ABI June 2020: Business conditions at architecture firms begin to stabilize, fewer firms report declining billings this month

June ABI 2020

38% of firms predict a decrease in architecture staff at their firm by the end of the year, while 17% expect an increase

Business conditions at architecture firms continued to stabilize in June, following their peak declines in April. While the ABI score of 40.0 for the month means that the majority of architecture firms still saw their billings decline from May to June, the pace of that decline slowed significantly. Inquiries into new work nearly returned to the positive in June, as clients began trying to restart projects. However, the value of new design contracts still lags behind, as many potential clients are price shopping to multiple firms but will ultimately only select one to work with. Firm backlogs also began to tick back up, rising from an average of 5.0 months in March to 5.3 months in June. However, concerns remain about whether the momentum will continue on its current trajectory, or if the gains reported in the last two months will be reversed as COVID-19 cases rise across the country once again.

While business conditions remained fairly soft at firms across the country, the pace of the decline in billings slowed at firms in all regions except the West, where billings declined at about the same pace as in May. By firm specialization, there was more of a disparity though, as firms with a commercial/industrial specialization continued to report very soft conditions, while firms with a multifamily residential specialization saw encouraging conditions, and came closer to seeing growth for the first time since January. Unfortunately, conditions at firms with a commercial/industrial specialization are likely to remain weak for an extended period of time, until restaurant and retail facilities can fully reopen and resume business.

Employment grows in June

National employment continued to rebound in June, with nonfarm payroll employment growing by 4.8 million positions on top of the 2.7 million positions that were added in May, although overall national employment remains 9.6% below the pre-pandemic peak from February. Two fifths of this month’s employment gains were from employees in the leisure and hospitality sectors, a positive sign as the economy continues reopening, while construction employment added 158,000 new positions, 32,000 of which were from the construction of buildings. Architecture services employment also added positions in May, the most recent data available, regaining 2,400 of the 10,900 positions that were shed in April, meaning that nearly a quarter of the jobs that have been lost since the start of the pandemic have returned.

And according to the latest edition of the Federal Reserve’s Beige Book report (released on July 15), economic activity generally improved across the country in the previous six-week period, although it remained well below pre-pandemic levels. Retail sales improved in all districts, as did leisure and hospitality spending. Residential real estate improved in the Atlanta, Chicago, and Kansas City districts, but remained slow in the Boston district. Commercial real estate was generally more mixed to soft, notably in the Boston and Atlanta districts, while it declined further in the Kansas City district. And residential construction activity was up in the San Francisco district, while commercial construction activity there was more mixed.

Almost half of firms expect to have the same number of employees at the end of 2020

This month’s special practice questions asked architecture firms about how they expect their architectural staff will change by the end of the year, and the skills that they consider most critical for their architectural staff to have. Overall, 45% of responding firms indicated that they expect the number of architecture positions at their firm at the end of the year to remain at about the same level as at the beginning of the year, while 38% expect the number to decrease, and 17% expect the number to increase. Of the firms that expect the number of architecture staff at their firm to decrease this year, 16% expect the number to decrease by 5% to 9%, 14% by 10% to 24%, and 8% by 25% or more.

Architecture firms with a commercial/industrial specialization were much more likely to report that they expect a decrease in architecture staff, with nearly half of all of those firms (46%) anticipating a decline by the end of the year. Conversely, a larger share of firms with a multifamily residential specialization, and firms located in the West, indicated that they expect an increase in architecture staff this year (28% and 22% of firms, respectively).

When firms were asked about the types of architecture positions they anticipate increasing or decreasing at their firms this year, the list was very similar for both groups, led by more entry- and mid-level types of staff. Of the firms that expect a decrease in architecture staff positions in 2020, 58% anticipate that emerging professionals on the path to licensure positions will decrease, 58% expect a decrease in moderately experienced design staff, 35% in moderately experienced project management staff, 28% in senior project design staff, 23% in part-time architecture staff, and 22% in senior project management staff. Of those firms expecting an increase in architecture staff, 50% expect an increase in emerging professionals, 43% in moderately experienced project management staff, 41% in moderately experienced design staff, 24% in senior project management staff, and 23% in senior project design staff.

Finally, firms were asked about the types of skills and characteristics that they think are important for architectural staff at their firm to have, as the architecture profession continues to evolve. While firms felt that technical and creative skills were important, they also tended to rank interpersonal and management (both project and client) skills highly, while staff and firm management skills were selected as important by just a handful of respondents. However, many respondents noted that all of these skills are equally important, and their ideal staff person would have a healthy mix of these characteristics.

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

  • “There are still inquiries for projects, but there is increasing competition for work. Inquiries for projects over $5 million have decreased dramatically.”—25-person firm in the Midwest, commercial/industrial specialization
  • “Public K-12 education is about the only market area with projects continuing. The pricing from contractors has been very competitive and below estimates.”—100-person firm in the Midwest, institutional specialization
  • “Getting better in the Boston area–most projects that went on hold due to COVID-19 have restarted. New work inquiries are up as well.”—48-person firm in the Northeast, residential specialization
  • “More COVID-19 cases in our area, so attitudes are changing to believe this will last much longer than originally expected. Clients are being very conservative moving forward.”—65-person firm in the South, mixed specialization

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June ABI 2020