Architecture billings, construction starts plummet

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The coronavirus-induced economic downturn is gutting demand for architecture services in Minnesota and throughout the nation, and construction starts are poised for further declines in 2020 before generally ticking up again next year.

That’s the upshot from two new reports from the American Institute of Architects and Dodge Data and Analytics.

In April, demand for U.S. design services saw its “steepest decline on record,” the AIA said this week. AIA’s Architecture Billings Index, a barometer of future construction starts, fell to 29.5 in April. Any reading below 50 indicates a decrease in billings.

Billings are in negative territory across the board. Among sectors, institutional projects fare best (36.1 reading), followed by multifamily residential (30.3), mixed practice (29.0) and commercial-industrial (27.8).

Ed Kodet, founder of Kodet Architectural Group in Minneapolis, said he’s not seeing a lot of new requests for proposals.

“And we are concerned about the overall economy and how it’s affecting cities and how it’s going to affect the marketplace. Those in housing are concerned about employment of people graduating and just overall employment,” he added.

Kodet said his firm is staying busy for now with some public and institutional work, including schools and religious projects.

Religious work, however, is “probably going to wane a bit because many times churches are funded from donations, and with the stock market taking a hit, it’s going to drop people’s ability to donate to make capital church improvements,” he said.

Given the “dramatic deceleration” in the economy since mid-March, it’s “not surprising that businesses and households are waiting for signs of stability before proceeding with new facilities,” AIA Chief Economist Kermit Baker said in a statement.

“Once business activity resumes, demand for design services should pick up fairly quickly. Unfortunately, the precipitous drop in demand for design services will have lasting consequences for some firms,” Baker said.

Meanwhile, Dodge Data & Analytics economists predicted Wednesday that residential construction starts in the Midwest will decrease from $45 billion last year to $42 billion this year, a 4% drop. Residential starts will tick back up to $43 billion in 2021, Dodge said.

“The Midwest is likely to be one of the regions to weather the storm best on the residential side. The [Midwest] single-family market has been a consistent performer since 2016, sitting with a value of approximately $30 million each year,” David Reaves, a Dodge economist, said in a webinar.

April was an especially tough month for nonresidential construction starts. In Minnesota, nonresidential starts dropped 50% from March to April, and fell 78% from April 2019 to April 2020, according to Dodge.

Dodge expects nonresidential starts to decline by 21% in 2020 and then bounce back with a 15% increase in 2021. Nonresidential includes industrial (down 21% in 2020, up 25% in 2021), institutional (down 25% in 2020, up 21% in 2021) and commercial projects (down 13% in 2020, up 12% in 2021).

Reaves singled out the Ford plant redevelopment in St. Paul as a “small sliver of good news” for the Midwest construction market. The $1.3 billion redevelopment is expected to start this fall, he noted.

Ryan Cos. US Inc. and its partners plan to develop the Ford site with 3,800 mixed-income housing units, 150,000 square feet of retail space, 265,000 square feet of offices, and 50 acres of parks and open space.

At a high level, Kodet said, “the biggest fear for everybody and the fear for us” is that once the economy starts to return to normal activity levels, “there will be a spike in new [coronavirus] cases and then we have to start over again.”