Practicing ArchitecturePracticing Architecture
Work on the Boards
Concerns about a possible double-dip recession still lurk
By Jennifer Riskus
Manager of Economic Research
Summary: While business conditions remained weak at the majority of architecture firms in June, firms with a commercial/industrial specialization posted small gains for the second month in a row. However, concerns about a possible double-dip recession continue to grow amid other negative indicators. Architects this month also report that basic design services costs tend to be more front-loaded in BIM/IPD projects than in other projects at their firm.
With a score of 46.0, the AIA’s Architecture Billings Index (ABI) for June rose by just 0.2 points from May, as the majority of architecture firms continued to report declining billings at their firms. Several of the survey panelists report that while business conditions started to improve earlier this year, they have weakened again in recent weeks. Amid growing concern about another downturn, the recently released Consensus Construction Forecast indicates a small recovery in construction spending by the end of 2011, making it more likely that firm billings will begin to improve in the near future. Inquiries at architecture firms remain elevated as owners continue to solicit many bids for their projects.
All regions remain weak, commercial firms show improvement
Firms located in the West region reported the worst business conditions, although all regions have continued to experience declining billings. The Northeast region has the score closest to 50, but it has weakened every month since reporting minimal growth in April.
The bright spot for the month is at firms with a commercial/industrial specialization, that reported an increase in billings for the second month in a row in June. While still minimal, it is the first time any sector has reported two consecutive months of growth in nearly two years. On the other hand, conditions continue to weaken further for firms with a residential specialization, following some signs of improvement earlier this year.
General economy shows weaker conditions
In the overall economy, weakness was reported in June after several months of improving conditions earlier in the year. Retail sales declined by 0.6% from May, and payroll employment fell by 125,000. However, the decline in employment is largely attributed to the release of short-term Census workers. Private sector payroll employment increased by 83,000 and is up by 593,000 since the beginning of the year.
The construction industry shed 22,000 jobs in June, the second month in a row of job losses after the first two months of gains in nearly three years earlier this year. Consumer confidence also fell in June, with the Conference Board Consumer Confidence Index reporting a decline of 9.8 points from May, to 52.9 (1985=100). This was the first decline in the index in four months, and reflects the general sentiment of increasing negativity in the economy.
Largest share of project design costs: construction documents
This month’s special question asked our panelists to look at the breakdown of design costs by basic design services phase. Nearly 40% of design costs for typical projects are derived from construction documents, with an additional 19% from design development and 18% from construction phase services. Respondents reported that BIM/IPD projects are more likely to have design costs front-loaded, with 42% coming from the schematic design and design development phases, compared to 36% from those two phases for non-BIM/IPD projects.
In addition, for BIM/IPD projects, the breakdown of costs for schematic design and design development are reversed for firms with a commercial/industrial specialization compared to those that derive the majority of their billings from institutional projects. While 22% of costs are in schematic design and 18% in design development for commercial/industrial firms, institutional firms report that the breakdown is almost exactly the opposite: 18% from schematic design and 23% from design development.
To help AIA members weather the economy, AIA.org features a Navigating the Economy page.
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This month, Work-on-the-Boards participants are saying:
• We are busier for the last two months and are bringing on temporary additional help, but no one thinks it is sustainable yet.
—80-person firm in the South, commercial/industrial specialization
• Still depressed in all sectors of new construction. Renovations and alteration projects seem to be on the rise. These projects are not through RFP, but returning clients.
—5-person firm in the West, mixed specialization
• Billings for the first half of 2010 were similar to the first half of 2009. However, billings are significantly better now than during the second half of 2009. Also, more projects are going into construction this summer as compared with last summer, so it seems like overall 2010 will be much stronger than 2009.
—35-person firm in the Northeast, institutional specialization
• Remain very low, impacting material delivery for projects that have been green-lit. Fewer materials in stock due to decreased activity.
—5-person firm in the Midwest, commercial/industrial specialization