Mired in historically low levels for nearly half a year, architectural billings rebounded slightly in March, offering a sign of optimism to the real estate industry, according to the American Institute of Architects (AIA), a Washington D.C.-based trade group. The Architecture Billings Index, which compares data from AIA’s monthly survey of its members against construction figures from the Department of Commerce, is regarded as a leading economic indicator that provides a nine- to 12-month look at the future of construction activity.
While the overall billing index climbed from 35.3 in February to 43.7 in March, the score still indicates an overall decline in demand for design services. The multifamily sector scored a 39.4 on the March index, behind the institutional (42.9) and mixed-practice (44.0) sectors but ahead of commercial and industrial (35.0) businesses. Still, multifamily has been showing a faster recovery—bouncing up nearly 10 points in one month from an all-time low of 29.5 in February—and could surpass other sectors even as billings as a whole improve.
“We’ve never seen numbers in the low- to mid-30s like we saw in the fourth quarter of last year and the first couple months of this year. The overall index has been in uncharted territory for the past five or six months,” says AIA chief economist Kermit Baker. “What we are seeing now is hopefully the early signs of a turnaround. We’ve been expecting the downturn to moderate, and I think that is what we are seeing with the March numbers.”
Dallas-based multifamily design firm Humphreys & Partners Architects has seen strong activity through 2009 thus far as a result of marketing efforts supported by federal lending into the multifamily space. “The last quarter of 2008 was a frozen market and nothing happened,” says company CEO Mark Humphreys. “As the market settles down, we’ve had 20 to 25 HUD submittal packages that we have just done or are doing. We’re seeing an up-tick in April billings by 15 percent, and May and June look to be increasing by about 15 percent as well.”
Still, Baker worries that excess for-sale inventory could continue to pressure demand for new rental units, particularly in overbuilt markets such as Southern California, Las Vegas, Phoenix, Ariz., and South Florida.
“Still, you can tell a strong story for multifamily,” Baker says. “Rental rates are moving up, and we’re seeing a lot of the demand that was going to homeownership going back because of credit availability issues and falling prices. A lot of households are either thinking that renting makes more sense or are being forced back into the rental market.”
These demographic fundamentals, coupled with sizable lending into the multifamily space by the Federal Housing Administration and the government-sponsored enterprises Fannie Mae and Freddie Mac, promise an improved second half of 2009 for multifamily architectural billings. “I think the multifamily side will surpass every market that the AIA reports on—except potentially for government work,” Humphreys says. “There’s no lending for any other type of development project.”
The new project inquiries index of the March ABI was 56.6, a near 20-point increase from December 2008’s meager 37.7. “That was a bit of a surprise, and we’ll have to see if that is sustained or not,” Baker says. “I’m guessing a little bit of that is stimulus-related. There’s a lot of buzz and money out there, but the question over the next two or three months is whether or not that materializes [in billings]. It’s hard to tell.”