Commercial Real Estate News
Architecture Industry Sees Mixed Signals as 2025 Approaches
Architecture Billings Index Shows Stabilization After Prolonged Decline
While the AIA/Deltek Architecture Billings Index (ABI) dipped slightly below 50 in November 2024, the score hovered near the threshold, reflecting an almost equal split between firms reporting increases and decreases in billings. Although growth remains elusive for the majority of firms, the shift from nearly two years of declining billings to a flat trajectory is a promising sign of improving conditions. Inquiries for new work continued to rise steadily, and although the value of newly signed design contracts declined for the eighth consecutive month, the rate of decline showed signs of slowing.
Regional and Sector-Specific Trends Point to Improvement
In November 2024, business conditions improved in the West and South, where firm billings rose for the second straight month. The West saw particularly robust growth, with its highest score since mid-2022. Meanwhile, the Northeast and Midwest experienced continued declines in billings, but the pace of contraction eased in both regions. Multifamily residential firms reported their first increase in billings since August 2022, marking a turnaround after the post-pandemic boom. Institutional firms also saw billings rise for the second consecutive month. Although commercial/industrial firms continued to report declines, the slowdown in the rate of decline was notable.
Economic Landscape: Inflation Casts a Shadow on Broader Improvements
The broader economy showed signs of recovery, with nonfarm payrolls adding 227,000 jobs in November, a significant rebound from October's modest gain of 36,000. However, architecture services employment lagged, shedding 100 jobs in October, though this decline has stabilized after sharper drops earlier in the year.
Inflation remains a concern, ticking upward in November following recent improvements. The consumer price index (CPI) rose 2.7% year-over-year and 0.3% from October, marking the largest monthly increase since April. Gas and grocery prices drove the increase, while rent and transportation costs eased slightly. Despite this, the Federal Reserve is likely to lower interest rates by 0.25 percentage points at its December meeting.
Top Concerns for Architecture Firms in 2025: Profitability Takes Center Stage
Architecture firms highlighted profitability as their leading business concern for 2025, with one-third of leaders citing it as a top priority--the highest share since 2017. Negotiating appropriate project fees and identifying new clients/markets were also key concerns, selected by 21% and 20% of leaders, respectively.
Staffing challenges remained a priority but showed some easing compared to 2024. Fifteen percent of firm leaders identified filling open positions as a top issue, down from 18% last year. However, concerns about replacing retiring staff increased, with 11% rating it a major concern, up from 9% in 2024.
Financing concerns saw a significant decline, with only 7% of leaders citing project financing and higher interest rates as top issues for 2025, compared to 15% in 2024. Similarly, concerns about rising operational costs decreased slightly, with 19% of leaders marking it a priority, down from 22% last year.
Lower-Priority Issues for 2025
Several areas ranked as less pressing for firms in the coming year. These included managing mergers and acquisitions (65% rated as not a concern), increasing post-construction services (58%), addressing post-pandemic design needs (54%), reducing staffing costs (53%), and managing a hybrid workforce (52%).
