May’s Architecture Billing Index (ABI) released by the AIA follows an announcement last week from the Federal Reserve that to curb inflation interest rates will increase by 0.75 percent—the largest rate hike since 1994. In its latest report, the ABI score dipped slightly to 53.5, down from 56.5 in April. The organization stated in its report the fall is not a cause for concern (any score above 50 indicates an increase in billings from the prior month) and still shows “very strong business conditions overall.”
The month of May saw increases in the scores for new project inquiries (63.9) and design contracts (56.9). Regionally, the Northeast, which has struggled to recuperate following the COVID-related shutdowns, is garnering strength again. Last month, it saw its first billing growth since summer 2021. The West, Midwest, and South all also reported increases to their respective scores.
“The strength in design activity over the past three months has produced a broader base of gains. The Northeast region and Institutional sector have struggled with slow billings activity, but now have posted consecutive months of positive scores.” said AIA Chief Economist, Kermit Baker. “With the improvement in inquiries and new design projects, demand for design services will likely remain high for the next several months, despite strong economic headwinds.”
The strong figures are coupled by an economy dealing with the ramifications of inflation, preceded by supply chain issues in the construction industry that have been on-going since the beginning of the COVID pandemic and further interrupted by the Russian invasion of Ukraine.
A previous report published by the AIA examined how inflation and rising costs will affect business operations and the cost-of doing-business. The responding firms cited healthcare as the expense “that will increase proportionately the most” in 2022. An aging workforce and pandemic-related price hikes have both contributed to the increase in healthcare costs. To counter these increases 20 percent of respondents said they would “outsource” administrative services, such as IT, HR, and finances, while the majority 40 percent said increasing revenue was how they would respond.
According to the May Billings Index, education and healthcare projects will likely see the greatest increase in the coming years and may be the best sectors to work in for firms focused on increasing revenue. This month’s report also asked architects if they anticipated an increase in projects required to achieve energy efficiency goals set by rating systems such as LEED, WELL, and/or Energy Star. Approximately 17 percent of projects in the last year were designed to achieve goals set by a rating system; this number was even higher in the West, where 20 percent of projects were designed to meet energy efficiency objectives. Fifty-one percent of responding firms believe their practice will see an increase in projects designed to attain an energy goal.
We will have to wait and see over the next few months which of these predictions substantiate and how the industry continues to deal with inflation and rising costs.