AIA: Architecture Billings Declined in May; Multi-family Billings Decline for 22nd Consecutive Month
The Architecture Billings Index (ABI), a significant gauge for new Commercial Real Estate (CRE) investment, reported a decrease in May, indicating a continued softening in the architecture sector. This negative trajectory was highlighted by the American Institute of Architects’ (AIA) most recent ABI score, which settled at 42.4 for the month. This decline marks a notable increase in the number of architecture firms experiencing a decrease in billings compared to the previous month, April.
Alongside billings, the pipeline for new projects at these firms also showed signs of weakening. While inquiries into new projects persisted, their pace slowed down, reflecting a more cautious approach from potential clients. Additionally, the value of new design contracts signed during May saw a downturn, following a slight decrease observed in April. This ongoing reduction could reflect the broader market’s hesitancy, potentially tied to persistent high interest rates despite the easing of the inflation rates experienced over the past few years.
Firms across all regions and sectors in the United States felt the pinch, with billings declining for the fourth straight month in all geographic areas. The Midwest, in particular, was the hardest hit, experiencing the weakest business conditions. Similarly, all sectors, including institutional specializations, faced a downturn, with a less pronounced decline in billings noted in firms specializing in commercial/industrial and multifamily residential sectors in May compared to April. However, it’s important to highlight that a majority of firms within these sectors continue to report challenging business conditions.
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As a critical leading economic indicator, the ABI score offers valuable foresight into nonresidential construction spending activity, generally projecting nine to twelve months into the future. This score is calculated based on responses from a monthly survey targeting architecture firms. The survey assesses changes in the range of services these firms provide to their clients, making it a reliable early indicator of trends in the architecture and construction sectors. For May, regional specifics showed varied billings with scores as follows: Northeast (47.7), Midwest (41.7), South (46.0), and West (46.3), all indicating a contraction in business conditions across the board.
The continued downturn in architecture billings, particularly notable in the multi-family sector with its 22nd consecutive month of decline, sends a clear signal regarding the headwinds faced by the commercial real estate industry. This trend is indicative of broader economic challenges, including the hesitancy driven by elevated interest rates, even as inflation pressures begin to abate. Looking ahead, the architecture sector’s health will be crucial in forecasting the future trajectory of construction and real estate markets across the United States.
