ABI March 2017: Firms seeing strong conditions entering busy season
Sustainability features projected to continue as important priority for clients, particularly for institutional facilities
Architecture firm billings bumped back up in March, with the national ABI score standing at 54.3 in March. For the first quarter of the year, the ABI averaged 51.5, down a bit from the fourth quarter 2016 average of 52.4 but above the 2016 annual average of 51.2. That suggests that design activity is off to a solid start for the year, pointing to healthy levels of construction activity later this year and into 2018.
Project inquiries and new design contracts also remained strong in the March survey, suggesting that design activity will continue to grow. New design contracts—with a reading of 52.3 for March—averaged just above 53.0 for the first quarter this year. With new project work coming into firms exceeding billings for completed work, architecture firms are seeing their project backlogs grow. In fact, backlogs at firms averaged 6.0 months in March, the highest reading since the AIA began tracking backlogs quarterly in late 2010.
With the recent uptick, firms in all regions of the country reported billings growth in March. Residential firms reported a strong acceleration in billings, while institutional firms reported continued healthy levels. Commercial/industrial firms reported a modest decline, rounding out a generally sluggish first quarter.
No broader downturn in sight
Even with the current economic expansion ready to enter its eighth year, the outlook continues to look favorable. The first quarter has gotten off to a fairly slow start; growth for the quarter will likely only be in the 1 percent range when we get the first reading later this month. However, the consensus is that growth will be in the 2 percent range for the year, which is not too bad given how late we are in the economic cycle.
Business and consumer sentiment readings are both strong. The Conference Board’s CEO Business Confidence Survey reading for the first quarter was the highest it has been since 2004. The University of Michigan’s Consumer Sentiment Index preliminary reading for April was well above averages of the past several years. However, stock prices have begun to cool off recently. After surging in November and December following the election, the Dow Jones Industrial Index has basically stabilized since the beginning of the year.
Employment readings have been generally positive. Though the March national payroll gains were disappointing, our economy is on a pace to add over two million net new payroll positions this year, not too far below the pace of the past few years. Construction employment—even with a weak March reading—is on a pace to add almost 400,000 net new positions this year, which would exceed the growth of the past few years.
Sustainable design still growing in popularity
Given the emphasis on initial construction costs by many clients, this month’s special business question looked at prospects for sustainability features in future project activity. At present, half of architecture firms indicated that none or almost none of their projects over the past year were designed to meet sustainability standards. Many respondents did indicate that sustainability features were often included in their projects, even though clients were not planning to pursue formal certification.
Most firms are reasonably optimistic about future trends in sustainable design. Almost half feel that over the next few year the share of their projects that are designed to meet sustainability standards will increase, while fewer than 10 percent expect this share to decrease. The remainder felt that interest in sustainability in their project workloads would remain essentially unchanged.
However, there is a fair amount of difference in expected future sustainability trends across project types. In general, firms feel that institutional projects are likely to see increases in the share that are designed to meet sustainability standards. Over 60 percent of firms working in the education and healthcare sector expect that the share of their projects meeting these standards will increase over the next few years. The rest feel that the share will remain near current levels, or will decrease.
Firms designing commercial/industrial facilities were somewhat more doubtful in their outlook. Less than half of firms designing office or hospitality facilities feel that the share meeting sustainability standards will increase, a perspective shared by only a quarter of those designing retail facilities. Over 40 percent of firms working in the residential sector saw sustainability gains in their projects.
This month, Work-on-the-Boards participants are saying:
- "RFP count seems to be lighter than usual at the moment. We have spent the last five years with increases, but there is apparent caution in the market." —320-person firm in the Midwest, institutional specialization
- "It looks to be a busy spring and summer. There is a shortage of personnel, but most firms are fully staffed and not looking to expand, so times are getting extended." —5-person firm in the West, commercial/industrial specialization
- "Busy, but some concern building about the timing of the next inevitable downturn." —80-person firm in the South, institutional specialization
- "Business conditions in the last month have exploded with requests for proposals and new clients signing on towards the end of the month. At the current pace, more staff is going to be necessary to handle the demands." —5-person firm in the Northeast, commercial/industrial specialization
ABI March 2017