To get a sense of how the local construction and real estate business will be doing in a year or so, visit the downtown Washington offices of Ai, an architectural firm. A hint: not great.
People are there and working but there are 30 percent fewer of them than three years ago. The firm has reduced fees in some cases, but lost jobs to other firms that reduced fees even more. The company is designing buildings for clients as far away as United Arab Emirates, even though many employees are too worried about terrorism to go there.
What one will not see are hints the demand for more office buildings will perk up in the Washington area. Developers generally are not putting out feelers for projects to start in the months ahead, said managing principal James L. "Rusty" Meadows.
The architecture business is much the same as it has been for a couple years, Meadows and other executives of local firms said. Dozens of local architectural firms are chasing a shrinking market.
The architecture business is a window into the future of the broader real estate industry. Long before developers issue news releases or sign lease deals, they consult with architects to figure out what they can build on a given site.
Meadows saw signs of slumping demand for architectural services in early 2000, a year before the recession became apparent to the rest of the real estate industry. Contrary to the most optimistic claims of market analysts, local architects say the outlook for a year from now is poor, though perhaps not as poor as other parts of the country.
"I talk to a lot of contractors, and they're worried because architects are talking about things slowing down," said Mark Boekenheide, a partner of Brennan Beer Gorman Monk Architects & Interiors PLLC. "We tend to be the leading edge, and we have no new office building work right now, absolutely none."
Other areas show more strength. Boekenheide said that contrary to what one might expect given the turbulence in the travel industry, demand for hotel design has been relatively stable. Other architects report that they are designing apartments and buildings for government, colleges and universities.
Those pockets of strength may be the reason that employment in architectural, engineering and related services was 51,500 in the Washington area in January, roughly even with a year earlier, according to the Labor Department. Still, the region was gaining such jobs at a rate of 5.6 percent a year in the middle of 2001.
There are reasons to worry that some of the things that have kept the architectural business stable these last two years could weaken. State budgets have been slashed and donations to private schools are down. That makes Lee Becker nervous.
"Those projects are more competitive than they used to be," said Becker, a partner of Hartman-Cox Architects in Washington, which does a lot of work designing buildings for colleges.
Developers are sweating, meanwhile, about a weak apartment rental market even as thousands of apartments are under construction, the biggest concentration in downtown Washington. Few seem inclined to start major construction projects in such a market.
Lehman-Smith & McLeish PLLC, which designs office-building interiors, has landed big projects lately, including the design of law firm Wilmer, Cutler & Pickering's new offices on Pennsylvania Avenue and offices for defense contractor General Dynamics Corp.
But partner James B. McLeish III worries about what lies ahead. "What we're seeing is significant demand from our existing clients, and that's what's driving the flurry with us. We don't see as many opportunities on the corporate horizon, which is no secret to anybody. We're concerned about what next year is going to bring or not bring."
With less business to go around, competition among firms is fierce, often resulting in lower fees.
"All the firms are keen on the fact that we are in a recession, which just brings a sense of stronger competition," said Diane J. Hoskins, managing principal of the Washington office of national architectural firm M. Arthur Gensler Jr. & Associates. "I think there's definite fee pressure in the last 12 to 18 months."
Office-building design, including the core structure and outside shell but not interior details, typically costs $2 to $3 per square foot. While the general range has not changed, those in the industry say more projects are being completed for prices on the low end. During the boom years, developers would sometimes have to beg architects to bid on a project; now, they can have their pick.
The response in the business has been mixed. Some firms have laid people off; others have lowered fees to try to keep everyone busy but are earning less. Few, though, have merged in a notoriously fragmented business, as have firms in other service industries such as law and real estate brokerage.
"Architecture is unique in what people will do for less," Meadows said. "Everyone seems to be keeping their doors open, hoping to live and fight another day."
Neil Irwin writes about commercial real estate and economic development every week in Washington Business. His e-mail address is email@example.com.