baker presented in detail five major business trends that may help us forecast the future of the profession and the industry serving the profession:

• Industry concentration, consolidation, and integration. Mergers and acquisitions began picking up a year or two ago, Baker noted, and big firms are getting more numerous. The most commonly cited reasons for the mergers is to pursue new markets and increase the diversity of staff talent, perhaps with an eye toward provision of “one-stop shops.” Almost 40 percent of employees in the industry now work in firms of more than 50 people, and these large firms account for 40 percent of the industry’s billings. Judging by billings, larger firms are more productive than their smaller counterparts, but we don’t have a lot of data on what optimal firm size might be.
• Globalization: Outsourcing and international opportunities. Of firms that have ever outsourced work offshore (about one in five firms), 66 percent indicate that the principal reason was to alleviate workloads through boom and bust cycles, as well as to better cope with inevitability of market fluctuations.
• Demand for sustainable design. Until the last few years, Baker said, sustainability solely meant energy efficiency. From a client/user standpoint it formerly was about sacrifice; now it’s about efficiency. “I’m happy to say I see a lot of upside potential for sustainability,” Baker said. Major client motivations include cost savings over the life-cycle of a facility, conservation for scarce resources, and increased marketability of facilities.
• Technological investments to increase productivity and promote coordination (e.g. Building Information Modeling). With increasing calls from integrated project delivery by owners and clients, building information modeling is fast being adopted. Of respondents to the AIA’s Work-on-the-Boards Survey (which feeds the Architectural Billings index), 35 percent believe BIM will be industry standard within three years; 51 percent believe it will be industry standard, but in more than three years. The most commonly cited benefit of using BIM is higher quality projects (35 percent of respondents).
• Rising costs of construction materials. The industry is experiencing commodity price inflation, Baker notes, while the Consumer Price Index rose 19 percent over the past five years, the cost of nonresidential construction materials has risen a whopping 43 percent.

Trends for the future
Summing up the short-term outlook for design firms and the construction industry, Baker also noted the serious weakening of international credit markets. The U.S. economy itself likely is in recession; with the prospect of three or four negative quarters. And while the residential market is still spiraling downward; nonresidential construction activity is just beginning its downslide. But there is room for hope, Baker said, that it won’t be so significant.

With that thought in mind, Baker asked the CEOs to look beyond the current economic downturn in the economy and consider how business trends will affect the profession in the next 5-10 years. Although anecdotal, their responses offer some interesting observations that may bear watching:

• Globalization will increase, because technology is making it easier for people to work on projects offshore
• Design-build projects, or projects with related types of delivery methods will increase as clients search for one-stop projects. The lines are blurring in project roles and responsibilities
• A lot of older firms can’t change the way they work fast enough to compete and they will either fold or merge. The next few years will be a great time to “cherry pick” specific talents
• Firms that were diversifying in the recent boom times are now divesting themselves of specialists to downsize. Many of these specialists may choose to go to work on their own
• New technologies, such as BIM, may drive firms to create different kinds of firms
• Overseas firms are now seeing a great opportunity to establish offices in the U.S.
• Increasing numbers of large projects overseas are providing work for more firms in more countries
• We will need to address the talent shortage of architects. Likewise, top engineering schools are filled—but there is a shortage of engineers. The “coin of the realm” is math; engineering students are going into medicine, law, and other professions in great numbers
• In interior design, there are more than enough students, but not enough educators
• There appears to be a growing gap between engineers educated in the U.S. and those educated overseas
• Scarcity of land is driving the need to be sustainable
• Sustainability is helping marketability. Owners are driving the desire for sustainable projects; they can get a 10-15 percent premium on the lease for a green building.

Toward an approach to green products
The results from all the sessions will be compiled by the AIA and presented to the Institute’s board of directors to frame an official approach to green products on behalf of architects and for the building industry at large.

To view Dr. Baker’s PowerPoint presentation, visit the AIA’s Economics and Market Research Web site.

—SS