ABI February 2025: Billings remain soft at architecture firms as interest in new projects wanes

Business conditions remained soft at architecture firms in February.

The AIA/Deltek Architecture Billings Index (ABI) score was 45.5 for the month, indicating that a majority of firms are still experiencing declining firm billings. Billings were flat early in the fourth quarter of 2024 but have softened significantly since then. February also marked the first month since the height of the pandemic in 2020 that inquiries into new projects at firms have declined. Inquiries can be as formal as an RFP or RFQ from a potential client, or as informal as a discussion about a potential project, and rarely decline, even during periods of economic softness. The decline this month likely reflects the ongoing uncertainty about the economy at this time. In addition, the value of new signed design contracts decreased at firms for the twelfth consecutive month in February, as clients also remain hesitant to commit to new projects at this time.

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Billings remained soft in all regions of the country in February as well. While firms located in the West reported modest growth throughout the fourth quarter of 2024, business conditions there have softened somewhat since then. Billings remained weakest at firms located in the Northeast, with more moderate declines in billings reported at firms located in the Midwest and South. Business conditions were also weak across firms of all specializations this month, remaining softest at firms with a multifamily residential specialization for the second consecutive month.

Inflation declines, but concerns about the impact of tariffs remain

Conditions in the broader economy were generally positive in February. Nonfarm payroll employment added 151,000 new positions, modestly below the average monthly gains of 168,000 over the last 12 months. Construction employment added 19,000 new jobs, the largest monthly growth since September 2024, while real estate and rental and leasing employment added 10,000 new jobs this month. Architecture services employment remained essentially flat in January (the most recent data available), shedding 200 positions.

The Consumer Price Index (CPI) grew by 0.2% in February, indicating that inflation declined modestly, most notably due to decreases in energy and food prices. However, there is concern that the impact of the recently announced tariffs may cause the price of goods to rise again in the coming months. With this uncertainty, the Federal Reserve looks unlikely to lower interest rates at its meeting this month but is still expected to lower them later in the year.

Most architecture firms report generally good profitability over the past 5–10 years

This month’s special practice questions asked architecture firms about profitability trends at their firm in recent years and factors impacting their profitability. Overall, slightly more than half of responding firm leaders (52%) reported that their firm’s profitability topped 10% in 2024, with 11% reporting that it was 25% or higher, for average firm profitability of approximately 12% in 2024. Firms located in the West, and those with an institutional specialization, tended to report the highest levels of profitability, as did large firms with over $5 million in annual billings.

Nearly three quarters of responding firm leaders (74%) also reported that profitability at their firm has been generally good in recent years, with 13% indicating that they have had consistently strong profits over the past 5–10 years, 28% indicating that they consistently have at least a good level of profitability, and 33% indicating that they have had mostly good years, but some have been not so good. Just 2% reported that they haven’t done very well financially at all over the past 5–10 years, while 20% said that their performance has been mixed; with some good years, and some bad years (the remaining 3% of respondents indicated some other response). Large firms with annual billings over $5 million were by far the most likely to indicate consistently strong profits, with 23% reporting that trend in recent years. Firms located in the South and West also tended to report more consistently strong profits than firms located in other regions of the country.

As far as the importance of various factors in determining their firm’s level of profitability in recent years, responding firm leaders rated most factors related to clients, projects, services, and firm operations as being very or somewhat important. When asked to select the top three most important factors in determining their firm’s level of profitability over the past 5–10 years, of the factors they rated as being very important, 63% of responding firm leaders indicated that their firm’s reputation with current and potential clients was one of the most important factors, followed by 56% that selected the type of clients they work with, 50% that selected their attention to detail in managing the projects they work on, and 47% that selected the way they structure their fees. Other factors chosen as among the top three most important to firm profitability included types of projects worked on (39%), tightly managing overhead expenses (35%), and focusing on specialized design services (35%). While 93% selected the types of services their firm offers as somewhat or very important to firm profitability, just 14% of respondents selected that as one of the top three factors.
 

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This month, Work-on-the-Boards participants are saying:

• “Things seem to have plateaued for us; hopeful for pursuits leading to more work in second half of 2025.”—100-person firm in the Northeast, mixed specialization
• “Conditions weakening. Likely will be taking on projects later in the year that are smaller than has been typical.”—2-person firm in the West, residential specialization
• “Very soft, contractors calling for work which is usually indicative of very little backlog for them.”—16-person firm in the South, institutional specialization
• “The conditions are soft. There is interest, but our clients are tentative and are not pulling the plug until they can get a better read on the economy.”—11-person firm in the Midwest, commercial/industrial specialization