Friday, February 26, 2010

Have we reached the point when the AEC industry starts redesigning fast-food menu items?

Some people may feel that way after seeing the latest figures from the American Institute of Architects' Architecture Billings Index.

As anyone who practices in the AEC industry, or follows this space, will tell you, things have been bleak since fall 2007. Not coincidentally, the January ABI numbers mark the beginning of the third year of negative conditions, with a drop of almost three points.

The January ABI rating was 42.1, down sharply from a revised reading of 45.4 in December. (Every January, the AIA research department uses Department of Commerce statistics to re-estimate ABI data based on seasonal patterns, resulting in a recalibration of recent figures.)

The score indicates a continued decline in demand for design services as any score above 50 indicates an increase in billings. The new projects inquiry score was 52.5, down more than seven points. Regionally, the ABI breaks down as follows: Midwest 48.0, Northeast 45.7, South 41.32, West 40.5. The sector index is as follows: Multi-famliy residential (50.1), commercial/industrial (44.9), institutional (43.1), and mixed practice (40.3).

"Projects are being delayed or cancelled because lending institutions are placing unusually stringent equity requirements on new developments. This is even happening to financially sound companies with strong credit ratings," said AIA Chief Economist Kermit Baker.

The credit crunch that originally hit small AEC firms hard in 2008 and into 2009 is now hitting medium- and larger firms, as witnessed by the abrupt December closing of Boston-area architecture firm Cubellis and this week's news that Memphis architecture firm Looney Ricks Kiss has filed for bankruptcy. Fact is, banks are being very skittish about loaning money or extending credit lines right now, and it is having a direct impact on the AEC industry.

"This serious situation is being compounded by a skittish bond market, decreased tax revenues for publicly financed projects, and declining property values, all which serve as deterrents for construction activity. Until these factors are resolved, the design and construction industry-- which accounts for roughly 10 percent of GDP and is facing unemployment figures in excess of 20 percent-- will continue to face deteriorating market conditions."

Read that last sentence again. Until factors that are outside of this industry's control are settled, a profession with upwards of 20 percent unemployment will continue to suffer.

So while some folks out there espouse designing hamburgers and hot dogs, the smart AEC firm leader will continue focusing on his bottom line, managing his business effectively to survive this recession and emerge even stronger when it ends.
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