Thursday, January 12, 2012

Architecture Firms Rebound in November

The American Institute Architects’ Architecture Billings Index reported substantial gains for the month of November - the strongest since the fourth quarter of 2010. While inquiries for new projects also increased sharply, the biggest gains were seen among residential and commercial/Industrial firms, and those in the Southern U.S.

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 52 in November; a substantial increase from the 49.4 registered in October. November’s index value marked the fourth month in 2011 that the ABI has been positive, closing in on the end of a year where billings have remained fairly steady. While this upswing could prove to be short-lived - we’ve seen repeating ups and downs since the recession – November’s index will hopefully transition us from the relatively flat year of 2011 into a more prosperous one in 2012.

While average numbers are up across the country, some business sectors and geographic regions are doing better than others. With normal monthly data revisions based on three-month moving averages, residential firms have now reported three straight monthly billing gains, with the November reading currently the strongest since before the housing downturn.
Commercial/industrial firms are matching this performance as well, with three straight healthy months. Firms in the South have reported strong growth over the past two months, and those in the Midwest and Northeast are also showing signs of improvement. If the economy can continue to gain momentum, we can be cautiously optimistic about improving conditions going into 2012.

Modest gains projected for this year

In 2011, there was a split between the share of firms reporting revenue declines of 5% or more and those reporting increases. As a result, firm revenue is estimated to have increased just 0.4% on average. While 27% of architecture firms expect their revenues to decline at least 5% from 2011 levels, 42% expect revenue to increase by at least that amount in 2012. Overall, firms are forecasting revenue gains averaging just below 2% for the year.

Larger firms expect to do a bit better than average in 2012, with firms with annual revenues in excess of $5 million anticipating revenue growth of 3.2% on average, compared to 1.6% growth for firms with revenues of less than $1 million. Commercial/industrial and residential firms are expecting stronger revenue growth than institutional firms. In terms of staffing needs, just over a quarter of firms (27%) think that they probably or definitely will add staff in 2012, but just under 40% anticipate that they probably or definitely will not add staff. The remaining third are not sure what their staffing changes will be over the coming year.


By region, the ABI breaks down as follows from October to November: Northeast is down 49.1 from 51.7, Midwest is up 50.9 from 47.7, West is up 45.6 from 43.5, and South is up 54.4 from 49.1.

By market sector: Commercial/Industrial is up 53.9 from 53.5, Institutional is up 48.9 from 47.3, and Residential is up 55.8 from 51.3.

This month, Work-On-The-Boards participants are saying:

• Several large projects that were waiting to move forward are now in design. We believe that 2012 will be a better year, with revenue almost returning to 2008 levels.
— 170-person firm in the Midwest, commercial/industrial specialization

• The monthly ups and downs of the construction environment have made us modify our work model. Most projects are completed in association with a local architect. Any drafting work done in-house is completed by contract draftsmen rather than permanent staff.
— 2-person firm in the South, institutional specialization

• The value of projects is approximately half of a few years ago. Clients are taking longer to pull the trigger, and the competition for work is high.
— 8-person firm in the Northeast, mixed specialization

• There is an apparent slowdown in what we would consider larger projects (over $10 million). There are several midsize and smaller projects that all firms can lobby for; therefore, there is great competition, lower fees, and the resulting lower profit margins.
— 19-person firm in the West, institutional specialization

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