Construction index sees more misery for builders

It's going to be another rough year for architects and builders, according to a leading indicator of construction activity.

The Architecture Billings Index continued its downward spiral in May, dropping 0.4 points to 47.2 after a nearly three-point decrease in April, the American Institute of Architects reported.

Regionally, the West is faring better than the rest. A year ago, it was the worst. AIA showed the Western region billings index at 49.3 in May, up from 43.9 in June 2010.

The index measures demand for architectural design services and is a leading economic indicator of construction activity for the next 12 months. Any score above 50 signals an increase in billings.

Although several factors contributed to the low scores, AIA chief economist Kermit Baker said the crippling effect of the credit freeze on building and construction undoubtedly plays a big role.

Positive momentum from late 2010 and earlier this year has disappeared. The broader economy looks to be entering another soft spot and state budget constraints are restricting work on institutional projects, Baker said.

Commercial markets in the South and West are largely overbuilt and adjustments are needed to work through excess inventory, he said.

"It's tricky in Vegas because you were the fastest-growing market in the country since 1985," Baker said Thursday from his office in Boston. "You'll need to get those migration and growth patterns back up to sop up the inventory. One of the problems with the downturn is it affected mobility. People can't sell their home and go to Vegas.

"But there is no denying that the prolonged credit freeze from lenders for financing commercial projects is the No. 1 challenge to a recovery for the design and construction industry," he said.

The billings index dropped substantially in the Northeast and Midwest because of flooding and tornadoes, he said.

Ed Vance, president of EV&A Architects in Las Vegas, said billings have picked up at his firm over the last 12 months. He said he's now working on a $50 million boutique hotel-casino in Las Vegas and some smaller casinos in California and Mississippi.

"If we get busy, the rest of the world gets busy," the architect said. "All of the contractors, commodities, labor, Caterpillar production ... you're going to see it in the next 24 months."

The last couple of years have been "brutal" on architects and engineers, Vance said. He cut his staff from 30 to about a dozen, but said he's still "hanging in there" and looking to hire more people when his contracts are finalized.

JMA Architecture Studios, the largest architectural firm in Las Vegas, has seen annual revenue drop to about $10 million in 2010 from $37.4 million in 2006. The firm was sold in June to Moon Township, Pa.-based Michael Baker Corp.

AIA's Baker said he's disturbed to see architectural firms being bought out by engineering firms.

"It takes away from the independence of the architectural firms," he said. "I understand the motivation to be a more fully integrated firm, but they tend to be more construction and engineering driven and architecture becomes more of a commodity service."

The institute's new-projects inquiry index came in at 52.6 in May, down from 55.0 in April and the lowest level in nearly 18 months.

Broken down by sector, multifamily residential measured 53.6 in May; commercial-industrial 46.5; institutional 44.9; and mixed-use 49.1.

The institute's indexes are derived from a monthly "work-on-the-boards" survey that is sent to a panel of member firms nationwide. The firms are asked whether billings increased, decreased or stayed the same compared to the prior month. Results are seasonally adjusted to allow for comparison to prior months. Due to small sample size, regional and sector data are formulated using a three-month moving average.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.