(AIA) According to the AIA/Deltek Architecture Billings Index (ABI), the score for the month was 50.3, meaning that the share of firms that reported declining billings was essentially equal to the share of firms that reported increasing billings. In addition, inquiries into new projects ticked up in October to the highest level in six months. However, despite declining interest rates and softening inflation, clients remain hesitant to start new projects. The value of newly signed design contracts softened further in October, as they declined for the seventh consecutive month. Responding firms this month indicated that many clients were still awaiting the outcomes of the November elections, at both a national and more local level, before determining how to proceed on new projects.
Business conditions varied significantly across the country in October. While firms located in the Northeast saw billings decline further from September, firms located in the South reported billings growth for the first time in two years. And while billings continued to decline at firms located in the Midwest and West, the pace of the decline in those regions slowed from recent months. Conditions also varied at firms of different specializations this month. Firms with an institutional specialization saw slight billings growth for the first time since January, while business conditions remained softer at firms with multifamily residential and commercial/industrial specializations.
Architecture firms continue to shed employees
Conditions have remained mixed in the broader economy recently. While overall nonfarm payroll growth stalled in October with just 12,000 new positions added on net, the construction industry is still hiring. Overall construction employment grew by 8,000 new positions last month, while nonresidential specialty trade contractors added 14,000 new positions. However, architectural services employment continued its recent decline in September (the most recent data available), shedding an additional 400 positions. Total employment in the industry now stands at 203,100, down 3,000 positions since the beginning of the year and at the lowest level since 2022. In addition, the Federal Reserve lowered interest rates by another .25 percentage points in early November, still hoping to meet their desired goal of an inflation rate of around 2%. Another decrease of .25 percentage points is still expected before the end of the year, which should help the economy even more.
Architecture firms more optimistic about their revenue heading into 2025
This month, we asked architecture firm leaders about how revenue at their firm this year compares to last year and how they expect it to change in 2025. Overall, more than four in ten responding firm leaders (41%) indicated that they estimate that their firm’s revenue will be up this year compared to 2023, with average growth of 0.4% projected. However, more than one-third (36%) project a decline, and the remaining 23% expect it to remain within 5% of last year. Firms located in the Northeast and firms with an institutional specialization expect the largest revenue growth this year, with projected increases of 2.5% and 3.0%, respectively. On the other hand, firms located in the Midwest, and those with multifamily residential and commercial/industrial specializations, expect their billings to decline this year from 2023.
Firms were more likely to report that their current estimates for net revenue this year are below expectations at the beginning of the year, with 26% of responding firm leaders indicating that current estimates are somewhat less than expectations and 13% indicating that they are significantly less than expectations. Slightly more than one quarter reported that their current estimates are higher than expected at the beginning of the year, with 20% saying that they are somewhat in excess of expectations and 6% saying they are significantly in excess of expectations.
Regarding projections for net revenue changes from 2025 to 2024, firms are more optimistic, with growth averaging 1.0% projected for the year. Firms with a multifamily residential specialization, larger firms, and firms located in the South had the highest anticipated revenue growth projections for 2025, with expected increases of 2.9%, 1.8%, and 1.6%, respectively. Overall, 41% of responding firm leaders expect to see net revenue growth from 2024 to 2025, with 32% projecting growth in the 5% to 9% range. Just slightly more than one-quarter of firms (26%) expect a decline in net revenue in 2025.
At firms projecting revenue growth in 2025, 39% cited an improving economic environment (falling interest rates; more favorable lending environment) as a major factor, while 37% indicated that their current project backlog suggesting growth for next year is a major factor, and 35% indicated that getting a higher level of inquiries for new projects is a major factor. More than half of firms expecting growth in 2025 (56%) said that being more fully staffed was not a contributing factor to that projected growth, while 50% said that funds for public projects that have already been allocated is not a factor, and 46% said that a slowing construction market taking pressure off of construction labor and materials prices is not a factor.
At firms expecting a decline in revenue in 2025, more than six in ten firms (61%) cited current projects winding down and fewer new ones on the horizon as a major factor for that decline, with 51% saying that a declining backlog is a major factor. And while just 19% of firms expecting a decline said that elevated interest rates are a major factor, 39% said that uncertain economic conditions discouraging potential clients from pursuing projects is a major factor.
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