The AIA and Economic Uncertainty: Whats Going On in the Industry, and What Does it Mean for Architec

1
The AIA and Economic Uncertainty Whats Going On
in the Industry, and What Does it Mean for
Architects?
Kermit Baker, Chief Economist
AIA ExCom / AIA Leadership Team Retreat January
13, 2009
2
Agenda

• Business Trends in Design and Construction
• Comparison of Current Downturn to Previous
  Nonresidential Construction Recessions
• Nonresidential Construction Outlook for 2009/2010
• Architecture Firm Outlook for 2009

3
Economic Environment Has Weakened Recently

• Housing downturn undermines consumer
  confidence credit problems that began in housing
  sector extend to other sectors.
• Stock market declines wipe-out 3 trillion in
  wealth.
• Business payrolls declines totaled 2.6 million
  for 2008 unemployment rises to 7.2.
• U.S. economy dragging down most international
  economies.
• Security threats / international tensions
  continue.
• Outlook for Economic Expansion
• Annual GDP 2007 2008(e) 2009(f)
• 2.0 1.2 -1.2

4
With Sharp Downturn in the Economy, Help is on
the Way for Design Firms and the Construction
Industry?

• American Recovery and Reinvestment Plan (nee
  Federal Stimulus Package) targets infrastructure,
  energy efficiency, and educational facility
  upgrades.
• Weak economy has lowered inflation construction
  materials costs beginning to reverse after years
  of sharp increases.
• Construction markets have seen little speculative
  activity in recent years conditions relatively
  in balance heading into downturn.

5
Business Conditions at Design Firms AIA
Architectural Billings Index
6
Architecture Firm Billings Saw Record Declines
Through 2008
billings scores since 2007 index 50 no change
from previous month
Source AIA Architecture Billings Index
7
Inquiries for New Projects, Likewise, Have
Softened Considerably in Recent Months
billings scores since 2007 index 50 no change
from previous month
Source AIA Architecture Billings Index
8
Commercial/Industrial Billings Turned Down in
Early 2008 Institutional Activity Has Recently
Weakened
billings scores by firm specialization Index
50 no change from previous month
Source AIA Architecture Billings Index
9
Business Conditions Have Deteriorated at Firms
In All Regions Recently
billings scores by region Index 50 no change
from previous month
Source AIA Architecture Billings Index
10
Comparisons of Current Conditions to Previous
Nonresidential Cycles
11
Current Downturn is Starting Off With Sharper
Declines Than 2001
billings scores during first year of
downturn index 50 no change from previous month
Source AIA Architecture Billings Index
12
This Downturn is Starting Out Comparable to
Previous Nonresidential Recessions
Total percent declines in construction starts
from peak to 3 quarters after peak
Note 2008-4 figures estimated by McGraw-Hill
Construction

Source McGraw-Hill Construction
13
By Standards of Previous Cycles, Current
Nonresidential Downturn Still Has a Distance to Go
Percent change in construction starts, constant
2000 dollars
Source McGraw-Hill Construction
14
The Nonresidential Construction Outlook
15
AIA Forecast Panel Sees Steep Drop in Most
Nonresidential Categories in 2009, With
Additional Declines in 2010
annual change 2000
Source AIA Consensus Construction Forecast
Survey for 2009 and 2010 conducted in Dec., 2008.
16
Commercial Outlook All Sectors Off in 2009
Followed by Further Declines in 2010
annual change 2000
Source AIA Consensus Construction Forecast
Survey for 2009 and 2010 conducted in Dec., 2008
17
Most Major Institutional Categories Expected to
See Rare Downturn in 2009 But Beginning to
Stabilize by 2010
annual change 2000
Source AIA Consensus Construction Forecast
Survey for 2009 and 2010 conducted in Dec., 2008
18
Design Firm Concerns for 2009
19
Most Architecture Firms Projecting Revenue
Declines in 2009 Many Expect Them to be
Significant
Expected revenue change from 2008 levels of
firms
Source AIA Work-on-the-Boards Survey, December,
2008
20
With Market Downturn, Many Architecture Firms
Expect to Downsize This Year
Anticipated end of year staffing compared to
current levels of firms
Source AIA Work-on-the-Boards Survey, January,
2009
21
Younger Architectural Staff Likely to See
Greatest Cutbacks at Firms in 2009
Plans to increase or decrease architectural
positions at firm in 2009 of firms
Source Source AIA Work-on-the-Boards Survey,
January, 2009.
22
Finding New Work, Economic Recession, Key
Concerns at Architecture Firms for 2009
of respondents ranking as biggest concern
Source AIA Work-on-the-Boards Survey, 2007 and
2008
23
Summing Up

• Design firms reporting significant downturn in
  billings beginning in early 2008.
• Current downturn comparable to major recent
  nonresidential cycles still have further
  declines before recovery begins.
• - 2009 projected to see double-digit percentage
  drop in nonresidential construction activity.
  Further declines forecast for 2010.
• - Most architecture firms anticipating revenue
  declines in 2008 many expect to downsize, with
  younger staff bearing the brunt.