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ABI Rises in July as Firms Report Strong Business Conditions

Major takeaways

ABI Score: 54.6

Value of New Design Contracts: 58

Although the torrid pace of billings growth seen earlier this year eased in July, architecture firms are still reporting very strong business conditions overall. The ABI score of 54.6 for the month indicates that the majority of firms are continuing to see their billings increase, say analysts at the American Institute of Architects.

Indicators Typical of a Post-Recession Recovery Phase

Inquiries into new projects and the value of new design contracts remain extremely high as well, with both still near their all-time historic high points from earlier this year. The rate of growth that firms are reporting now is more typical for a post-recession recovery phase, while the exceptionally high numbers seen earlier this year were more of an aberration due to the precipitous nature of the decline in 2020, and the commensurately strong rebound in early 2021.

Firms in the Midwest and West Report Strongest Conditions

Business conditions remained strong in all regions of the country in July as well, with firms located in the Midwest and West reporting the strongest conditions for the second consecutive month. And more firms in the Northeast reported an increase in billings in July than in June, as conditions continued to strengthen in the region that was experiencing weakness even prior to the pandemic. Firm billings remained particularly robust at firms with a commercial/industrial specialization, but were also strong at firms with institutional and multifamily residential specializations.

Firms optimistic about revenue in second half of 2021

With architecture firm billings surging this year, this month’s special practice questions asked responding firms about how their revenue has changed so far this year versus 2020, and to project how they expect it to change in the second half of 2021. Nearly half of firms (47 percent) reported that their revenue in the first half of 2021 increased in comparison to their 2020 revenue. Just under one quarter of firms (23 percent) indicated that it was unchanged from 2020, while nearly one third (30 percent) reported that their revenue had declined further.

Firms located in the Northeast were most likely to report a further decline this year (41 percent), while firms with a multifamily residential specialization were most likely to report an increase (60 percent). Overall, firms indicated that the average percent change in their revenue in the first half of 2021 was an increase by an average of 3.6 percent, with firms with a multifamily residential specialization reporting the highest increase (8.2 percent), and firms located in the Northeast reporting a small decline of 0.1 percent.

Conditions look even rosier for the second half of the year, with 54 percent of firms expecting an increase in revenue in the second half of 2021 in comparison to the first half, for a projected average increase of 6.0 percent, while just 15 percent expect a decrease. In addition, 61 percent of firms in the Northeast predict an increase in revenue, for an average increase of 7.1 percent, making up for the fact that they had a more sluggish first half of the year than in other regions. Firms with multifamily residential and commercial/industrial specializations also expect a strong second half of the year, with projected revenue increases of 6.6 percent and 6.8 percent, respectively.

58 Percent of Firms Report Rising Prices as a Major Issue

When asked about the factors that may have an impact on their firm’s revenue projections for the second half of 2021 as compared to the first half, the top issues cited by firms were related to construction material prices and availability (58 percent cited rising prices of key construction materials and products as a major issue, 53 percent cited supply chain disruptions and ensuing availability issues for key construction materials and products as a major issue), project delays due to construction worker shortages (28 percent cited a major issue, 93 percent cited as an issue overall), and contractor availability for projects (33 percent cited as a major issue, 89 percent cited as an issue overall).

Other factors cited as at least a slight issue included strong demand for renovated facilities as economy continues to reopen (86 percent), finding qualified employees for architecture firms (78 percent), projects that were stalled restarting (77 percent), and strong demand for new facilities as economy continues to reopen (76 percent). On the other hand, the majority of firms indicated that design-related delays due to architecture staff working remotely was not expected to be an issue, nor are emerging demand for “new economy” facilities (e.g., distribution hubs; data centers) or growing demand for sustainable and resilient design.

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