Practicing ArchitecturePracticing Architecture
Work on the Boards
Architecture Billings Index Climbs by Two Points in July
Commercial/industrial sector reports growth for third consecutive month
By Jennifer Riskus
Manager of Economic Research
Summary: Although billings at architecture firms declined for the 30th consecutive month in July, the ABI score increased by nearly two points from the previous month, inching closer to 50. In addition, business conditions continue to improve at firms with a commercial/industrial specialization, despite persistent weakness in the general economy. Survey panelists report that the design phase for nearly half of their projects lasts for less than six months, and that the complexity of the project is the most important influence on the length of that design phase.
The AIA’s Architecture Billings Index (ABI) score for July inched closer to the 50-point threshold again (a score higher than 50 is an indication of growth), climbing nearly two full points from June to 47.9. While there is growing optimism that billings may grow in the near future, business conditions at many architecture firms remain tenuous, with relief still a long way off.
Inquiries into new work have grown for 16 of the last 17 months, but this month’s score of 53.1 is the lowest since the beginning of the year. However, this may represent a leveling out of the glut of RFPs that firms have been receiving in recent months that have not translated into actual billable work.
Business conditions remain weak at architecture firms in all regions of the country. Firms in the Northeast continue to report the highest scores, but they have been weakening every month since very minimal growth was reported in April. The score increased in the South for the fifth month in a row in July, and is approaching 50 for the first time in more than two years.
Firms with a commercial/industrial specialization reported growth for the third month in a row in July, and while it remained minimal, it is still a positive sign. The highest score in nearly two years for that sector was reported at firms with an institutional specialization, amid reports that building projects funded under the stimulus program are beginning to wrap up.
The most recent issue of the Federal Reserve’s Beige Book reports that, for the most part, the commercial and industrial real estate market remains weak in all regions of the country. However, while vacancy rates in many areas are flat or increasing, office/retail leasing actually has been increasing in New York City. Construction activity continues to weaken in the Atlanta, Minneapolis, Dallas, and Cleveland, but public infrastructure construction is on the rise in Chicago, and most Federal Reserve Board districts anticipate slow growth in commercial/industrial real estate in the near future. And, employment data continues to paint a mixed picture. While overall nonfarm payroll employment declined by 131,000 positions in July, the private sector continued to add jobs, with an additional 71,000 positions. Construction employment remains relatively flat, shedding just 11,000 jobs in July.
This month’s special questions followed up on last month’s questions about the timing of project design phases. Survey respondents reported that the largest share of their projects (42%) have a design phase (defined as lasting from the awarding of the design contract to the completion of the construction documents) that lasts less than six months, while an additional 24% of projects have a design phase typically lasting between six and nine months. Small firms are much more likely to have shorter design phases than large firms, with 59% of projects at firms with less than $250,000 in annual billings having design phases of less than six months, compared to just 23% of projects at firms with annual billings of $5 million or more. Projects at firms with an institutional specialization also tend to have a slightly longer design phase, with nearly half (47%) of projects at those firms having a design phase lasting between six and 12 months.
Our panelists indicated that the complexity of a project is the most important influence on the length of the design phase, followed by project size (construction value), type of client, and scope of design services offered. The project delivery method (e.g., design-build, design-bid-build, integrated project delivery) was not considered to be a very important factor.
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This month, Work-on-the-Boards participants are saying:
• Conditions continue to gradually improve. Financing for projects with a track record is relatively easy to acquire while projects new from the ground up take considerably more time to finance.
—100-person firm in the Midwest, commercial/industrial specialization
• Beginning to see a number of RFPs for projects funded by the Recovery Act. There is an increase in government use of design-build delivery method for projects. This seems to be a result of the desire to obligate ARRA funds before the end of September.
—18-person firm in the South, institutional specialization
• Business conditions in NYC remain bad, but we are an international practice and have remained very strong with our Asia work. We have had several recent big wins in China and Vietnam that will carry us into a strong growth period.
—85-person firm in the Northeast, mixed specialization
• I am stunned by how very busy we are. Since March I have hired four new people and I’ve added three interns this summer. I’m looking at another opportunity that would require hiring another person on a project basis this month as well. I’ve got backlog through spring of next year but my fear is that it could all disappear quickly, given the fragile state of our economy.
—14-person firm in the West, residential specialization