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Thursday, 27 September 2012 13:35

Shifting architecture industry positions firms for stability

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WEST MICHIGAN — As the construction industry continues to sputter back to life, architecture firms have been taking to the drafting rooms to design their firms for the new market realities.

A still recovering real estate market and the outsized cost of new construction continue to force architecture firms to make cuts or find ways to add value. Increasingly, the firms have begun to realize they need to join forces with rivals to stay competitive and spread out costs.

Since the start of the year, mergers and acquisition activity in the industry has been heating up in the West Michigan market as three pairs of firms joined forces:

• GMB Architecture + Engineering Inc. acquired Visbeen Associates Inc.

• Progressive AE merged with Design Plus Inc.

• Concept Design Group and Serve Studios merged to form Concept Design LLC.

Industry sources MiBiz spoke with attribute the recent spate of activity to a combination of factors ranging from survival to strategy. As some firms continue to struggle coming out of the downturn, they may realize they might be able to better spread out costs by merging with a competitor. In other cases, they want to bring on new or complementary service areas to diversify their portfolio.

“In our area it seems like big firms are getting bigger and small firms are getting smaller,” said Brian Swem, president of the American Institute for Architects Grand Rapids chapter and architect at Lott3Metz Architecture LLC. “For the small firms, it’s just an absolute reduction of overhead so they can survive in the times that are super thin, like what we’re getting out of now.”

While larger firms are better positioned to push through tougher times, small firms have to remain agile and efficient, said David Maxam, past president of the AIA chapter and owner of Maxam Architecture.

Both Swem and Maxam see a silver lining in the architecture market shakeout: As larger firms look outside the West Michigan market for larger projects, the smaller firms have more of a chance to pick up local work.

“The mergers I think are probably good for the small firms as bigger firms like Design Plus get swallowed up,” Swem said. “Design Plus was actually competition as far as fees on some of the smaller projects in town.”

Mergers and acquisition activity in the local architectural and engineering industry could indicate where the market is headed, Swem said. During the recession, Swem said the architecture industry was hit hard, with firms in Michigan cutting roughly 60 percent of the workforce.

At the national level, the American Institute for Architects’ August Architecture Billings Index (ABI) shows the industry is inching back up into positive territory for the first time in five months. The AIA reported the August index was 50.2, up from 48.7 in July. Any score above 50 indicates an increased demand for design services. The new projects inquiry index was also up 0.9 points to 57.2.

By sector, multi-family residential led the index at 53.0 followed by institutional at 50.2, commercial/industrial at 47.9 and mixed practice at 46.8, according the report.

The Midwest region’s ABI average in August was 45.3, down from July’s mark of 46.7, the report stated.

Despite the findings, Swem said local projects still seem to be ramping up, although most are reuse and rehabilitation jobs.

Maxam attributes this trend to the statewide policy emphasis on re-urbanization, as well as to the high cost of new construction. Firms aren’t building new corporate headquarters in the suburbs. Instead, companies are looking at downtown areas, he said.

“Transportation might have a lot to do with it, too,” Swem said, noting that being able to get around by public transit, walking or biking appeals to people, “especially a younger generation.”

Not one road to green

While LEED building programs continue to grab attention, Swem and Maxam said the trend toward mandating LEED standards is waning somewhat. Many corporate clients and some municipalities want LEED, but the architects say there are many ways to build sustainably.

“I think (LEED) was good to get things started,” Swem said. “I think it worked well and gave people or businesses a financial excuse to do something that is more appropriate for the environment.”

He said that with certain client restrictions removed, good architects can design a building that is just as environmentally and socially responsible as a LEED project. Since most recent projects are reuse and redevelopment focused, those restrictions continue to persist.

“It’s not like we’re conjuring the design out of thin air. You have a big pile of stuff that includes the building, the budget, the codes and everything else,” Maxam said. “Those things all shape it. So it’s like taking a block of stone and saying, ‘The building code cuts this off, the budget cuts this off and historic preservation chops that off.’ That starts to shape what the final project is.”

It’s more like an uncovering process than an inventive, additive process, he said.

Going forward AIA Grand Rapids is focused on two initiatives:

1) getting behind lobbying efforts that can help shape policy in favor of architecture and construction industry, and

2) building more public awareness and engagement about architecture.

“I think the general public looks at having an architect like an accessory they can’t afford,” Swem said. “With homes or commercial projects — if you take the cost of owning or operating the building for 20 years — the architect’s fee is less than a fraction of 1 percent, even if I get to charge a good fee.”

Both Maxam and Swem believe that Grand Rapids should be exporting more design as opposed to exporting the talent. The same level of talent and architecture found in New York, Chicago or on the West Coast is here in West Michigan, they said.

“We should be exporting good architecture and people should be coming here for the talent,” Maxam said. “Our fees are a lot lower than in other markets.”

Read 2230 times Last modified on Thursday, 04 October 2012 00:31

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