The inside of Studio Daniel Libeskind is crowded with hope. Every desktop, table, storage shelf, and file cabinet in the loft that serves as the firm's Lower Manhattan headquarters sprouts a scale-model building. These detailed miniatures, made of plastic, cardboard, and wood, are an early step in the architectural process, a 3D glimpse of structures that, with a little faith and a lot of money, will one day rise from the ground, spreading good design along with the Libeskind name.
On one table is a four-tower residential/hotel complex destined for Busan, South Korea, in 2011. On another is a 58-story condominium high-rise that just got under way in Toronto after a two-year hiatus. Over there is a shopping mall in City-Center in Las Vegas, which opened last December. And that's where faith and financing reach their limits. The $80 million New Center for Arts & Culture in Boston? Canceled, as is the mixed-use seaside development in Monaco. A 54-story residential skyscraper in Warsaw grew to just 16 floors before the cash ran out. A 43-story condo in Los Angeles is delayed pending new financing. The World Trade Center redevelopment in New York has been scaled back after almost eight years of delays. "You have to be an optimist as an architect," says Daniel Libeskind, 63, the firm's founder and principal. "I don't know of a single project where someone said, 'We just ran out of money, no more project.' Some of them are hibernating."
Architecture is notoriously cyclical, rising and falling in tandem with real estate. Firms suffered large losses, and dumped employees, as construction sank in 1991-92 and again in 2002-03. Yet neither retrenchment approached the severity of the current slump. The American Institute of Architects' billings index—a survey of nearly 600 firms that measures planned construction—has been contracting for 26 consecutive months. Since mid-2008, when architecture employment in the U.S. peaked at 220,500 jobs, the profession has cut 55,000 people, or one in four, according to the Bureau of Labor Statistics. The layoffs continued in March even as overall payrolls grew.
Executives from architecture firms such as Gensler and Perkins + Will say that prior to the recession, they competed with just a handful of rivals on any given bid. Now, because work is so scarce, they commonly face 12 to 15 rivals. Fees have plunged as clients press the negotiating advantage and firms race one another to the bottom. Historically, margins averaged 15%, these executives say. That has fallen to 5% to 10%, and in some cases firms are submitting breakeven bids just to get the work. "It's a rough-and-tumble world out there," says David Gensler, executive director of Gensler, the biggest U.S.-based practice by number of architects. "It's become a battle for market share."
In an attempt to compensate for the paucity of meal-ticket projects, major firms are broadening their services. Commercial architecture represented 50% of business at San Francisco-based Gensler in the mid-2000s. This year, that has dropped to 35%, with renovations of offices and car dealerships now the fastest-growing area. St. Louis-based HOK, which ranks second in the U.S. and fourth in the world, had two megaprojects in Dubai die within 36 hours in late 2008 and has stepped up its building rehab and product design practices. The firm recently launched a line of commercial lighting fixtures.
None of those sidelines, though, brings in as much as soaring planes of concrete, steel, and glass. Revenue at HOK fell 21% in 2009, to $473 million. Vice-Chairman Clark Davis says labor accounts for more than 80% of costs, which left management little choice but to cut the workforce from 2,300 to 1,800 today. As revenues at Gensler fell 30% to under $500 million in 2008, the company cut 750 people from its workforce of 3,000.
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