Architecture Firms Face Continued Downturn in Commercial Real Estate Billings
As economic clouds gather over commercial real estate, architecture firms across the United States are reporting a notable decline in billings, reflecting broader industry anxieties. The AIA/Deltek Architecture Billings Index (ABI) remained below the critical threshold of 50 in June, landing at 46.8, a slight dip from May’s 47.2 reading. Scores under 50 signify contracting business activity in the architecture sector, highlighting persistent softness in demand.
Regional Variations and Sector-Specific Challenges
"Business conditions were generally soft nationwide in June," explained Kermit Baker, Chief Economist at the American Institute of Architects (AIA). Notably, the South recorded a modest increase in billings for the first time since October, offering a glimmer of optimism amid otherwise sluggish nationwide figures. Other regions continued to experience declines, albeit at a slower pace than previous months.
When dissected by specialization, commercial and industrial as well as institutional architecture firms saw a deceleration in the rate of decline, suggesting potential stabilization efforts underway. Contrastingly, multifamily residential firms grappled with the harshest conditions, continuing a downward trend that raises concerns about housing supply and affordability dynamics amid evolving demographic demands.
Inquiries Spark Hope Despite Lingering Contract Slumps
One of the few bright spots is the uptick in inquiries for new projects, which rose for the second month in a row, hitting the strongest point since last fall with a score of 53.6. This forward-looking indicator implies that potential clients are beginning to seek architectural services again by issuing requests for proposals.
However, the AIA cautions that increased inquiries do not automatically translate into signed contracts or completed projects. In fact, the value of newly signed design contracts has been falling steadily for 16 consecutive months, underscoring cautious spending by developers and institutional clients amid mounting economic uncertainties.
AIA’s Midyear Outlook: A Delicate Balancing Act
Despite an array of economic headwinds—persistent inflation outpacing Federal Reserve targets, high long-term interest rates, declining consumer confidence, labor shortages intensified by immigration restrictions, tariff-driven material cost spikes, and tepid home building activity—AIA’s midyear forecast holds to a cautiously optimistic stance for the remainder of 2025 and into early 2026.
The forecast suggests that overall spending on nonresidential buildings will inch up just 1.7% this year and grow modestly by 2% next year, both figures reflecting constrained growth under inflationary and policy pressures.
Particularly telling is the projected 2% decline in manufacturing facility construction spending this year, followed by a further 2.6% drop in 2026. Given manufacturing’s previous role as a pillar of sector resilience, this signals a significant shift. Meanwhile, institutional facilities—such as hospitals, schools, and public buildings—are expected to buck the trend, with growth rates of 6.1% in 2025 and 3.8% in 2026, indicating sustained public or government-driven investment.
Supply Chain and Tariffs: Shadows Over Recovery Prospects
One of the most critical and underappreciated challenges facing architecture and construction firms is the ever-shifting landscape of tariff policies and supply chain uncertainty. Firms face unresolved questions about future costs, availability of building materials, and the risk of escalating trade conflicts that could further disrupt sourcing.
As the AIA report highlights, this ambiguity sows caution throughout the architectural, engineering, and construction (AEC) sectors. Delays or cancellations cascade as stakeholders hesitate to commit to projects without clear visibility into expenses and timelines, creating ripples beyond construction into broader economic activity.
Expert Insights: What This Means for US Commercial Real Estate
From a policy perspective, these trends underscore the complex interplay between global trade policies, domestic labor markets, and regional economic disparities shaping architecture demand. The South’s relative strength hints at demographic and economic shifts that could reorient development patterns, while persistent declines in multifamily residential architecture align with broader affordability crises that may require renewed federal and local intervention.
Moreover, the prolonged downturn in new contracts highlights how macroeconomic uncertainty filters down to concrete decision-making, particularly for long-term investments in infrastructure and manufacturing capacity. For investors and developers, heightened vigilance and strategic flexibility will be essential to navigate this choppy environment.
Looking Ahead: Navigating Through Uncertainty
- Expect incremental gains in institutional construction, supported by public sector priorities.
- Closely monitor tariffs and supply chain developments as potential project disruptors.
- Prepare for ongoing regional variability in demand, with the South emerging as a potential growth hub.
- Address workforce shortages with policy reforms to sustain construction activity.
Editor’s Note
The architecture industry's recent billing declines reflect broader economic fragilities compounded by trade tensions and labor constraints. While rising inquiries hint at a tentative recovery, the persistent drop in signed design contracts signals that the sector remains vulnerable. Stakeholders—from policymakers to investors—must consider these nuanced dynamics to foster resilient, sustainable development amid an evolving economic landscape. How will shifting tariff regimes and labor policies reshape America's built environment in the years ahead? The coming months will be critical in answering this.
