Wednesday, February 6, 2013

Final ABI for 2012 Caps Strongest Year Since 2007

With a recorded score of 52.0 for the month of December, the American Institute of Architects’ Architecture Billings finished up its strongest year since 2007. While the pace of billings growth slowed slightly from November, it is still the fifth consecutive month of growth, which means eight months of 2012 showed improving business conditions, the most over five years. Inquiries into new projects remained strong, and firm backlogs for the fourth quarter inched up slightly from the third quarter to an average of 4.5 months.

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.

Business conditions continued to improve at firms in all regions of the country in December with the exception of firms in the West, which continued to struggle to recover from nearly five years of declining billings. Firms located in the Midwest reported particularly strong firm billings last month after suffering a period of softness in the middle of the year. And for the third consecutive month, firms of all specializations reported experiencing increasing firm billings. The pace of growth has slowed significantly from the middle of the year for firms with a residential specialization, but continues to improve for firms with a commercial/industrial specialization.

Employment, economic activity on the rise 

The general economy continues to show improvement as well, with the latest issue of the Federal Reserve Beige Book (released Jan. 16) reporting that economic activity expanded in all districts during the previous month and a half. Consumer spending continues to increase, and even the districts affected by Hurricane Sandy have since rebounded. 

Existing residential real estate activity also increased in all districts, and those districts that had unused housing inventory reported it to be declining. However, nonresidential construction is slightly weaker than residential construction, with the Boston district seeing weakening demand for commercial real estate loans. The Dallas district, on the other hand, anticipates an upturn in commercial real estate construction in 2013. And according to the Department of Labor, employment also improved in December, with nonfarm payrolls increasing by 155,000. Construction employment increased by 30,000, led in part by an increase of 13,000 employees in the construction of buildings sector. In addition, architectural services employment ticked up modestly to 157,100 in November, the most current data available.

Improving conditions spur speculative residential development 

This month, the AIA asked survey panelists about the current demand for speculative projects (developer-sponsored projects without firm commitments for tenants), and how that’s changed recently in the last few years. Just over one quarter of respondents (28%) reported that they’re seeing more speculative projects now, while slightly fewer (26%) reported a decrease. The remainder reported no change. Firms located in the Midwest and West regions were most likely to report seeing more of these projects as were large firms, with 44% of firms with annual billings greater than $5 million reporting more speculative projects now. More firms with a residential specialization reported an uptick in these projects than firms with other specializations.

Of firms that have seen an increase in speculative projects, the most commonly cited reason was the improvement in the overall economic outlook (62% of respondents), followed by the pent-up demand for facilities (54%). Residential rental units are the speculative project increasing the most at present, followed by residential/commercial mixed-use projects and single-family residential/condos.


By region, the ABI breaks down as follows from November to December: Midwest is up 55.7 from 54.4, Northeast is down 53.1 from 56.3, South is up 51.2 from 51.1, and the West remained the same at 49.6.
By market sector: Residential is down 50.5 from 55.9, Institutional is up 50.9 from 50.5 and Commercial/Industrial is up 53.4 from 52.0.

This month, Work on the Boards participants are saying: 

      December provided some new projects which increased our backlog out at least six months. This is the best backlog we have seen since 2008. 
—42-person firm in the Midwest, institutional specialization  

       Contractors are getting more small jobs, but many are very budget-oriented, and are not involving architects. 
—3-person firm in the West, residential specialization

        Much of the work that made 2012 so strong may not be readily repeated in 2013. Business development will be a renewed focus. 
—23-person firm in the South, commercial/industrial specialization

        Work has substantially increased over the last 12 months, with strong markets including medical research, utilities, and state-funded projects. However, reduced state revenue suggests fewer new projects next year. 
 —120-person firm in the Northeast, institutional specialization

Go to AIA's Website for more info. 

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