by Calculated Risk on 1/24/2024 09:31:00 AM

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

From the AIA: ABI December 2023: Architecture firm billings remain soft to end the year

Nearly one third of firms report an uptick in significantly delayed projects over the past six months

Business conditions at architecture firms remained soft to close out 2023, with an AIA/Deltek Architecture Billings Index (ABI) score of 45.4 for December (any score below 50 indicates declining billings). Billings at firms declined for eight months of the year, with the only growth coming in some spring and summer months. However, clients largely remained interested in at least discussing potential new projects, since inquiries increased every month of the year except one. The value of new design contracts increased for only six months of the year, indicating that while clients were interested in new projects, they were generally less likely to commit to them by signing a contract. In addition, backlogs at firms remained quite strong throughout 2023, despite declining from a record-high peak in 2022. Backlogs at firms stood at an average of 6.7 months in December, indicating that most firms still have a significant amount of work in the pipeline.

Firm billings declined at firms in all regions of the country except the Midwest in December, where billings were essentially flat. Billings declined for all or nearly all months of 2023 at firms located in the West and Northeast. Firms in the South saw growth in the second quarter but otherwise declined. Only firms located in the Midwest reported increasing billings for most of the year, although conditions also softened there by late summer. Business conditions were also weak for most of the year at firms of all specializations, with firms with a multifamily residential specialization experiencing a particularly challenging year. Firms with an institutional specialization reported growth in the second quarter, but billings softened for them as well by the end of the year. Billings were flat throughout much of the year at firms with a commercial/industrial specialization and remained soft to end the year.
emphasis added

• Regional averages: Northeast (45.9); South (43.4); Midwest (50.3); West (45.9)

• Sector index breakdown: commercial/industrial (46.4); institutional (46.5); multifamily residential (45.8)

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 45.4 in December, up from 45.3 in November.  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 in 2024.

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