A built-environment reboot will bring opportunities, threats and frustrations as the wider construction community adjusts to a rapidly changing market
The UK construction sector is in a curious position. There is almost overwhelming promise on the horizon. But, set against a weak financial backdrop, there is huge uncertainty over when and how much of what is promised might be realised.
The promise is a massive upgrade of the built environment, which conveniently is in tune with the government’s aspirations. Yet, on the ground, the economic growth that drives construction activity is weak and the public finances that help support the sector are even weaker.
Inevitably, for many architectural practices, this may be more interesting intellectually than as a business concern. For many locally based small practices, the more immediate priority is the wobbling economy and the impact of the cost-of-living crisis on home improvement.
For the architectural community at large, however, there are major issues at stake. A built-environment reboot will bring opportunities, threats and frustrations as the wider construction community adjusts to a rapidly changing market.
The post-war construction boom saw architects’ prestige rocket. But during the late 1980s boom, as the economy switched to the service sector, the power switched from architects to developers. It seems unlikely that a boom in construction triggered by the seismic societal and economic ruptures we are experiencing today will not again shift the status of architects.
Before dismissing the scale of change ahead, it is worth appreciating the case for a huge upgrade of the built environment. The population has grown unexpectedly quickly in recent years, and it is ageing. We need to readjust to a post-carbon-based world. And the expanding digital economy is profoundly altering what we build and where. On top of all this, the next few years will require a major effort to fix dilapidated schools, hospitals, roads and other vital buildings and structures after a decade or more of austerity.
Whether the government’s aspirations for addressing these challenges are achievable is a matter of debate. Certainly, it’s hard to find anyone remotely familiar with house-building who thinks delivering 1.5 million homes within the current parliament is doable.
That said, even a modest move towards meeting the government milestones would provide a major boost to workloads. A quick back-of-an-envelope calculation of the potential workload suggests a rise of between 20 per cent to 40 per cent in construction activity. If fully realised, that is a boom.
However, a potential boom will feel very distant to the small architectural practices that have seen a severe drop in work coming in following the surge in post-pandemic home improvements. Furthermore, a large amount of the work will be infrastructure, which doesn’t provide rich pickings for most small architectural practices.
Turning from speculation about the future to the here and now, the mood among architectural practices has been erratic over the past four years, and swung significantly after the initial Covid lockdown. The surge in home improvement came as a bit of a tonic after work began to slacken in 2019. But, for two to three years, workload expectations among architects have flip-flopped with the political and economic uncertainty, as Chart 1 (above) shows.
Within this flip-flopping, small practices (1-10 staff) have almost consistently been the more pessimistic. To a large extent, this reflects shifts in the workload mix and where work has been coming from. Bread-and-butter work for typical small practices has dwindled recently, while the portfolios of many bigger practices have expanded.
Over the past decade or so, UK architects – mainly the big ones – have been increasingly gaining work from abroad. In cash terms, the level of exports of architectural services has risen tenfold over 20 years. The ONS figures (see Chart 2, above) show a leap from £107 million worth of exports in 2003 to £1,288 million in 2023. Given that the gross added value of the sector is around £4 billion, as we see in Chart 3 (below), exports now represent a big slice of income.
The data, produced by the Department of Culture, Media and Sport, also includes a monthly series. This shows the sector continuing to grow this year (Chart 4, below). But this growth in work, certainly in exported work, is likely to be falling mainly to major firms. These will be mostly based in London and, to a lesser extent, Birmingham and Manchester. They will have nurtured strong overseas contacts over recent years and may well be part of global multidisciplinary firms. In many ways, the rise in exports speaks to the consolidation that has happened across all firms employing construction-related professionals.
This is leading to a widening bifurcation between large practices, which account for most of the revenue and are increasingly exporting their services, and the vast majority of small practices which often rely on local domestic work around the country. Within this morphing landscape, the number of architects in the UK has also risen sharply in recent years. Taking ARB numbers as a guide, there are close to 40 per cent more architects in the UK now than 20 years ago.
For the majority of small practices, the potential from overseas and the promised work of recasting the built environment at home may seem distant. Except, that is, the range of improvements needed to raise the environmental standards of vast numbers of existing buildings across the nation.
This means smaller architects are likely to be more dependent on underlying economic growth than government plans to build more homes and decarbonise the energy network. With the cost-of-living crisis still restraining household spending and the rise in national insurance squeezing business, these potential clients will likely need a strong boost to the economy to loosen their purse strings.
Here the picture looks quite bleak. The latest consensus forecast produced by the Treasury shows GDP growth over the next five years sitting below 1.5 per cent and well below the long-run average (Chart 5, above). That does not suggest a quick easing for households or small businesses. And it is more worrying when we consider that, historically, in half the years when annual GDP growth fell below 2 per cent, construction output also fell.
History doesn’t have to repeat itself, but it certainly suggests that the coming years may be fraught for smaller architectural practices. The situation among larger practices looks less concerning. The most recent Construction Products Association forecast for output suggests the construction sector will begin to grow modestly (Chart 6, below) after a slight dip this year. And it should be noted that this is from a high base.
Looking to the future, for many practices, big and small, the market they inhabit could change radically over the coming five to ten years. So, next year may be the time for a deep dive into where the prospects lie, where the threats are likely to emerge and, more importantly, how to address them.