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Spring Thaw Arrives for Architecture Firm Billings

Technology at architecture firms has helped improve communications

After several months of softness, business conditions at architecture firms rebounded in May, with an ABI score of 52.6. (Any score over 50 indicates billings growth). While architecture firm billings have increased in eight of the last 12 months, particularly harsh conditions this past winter led to declining billings or only modest growth for several months. This month’s score indicates that work is finally picking back up at firms. In addition, for the second consecutive month growth was reported in the value of design contracts in May, further indicating that there are new projects in the pipeline.

Architecture firms located in the South experienced the strongest business conditions in the country in May for the seventh consecutive month, although firms located in the Midwest also reported improving billings for the first time since October. Business conditions remain soft at firms located in the Northeast, and continue to worsen at firms located in the West, a discouraging turn following an extended period of billings growth.

Architecture firms with a residential specialization continued to report extremely strong billings in May, and firms with a commercial/industrial specialization also saw an uptick in billings, as they have for the last five months. On the other hand, firms with an institutional specialization reported more of the same declining billings that they have experienced over the last nine months.

Payrolls on the rise

Despite that fact that recent revisions to first quarter GDP estimates showed that it actually declined at an annual rate of 1 percent (after an initial estimate of a minute increase), the overall economy remains generally strong moving into the second quarter. Payrolls increased by 217,000 in May, and have now returned to pre-recession levels. And while construction and architectural services employment were relatively flat in May and April, architectural services payrolls have added a net total of 5,500 new positions in the last year, an increase of 3.5 percent.

The latest edition of the Federal Reserve’s Beige Book report was released in early June and covers the six-week period ending on May 23. All 12 of the Federal Reserve districts across the country reported increasing economic activity in that time period, despite lingering impacts from winter weather in some parts of the Boston and New York districts. Residential construction strengthened in the New York, Richmond, Atlanta, Kansas City, and Dallas districts, and home prices increased across the board. Declining residential inventories were reported in the Boston, New York, and Kansas City districts, and new home sales and construction weakened in the Philadelphia, St. Louis, and Minneapolis districts. Nonresidential construction activity was steady to stronger. It was strengthening in the Boston, St. Louis, and Kansas City districts, but declining in the Minneapolis district. The commercial real estate market also showed general signs of improvement.

Technology aids communication

This month’s special practice questions asked survey panelists about the benefits of technology at architecture firms. (Technology is broadly defined to include everything from BIM and energy modeling software to social media and 3D printing) More than seven in 10 architecture firms agreed that technology has allowed for better communications/smoother interaction within their project teams, and has facilitated their ability to market services. On the other hand, just 35 percent of responding firms thought that technology helped to better explain the value of working with an architecture firm, while nearly a quarter of firms (22 percent) disagreed.

When asked to select the top three benefits of technology at architecture firms, nearly two thirds of respondents indicated that they believed that the greatest benefit was that technology allowed for better interaction within project teams. A slightly higher share of large firms selected this benefit than small firms, since larger firms are more likely to have large teams working on projects. Large firms were also slightly more likely than small firms to indicate that a top benefit of technology was to help the firm create better/more aesthetic design.

This month, Work-on-the-Boards participants are saying:

    • Slightly improving, but hesitant on larger commitments. Ten times more effort is required now than was required 5-7 years ago, for about one-tenth of the revenue.— 1-person firm in the Northeast, residential specialization

    • Conditions remain strong. We are struggling to hire enough personnel to keep up with workload.—90-person firm in the South, commercial/industrial specialization

    • Exploding, mainly due to [the] residential burst. Even though our firm does no residential design, the activity spreads, affecting many other market segments.—16-person firm in the West, institutional specialization

    • Generally remains positive, but [it’s] up and down. The backlog is there, but it is hard to judge the intent of some of our clients, because of the uneasiness within the business community.—13-person firm in the Midwest, commercial/industrial specialization

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Recent Related:

Ongoing Weakness in Architecture Billings Expected to Evaporate in Spring Thaw

The Winter Doldrums Drag On Through March at Architecture Firms

Architecture Firm Billings Increase Modestly in February

Architecture Firm Billings Rebound in the New Year

 

Reference:

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

 

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