Architects are none too excited about future prospects, and it looks like they have good cause to be gloomy
The key index of the RIBA Future Trends survey dropped in January to its lowest point since a convulsion shortly after the Brexit vote. The latest survey showed a slight bounce back, but on a three-monthly average basis, which smooths out spasms in the scores, it still sits at its lowest level for six and a half years (Chart 1).
Is this cause for serious concern?
The first thing to say is that sentiment surveys, such as this, are extremely useful indicators, particularly for picking up trends early. But they have shortcomings.
Leaving aside obvious statistical challenges facing any surveying method, sentiment surveys are prone to… well… sentiment. This opens the way to all manner of psychological quirks such as optimism bias or over-reaction. Many sentiment surveys tend towards the optimistic.
Typically, they pose questions such as: How well do you think you’ll do? Psychologists tell us on balance we are programmed to be optimistic. So, like hardened Brexiteers saying negotiations would be easy, we answer questions optimistically.
Anyway, the bottom line is that they can lead easily to misinterpretation.
So, it seems fair to ask whether the architects surveyed might be over-reacting?
There’s no official data that provides a frequent and reliable time series of the actual performance of architectural practices against which we can test. But we can get quite close.
Chart 2 shows ONS data that tracks gross value added, a measure of the economic value generated, by the whole economy, construction and the subsector called architectural and engineering activities. This sector is broad but relatively closely mirrors the activity of professionals working in the built environment sector and obviously includes architectural practices.
The chart shows the path of the ONS data for architectural and engineering activities largely mimicking that of the RIBA survey we see in Chart 1. You’d perhaps expect this. More interestingly, and perhaps not surprisingly, the tracking is more closely correlated with the future staffing than future workload expectations.
The expectation data on future staffing tends to correlate quite strongly about 18 months after the measure of activity provided by the ONS series. This seems to imply that, if the ONS series doesn’t perk up, we should expect the expectations for future work – and particularly future staffing – to remain low.
At this point, based on the ONS data, it seems fair to say that current concerns among architects are well founded.
The sharper eyed will have noted that fluctuations in the less volatile line for total gross value added seem to loosely relate to the ups and downs for construction work and the work of construction professionals. It does. Overall economic activity has a profound impact on construction and perhaps less immediately on the work of construction professionals.
Need may be a driver of construction and architecture, but it needs to be paid for. So, it’s hardly controversial to suggest that a strong economy underpins development of the built environment. On that basis, Chart 3 is not encouraging. The dotted line is trend growth over 20 years or so. We are clearly below that and the prospects are that we will remain so for some while yet.
And as we see in Chart 4, the construction industry has spluttered over the past couple of years having been on a surge as it pulled out of recession. We can see this sluggish performance echoed in the findings from the Bank of England agents and from the monthly Markit/CIPS construction survey in Chart 5. And Chart 6 shows construction workload expectations among RICS members dipping fast, despite the optimism normally evident in this survey.
So, given this raft of information, it seems fair to assume that overall construction is set for a rough ride unless something unexpectedly good pops up. As forecasters pen their latest prognostications, we should expect to see expectations of little or no growth for the year ahead and a decline seen as a distinct possibility.
These, however, are aggregate figures for construction. Different sectors in different regions will perform very differently.
Although an underlying favourable trend, admittedly long-term, has seen architectural work expand faster than overall construction, not all sectors of construction are of equal value to architects.
Unfortunately, the sector that is keeping the wider construction industry out of recession is infrastructure, which does not provide such rich pickings for architecture. If we exclude infrastructure and industrial building from the output figures, the remainder of construction – which is more valuable to architects – has shrunk over the past year. This we might reasonably expect to continue.
If we pull out four sectors from the output data that are likely to be of more valuable, it is sad to say that the picture is dreary. Chart 7 shows us that private commercial work has been in decline for a couple of years. Housing repair and maintenance have been flat and only recently has there been a turnaround in the fortunes of public building. New housing is the only one of the four that looks in any way dynamic.
The impact of these various market sectors falls unevenly across the myriad practices that make up the architectural sector. So, the poorly performing commercial sector and the fall in London residential schemes will do much to explain growing concerns in large London practices, along perhaps with concerns over overseas opportunities. Meanwhile a sluggish housing repair, maintenance and improvement sector could well be cause for subdued enthusiasm among more locally-based smaller practices.
In the north, where the markets for housing and house improvements have been relatively more buoyant of late, there may well be cheer among practices. In the south some may be left wondering about their next commission.
At this stage of the cycle, optimism and pessimism can easily be wildly mixed. But the case for concern is there. And it is not just the RIBA Future Trends survey that is tells us that.