ABI May 2020: Architecture firms report steep decline in billings for third consecutive month

May ABI 2020

More than one third of firms have had client discussions about changing needs for facilities in the post-pandemic built environment

Business conditions at architecture firms remained extremely poor for the third consecutive month in May. While the ABI score of 32.0 for the month was somewhat higher than the April score, it still indicates that the majority of firms saw their billings decrease yet again (any score below 50 indicates declining billings). Indicators of future work remained grim as well, and while a larger share of firms reported an increase in inquiries into new projects in May than in April, most firms still saw a decline. In addition, the value of new signed design contracts remained at a near record-low level, as firms indicated that clients are still extremely hesitant to sign on the dotted line for new work at this time.

Business conditions remained also very soft across all regions of the country in May, with firms located in the Northeast continuing to report the steepest decline in billings. However, since construction projects have now been permitted to restart in most areas where they had been temporarily shuttered, the firms hardest hit by that shutdown, which are predominantly located in the Northeast, may see somewhat less dismal conditions in June. Firms of all specializations also continued to report very weak firm billings this month, with conditions deteriorating even further at firms with a commercial/industrial specialization, which  have been hardest hit so far during this downturn.

Across the country, a mix of economic conditions

The US officially entered a recession starting in February, according to the National Bureau of Economic Research, and the larger economy remained generally weak across much of the country in May. According to the latest edition of the Federal Reserve’s Beige Book report (released on May 27), overall economic activity declined across the country in the six-week period preceding the report. Home sales declined sharply during that time, construction activity was down, and many retail tenants missed or deferred their rent payments. In some areas, though, conditions were more mixed. While residential real estate slowed in the Atlanta district, commercial real estate activity didn’t decline as quickly , while in the San Francisco district the converse was true. And in the Dallas district, home sales initially saw a sharp decline, but have rebounded some since then.

On a more positive note, nonfarm payroll employment had strong growth in May, adding 2.5 million new positions, although total employment remains 13% below its February level. Construction employment added 464,000 positions this month, gaining back nearly half the jobs lost the prior month, while architectural services employment declined by 10,600 positions in April (the most recent data available), marking a larger one-month decline than was seen at any time during the Great Recession. In addition, architectural services employment had still not returned to its pre-Great Recession level prior to the current downturn, topping out at 200,000 employees during the most recent expansion, versus 217,800 prior to the last downturn.

Potential long-term changes

This month’s special practice questions asked responding architecture firms about pandemic-related long-term changes at their firm due to the mandatory shift to a virtual workforce, and about client discussions regarding changing facility needs in the post-pandemic built environment.

Overall, 94% of responding firms this month reported that they have experienced at least one negative impact on their firm as a result of the shift to a virtual workforce, while 85% indicated that they have experienced at least one positive impact. More than half of firms reported experiencing challenges like difficulty supervising/managing/monitoring staff progress (59% of firms), staff distractions from working at home (57%), more difficult collaboration/sharing among staff (54%), and less creativity/spontaneity among staff (54%), while 49% reported decreased staff productivity and 41% indicated they have experienced a disruptive amount of emails, phone calls, and virtual meetings. The largest share of responding firms (22%), indicated that decreased staff productivity has been the one most harmful impact on their firm.

On the positive side, 55% of firms indicated that more empathy toward staff personal situations (e.g., flexibility for childcare, flexible working hours) has been a positive impact of the shift to a virtual workforce that they have experienced, with 29% selecting it as the one most beneficial impact on their firm. And 18% of firms selected an increased level of digital proficiency among staff as the most positive impact, while 15% selected ease in scheduling/conducting client meetings. However, just 13% of firms indicated that the overall impact of the current situation on their firm has been very or somewhat positive, while 44% said that it has been very or somewhat negative, with the remaining 43% finding it to be a mix of positive and negative impacts.

As far as discussions with current or potential clients regarding design approaches or strategies to accommodate changing client needs for their facilities in the post-pandemic built environment, 37% of responding firms this month indicated that they have already had these conversations with their clients, while 28% said that they have had some preliminary discussions, but nothing specific at this point. Of those firms that have had client discussions about this topic, 44% reported that they have had more conversations about retrofitting existing buildings, 11% have had more discussions about designing new buildings, and the remaining 45% said that they have had an equal amount of both types of discussions. The top facility types about which these client conversations have been held are offices (59% of firms have had client discussion about this project type), college/university educational facilities (36%), healthcare facilities (36%), K-12 educational facilities (31%), government buildings (25%), and foodservice facilities (23%).

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

  • “Slowing considerably. Looking ahead six months, not looking good. Once PPP runs out, we’ll have to take a serious look at staffing.”—22-person firm in the Midwest, commercial/industrial specialization
  • “Business does not seem good or bad, just on hold. It seems like the expectations are that everything will pick up again where it left off–although we expect some attrition.”—48-person firm in the Northeast, mixed specialization
  • “Trying to come back alive, but big projects in early design are mostly on hold. Many clients are moving forward with smaller projects they didn’t have time for before this pandemic.”—26-person firm in the West, institutional specialization
  • “A lot went on hold. Finally hearing some discussions about some of these projects restarting in the coming weeks, however, we will need to wait and see if talk becomes reality.”—28-person firm in the South, residential specialization

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May ABI 2020