Architecture firms see soft business conditions persist

by Christopher Brinckerhoff | July 11, 2024 6:00 am

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Business conditions remained soft at a majority of architecture firms around the country in May. The American Institute of Architects’ (AIA)[2] AIA/Deltek Architecture Billings Index (ABI) score declined to 42.4 for the month, as more firms reported a decrease in billings in May than in April. In addition, there is increasing softness in the pipeline of new work coming into firms. While inquiries into new projects continued to increase, they did so at a slower pace than in recent months. The value of new signed design contracts declined further in May, following a small decrease in April. Despite the fact that the high inflation of the last few years has largely receded, elevated interest rates continue to cause hesitation among many clients.

Firm billings remained soft across all regions and sectors as well in May. Billings declined at firms in all regions of the country for the fourth consecutive month, as conditions remained weakest at firms located in the Midwest. Business conditions also softened further in May at firms with an institutional specialization, while fewer firms with commercial/industrial and multifamily residential specializations reported a decline in billings in May than in April. However, a majority of firms of both specializations still reported weak business conditions.

Conditions remained somewhat mixed in the broader economy in May. The Federal Reserve’s Beige Book report, released May 29, reported that while overall national economic activity increased in April and May, there remained some variation by region and industry. Overall, credit remained tight and interest rates remained high, which together constrained growth in lending. But outlooks were generally more pessimistic than in recent prior reports. While commercial real estate generally softened, housing demand rose modestly, and single-family residential construction increased on average. The report also noted that commercial and residential real estate activity weakened in the Boston district after improvement earlier this year, while commercial real estate activity was mixed in the Atlanta district and flat in the San Francisco district. However, commercial and residential construction improved in the Minneapolis district, while overall construction and real estate activity increased modestly in the Chicago district.

Employment was a bright spot in the economy in May, with non-farm payrolls increasing by 272,000 new positions, above predicted gains. While the unemployment rate has crept up in the last year, it now stands at 4 percent, still just modestly higher than the 3.7 percent rate from one year ago. However, architectural services employment continued to soften in April, the most recent data available, shedding an additional 100 positions. Industry employment now stands at 205,300, which is 3,000 below the most recent high point in July 2023.

With increasing coverage of construction mega-projects (typically defined as projects with estimated construction value of $1 billion or more) in recent months, AIA asked its survey panel of architecture firm leaders about their involvement in these types of projects. Overall, just 6 percent of responding firm leaders reported that their firm had worked on a construction mega-project in some capacity in recent years. This share was slightly higher at firms located in the Midwest (9 percent) and West (8 percent), and at the largest firms with annual billings of $5 million or more (14 percent), as well as at firms with an institutional specialization (10 percent). Of the firms that reported working on a mega-project, 3 percent reported that they worked on the project as the architect of record, and 3 percent reported that they worked on it in another capacity, such as design and production support, or as a consultant.

At the handful of firms that worked on mega-projects in some capacity, nearly one third of firms (29 percent) reported that these were mixed-use projects, followed by 19 percent that worked on health care mega-projects, 14 percent that worked on infrastructure mega-projects such as airplane terminals, 14 percent that worked on industrial mega-projects, and 10 percent that worked on amusement and recreation mega-projects. Other responses that were mentioned by multiple respondents included justice/correctional facilities, and convention centers.

Overall, the majority of architecture firms have little experience with mega-projects. Slightly more than half of responding firm leaders (51 percent) indicated that they do not know how the share of total construction activity from mega-projects in recent years has changed in their region, regardless of whether they have worked on one directly or not. Of the firms that were familiar enough to answer the question, 31 percent believed that the share has increased and 36 percent believed that it has remained about the same. One in 10 firms believed that total construction activity from mega-projects in their region varies a lot from sector to sector, while 18 percent thought that the share of construction activity from mega-projects in their region has decreased in recent years. The remaining 5 percent answered some other response, including that their region is too small for any mega-projects.

Source URL: https://www.metalarchitecture.com/news/architecture-firms-business/

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