The AIA’s latest Architecture Billings Index (ABI) report for August of 2021 charted positive for another month, but as expected, high material costs and the ongoing labor shortage are tempering growth.
The ABI rose slightly from July to August (again, any figure over 50 represents an increase, anything a decrease) from 54.6 to 55.6. The three-month aggregate figure represents a combination of both demand and newly signed contracts, and accordingly, those numbers and regional demand all remained positive. Still, though buoyed by relatively high new project inquiries, the other measures of growth remained tepid when compared to the explosive ABI figures from earlier this year.
“The surge in design activity continued in August, signifying an expected upturn in construction activity in the fourth quarter and continuing into 2022,” said AIA Chief Economist, Kermit Baker, Hon. AIA, in a press statement. “This expected expansion will magnify the already serious problems of price inflation and availability of many construction products and materials, as well as the emerging labor shortages in the industry.”
The aforementioned new project inquiries index moved to 64.7 in August from 65.0 in July, still an increase month-over-month but not as drastic as the preceding period. As Baker said, though the demand to build is there, material constraints are holding the market back—as evidenced in the measure of signed design contracts, which moved slightly down to 56.6 in August from 58.0 the month prior.
On a region-by-region basis, the story remained the same across all four areas. The West moved to the strongest position at 57.2, up from 56.0 in July, while the Midwest fell from first place to 55.2 in August from 58.3. Demand in the South cooled off a bit more and moved to 52.5 from 54.6 in July, falling for another consecutive month. The Northeast couldn’t catch a break and remains the worst-performing region throughout the entire pandemic demand-wise, sliding to 51.7 in August from 54.1 in July.
Breaking down sector-by-sector demand, firms with mixed portfolios edged out those specializing in commercial and industrial work, coming in at 56.0 in August compared to July, when they were in “last place” at 54.4. Accordingly, commercial and industrial project demand continued its decline to 54.7 in August from 58.4 in July. Institutional work fell to third place at 54.4 in August from 55.4, while multi-family residential demand, typically a well-performing stalwart as homeowners were forced into lockdown, moved all the way to last at 54.3, down from 54.7. That’s not a surprise given the fall in housing starts that month as the price of timber, typically used for framing smaller residential projects, skyrocketed and material deliveries were backed up due to supply chain issues.
Still, lumber prices have “cratered” in the last few weeks as retailers stockpiled wood they now are unable to sell for inflated prices; hopefully September’s Architecture Billings Index will reflect that. If not and supply remains constrained, it’s not likely that the ABI’s bull run will continue.