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The fee squeeze: sector dictates whether your fees will rise or fall

Words:
Aziz Mirza

Private housing pushes up fees as falling commercial work post-lockdowns exerts downward pressure

It’s been stop-go for the last 18 months. No surprise, then, that architects’ fees are moving inconsistently. The latest annual report on Architects Fees by The Fees Bureau shows that average fees have edged up, but hourly rates are lower. This is an apparently contradictory move so what’s going on?

The upward move in fees is led by private housing. We have recorded a substantial surge in new work coming from domestic clients. They have been using newly accumulated savings to improve or extend living space – a consequence of the enforced work from home which has led to greater awareness of their homes’ limitations. After the initial pause, developer schemes have kicked back in as confidence returned to the market and house prices rose. The market is keen to push ahead with developments, and as supply and demand became unbalanced so average fees have risen. The rise is significant, because private housing is the most important source of work for practices, especially smaller ones. Over 40% of architects’ workloads comprises housing. And this year’s advance continues successive rises; in the last five years, the private housing fees index has risen by 10 points.

Also higher this year is the public sector fees index, although this has not risen by as much as private housing. It is clearly a beneficiary of this government’s continued willingness to spend on capital projects – a positive decision that takes advantage of very low interest rates. But the picture is different elsewhere; the loss of much retail, office and mixed work in the early lockdowns has contributed to the fall in the commercial work fees index. That is lower, by 3 points.

So the changes in fees can be explained using the simple laws of supply and demand. But that conclusion sits uncomfortably with what has happened with average hourly rates. While for most staff types average rates have increased or stayed the same, they are lower for sole principals and partners and directors. The average rate for ole principals was £90 per hour in 2019 and 2020; this year it is £85. The rate for partners and directors is 3% lower than it was last year. What seems to be emerging is a growing divide between the way micro practices have reacted to the pandemic, compared with larger ones. The average hourly rate in one person practices is 4% lower than last year; in 3 to 5 staff practices it is 2% lower. By comparison, average rates are between 2% and 10% higher in practices with between six and 30 staff. Micro practices look to have adjusted to the pandemic by reducing their rates but given that small scale domestic projects may be bringing in more commissions, this reduction could be an over-reaction that could justifiably be reversed as workloads return to pre-pandemic levels.

As to the future, the market, industry and economy are facing a whole raft of extraordinary pressures. Many of these are the consequences of an economy attempting to get back to normal after the pandemic induced lockdowns of the past 18 months. While governments globally have acted rapidly and decisively to counter the immediate effect of the pandemic, we are now witnessing a succession of supply-related issues whose impacts are coming together simultaneously. Supply chains have been crippled through domestic transport shortages and international shipping problems; wait times have become hugely extended, and roaring energy costs are affecting the manufacture of many construction materials. Together, these factors have already fed through to inflated prices; the Office of National Statistics index of construction material prices for August shows a 24% rise over the year. To give context, the prices index has increased more in the last eight months than in the previous 10 years.

There is a danger of a pincer movement as clients become alarmed at the rising cost of material and labour, so try to compensate by negotiating architects’ fees down. This needs to be resisted as practices are also likely to face pressures of rising practice costs and staff salaries. Proficient cost monitoring and fee setting is needed now like never before. 

Access the full survey findings based on fees charged by building type and contract, The Fees Bureau Calculator  and the Minor Works edition at www.feesbureau.co.uk

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