Practicing ArchitecturePracticing Architecture
Pace of Billings Improvement Slows in March
Architecture employees have become more flexible about compensation in the wake of the economic downturn
By Jennifer Riskus
Business conditions at architecture firms improved for the eighth consecutive month in March, with an Architecture Billings Index (ABI) of score 51.9. (Any score over 50 indicates billings growth.) While the pace of firm billings growth slowed slightly from the previous two months, inquiries into new projects remain very strong, and more firms reported an increase in the value of new design contracts than in February. In addition, backlogs at architecture firms have risen to an average of five months, up from 4.5 months in December 2012 and the highest they have been since the AIA started tracking that information on a quarterly basis at the end of 2010.
Residential construction helps lift economy
Architecture firm billings continued to improve at firms in all regions of the country during March, with firms in the Northeast and Midwest regions reporting the strongest conditions. Despite the pace of growth moderating from the beginning of the year at firms located in the West, overall conditions for firms in that region remain significantly improved from their prolonged downturn seen over the past five years.
Strong growth in firm billings was sustained at architecture firms with a residential specialization, and firms with a commercial/industrial specialization also reported strengthening conditions in March. Firms with an institutional specialization are showing improvement as well, but the pace of growth remains modest in contrast to firms with other specializations.
In the general economy, payroll growth slowed last month, as only 88,000 jobs were added, about half of what had been added in prior months. However, the construction sector continued to rebound, with 18,000 new positions joining the fold. Architectural services employment also continued to rise, reaching a total of 156,600 positions in February (the most current data available). This is the highest it has been in nearly three years. The newest edition of the Federal Reserve Beige Book, published every six weeks, showed moderate growth occurring across much of the country. Manufacturing increased in many regions, due in part to increasing demand for residential construction products as the residential construction market continues to strengthen. The New York district showed a particularly strong increase in residential real estate, and home prices are rising in the Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco districts. Commercial real estate and construction has been strengthening as well, with declining office vacancy rates in the Boston and New York districts.
Recession has softened salary expectations
During the recent economic downturn, many architecture firms were forced to cut staff salaries and benefits. While firms have seen improving business conditions over the last several months, salaries in many cases have been slow to return to pre-recession levels. Nearly half of survey panelists (who are primarily firm principals) find that architecture employees at their firm have become more flexible about salary expectations in recent years, although they do remain very concerned about pay levels. Thirty percent of respondents say that their staff are just happy to be employed and are less concerned about compensation levels at this time, while just 10 percent report that their employees think that compensation should be back to pre-downturn levels by now. However, this share jumps to 20 percent for large firms with annual billings of $5 million or more.
When asked about perceived concern about architectural compensation by experience level, 44 percent of firm principals thought that compensation was of most concern to senior-level architects with 10 or more years of experience. Just over one-third of respondents thought that the issue was of greatest concern to mid-level architecture staff, while less than one quarter thought it was of most concern to entry-level staff. However, large firms, firms located in the West, and firms with an institutional specialization were more likely to report that the highest level of compensation concern is from mid-level architects with five to 10 years of experience.
This month, Work-On-The-Boards participants are saying:
• [We’re] starting to see an upswing in retail and restaurant projects. The office deals are lease renewals or tenant improvement deals being done because the new building owners obtained the property at an extreme discount. —5-person firm in the West, commercial/industrial specialization
• [A] significant number of big projects have been announced, but the small and medium projects are not doing so well. —12-person firm in the South, institutional specialization
• [The] new state tax structure is more attractive in promoting business growth, but publicly supported bonding for capital improvements remains down. Private-sector investment is improving in proportion to access to capital. —53-person firm in the Midwest, institutional specialization
• Business conditions are improving with the recovering economy and rising [home prices]. —5-person firm in the Northeast, residential specialization
The ABI Work-on-the-Boards panel is open to any AIA member who is principal/partner of their firm. Apply to join the ABI panel by completing a brief background information form on your firm here.
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.