Tuesday, October 4, 2011

Architecture Firm Billings Rebound Modestly in August

The American Institute of Architects’ Architecture Billings Index showed a modest rebound in firm billings in August. Although business conditions remain mostly mixed around the country, this sudden increase comes as a welcome surprise after four consecutive months of steady decline. While the majority of firms are still reporting a decrease in actual contracts signed, inquiries into new projects continue to grow and more firms reported an increase contracts in August than in the month of July.

The Architecture Billings Index (ABI) serves as the leading economic indicator of construction activity, and reflects the approximate 9-12 month lag time between architecture billings, and actual construction spending. The monthly ABI scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline.

The ABI registered a score of 51.4 in August, a significant improvement over the 45.1 registered in July. Business conditions are still fairly weak in all regions of the country, but those located in the Northeast reported the sharpest downturn in firm billings for the second month in a row. Conditions also continued to deteriorate at firms with a residential specialization, in spite of moderate growth reported by those firms earlier this year.

The economy as a whole remains pretty weak, and unemployment has remained unchanged in August. This marks the first month with no employment growth since 2010, and only the second time ever that unemployment has had a net change of zero. Construction employment was essentially flat for the month, while architecture services employment increased modestly for the fifth consecutive month in July (the most current data available). The Conference Board’s Consumer Confidence Index declined sharply in August, falling to a score of 44.5 (1985=100), the lowest in more than two years, as consumers became more negative about the future outlook.

Stalled projects remain a major issue for architecture firms

Nearly two-thirds of firms (65%) report having at least one design project under contract that is currently stalled, but likely to eventually proceed to construction. Three-quarters of these stalled projects are delayed due to difficulties obtaining financing. Firms report that all project types have been impacted by financing issues, with 40% of these projects being in the institutional sector: 16.3% education, 9.3% healthcare, and 15.7% other institutional projects. Multifamily residential projects also account for a significant share (15.1%) of projects stalled due to problems obtaining financing. In contrast, industrial, single-family residential, and office projects each account for less than 8% of projects stalled with financing issues.

This month, Work on the Boards participants are saying:

• We are seeing an increase in industrial activity, although we have heard from other firms that multifamily housing has slowed down again. However, a large home builder has announced a new development, and they have recently begun to complete a development that has been on hold since 2009.
- 25-person firm in the South, commercial/industrial specialization

• We are busy and getting busier. Have hired two full-time and two part-time employees in the last two months.
- Five-person firm in the Northeast, institutional specialization

• In the last six months, inquiries and initial feasibility analysis work have dramatically picked up. In the last week, our office has had one stalled project released from a three-month hold, and signed contracts for a new single-family home, and a residential renovation project. With the market soft, construction costs have seen a substantial reduction, leading to a small surge of clients seizing an opportunity.
- One-person firm in the West, residential specialization

• Owners are taking longer to begin contracts. Most clients are renovating existing facilities instead of [starting] ground-up new construction. Work from non-profit entities is virtually nonexistent.
- Eight-person firm in the Midwest, commercial/industrial specialization

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