April 13, 1994
BY CLAIR ENLOW
Journal staff reporter
While it lasted, the mid-eighties rush of private, commercial development in the Northwest and the rest of the country provided extra income and design opportunities for architects.
1990 arrived in Seattle with most architecture firms holding steady or going strong, even in the nervous commercial markets.
Building permit values in King County for commercial and multi-family construction, both new and alterations, show a five-fold increase between 1987 and 1989, leveling off in 1990 at about $1.4 billion. While permits do not necessarily reflect the actual rate of construction, they do reflect optomism among developers and the near completion of projects for architects.
But as the decade toward a close, the recession that had swept the other corners of the country since the mid-eighties was hard to ignore, even in Seattle.
First, the usual trickle of unsolicited resumes form other parts of the country became a stream. Texas, then New York and Massachusetts, and then California seemed to generate the most.
Finally, the swelling flood of resumes was joined by an alarming number of local ones. Accounts of when this occurred vary according to specialities are markets of individual firms, but early spring through summer is a typical recollection.
Projects that were in the preliminary or even advanced stage of design went on hold and seemed to evaporate. For firms in the commercial market and not committed to large, long-term, securely financed projects, the recession had come to the office.
Then came the cutbacks, with varying suddenness and severity. Staff members were discreetly advised to brush up their resumes and talk to their friends. One local firm assembled nearly two-thirds of its professional work force and dismissed them without notice and without severance. All it takes is the dissolution of one large project to throw a medium sized firm into crisis.
As we enter 1992, marketing has became creative, aggressive and, from some perspectives -- desparate.
Firms that have traditionally served the government and institutional markets are finding that for projects that would have typically attracted 15 or 20 proposals it is not unusual to find a stack of over 50 -- many of which are from names unfamiliar in the market or large, national firms who would not have been expected to compete for a modest-sized job.
Billings for architectural services hit a national high of $10 billion in 1988, according to yearly surveys of the American Institute of Architects (AIA). By 1990, the total had dipped to $9.2 billion.
Medium-sized firms of over 20 had experienced a 2 percent increase in gross billings while large firms' total share of the market declined from 56 percent to 50 percent.
The 1991 national AIA salary report shows that although salaries are keeping pace with the consumer price index, there has been a 5 percent decrease in the architectural work force since 1988. Most of the layoffs occurred among intern architects and technical staff positions.
Although office overbuilding has affected the Seattle for over two years, the area lagged behind in the recession.
But in 1990 a the tight money market, drop in investor and consumer confidence, and slump in vulnerable commercial industries hit home and by mid- 1991 many architectural firms were feeling the pinch.
The nature and the severity of the recession for individual firms has depended on two primary factors: market diversity and public/private mix.
Larger firms typically have the advantage of market diversity, a mix of large and small projects, and more clear anticipation of economic trends through far flung branch offices and cumulative business experience.
Smaller firms have the advantage of low overhead and quick and efficient decision making. They're already ``lean and mean.''
Commercial building projects became scarce as financing became more and more difficult in the late eighties. The recession first hit office building, corporate interiors, retail and mixed use, and hotels. As yet, it has hardly touched health care or education.
``We've seen office building go down the tube,'' said Jim Jonassen of NBBJ, which grew moderately in 1991 from 465 to 475 in highly diversified markets.
The demand for corporate interior design, however, has turned cautiously back upward after early dips in business profitability and optimism at the end of 1990, according to Scott Wyatt. His firm, Wyatt Architects, merged with NBBJ late last year.
``In a recession, corporate interiors are the first to suffer and the first to recover,'' said Wyatt.
But Gerry Gerron of Callison noted that corporate space planning was ``real busy until a couple of months ago (the fall of 1991.)
``Build-to-suit is still very much alive,'' said Wyatt of office buildings. ``They're very end-user oriented.''
Lance Mueller, whose firm serves developers almost exclusively, corroborates Wyatt's observation. Some lenders will commit to office and mixed-use projects when they are 50 percent pre-leased, he said, which means build-to-suit for most tenants. But build-to-suit, with today's tougher and slower permit processes, requires that tenants commit to a lease up to two years before occupancy -- a commitment not easy to make for most, noted Mueller.
Although Mueller's firm is the same size with a staff of 19 that it was a year ago, ``we're having a slowdown,'' he said, which came last fall. `` We're all working, but not a 40 hour week.'' Mueller reports that storage, warehouse and light industrial building has been ``our bread and butter.''
Recession-sensitive retail faltered but did not die in 1991. For Tom Rasnack of Architectural Alliance Inc., the drop came in August of 1990. Several projects came to life early in 1991, but others ground to a halt again in November.
``Specialty retail is slowing down now,'' said Jonassen, who sees a fundamental restructuring in the market: as shift from department stores and specialty shops to large discount chains.
Callison's Gerron reported that retail, in comparison to hospitality and office building markets, has been ``good to us.'' Callison, which had grown 35 percent during 1990, cut back staff nearly as much in 1991. The staff now includes 260. ``(The 1991 layoffs) were our first in 11 years,'' noted Gerron. The firm's setbacks were in the areas of office and hospitality projects.
Multi-family residential projects face many of the same tight-money policies and tough regulations that office buildings do. The Driscoll Architects, whose work load is almost exclusively multi-family housing, has seen three large downtown Seattle projects go on hold and is concentrating on smaller buildings of 20 to 30 units, retirement and assisted living projects, and housing projects in Japan. Meanwhile, Driscoll has cut staff from 18 to 12.
Mithun Partners found itself holding some mixed-use projects for several local developers who lost or failed to secure funding in early and mid-summer of last year. The architecture, interiors and planning firm reduced its staff from 60 to 40 people in the course of several months as it sought balance in a wide range of smaller projects including municipal buildings, single family residences, remodels and golf club houses.
Baylis Brand Wagner Architects, which also specializes in multi-family housing, has cut staff by seven for a total of 19 at the end of the year. The firm, which also designs housing in Japan, has shifted some of its resources to custom single family building and remodel.
The restaurant industry, feeling pinched by customer belt-tightening, is more slow and careful in making business decisions. According to Bud Schorr designer of Ponti, the Rain City Grill and other `fine dining'' establishments, ``the price points are much tighter.'' Customers are less willing to pay $25-per-person and up tabs or pay them less often. Those that offer premium eating must have views or other amenities to draw people in, and the competition for projects among architects is more intense.
No one is entirely exempt from the pressures of recession. Even architects firmly established in markets that have held steady or continued to grow in the last 18 months have had to compete strongly for projects that would have fallen easily into their laps two years ago.
Kindergarten through 12th grade (K-12) education is one of the seemingly recession-proof markets. Thanks to the ``baby bulge'' now passing through the system, demand has been high and so far, funding has been available.
Also, according to John Mahlum of Mahlum & Nordfors, ``there is growing interest in quality'' in school buildings, with school and communities linking physical environment with learning. Whether they continue to be willing to pay for that environment is less certain, according to Lane Williams of Meng Associates. A tighter state budget will place greater burdens on local tax payers for schools, and they may hesitate to tax themselves when facing their own economic uncertainties.
K-12 attracts architects with a wide range of experience, and school districts are finding their offices stacked increasingly high with responses to their requests for proposals.
Higher education, though not as large a market, has increased steadily to the present and holds the promise of increased demand as the demographic bulge moves up. Here, too, competition has made firms traditionally in the market -- such as NBBJ, Meng, and Mahlum & Nordfors -- work harder for their contracts.
Hospitals and health care are another steady source of work for architects now and in the near future. However, ``We're feeling the effects of others coming into the market,'' said NBBJ's Jonassen. NBBJ ranked number two in heath care nationally among architecture firms last year.
Mahlum & Nordfors, which also traditionally serves the hospital and health care industries, has noticed increased competition for contracts. ``We're watching our backs now,'' said principal John Mahlum.
And the revenue base may go down, according to Mahlum. The health care industries face increasing constraints on budgets as insurers pressure for lowered costs and governments discuss health care reform, according to Mahlum, but these factors are somewhat offset by competition among providers to attract health care consumers and efforts to restructure their services from hospitalization to outpatient services. New technologies also continue to add to demand for building and renovation.
A typical opportunity for high quality and adventuresome design among medium and small firms, low profit single family residential has been a typical source of recharging for the young, the talented or the bored. It has now become a refuge for some firms and a strong continuing source of work for others. Demand among their more affluent clients has increased as they take advantage of the construction slump.
Although it pays to be a generalist when the economy weakens, certain specialized niches have helped firms to hold steady in the last year, or grow.
The demand for new jail space has helped those specializing in correctional institutions to flourish. Integrus, which formed this year when two Spokane-based firms, WMFL and ECI, joined their resources, has added 17 people to the combined staff of over 60 in 1991. Jails, public administration buildings, libraries, projects for Washington State University, and work in Hawaii have combined for a prosperous year. And the firm strategically acquired an out-of-state company specializing in the design of correction institutions last year.
TRA has enjoyed continuing profits in its longstanding airport specialty, which comprises 50 percent of the work load. Although the Federal Aviation Administrations has announced plans to double the airport infrastructure in the next twenty years, TRA is cautious because of volatile times in the airline industry and general conservatism about investment. And competition is pressing in. A recent expansion project at Logan Airport in Boston brought proposals from 76 consultant teams. Two years ago, according to TRA's Ted McCagg, around 15 would have been expected.
TRA has expanded its staff of 180 during 1991 as they've added capabilities in structural, mechanical and electrical engineering. New specialties, such as underground storage tanks have been added and public administration buildings remained strong, according to McCagg.
The high tech market, including the computer industry and industrial and medical research and development, has continued to provide profits for firms like NBBJ and Callison.
Golf courses, spurred by Japanese investment, have proven to be a good source of work for some firms, including Bumgardner Architects and Mithun Partners, who have designed club houses.
Other sports facilities, including the Olympic equestrian facility in Atlanta, are providing work for NBBJ.
What happens now?
To a greater extent than ever before, no one knows. Whether they're slipping painlessly through the recession or suffering major setbacks, few architects interviewed for this article expect a return to the fast market of the late `80's. Their strategic plans include keeping overhead low, sticking to what they do best, and pursuing projects well chosen for competitive advantage.
``The eighties were an anomaly,'' said Gerry Gerron of Callison, whose firm designed over $300 million in construction volume in 1990, most of which was in office and retail buildings.
``The economy is so capricious right now that next week we might hire 100 people or we might lay off 100 people.'' He observed that among architecture firms ``there seems to be this `hunker down' attitude now.''
``We're looking at a three year transition,'' he predicted.
Scott Wyatt, who now heads a division of NBBJ, has seen the corporate interiors market, his specialty, begin to revive, but ``We're on the fence -- we're coping,'' he said. ``It's a slow build. This is an L-shaped recession,'' he said, with a steep slope down and a slow rise up.
But as they rise, demand has changed. In line with general business trends, ``We're now doing work that has to do with down sizing. Our clients are now concentrating on quality instead of quantity.''
``As developers drop off, privately funded projects will move ahead,'' predicted Mithun's Thom Emrich. The firm is finding itself more occupied with planning work as clients explore project possibilities before gaining the necessary commitments.
``There's a great deal of anxiety on the part of all clients,'' said Jonassen of NBBJ. ``There is a lot of hesitance -- of going over things in great detail.''
``We're doing a lot of things that we didn't do a year ago,'' said Lance Mueller. ``The small, the slow -- we're looking at almost anything that comes along.''
Mueller's firm is marketing tenant improvement. ``We've contacted several firms to let them know we do that,'' he said.
TRA is busy and confident despite the recession, but business planning has taken a conservative turn, according to Ted McCagg.
``There isn't the confidence to spend as if income is going to cover it,'' he said.
And even though it's a buyer's market for design services, projects are on a tight rein. ``They'll be getting good value for money,'' said McCagg, ``but not extra for money.''
Meng's Lane Williams, whose firm has kept its staff of 20 through 1991, is more circumspect.
``The downturn in the public market has just begun,'' he predicted. ``The $900 million state deficit will affect us well beyond 1992,'' he said, and he has seen it reflected in the low voter turn-out for the bond issue last February.
Businesses can only plan for the foreseeable future, and for Williams, the foreseeable future is shorter than he can ever remember: ``about three months.''
Tom Rasnack is also cautious about business planning.
``Before it's going to grow again, everybody's going to have to be at about 120 percent.''
``I'm promoting the same things I'm accusing the clients of doing,'' he said. ``I just don't want the debt.''
``We're spending more dollars on business development,'' said Dan Kane of Olson/Sundberg. ``It costs more to get work -- more sophisticated presentations.''
In the long term, Kane expressed hope that architects can win with what they're good at: vision. ``To help us motor out of this downturn, we have to answer the question, `How are things going to be when we pick up?'
``Maybe that will excite the client. And maybe,'' said Kane, ``it will excite us.''
