Wednesday, February 24, 2021

AIA: "Architecture Billings continue to contract" in January

by Calculated Risk on 2/24/2021 02:09:00 PM

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

From the AIA: Architectural billings continue to contract in 2021

A slight improvement in business conditions has led to fewer architecture firms reporting declining billings, according to a new report today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for January was 44.9 compared to 42.3 in December (any score below 50 indicates a decline in firm billings). Last month’s score indicates overall revenue at U.S architecture firms continued to decline from December to January, however, the pace of decline slowed. Inquiries into new projects during January grew for the second month in a row, with a score of 56.8 compared to 51.7 in December. The value of new design contracts also reflected an easing in the pace of decline, rising to a score of 48.8 in January from 47.0 the previous month.

“The broader economy entered a soft spot during the fourth quarter of last year, and business conditions at design firms have reflected this general slowdown,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “While federal stimulus and the increasing pace of vaccinations may begin to accelerate progress in the coming months, the year has gotten off to a slow start, with architecture firms in all regions of the country and in all specializations reporting continued declines in project billings.”
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• Regional averages: South (47.4); West (42.8); Midwest (42.2); Northeast (41.9)

• Sector index breakdown: mixed practice (47.9); multi-family residential (44.4); commercial/industrial (44.3); institutional (39.9)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 44.9 in January, up from 42.3 in December. Anything below 50 indicates contraction 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 has been below 50 for eleven consecutive months.  This represents a significant decrease in design services, and suggests a decline in CRE investment through most of 2021 (This usually leads CRE investment by 9 to 12 months).

This weakness is not surprising since certain segments of CRE are struggling, especially offices and retail.