News
04.16.2008
Preparing for the R-Word
AIA Billings Index shows sharpest 2-month decline since 1995

The Numbers

From Pennsylvania coal miners to New York City investment bankers, everyone is worried about the economy, and architects are no exception. “People are waiting to see what happens,” said Richard Rosan, president of the Urban Land Institute. “Everyone I’ve talked to has more work than they can handle.” But, he added, “everyone is nervous.”

Many architects speak of yearlong backlogs and having to turn down projects. Still, a number of sobering reports were released in recent weeks that show that trend may not continue. Chief among these was the AIA Architecture Billings Index.

The index is based on a monthly survey of over 100 firms and measures their current billings record. In February, it recorded its second lowest reading, 41.3, since its inception in 1995. It was also the steepest two-month decline, at 13.2 percentage points. Numbers above 50 represent an increase in billings, and below, a decrease.

For the past four years, the index has been on average five points ahead, indicating the robust construction market. The last time it showed a prolonged decline was in 2001, in line with the collapsing tech bubble that culminated in October of that year, when the index recorded its slowest month ever at 40.1.

Without March’s numbers, due in mid-April, it is hard to say exactly where the market is headed, but the AIA chief economist Kermit Baker, who created the index and a number of other devices to track the architectural economy, said he remains circumspect. “It’s very clear now that the economy is a good deal weaker than it was last fall,” Baker said by phone from Boston, where he is also a senior research fellow at Harvard University’s Joint Center for Housing Studies. “I don’t think you’ll really see it in the construction economy until third or fourth quarter ‘08, but design usually comes first. Some of this is certainly indicative of where the construction economy is headed.”

Baker said the situation is not as dire as the last recession because there is much less spec building. “You don’t have these tech companies building with 20, 30, 50 percent excess space for projected expansion,” he said. Baker also said that the nature of the downturn, which is concentrated in the housing market, is of less concern to AIA members; 85 percent of their work is non-residential, and that tends to be at the more stable high-end. The recent crisis in the financial markets could have a greater impact, but Baker said the work will then shift to governments and institutions, which like to build when markets are down and prices are cheaper.

“Thank god we’re global,” Asymptote principal Hani Rashid said. “We made sure—or were fortunate—to find different clients in different economies to buffer us against what’s happening now.” Baker countered that only a small percentage of US firms work abroad, but said that this may provide an opportunity to reduce outsourcing of backend work like construction documents.

Though the New York City Department of Buildings said construction permits—another early indicator—were down 40 percent for January and February from the previous year, AIA New York executive director Fredric Bell said members remain as busy as ever. “I look out the window and I can’t believe what I’m hearing,” he said. “Just look at all the construction cranes.”

Nancy Jenner, the deputy director of the Boston Society of Architects, said Boston had largely avoided the real estate craze whose aftermath now plagues most of the country since it was hit so hard in 2001. “Everyone’s talking about it, but no one is feeling it yet,” she said. “Sometimes it takes a while, but as far as I know, everyone is hiring.”

Others have not been so fortunate. The travails of Miami are well known, and the local chapter is still counting the casualties. “Some people have a lot of work, and some people don’t,” said AIA Miami executive director Mike Brazlavsky. “The big firms are doing better. But everyone is still working for the time being.”

David Gensler, an economist and executive director at his father’s eponymous firm, may have thousands of projects in the works, but still feels cautious. “It’s a weak market,” he said. “I expect a few wild cards that will make this longer and deeper than many people expect.” 

Matt Chaban