by Calculated Risk on 7/24/2024 02:03:00 PM

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

From the AIA: ABI June 2024: Business conditions remain soft at architecture firms

Billings at firms decreased for the seventeenth consecutive month, with an AIA/Deltek Architecture Billings Index (ABI) score of 46.4 (any score below 50 means that billings declined). Although somewhat fewer firms reported a decline in billings in June than in May, the majority continued to experience a decrease from the previous month. Indicators of future work remained generally soft as well, with only slightly more than half of responding firms reporting an increase in inquiries into new work. Firms also reported a decline in the value of newly signed design contracts for the third consecutive month. While many firms still have a healthy backlog of projects in the pipeline, 6.4 months on average, this is the smallest that backlogs have been in more than three years. Despite this ongoing softness, firms remain generally optimistic that conditions will start to improve once interest rates begin to decline but are likely to continue experiencing challenges at least until then.

Business conditions remained soft at firms across the country in June, except for those located in the Northeast, which reported a slight increase in billings for the first time since January 2023. However, conditions softened further at firms located in the other regions of the country, with particularly weak conditions reported at firms located in the Midwest. Billings also continued to decline at firms of all specializations in June. While conditions remained soft at firms with a multifamily residential specialization, conditions are now weaker at firms with other specializations for the first time in nearly two years, most notably at those with a commercial/industrial specialization.
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The ABI score is a leading economic indicator of construction activity, providing an approximately nine-to-twelve-month glimpse into the future of nonresidential construction spending activity. The score is derived from a monthly survey of architecture firms that measures the change in the number of services provided to clients.
emphasis added

• Northeast (52.2); Midwest (40.9); South (43.9); West (43.1)

• Sector index breakdown: commercial/industrial (42.0); institutional (44.3); multifamily residential (45.1)

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 46.4 in June, up from 42.4 in May.  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 2025.

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