Architectural firms in the U.S. reported a steep decline in billings in October, the latest sign of a slowdown in deal-making and development amid worries of a recession.
The American Institute of Architects' monthly billings index swung to 47.7 in October from 51.7 in September, the first monthly decline since January 2021. Scores below 50 indicate a decline in billings, a measure of the value of invoices sent to clients.
Survey respondents said the value of new contract signings also declined in October, while the number of new inquiries increased, but at a slower pace than in the previous month.
Some property types showed more signs of weakness than others. Average architectural billings from August through October declined for multifamily as well as commercial and industrial projects, AIA said. But design work for institutional clients such as schools and hospitals increased.
Commercial real estate investors, lenders and developers closed fewer property sales and financing arrangements this fall as higher interest rates and inflation weighed on the market. The slowdown is also reflected in a spurt of layoffs at brokerage firms CBRE and JLL and, possibly, Avison Young.
The institutional sector has remained relatively healthy. Howard University in Washington, D.C., in October selected KGD and Moody Nolan to serve as architects for a new academic facility for its College of Fine Arts and School of Communications. In another institutional deal, Memorial Sloan Kettering hired CannonDesign and Foster + Partners to design a 30-story tower at the organization’s Manhattan campus.
Overall, architecture firms have months of projects still in development and that should help them weather a slowdown until the economy rebounds, Kermit Baker, chief economist at the AIA, said in a statement.
“Firm backlogs are healthy and will hopefully provide healthy levels of design activity against fewer new projects entering the pipeline should this weakness persist,” Baker said.
Still, the lower value of new contracts and a slower pace of growth in inquiries suggest a potential for continued weakness through 2023.
"While one month of weak business conditions is not enough to indicate an emerging trend, it is worth keeping a close eye on firm billings in the coming months," AIA said in a supplement to its billing survey.
The AIA monthly index does not provide a breakout of billings or revenue by individual firms. Los Angeles-based Gensler reported the highest 2021 revenue among U.S. firms at $1.37 billion, according to the Architectural Record trade publication.