Practicing ArchitecturePracticing Architecture
Business Conditions at Architecture Firms Continue to Improve
Uncertainty about 2011 remains as more architects are expected to seek other careers
By Jennifer Riskus
Business conditions at architecture firms continued to show signs of improvement in December, as the AIA’s Architecture Billings Index (ABI) remained above 50 for the second month in a row with a score of 54.2. This marks the first time in three years that there have been two consecutive months with more firms reporting increasing firm billings than reporting declining firm billings. However, cautious optimism remains the watchword, as activity levels may remain volatile during the first half of 2011.
Two months of growth
Business conditions also improved in three of the four regions of the country in December. Firms in the West continue to report weak billings, although the score has been climbing in recent months, and business may begin picking up for the first time since mid-2007. Firms in the West were the first to report a downturn when the recession began, and look to be the last to return to growth now that the recovery is underway.
All three major construction sectors reported growth for the second month in a row in December, the first time that this has occurred since June and July of 2007. However, growth remains quite modest in most sectors, and may not yet be sustained.
The majority of survey panelists also reported that the value of design contracts remained relatively unchanged in December from November. And while 18 percent reported that the value increased, an even larger share (22 percent) reported that the value decreased during that time period. However, these responses may reflect seasonal variation in the signing of new design work. The AIA has also begun to collect data on backlogs at architecture firms on a quarterly basis, and in December the largest share of firms (32 percent) reported backlogs averaging between one and three months, with an additional 30 percent reporting backlogs between three and six months. Backlogs remain relatively low at this time, but should begin growing as business picks up.
There were some positive signs in the larger economy this month as well, with the national unemployment rate falling to 9.4 percent. And with an additional 103,000 jobs added in December, nonfarm payroll employment increased by more than one million jobs in 2010. However, architecture firm employment fell to 163,700 in November (the most recent data available), down nearly 26 percent from the most recent high in July 2008. And while the Federal Reserve’s most recent edition of the Beige Book survey of regional economic conditions indicates that a modest expansion continued in November and December, it also reports that residential real estate markets remain weak, and that commercial construction is slow. However, commercial leasing is on the rise in the Richmond, Chicago, Minneapolis, and Kansas City districts, and while vacancy rates remain high overall, they are beginning to decline in the Kansas City and New York City districts. Healthcare, public infrastructure, and multifamily housing are reported to be the primary drivers of new construction.
Top trends for 2011
For this month’s special question, the AIA asked our survey panelists to look at potential developments for the architectural profession in 2011, and to pick the ones they thought would be most significant. Their top picks reflected continuing uncertainty about the economy, despite signs that conditions are beginning to improve. Nearly two-thirds (62 percent) thought that a growing number of architects will look for career opportunities outside of the architectural profession in 2011, 55 percent thought that firms will use more contract and part-time workers, and 51 percent expressed concern about outstanding receivables from clients. The increase in part -time and contract workers may be a positive though, since firms may be starting out with temporary workers as they dip their toes back into hiring again. Then, as demand grows, these might translate into more permanent full-time positions. On the other hand, few firms anticipate expanding abroad or increasing use of Integrated Project Delivery (IPD) in 2011. They also think it unlikely that this downturn will result in an increased number of currently unlicensed design professionals obtaining licensure.
This month, Work-on-the-Boards participants are saying:
• “Business conditions have greatly improved. We have staff working overtime, we are using contract workers, and we may be hiring again by the end of the first quarter.”—11-person firm in the West, residential specialization
• “State, county, and city work is still depressed with only small county project opportunities. There is a noted increase in activity related to university pursuits, but the number of RFQ respondents is still high.”—42-person firm in the South, institutional specialization
• “Local conditions are still competitive. I see firms seeking more and more opportunities outside the region and internationally.”—11-person firm in the Northeast, commercial/industrial specialization
• “We are doing a lot more work up front to get a project than we have had to do in the past. One example is cost opinions. In the past this was part of our service once we signed a contract. Now it appears that this is becoming an expectation in order to be considered for a project.”—3-person firm in the Midwest, residential specialization
Visit the AIA’s Navigating the Economy Web site.
About the AIA Architecture Billings Index
The Architecture Billings Index (ABI), produced by the AIA Economics & Market Research Group, is a leading economic indicator that provides an approximately nine to 12 month glimpse into the future of nonresidential construction spending activity. The diffusion indexes contained in the full report are derived from a monthly “Work-on-the-Boards” survey that is sent to a panel of AIA member-owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended as compared to the prior month, and the results are then compiled into the ABI. These monthly results are also seasonally adjusted to allow for comparison to prior months. The monthly ABI index scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline. The regional and sector data are formulated using a three-month moving average. More information on the ABI and the analysis of its relationship to construction activity can be found in the White Paper Architecture Billings as a Leading Indicator of Construction: Analysis of the Relationship Between a Billings Index and Construction Spending on the AIA web site.