In a pandemic-driven recession architects are likely to be reasonably content with flatlining fees, even if there are shades of grey
The landscape is changing. Covid-19 has affected the way we work, where we work, indeed whether we work at all. There’s less work coming in – architects reported to the Fees Bureau a 45 % drop in new work (starting RIBA Stage 2) during the first six months of this year. That’s by far the largest fall ever which is no modest claim – the Architects’ Quarterly Workload Survey has been running since the 1960s. But there’s some evidence that new work is picking up; domestic looks to be active again even though commercial remains subdued.
It is probably the most difficult time ever for architects to gauge the level at which to pitch fees. The Fees Bureau has been tracking architects’ fees since 1998. In a ‘normal’ recession we see the rules of supply and demand shape a clear direction of travel in architects’ fees – inevitably pushing them lower. Architects’ fees fell back in the last recession. The fall began in 2008 and was compounded in 2009. The signs were clear – a massive squeeze on the availability of lending meant a long pause in developers’ ability to invest in property. At the same time, private householders suffered the twin effects of a shortage of mortgage availability to fund extensions and a downturn in the housing market which affected their confidence to fund major improvements. A ‘usual’ recession is compounded by tumbling consumer confidence, brought on by the fear and then realisation of higher unemployment. The 2008 financial crisis led to six years of falling or subdued fee levels; not until 2015 did architects’ fees reach pre-recession levels.
This pattern was common in other professions. The Fees Bureau’s surveys of civil, structural and M&E engineers’ fees, and quantity surveyors’ fees, showed a similar cycle to architects. QS fees recovered slightly quicker than architects’, while engineers’ took slightly longer to pick up. Indeed, it was only last year that average engineers’ fees matched their pre-recession values.
No usual recession
Given past performance, we would expect architects’ fees to fall this year. But this is no ‘usual’ recession. So many economic indicators are showing unusual patterns and moving in unexpected directions. House prices are rising compared to the start of the year. Consumer spending (excluding leisure) is back near early 2020 levels. Stock markets are high – the US Dow Jones index was within touching distance of its all-time high in September. Prime office yields have been relatively stable. Central Banks are comfortable with expanding money supply; so lending is continuing. Governments around Europe are responding with similar monetary and fiscal policies, so there has not been a monetary or exchange rate crisis. One of the biggest differences this time round is that public sector activity is holding up, even rising. This was less evident following after 2008, when the government’s emphasis was on austerity. This time round it was already embarking on an expansionary path, with capital spending a major priority. Expect schemes to be accelerated.
Shades of grey
The result is that average fees for architectural work are flat. Taken overall, the Architects Fees Index has remained at exactly the same level it was last year. But this overall static picture hides shades of grey. The detail shows that average fees for public sector jobs have edged up, those for commercial and private housing are a little lower than last year.
The scale of the change is more for larger jobs; there has not been much movement in average fees reported for small and medium-sized jobs. The biggest drop has been in the fees charged for refurbishments worth £1 million or more; fees charged for new build work are barely changed this year.
Private housing is the sector in which more architects work than any other. We have found very little change in average fees for new build work and, indeed, a slight increase in average fees charged for new build housing worth over £5 million. Average fees for smaller domestic refurbishment work – things like house extensions, loft conversions – are very slightly lower than last year’s. But there has been a more significant drop in reported fees for refurbishments worth £2 million plus. This could reflect a difference between private individuals seeking to improve their own house, and developers who may be under greater financial pressure to deliver a project in a very uncertain market.
Leisure jobs also reported a hit to fees for larger refurbishment jobs, while average fees for industrial work have edged lower for both new build and refurbishment. But we must not read too much into fee movements in the commercial sector, mainly because we have relatively little information since the start of lockdown. Architects have received fewer commissions in these sectors so there is less information to analyse. More data for public sector jobs, including education and health, shows slightly higher average fees this year
In good company
The flatlining of architects’ fees is in line with movements in average fees recorded by other construction professionals. Our other surveys of fees have found QS fees unchanged this year. This comes after a fall in their fees two years ago. Bucking the trend, engineers’ fees are higher this year than last, although their average fees have taken longer to recover from the financial crisis. Over the long-term, the three professions are broadly in parallel; all three have seen a roughly 20 % rise in average fees since the year 2000.
Covid-19 remains the dominant soundtrack for the rest of this year – and possibly some (maybe all) of next year, too. Although The Fees Bureau’s surveys suggest fees are, overall, fairly static, practices will undoubtedly come under pressure to be more competitive. Some clients may wish to push fees down. But this is exactly the moment when there should be the greatest awareness of the unique combination of skills that architects have and the benefits these skills can bestow. Architects are needed now more than ever to re-purpose work spaces, adapt and extend homes and reinvent leisure and retail opportunities for the post Covid-19 era. Enlightened clients should understand why they ought to resist exerting downward pressure on fees.
The latest Architects Fees is published 01.10.20 and gives detailed fee information for commissions on more than 40 different building types analysed by type of build and type of contract. For information see www.feesbureau.co.uk