Practicing ArchitecturePracticing Architecture
Architecture Firm Billings Rebound in the New Year
Half of architecture firms surveyed anticipate higher revenue in 2014
By Jennifer Riskus
Following two months of declines at the end of 2013, architecture firm billings rebounded slightly in January, according to the AIA’s Architecture Billings Index (ABI). The score of 50.4 for the month (any score above 50 indicates billings growth) is representative of very modest growth; but with spring’s warmer weather right around the corner, billings should hopefully begin to pick up steam again. Inquiries into new projects remained strong, although the value of new signed design contracts declined minimally in January, the first time that they have not increased in a year.
Weakness from the fourth quarter of 2013 persisted into January for firms located in the Northeast and Midwest regions of the country, which may be partially due to inclement weather this winter. Firms located in the South and West regions continued to experience increasing firm billings, as they have for the last year and a half, although the pace of growth for firms in the West has moderated in the last six months.
Firms with a residential specialization continued to experience increasing firm billings in January, and firms with a commercial/industrial specialization also saw minimal growth, following two months of modest declines. However, firms with an institutional specialization continued to experience softening business conditions for the fifth consecutive month. It may be that projects that were delayed by the government shutdown in the fourth quarter of 2013 have not yet been restarted.
The slow climb continues
Conditions in the general economy continue to improve at a relatively modest pace. While the GDP increased at an annual rate of 3.2 percent in the fourth quarter of 2013 (according to advance estimates), total annual growth for 2013 is estimated at just 1.9 percent, down from 2.8 percent in 2012. One of the factors contributing to growth in the fourth quarter was an increase in state and local government spending. Federal government spending, on the other hand, decreased during the same period.
Employment grew modestly in January, with 113,000 positions added to the payrolls. However, this remains well below the average monthly growth rate for 2013. Construction employment added 48,000 positions in January, with growth coming from both residential and nonresidential construction. Meanwhile, architectural services employment declined very slightly in December (the most recent data available), but, at more than 158,000, it remains at its highest level since 2010.
Staffing up for 2014?
This month’s special practice question asked about projected firm billings and staffing needs for 2014. Fully half of survey panelists indicated that they anticipate gross revenue at their firm will increase this year, as compared to 2013. Less than a quarter of responding firms (22 percent) anticipate that revenue will decline, while the remaining 28 percent expect revenue to be about the same in 2014. However, large firms are much more likely to anticipate increased revenue than small firms: 63 percent of firms with annual billings of $5 million or more expect an increase this year, versus just 35 percent of firms with annual billings of less than $250,000.
To keep up with this expected increase in business, nearly four in 10 architecture firms plan to add architectural positions in 2014, with more junior positions being the most likely to be added. Seventy-two percent of firms that anticipate adding architectural positions in 2014 plan to hire architectural positions with three to 10 years of experience, while 60 percent anticipate hiring interns. Few firms are looking to hire senior project managers/designers or principals/partners.
And in a change from recent years, when the use of part-time and contract employees had been popular, firms anticipate that 82 percent of these positions will be full- time, just 8 percent part-time, and 10 percent contract employees. Firms located in the West, where business conditions have been slower to recover, are most likely to hire contract employees, as are small firms. Large firms with annual billings of $1 million or more anticipate that nearly 90 percent of their 2014 hires will be for full-time positions.
This month, Work-On-The-Boards participants are saying:
• Proposed housing starts seems to have generated movement in the public works area of K-12 projects again.—12-person firm in the West, institutional specialization
• The outlook for 2014 is positive. We have some new projects ready to kick off, and feel good about others starting soon.—87-person firm in the South, commercial/industrial specialization
• Lots of projects are now finally under construction. However, it seems that many architectural firms that trimmed their staff during the downturn have not begun hiring again.— 2-person firm in the Northeast, mixed specialization
• Clients are taking their time in the selection process. [RFQs] to award [projects are] dragging out to six months in some cases.—11-person firm in the Midwest, institutional specialization
The ABI Work-on-the-Boards Survey 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.