Since the beginning of the year, the Architecture Billings Index (ABI), the AIA’s economic indicator, has been up and down. Now at the halfway mark of the year, the billings score for June is 50.1, up only slightly compared to last month’s 50; any score above 50 indicates an increase in billings. This is the first time since last fall that there have been two consecutive months reporting scores higher than 50.
Economic uncertainty coming out of the pandemic, and inflation have mired the industry for months now, in addition to more pressing commercial real estate worries, yet billings from architecture firms have remained resilient. AIA Chief Economist Kermit Baker spoke to this point in a press release saying, “It is encouraging to see two consecutive months of stability in billings after a couple quarters of weakness due to high inflation, rising interest rates, and increased construction costs. We are still facing some headwinds in the broader economy, but this respite suggests that market conditions may be finding firmer ground.”
In addition to billings, surveyed firms reported a slight dip from the previous month in new project inquiries, from 56.7 in May to 57.2 in June. The value of new design contracts inched up in June to 52.7 from 52.3 last month. In 2022, firms were reporting significant project backlogs, though this has subsided considerably; the average is now 6.8 months.
Each month, the AIA reports on regional billings. In June, all regions reported an improvement, with the strongest growth again coming from the Midwest, with a score of 52.4. Last month, the AIA noted that West and Northeast were the only two regions to not break 50 since fall 2022; in June, the Northeast finally reported a solid 50.6, however, the West now remains the only region reporting a score under 50 (48.6).
In addition to regional averages, the ABI also breaks down firm billings by building sector: institutional, mixed practice, commercial/industrial, and multi-family residential. After several strong months, the score firms not specializing in one specific industry has dropped under 50 to 48.8, compared to 52.7 last month. This month, the strongest industry was institutional, showing a score of 55.4 compared to 53.4 last month. Multifamily residential remains the most volatile, again reporting the lowest score across all sectors, 47.4.
The AIA also surveys firms on one particular aspect of their practice each month. In June, the organization asked about firm’s use and projective use of artificial intelligence (AI). Only 5 percent of respondents said their firm currently uses AI in daily operations, however this percentage increases to 10 for larger firms reporting billings over $5 million. 17 percent of respondents said they don’t see a useful application of the technology for use in their practice, with smaller firms—those reporting annual billings lower than $250,000—the least interested in using the technology. 90 percent of responding firms said they expect their use of AI to increase over the next three years.
Stay tuned for next month’s ABI as the U.S. economy appears to have pulled into a “soft landing” and commercial real estate braces for impact.
