Labour, property prices stifling architects

As an eager young architect in 1976, Richard Young found himself digging ditches for reticulation to earn a wage; it wasn’t the stellar opening chapter he had planned.

The closest the (now) director of highly regarded Perth firm JCY Architects and Urban Planners got to exercising his newly minted design skills was drawing up sprinkler systems for Perth’s parched gardens.

It wasn’t the stellar opening chapter he had planned but it armed Mr Young with a keen appreciation of the architecture profession’s exposure to the economy.

And it’s proving invaluable experience in the current market as the industry grapples with the twin challenges of a booming resource sector and an anaemic domestic property market.

Western Australia’s patchwork economy is especially burdensome for the architecture industry, which has very little direct exposure to the multi-billion dollar resource projects and is still waiting for some sort of post-GFC bounce to free-up funding and entice private sector investors back into the commercial market.

President of the WA chapter of the Royal Australian Institute of Architects (RAIA), David Karotkin, said his read on the market was that it was a mixed bag.

He said the pipeline of projects had still not recovered from the king-hit of the GFC and the associated slump in the residential property market.

The tough conditions illustrate the inherent challenges of a two-speed economy, and while no-one is talking about job cuts, you get the feeling its not too far away if building and development activity doesn’t turn around.

Government architect and Cox Howlett and Bailey Woodland director Steve Woodland said the profession had learned the value of holding onto good people.

“Most practices over the past 12 months have quite consciously done that and not responded by putting people off,” Mr Woodland told WA Business News.

“So everyone is treading water trying to hold their teams together in the hope that things will improve.”

Architecture firms have always been the canary in the coalmine for the broader property sector because it has historically been one of the first professions to feel the pinch when development and building activity slows.

Hassell managing principal John Crabtree said high property prices, high labour costs and ongoing issues with securing funding for projects were acting in concert to restrain new development activity.

Hassell is the biggest firm in Perth but its size doesn’t make it immune to the uneven market conditions, and while he sees lots of opportunities on the horizon, Mr Crabtree said getting a project off the ground was increasingly difficult.

“Property prices in Perth are high and trying to get some of these larger projects off the ground is proving to be more and more difficult by the day,” he said.

“It’s construction prices and the availability of funds, the projects are just not stacking up in a commercial sense.

“And conversely the public sector, which is enjoying the benefits of the resources boom through higher taxes ... has stepped in and taken the place of a lot of commercial work particularly in the areas of health, transport and education.”

Mr Crabtree said the state government’s commitment to major city projects, as well as its investment in health and transport infrastructure, were providing some exciting opportunities for local firms.

The economic measures for WA all look pretty impressive on paper and along with the multi-billion dollar investments earmarked for major mining projects over the next decade, the outlook for development activity should be rosy.

Perth architects would just like to see these positive facts and figures translate into the renewed optimism necessary to kick-start projects.

The sluggish speed of the post-GFC turn-around has caught a lot of Perth firms by surprise.

Private investors and developers remain largely reticent to launch new projects, or cannot obtain bank funding, which has had the flow-on effect of increasing competition for government contracts. It is virtually impossible to get a hospitality project off the ground, and without strong capital growth in the residential property sector investors are gun-shy about buying apartments off the plan.

Mid-sized to large architecture firms across Perth report the number of firms tendering for local and state government work has more than tripled in some cases.

This has put pressure on fees, with smaller outfits cutting their charges to what many consider unsustainable levels to win work.

Well-established firms like JCY can’t and won’t join the race to slash fees just to win work, but Mr Young said the firm’s mix of work has still not returned to its pre GFC level of 50 per cent private sector, 50 per cent government work.

Contracts from the federal government’s economic stimulus strategy, including the Building the Education Revolution works, are largely complete.

And while major local projects such as the City Link present significant opportunities for Perth architects, Mr Young said these projects needed to add up commercially to progress.

“And how quickly that (those major city projects) advances will be very dependent on how quickly the commercial market, that multi-residential market recovers,” he said.

“It’s all very well to provide fantastic sites but the market has to improve somewhere to give it some momentum.”

Mr Young admitted there were a lot of contradictory economic indicators in the WA market, which made it hard to see exactly what was needed to recover the optimism sapped by the GFC.

“We had all hoped that the private sector would have kicked in by now, two and a half years later,” Mr Young said.

“Obviously finance has been an issue but we have a positive inflow of migrants, new people coming into the country who have got to live somewhere. But at the same time the property market is dead.”

Like many Perth firms, JCY has worked on a number of projects in recent times that have not progressed beyond the development application stage.
Proponents hit problems securing funding for the projects because they can't get the pre-sales required to underpin construction.
It's at its most stark in the multi-residential unit sector, which has gone from being almost unable to keep up with demand at the height of the property boom this decade to deathly quiet.
And the retail sector is facing its own challenges, with growing household savings along with higher utility costs eating into discretionary spending.
Hassell identifies a number of future opportunities in the health and transport sector as well as through purpose-built projects such as BHP's new headquarters at City Square.
Hassell is currently working in partnership with local firms Silver Thomas Hanley and Hames Sharley on the design of the massive Fiona Stanley project.
“I think what we will see in the commercial industry is more owner-occupied buildings," Mr Crabtree said.
“one40william was purpose built to accommodate government agencies, so rather than just straight out speculative commercial buildings I think it will go down that track."
Despite the pressures of the current marketplace, JCY also has a number of impressive projects on its books including one major residential project that is forging ahead despite the soft market conditions.
It is also working on the urban design for City Link and the cultural precinct master plan, while the state government's Royalties for Regions policy has delivered a number of projects in regional WA.
By contrast Cameron Chisholm Nicol is forecasting strong growth for the next few years as it wins work from the City Link, the waterfront development and transport oriented developments in the suburbs,
"We have got the right private clients, who have the ability to fund these developments so from our point of view it's very positive," CCN director Greg Salter said.
“I would say the next two years we would be in a continuous growth phase."
There is also work flowing from the busy resource sector but not as much as the architecture sector might have hoped for.
In the city, BHP's lease has underpinned the construction of the City Square development on St Georges Terrace and a number of firms have secured work designing housing and infrastructure on mine sites.
But the boom hasn't delivered the payload some analysts predicted.
A number of firms are focusing their energies on unearthing opportunities in the major mining centres where their design skills could add value to projects that haven't traditionally involved an architect.
Parry & Rosenthal Architects director Mike Savage said architects needed to market their problem-solving skills and debunk any misconceptions about architecture as an aesthetic pursuit.
He said people didn't realise that problem solving was at the very heart of architecture and in many cases the design that emerged from this process had other unforseen advantages and efficiencies for the client.
“There are a whole lot of project management skills and investigative skills involved in architecture," Mr Savage said.
“It is not just about designing nice buildings.
Parry & Rosenthal won the master-planning and building design contract for the Binningup desalination plant. One of the key issues for this project was reducing the impact both physically and visually of the plant with the natural coastal environment.
Parry & Rosenthal developed a unique design incorporating an earth "berm" to screen the plant from the surrounding environment, particularly the Binningup township.
Mr Savage said he was hopeful more opportunities would emerge from the resource sector as projects moved through approvals and into construction.
Oldfield Knott founding partner Ian Oldfield said the practice was busy but it had worked hard to retain its staff since the GFC.
He said the key to their success was diversification.
“Putting all your eggs in one basket in an era like ours is a bit dangerous, but not everyone is capable of doing that," Mr Oldfield said
“You need a fairly big staff base and a lot of training and experience to be able to do it."