Practicing ArchitecturePracticing Architecture
Architecture Firm Billings Rebound Modestly in August
Education, other institutional, and multifamily projects are most vulnerable to financing problems
By Jennifer Riskus
The AIA’s Architecture Billings Index (ABI) unexpectedly showed a very modest rebound in architecture firm billings in August with a score of 51.4. (A score over 50 indicates growth in firm billings.) This comes on the heels of four consecutive months of fairly substantial declines. Comments from survey panelists this month continue to indicate very mixed business conditions around the country, and the AIA will be tracking the score closely over the coming months. Inquiries into new projects continued to grow, and more firms reported an increase in design contracts in August than in July, although the majority of firms continue to report a decline.
Business conditions remain weak in all regions of the country and for architecture firms of all specializations. Since these figures are computed as three-month moving averages of the index scores, the slight bump up in billings is not apparent in these breakouts. By region, firms located in the Northeast reported the sharpest downturn in firm billings for the second month in a row. Business conditions in August also continued to deteriorate at firms with a residential specialization, in spite of moderate growth reported by those firms earlier this year.
Weakness persisted in the overall economy in August, highlighted by a net employment change of zero for the month, only the second time that this has ever occurred, and the first month with no employment growth since September 2010. Construction employment was essentially flat for the month, while architecture services employment increased modestly for the fifth consecutive month in July (the most current data available). The Conference Board’s Consumer Confidence Index declined sharply in August, falling to a score of 44.5 (1985=100), the lowest in more than two years, as consumers became more negative about the future outlook. And while the Federal Reserve’s most recent edition of the Beige Book indicates increased demand for multifamily projects in the New York, Philadelphia, and Cleveland districts, home prices remain flat overall. In addition, commercial construction remains weak in the Cleveland, Atlanta, Chicago, and Kansas City districts, although the Chicago district is tempered slightly by growth in the industrial construction sector.
Stalled projects remain a major issue for architecture firms. Nearly two-thirds of firms (65 percent) report having at least one design project under contract that is currently stalled, but likely to eventually proceed to construction. Three-quarters of these stalled projects are delayed due to difficulties obtaining financing. Firms report that all project types have been impacted by financing issues, with four in 10 of these projects being in the institutional sector: education (16.3 percent), healthcare (9.3 percent), and other institutional projects (15.7 percent). Multifamily residential projects also account for a significant share (15.1 percent) of projects stalled due to problems obtaining financing. In contrast, industrial, single-family residential, and office projects each account for less than 8 percent of projects stalled with financing issues.
This month, Work on the Boards participants are saying:
• We are seeing an increase in industrial activity, although we have heard from other firms that multifamily housing has slowed down again. However, a large home builder has announced a new development, and they have recently begun to complete a development that has been on hold since 2009.—25-person firm in the South, commercial/industrial specialization
• We are busy and getting busier. Have hired two full-time and two part-time employees in the last two months.— Five-person firm in the Northeast, institutional specialization
• In the last six months, inquiries and initial feasibility analysis work have dramatically picked up. In the last week, our office has had one stalled project released from a three-month hold, and signed contracts for a new single-family home, and a residential renovation project. With the market soft, construction costs have seen a substantial reduction, leading to a small surge of clients seizing an opportunity.—One-person firm in the West, residential specialization
• Owners are taking longer to begin contracts. Most clients are renovating existing facilities instead of [starting] ground-up new construction. Work from non-profit entities is virtually nonexistent.—Eight-person firm in the Midwest, commercial/industrial specialization
About the AIA Architecture Billings Index
The Architecture Billings Index (ABI), produced by the AIA Economics and 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 near 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 AIA.org.