Fear usual strategies won't work as crisis goes global; financing scarce
Architect Bradford Perkins has endured three recessions in his 39-year career, so when business started slowing earlier this year, he acted quickly to bolster revenues. The chairman of Perkins Eastman, the city's largest architectural firm, opened two more international offices and hired two renowned architects to help win more commissions.
While the firm was searching for more business overseas, activity was tanking at home. Twenty projects—roughly 10% of the firm's total in New York—were suspended or canceled in the past five months. That forced Perkins Eastman to lay off about 40 workers, or 10% of the staff—an action unprecedented in the company's 24-year history.
“We always knew the business ran in cycles,” says Mr. Perkins. “But what surprised me is how the effects of this downturn came on so fast.”
As both office and residential development in the city grinds to a halt, architectural firms are scrambling to find more work. They are lowering their fees, chasing smaller projects, seeking more international assignments and bidding on more institutional contracts to generate revenues—all tried-and-true methods employed during past economic slowdowns.
But architects fear their traditional coping strategies will fall short as the economy craters. For example, they note that as the recession spreads globally, work is evaporating in former construction hot spots like Dubai and China.
Architects also worry that clients that have long provided lifelines, such as municipalities, universities and hospitals, will retreat as donations and taxes shrivel.In October, the Architecture Billings Index plummeted to 36.2, its lowest level since the survey began in 1995.
Any score below 50 indicates a decline in billings. The index, calculated by the American Institute of Architects, is considered a leading indicator of construction activity. One area that architects traditionally count on to carry them through recessions—government construction—is in danger of being curtailed because municipalities are having difficulties getting bonds approved to finance projects, the institute says.
“This is unprecedented,” says Kenneth Drucker, senior principal at architecture firm HOK New York. “Usually when one business dries up, another takes its place.” New York City's gloomy financial outlook unnerves architect Paul Eagle because his firm was tapped to design the new police academy in Queens.
“I check my e-mail every day to make sure it is still on,” says Mr. Eagle, the principal of Perkins+Will's New York office. “We are moving ahead, but you hear the news every day and you get nervous.”
Architects note that many factors that influence their business, such as clients' ability to get financing, are beyond their control. So they concentrate on other aspects during tough times.
Mr. Perkins' response to tough times has been to rev up marketing, but he says that even with his increased sales efforts, the company's revenues could fall 10% next year. The decrease will be larger if the economy further curdles, he says.
“What I learned over the years is that you shoot your way out of the recession,” he says. “You've got to put a lot more emphasis on selling.”Mr. Perkins' new marketing tools include offices in Ecuador and India. He's also hoping clients will hire his two recent additions: Steve Rosenstein, who specializes in designing science and research facilities, and Thomas Fridstein, who is known for his international expertise. Stanton Eckstut, principal of Ehrenkrantz Eckstut & Kuhn Architects, is taking to the road to drum up more business. Last week, he flew to Los Angeles to discuss with local colleagues how they can capitalize on the city's plans to build more schools.
Recently, the firm formed a joint venture with two Washington, D.C.-based engineering firms and just won a bid to build a school there.“We are out there. We are canvassing,” says Mr. Eckstut.
Despite his strenuous marketing efforts, the firm laid off 10 people—about 10% of the New York staff—in the past six weeks because work is slow.Robin Klehr Avia, a managing partner of Gensler, is in a similar situation.
“The problem is 20 firms respond to RFPs,” she says.Like other firms, Gensler has cut its fees but has still lost business. Ms. Klehr Avia says that in the last six weeks, 10 projects have either been scaled back, canceled or suspended.