Architectural Outlook

Design Services Continue to Grow at a Modest Pace

by the American Institute of Architects

Demand for design services in November increased at a modest pace for the second month in a row, according to a new report from The American Institute of Architects (AIA).  AIA’s Architecture Billings Index (ABI) score of 51.9 for November reflects an increase in design services provided by United States architecture firms, where any score above 50 indicates an increase in billings.  During November, both the new project inquiries and design contracts scores were positive, posting scores of 60.9 and 52.9 respectively. 

         “The uncertainty surrounding the overall health of the economy is leading developers to proceed with more caution on new projects,” said AIA chief economist, Kermit Baker, Hon. AIA, PhD.  “We are at a point where there is a potential for an upside, but also a potential for things to get worse.”

         Key ABI highlights for November include the following regional averages: the South, 54.5; the West, 51.3; the Midwest, 51.1; and the Northeast, 47.5.  Sector index breakdown includes: commercial/industrial, 52.9; mixed practice, 52.2; multifamily residential, 51.5; and institutional, 50.1.  The project inquiries index was 60.9 and the design contracts index was 52.9.  The regional and sector categories are calculated as a three-month moving average, whereas the national index, design contracts, and inquiries are monthly numbers.  Increasing firm profitability is the top business-related concern for architecture firms in 2020.

         Following several months of flat and declining billings through the spring and summer, a slight majority of firms are once again reporting that business conditions are improving.  In addition, inquiries into new work strengthened in November, and the value of new design contracts also remained fairly strong.  Although some firms continue to report a softening in their billings, the overall picture is one of at least modest growth continuing into the near future.

         Business conditions also improved across much of the country in November, with firms located in every region except the Northeast seeing billings growth for the month.  Firms located in the Northeast continued to report weak billings, although a slightly smaller share reported declining billings in November versus October.  Also, firms of all specializations reported billings growth in November for the first time since February.  In particular, business conditions continued to strengthen at firms with a commercial/industrial specialization.  Overall economic activity across the United States grew at a modest pace from October through mid-November, according to the latest edition of the Federal Reserve’s Beige Book report, released in November.  Nonresidential construction activity increased modestly, with firms reporting robust growth in commercial construction.

         Nonfarm payroll employment posted strong gains in November, with 266,000 new positions added, the largest gain in several months.  In addition, the September and October figures were revised upwards for a combined total of 41,000 more jobs than were initially reported and bringing average monthly gains for the last three months to 205,000.  Architectural services employment had another strong month in October, the most recent data available, with 1,000 new jobs added, bringing total current employment to 202,700.

         This month’s special practice question was our annual question asking architecture firms about their biggest business-related concerns for the coming year.  Half of the top concerns, including the top two, were issues pertaining to firm management and strategy, while three were concerns relating to project management, marketing, and development.  The largest share of responding firms, 28%, selected increasing firm profitability as one of their top three concerns for 2020, as issues related to running their firms were generally cited by a larger share of firms this year than in 2018.  At 24%, firms indicated that managing the rising costs of running a firm was one of their top three concerns for 2020, compared to 19% that selected it as a top concern for 2019, and 24% selected dealing with firm ownership transition issues as a top concern, compared to 21% last year.  Also, 18% said that negotiating appropriate project fees was a top concern, compared to 15% last year.

         Staffing issues also remained a top concern for many firms, although the share of firms that selected identifying new qualified staff with appropriate technical and project management skills as a top concern actually decreased from 30% last year, when it was the overall top concern, to 22% this year, despite the fact that firms continue to report having difficulty finding qualified employees to fill vacancies.  On the other hand, concerns about offering competitive salaries/benefits for qualified applicants and current staff increased significantly, with 13% identifying it as a top concern for 2020, compared to 5% that reported the same for 2019.  Firms also remain concerned about finding quality, available, and affordable contractors and construction labor for projects, as a labor shortage persists in that sector as well.

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