Revenue forecast for architecture industry in the UK until 2020

The architecture industry is an interesting one, because the sector is nearly always in a state of flux. Those who work in the industry have to be flexible and respond to the changing needs of society if they want to stay busy and continue to make a profit.

In this article, we are going to look at the future of the industry and consider how things are likely to change over the next few years for UK-based architects.

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Revenue trends

To understand the future of the sector, we need to look back at previous trends. The way in which revenue streams have changed is a good way to do this, so let’s look at some UK architect statistics, which were released by statistica.com in February 2016.

These statistics show us what happened to the revenue streams of UK architects when the financial crisis hit in 2008. They also help us to look into the future because they provide a forecast of how revenue streams will change over the coming four years.

What happened when the financial crisis struck?

Prior to 2008, demand for the services of British architects was on the increase, and the construction industry was busy. Naturally, there is a strong correlation between the two industries. Planning permission legislation and working methods mean that most building projects cannot go ahead without the direct input of an architect. Therefore, when the construction industry suffers a slowdown, so do architects.

However, some practices were not affected as badly. The nature of their business protected them to some extent from the financial crisis. For example, those that work in mainly in the renovation field may not see as sharp a downturn as those who work primarily in the housing or public building sectors.

Another example is those firms that mainly work on projects abroad. There are several iconic firms of British architects that are well known for their work. These are sought out to design large projects in other countries, but because the downturn was almost global, the majority of that type of architectural practice also saw their revenue streams dip when the financial crisis struck.

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What the statistics say

In 2008, the revenue stream for architects in the United Kingdom was $10.4bn. By 2009, this had fallen drastically to just $7.4bn, a drop of just over 30%, and things quickly got worse. In 2010, revenue levels were at just $6.7bn, nearly 40% lower than levels before the financial crisis struck.

Fortunately, from then things started to improve. Many firms froze investment when the crisis struck. After a year or two, they were able to gain a better understanding of what the financial crisis meant for them and began to have the confidence to start investing in new projects again. This happened slowly at first, but the momentum is growing. In 2011, revenues were back up to $7.6bn, and by 2013, revenues had gone back up to $9bn. By 2015, they were almost back up to the $10bn mark.

The data released by statistica.com indicate that the rate of growth is due to slow, and may even plateau. For 2016, the prediction is that UK-based architects will generate revenue of around $9.8bn and that in 2017 revenue levels will rise only slightly to around $9.9bn. Unfortunately, revenue streams are not expected to return to pre-crisis levels until 2019.

However, the fact that there are signs of growth is good news for the industry and for society as a whole. It means that this vital creative industry has a good future, but as you will see, those who work in the sector are going to face challenges. If a practice wants a slice of this new revenue, they will need to adapt to a changing market and the fact that much of this work is coming from a different type of customer. Fortunately, British architects have a reputation for being good at doing this.

What is behind the growth?

To understand why growth is returning to the sector, we are going to look at some of the trend reports produced by The Royal Institute of British Architects (RIBA). These give us the best insight into why demand for the services of good UK based architects is increasing and is set to continue to do so for the near future.

The housing sector

During the financial crisis, the housing sector weathered the storm much better than the other sectors did. Initially, demand dropped off, but not as steeply as it did for other sectors of the industry. The latest RIBA Future Housing Design Trends 2015 report makes this clear, saying:

“In recent years private housing has consistently been the most resilient sector in the RIBA Future Trends economic survey, and housing continues to outperform other construction sectors in terms of levels of workload.”

Housing is an essential resource

The report goes on to consider why that is. We are paraphrasing here, but the report points out that a home is an essential of life. The fact that housing is an essential resource is the main reason why demand for new houses is always strong.

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People are prepared to invest in their homes

For most people, their home is their main asset, and this fact also plays a role in the reason why there is always demand for the services of architects from the private housing sector. For the majority of people, their house is the one thing of value that they own. Therefore, they look after their properties.

In addition, when they can afford to do so, they spend money to improve and add value to their homes. Often, that means extending their property, and this is something that generates work for architects. These projects may be small, but the fact that they provide a steady stream of work means that whether people are investing in their homes has a significant impact on how high revenue streams are for the industry as a whole.

Many of the practices that are involved in the private housing sector told RIBA that they were seeing demand for this type of work increasing. The fact that building land is expensive and hard to find means that housing density is increasing. Homeowners are increasingly making the most of the space they have.

When they build new homes, they are increasingly asking for the design to include an extra level. It seems that in the UK, two-storey homes are no longer the norm. New private homes are getting bigger in terms of square footage and are becoming more complex to design and build.

Bigger extensions

Something similar is happening with extensions. In the report, 55% of the practices that responded to the survey said that the extensions they were being commissioned to design were increasing in size. The bigger the job, the higher the fee is, so this type of work definitely contributes to the fact that there are growing revenue streams for architects.

The government’s new planning helped to trigger demand for bigger extensions. As soon as people were allowed to build more, they did so. In March 2015, the government announced that they would be extending the scheme for a further four years, so homeowners building large extensions will still be a contributing factor for growth in the architect sector.

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Granny annexes

Another surprising driver of growth is the fact that people are getting older. The population of the UK is aging and doing so at a fast rate. A recent parliamentary report shows that the population of the UK will grow by around 3% between 2015 and 2020. During the same period, the number of people who will be aged 65 or more is expected to increase by a staggering 18%, and the number of centenarians is expected to rise by 40%.

Unfortunately, an aging population means a less mobile one with more health problems, and this is a sad fact of life that no amount of healthy eating and exercise can stop happening. Eventually, everyone ages and becomes less mobile than they were in their earlier life.

However, many of the practices involved in the housing sector are looking at this societal change in a positive light. They know they can help this aging population to continue to lead an independent life, so see this aging trend as a huge opportunity.

Understandably, most people are desperate to stay in their own home, as they get older. In the past, decreasing mobility meant that many did not have the luxury of doing so. Once they could not manage the stairs or other obstacles within their homes, past generations had little choice but to move in with relatives or into a residential home, even if they didn’t want to.

Today, that is changing. Architects are now working with aging people to help them to adapt their homes so that they can continue living there. People are increasingly extending and adapting their homes, so this is another area of growth for the architect sector.

The multi-generational family is back

On a similar note, the increasing trend for people to live as multi-generational families is also creating a new revenue stream for architectural practices. According to the Office of National Statistics (ONS), the number of over 34-year-olds that are living with their parents has increased by 25% in just 10 years. Those families that can afford to do so are converting their lofts, building garden rooms, annexes, and extensions to give their offspring more space to themselves.

People are also starting to move their parents into the family home. The high cost of care homes and the horror stories in the press is making British families look for other solutions. In just two years, the number of properties in the UK with a separate annex for family members has increased by a third. During that time, 9,330 new annexes have been built in the UK, most of which required the services of an architect. A high percentage of these annexes are occupied by elderly members of the extended family.

In the past, these annexes were treated as a separate property for council tax purposes. This made having a granny annex too expensive for some families, but that has changed. Now, if an elderly relative lives in the annex area, the homeowner only has to pay a discounted level of council tax, which currently is 50% less than they would normally pay. This is good news for everyone, and it means that more families can afford to build and run an annex for an elderly family member, which is leading to more of this type of work for architects.

The housing shortage

In the UK, there is a severe shortage in housing. The government wants a million new homes to be built in the UK by 2020, and has come up with several schemes and changes in legislation in an attempt to achieve this.

These schemes and legislative changes work in different ways. Some, like the Affordable Homes Programme and the Affordable Homes Guarantee Programme, are designed to make sure that more affordable homes are available.

Others are designed to help people to get on the housing ladder, or to become a part owner of a home. Examples of this include the Right to Buy scheme, which helps first-time buyers to secure the finance they need to buy.

Currently, there are seven active schemes available across the UK and Ireland that are specifically aimed at first-time buyers. Some, like the First Steps London scheme, are very localised, but most are nationwide.

Exactly how effective these schemes will be at stimulating house building remains to be seen, but there is no doubt that this drive to build more homes will result in more work for architect practices across the nation.

The future’s bright

As you can see, the architecture sector has much reason for optimism. There is a lot going on, and many potential new income streams.

However, it is clear that to take advantage of these emerging markets, practices will need to be willing to change and adapt. No doubt the UK’s architects will continue to do what they have always done, which is to take the changing market conditions in their stride.

They will get to know these new types of customers, and work hard to meet their needs, which is important for society as a whole. With the help of innovative architects, UK residents will have better access to the housing they so desperately need.

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Architects are enablers. They play a key role in helping people to adapt to the changing demands of modern life and allowing them to live in a different way when necessary.

Posted by Mark
March 24, 2016
Features

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