The AIA’s chief economist Kermit Baker has offered reflections on the economic context facing architecture firms throughout 2024. Baker, who previously shared reflections with Archinect on the industry’s recovery from the COVID-19 pandemic, says that “while 2024 may indeed end up looking a lot like last year, the reasons are likely to be very different.”
Citing data from the AIA’s December 2023 Works on the Boards survey, Baker notes that the most pressing issue facing firms in 2024 will be “increasing firm profitability,” with 30% of firms in the survey indicating this to be one of their top three concerns. Other challenges cited include “managing rising costs of running a firm” and “negotiating appropriate project fees.”
“Another set of challenges for the year are about a weakening project workload and concerns over how clients are dealing with economic uncertainty,” Baker notes in his new piece for the AIA. “So, while having more work than a firm could easily manage given staffing constraints dominated concerns last year, having sufficient profitable work is a growing concern for the coming year.”
Addressing an expected shrinking in workloads throughout 2024, Baker cites a recent weakening in billings emerging from the AIA Architecture Billings Index and a corresponding weakening in new design contracts. “Until new project activity begins to accelerate, firm billings will continue to trend down,” Baker explains, while noting that an existing sizeable project backlog dating from the pandemic may provide firms with the runway needed to address the current stalling in new projects.
Focusing on particular sectors and typologies, Baker notes a strong performance among the manufacturing sector and institutional sector in contrast to residential and commercial projects; an analysis echoed by recent AIA reporting on an expected weakening in the construction sector across 2024 and 2025.
“Ultimately, the strength of the various components of the construction industry will be the key driver of a firm’s success,” Baker concludes. “The commercial sector is expected to be very weak this year and next, largely due to structural weakness in demand for office and traditional retail space. Federal incentives for high-tech manufacturing have boosted the industrial sector, which is expected to remain strong before weakening in 2025. The institutional sector is expected to remain reasonably healthy both this year and next based on solid activity in the education and healthcare sectors.”
You can follow our ongoing coverage of the economic and business conditions facing the AEC industry here.
4 Comments
"escalating staff compensation," omg the employees want to be paid fairly... it's a nightmare!
Seriously though, what’s the sourcing that validates any of this? Sounds like this is just based on survey of firm managements, which may be biased. In 10 years, I’ve never heard a firm not want better profitability It’s literally the goal of most businesses. Is the implication here that profitability is actually at a bad level, or that they just want it to be better? I do understand that profitability is required to stay in business, but even if you have a really good profit, it seems like firms always want to set the next goal higher, and then are all "woe is me" when they don't meet it.
While the market slowing is very apparent, I don’t see the impact of operation costs in the real world, Is that actually an issue, is the cost of running a firm really spiraling out of control?
its just because certain giants in the industry , always like to do free work to grab other architects work. And when they have that scale of people , they can always get jobs at a lower rate than other firms can do.
While I think there is a lot more nuance to it, I don’t think that really matters to this question. Even if this was a change in how firms operated, and I don’t think it is, then it would have the opposite impact, lower rates/lower pay. It wouldn’t mean the cost of operating a firm would be rising, or staff competitions would be escalating.
"Profitability is the biggest challenge facing architecture firms in 2024"
Wow, that is just so damn insightful, we would not have known this if the AIA did not exist.
On the same note, a lot of you still pay these deadbeats monthly or yearly just to have those 3 letters behind your name and attend their lame events?
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