By Kermit Baker, Hon. AIA for the American Institute of Architects
Billings at U.S. architecture firms reversed sharply in May, with the AIA’s Architecture Billings Index falling to 45.8 for the month on top of a more modest decline in April. Any score below 50 indicates a decline in revenue at firms, and the May reading represents the steepest decline in almost a year. This pattern in ABI readings mimics 2011, when billings increased in the first quarter and then reversed in the second before recovering later in the year.
The drop pushed firms in all regions of the country into declining billings. The downturn is particularly notable at firms in the Northeast and Midwest, which had been posting generally positive readings for the past several months. Firms with an institutional building specialization remained weak, while residential firms turned slightly negative after several months of positive business conditions. Firms specializing in commercial and industrial facilities were the one major category that continued to show growth in the face of the national downturn.
Trends in business conditions at architecture firms are reflecting a slowdown in the broader economy.
Even with weak job growth, there are signs that the housing market has begun to turn around. Annualized housing starts for the first four months of the year have totaled 100,000 more than they did in 2011. Multifamily construction activity has accounted for almost half of this gain, as this market has improved dramatically as an increasing share of households are choosing renting over homeownership until the housing market stabilizes. Sales of existing homes have also improved, but at a somewhat slower rate.
With the steep downturn in construction activity over the past several years, architecture firms have found increased shares of their workloads in less common niches.
Smaller architecture firms (those with annual revenues of less than $250,000) report higher average shares of design revenue in these niches: 15 percent for smaller nonresidential construction projects, 25 percent for smaller nonresidential retrofits, and 20 percent for smaller residential remodels. Larger firms report significantly lower shares of revenue for these projects. However, they report above-average shares for design modifications after contracts have been awarded. Firms that specialize in the commercial/industrial sector also report above-average shares of revenue for these smaller project types, particularly smaller nonresidential construction and retrofit projects.
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