Industry Outlook

ABI Points to Major Commercial Downturn

Reflecting the deteriorating conditions in the overall economy, demand for design services from architecture firms recorded a record fall, according to a report from the American Institute of Architects (AIA). AIA’s Architecture Billings Index (ABI) score of 33.3 for March reflects a decrease in design services provided by U.S. architecture firms (any score below 50 indicates a decrease in billings). During March, both the new project inquiries and design contracts scores dropped dramatically, posting scores of 23.8 and 27.1, respectively.

“Though most architecture firms have made quick transitions to remote operations, the complete shutdown of business activity is severely impacting architects,” says AIA chief economist Kermit Baker. “The dramatic pullback in new and ongoing design projects reflects just how quickly and fundamentally business conditions have changed across the country and around the world in the last month as a result of the COVID-19 pandemic.”

Dodge Momentum Index Eases Back in March

The Dodge Momentum Index declined by a scant 0.6% in March to 146.5 (the year 2000 = 100) from the revised February reading of 147.4. The drop in March was present in both components of the Momentum Index—the commercial component fell 0.8%, while the institutional component was 0.2% lower.

March’s data would not fully capture any potential impact of the COVID-19 pandemic on construction planning. However, it is heartening that projects continued to move into the early planning stages at a reasonable pace despite the near stoppage in economic activity over the first few weeks of the crisis, according to Dodge. What is unclear at this juncture, however, is whether projects will continue through the planning life cycle to the start stage at the same pace as before the pandemic began.

The Momentum Index, issued by Dodge Data & Analytics, is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.

Construction Starts Decline in March

Total construction starts declined 5% from February to March to a seasonally adjusted annual rate of $746.9 billion. Volatility caused by the presence or absence of large projects in healthcare and the utility/gas plant category, however, skewed the analysis. In March, nonresidential building starts fell 9% from February (seasonally adjusted), while residential building dropped 11%. Non-building construction starts, however, rose 14% during the month.

For the 12 months ending March 2020, total construction starts were 2% higher than they were for the same period ending March 2019. Residential building starts were 3% higher, while nonbuilding starts were up 5% for the 12 months ending March 2020. Nonresidential building starts, however, were down less than 1%.

Nonresidential building starts fell 9% from February to March to a seasonally adjusted $259.8 billion. Commercial building starts were 5% lower, with losses in three of the five commercial sub-categories (warehouses and parking structures made gains). Manufacturing buildings dropped 7% during the month, while institutional buildings dropped 12%. Institutional buildings posted a large gain in February due to the start of several large healthcare facilities, which were not present in the March statistics. However, education facilities posted a solid 18% gain in March.

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