2008 Top Design Firms

Design Market Slows in Midwest

By Brian R. Hook

After several years of record-breaking results, the market is slowing for top design firms across the Midwest, and the fear is that it may get worse before it gets better.

“There seems to be a widespread slowdown in most markets,” says Greg Uhen, president and chief executive of Milwaukee-based Eppstein Uhen Architects Inc.

“Across the board there is a larger degree of hesitation” by developers, he adds. Instead of talking about “great projects, great sites and great tenets,” he says architects are now asking developers if they can get the money to finance a project.

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Total construction spending in Milwaukee declined only 1% to $936 million in first-half 2008 compared to $941 million for the comparable period last year, according to data by McGraw-Hill Construction, publisher of Midwest Construction, , though a lot of activity is attributable to a mega-project, the billion-dollar expansion of the Oak Creek Generation Station.

At the same time, activity at Eppstein Uhen is down 10% to 15%, Uhen says. The rest of this year for the firm is looking better, however, Uhen says, adding he is more concerned the market will remain slow next year.

“What I lose sleep at night about is 2009,” he says. “The longer this slowdown goes, the tougher it is going to be.”

Mostly Declines Reported

A mild decline this year for design firms, with a more significant downturn next year, is predicted by a group of construction forecasters surveyed by the American Institute of Architects. The semiannual Consensus Construction Forecast calls for a 1.9% decline in inflation-adjusted activity in 2008, followed by a 6.7% decline in 2009.

In addition, data from McGraw-Hill show that each major metropolitan area where Midwest Construction circulates had a decline in construction starts in first-quarter 2008 compared to the comparable quarter a year ago, other than Chicago. The implication is that design firms are also experiencing a slowdown.

St. Louis was down 30% overall, to $1.9 billion. Residential was down in Gateway City 47%, to $760 million; nonresidential declined 12%, to $886 million; and infrastructure dipped 2%, to $214 million.

Like its Midwest sisters, Indianapolis had declines in first-quarter 2008 but of a less-severe nature.

William Browne Jr., founding principal and president of RATIO Architects Inc. in Indianapolis, characterizes the market outlook for design firms as “mixed.” While he expects this year to be the second best ever for his design firm, after a record year last year, the market is turning, he says.

“We are starting to see a little softness.”

Total construction spending in the Indianapolis dropped 8% to $2.3 billion in the first half of this year, according to data from McGraw Hill, compared to a total of $2.5 billion in spending during the first half of last year.

Browne expects market activity to slow even further in the fourth quarter of this year and in the first quarter of next year because of the presidential elections.

“People tend to stand by the sidelines waiting to see what happens during elections,” he says.

Hiring Ups and Downs

While RATIO continues to interview and look for what Browne calls “strategic” hires, the design firm is holding steady on hiring.

“It is a more cautious approach to hiring and more strategic, rather than just trying to fill desks and get a lot of people,” Browne says.

Meantime, the Chicago office of Omaha, Neb.-based HDR Architecture Inc. is hiring new architects.

“We’re always hiring good, qualified candidates,” says Michael Doiel, senior vice president at HDR.

He characterizes the market as “robust” for his firm. “It’s even more active than last year,” he says, predicting the upward trend for his firm to continue next year.

Fees are holding steady at HDR, Doiel says, noting fees are tied to construction prices, which have been increasing. The Producer Price Index for June shows input prices up 10.4% for the construction industry compared to last year, according to the Bureau of Labor Statistics.

Chicago was up 3% in starts, to $10 billion. Otherwise, the Windy City had decreases in residential, -58%, to $1.7 billion, and infrastructure, -10%, to $1.7 billion.

Looking Abroad

A big growth area for HDR is international work, Doiel says. In 2006 the firm did not have any significant commissions from overseas, but we now have a large number,” he adds.

Growth overseas is also helping Goettsch Partners Inc. in Chicago. A third of the firm’s work is in Asia and a third is in the Middle East, with Chicago filling out the rest, says Michael Kaufman, partner and executive vice president. “We like to keep that balance because being overloaded in one market or another is dangerous,” he says.

Kaufman says he expects this year to equal last year, which was the firm’s biggest year ever.

Billings at architectural firms across the country did not drop as much in April, the American Institute of Architects reports. Any score above 50 indicates an increase in billings, and its Architecture Billings Index rating climbed to 45.5, up from a historic low of 39.7 in March. The average for the Midwest was 41.6, according to the index.

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