Construction slowdown: Work dries up for architects

Tuesday, 6 August 2024

Demand for architecture work is significantly down and there are concerns the industry will fall into a hole as work dries up.

Over 20% of architects and designers have less than three months forward work on their books, new research shows.

The EBOSS architect and designer sentiment report, which surveyed 840 people in the profession, showed 61% had seen a drop in demand over the last year.

One in 10 said demand was significantly down, while 40% expected demand to continue to decline over the next six months.

At the same time, 57% had fewer projects starting compared with a year ago, and over half said project leads and inquiries were down.

That had resulted in the average forward workload for architectural practices decreasing 21% to 7.5 months, down from 9.5 months in 2022, it found.

The amount of practices with less than three months of forward work on their books had tripled from 6% in 2022 to 21% this year.

EBOSS managing director Matthew Duder said the report confirmed what they had been hearing anecdotally for about a year and highlighted that architecture businesses were feeling the impact of the downturn.

Over 50% reported an increase in the number of projects being put on hold or cancelled, and trying to deal with the high costs of material and construction costs was a real issue, he said.

“Our concern is that with the tail end of the work generated by the consents boom in 2021 and 2022 coming to an end, the industry could be coming into a hole before new work starts to come through.”

But the downturn was not a structural one, it was a cyclical one relating to the cost of money, as when getting finance was expensive it was always tough for new construction, he said.

Interest rates remain high and the Reserve Bank kept the official cash rate at 5.5% in July, but inflation data released subsequently has prompted many economists to speculate the bank could cut the OCR in November.

Duder said the prospect of that occurring, and rates and the cost of finance starting to decline, was a small torch in the distance for the industry.

That was because 78% of survey respondents said the current economic climate would have a significant impact on their business over the next year, and the cost of lending and material costs was close behind.

But while the market was contracting overall, individual architectural practices still felt confident in their ability to ride out the downturn, he said.

Forty seven percent of respondents expected their business situation would improve at least somewhat in the next 12 months and a further 30% expected their situation to remain stable, the report found.

“It might come down to the influence they feel they have within their own businesses to adapt to the circumstances, and back themselves through tough times”, Duder said.

“The data suggests there will be a K-shaped recovery with some firms rebounding and others struggling due to a lack of structure, networks or capital.”

It would be the ability to adapt and respond to the conditions that determined how well businesses fared in the coming months, he said.

Businesses were trying to adapt to the changed environment by diversifying the type of work and the size of the projects they did and extending their geographic reach to take on work further afield.

But many were also reducing the number of employees they had and that had probably contributed to an increase in the number of sole traders, Duder said.

“Government builds are a big part of many architecture businesses’ work. There are over 80 on the books for the Ministry of Education, for example.

“So the pause in social housing and school building work is having an impact. Some direction from the Government in terms of its order book going forward is very important.”