by Calculated Risk on 10/18/2023 12:00:00 PM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: AIA/Deltek Architecture Billings Index Reports New Decline in Business Condition

Business conditions at architecture firms declined again in September, the AIA/Deltek Architecture Billings Index (ABI) reports. The score of 44.8 for September is the lowest score reported since December 2020 during the height of the pandemic. Any score below 50.0 indicates decreasing business conditions and this score indicates a significant increase in firms reporting declining billings.

“The September ABI score reflects a marked downturn in business conditions at architecture firms, with the sharpest decline observed since the peak of the pandemic," said Kermit Baker, PhD, AIA Chief Economist. "While more firms are reporting a decrease in billings, the report also shows the hesitance among clients to commit to new projects with a slump in newly signed design contracts. As a result, backlogs at architecture firms fell to 6.5 months on average in the third quarter, their lowest level since the fourth quarter of 2021."

It's clear that all regions of the country are feeling this impact, with firms in the West continuing to face particularly challenging conditions Only one sector, firms with an institutional specialization, remained flat while all other sectors reported declining billings. Firms with a multifamily residential specialization saw more decline, a continuation of month over month declines since August 2022.
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• Regional averages: Northeast (46.4); South (46.2); Midwest (49.3); West (44.3)

• ector index breakdown: commercial/industrial (45.0); institutional (50.1); mixed practice (firms that do not have at least half of their billings in any one other category) (46.2); multifamily residential (43.5)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 44.8 in September, down from 48.1 in August. Anything below 50 indicates a decrease in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

This index usually leads CRE investment by 9 to 12 months, so this index suggests a slowdown in CRE investment into 2024.

Note that multi-family billing turned down in August 2022 and has been negative for fourteen consecutive months (with revisions).   This suggests we will see a further weakness in multi-family starts.