ABI: Pace of Billings Growth Slows Slightly at Architecture Firms in August

Projects stalled due to financing are beginning to resurface.

Business conditions continued to improve at architecture firms in August, although the ABI score of 53.0 (any score over 50 denotes billings growth) indicates that firm billings increased at a slightly slower pace in August than in July. However, the outlook for the coming months remains positive, as the value of signed design contracts, which indicates upcoming work in the pipeline, continued to increase this month, and inquiries into new projects remained strong as well.

For the third consecutive month, architecture firms in all regions of the country experienced billings growth in August. The strongest conditions were reported by firms in the Northeast region once again, coming on the heels of a stretch of declining billings from October 2013 through May 2014. Firms located in the South have seen the longest sustained period of billings growth, now extending to more than two years.

Firms of all specializations also reported improving business conditions for the third consecutive month. Conditions have been positive for firms with a residential and commercial/industrial specialization for all of 2014 so far, but firms with an institutional specialization spent much of that time experiencing softening billings, and only recently have started to recover from that brief setback.

Conditions in the general economy also softened somewhat in August, with payrolls increasing by only 142,000 positions, down from an average monthly increase of more than 200,000 over the previous year. However, the combined architectural and engineering services sector was a bright spot, adding 3,000 positions, while in July (the most recent data available) the architectural services sector grew to 164,800 jobs, the highest it has been in four and a half years.

The latest edition of the Federal Reserve Beige Book, released the first week of September, also shows some more mixed conditions, with just half of reporting districts across the country showing growth in residential or nonresidential real estate activity. There was an increase in multifamily construction in the Boston, New York, and Dallas districts, while nonresidential activity was more mixed in the New York and St. Louis districts.

During the economic downturn, many architecture firms had projects that were delayed or cancelled for a variety of reasons. More than three-quarters of firms (76 percent) indicated in this month’s survey that they had major design projects that were significantly delayed or cancelled for economic/financing reasons. And just under one-third of firms (32 percent) reported that they had projects stalled due to financing issues that have now resurfaced in the last year as substantially the same projects as originally conceived. Firms with a residential specialization were both less likely to report that they had stalled projects due to financing reasons, and that these projects have resurfaced, while firms with an institutional specialization were slightly more likely to see their stalled projects resurface in the last year.

And architecture firms with stalled projects tended to believe that these projects will continue through construction, with 34 percent of firms believing that more than one quarter of their stalled projects will proceed to construction, and 37 percent believing that at least 10 percent to 25 percent of these projects will proceed. Fewer than 30 percent of firms think that less than 10 percent of stalled projects will proceed to construction.

This month, Work-on-the-Boards participants are saying:

• A lot of multifamily rental residential projects are underway or being started.— 6-person firm in the Midwest, residential specialization

• In Midwest construction markets, project budgets are being challenged with significant increases in construction inflation due to limited labor availability.—95-person firm in the Midwest, institutional specialization

• Generally, Middle Tennessee seems to be booming again. There is a lot of activity on the design and construction front and we believe we will continue to grow our firm this year.—5-person firm in the South, commercial/industrial specialization

• There are lots of larger projects moving forward, but smaller commercial and government work is still stalled.—6-person firm in the West, institutional specialization

Source: AIA