AIA Weighs In – August 4, 2025

The Architecture Billings Index, which predicts nonresidential construction activity, remained negative in June

At the midpoint of 2025, one of the fundamental indicators of commercial real estate market conditions remained in negative territory. That’s the American Institute of Architects’ AIA/Deltek Architecture Billings Index (ABI), which predicts nonresidential construction activity nine to 12 months ahead by tracking whether billings rise, fall or remain constant. AIA released the June index late last month, with a score of 46.8, down from 47.2 in May and remaining below the breakeven level of 50. 

“Business conditions were soft nationwide in June, with a slight billing increase in the South for the first time since October,” Kermit Baker, chief economist at AIA, told CNBC’s Diana Olick. “Other regions saw declining billings, though at a slower pace. While all specializations experienced softer billings, the decline slowed for commercial/industrial and institutional firms. Multifamily firms faced the weakest conditions, with further declines.” 

AIA noted that inquiries into new projects increased for the second consecutive month and grew at the strongest pace since last fall. “This means that clients are starting to send out RFPs and initiate conversations with architecture firms about potential projects after a lull since mid-winter,” according to AIA.  

“However, these inquiries do not necessarily translate into actual projects, as the value of newly signed design contracts declined for the 16th consecutive month in June. It is unlikely that firm billings will return to positive territory until the value of new design contracts also starts to increase again.” 

Olick quoted AIA’s midyear Consensus Construction Forecast: “First the good news: In spite of stubbornly high long-term interest rates, inflation rates stalled above the Federal Reserve Board’s target, falling consumer confidence scores, disappointing levels of home building activity, rising tariff rates for many inputs to construction, and construction labor shortages exacerbated by restrictive immigration policies, the outlook for the remainder of the year and into 2026 is largely unchanged from where it was at in the beginning of the year.   

“The bad news: The outlook for spending entering the year was very pessimistic.” 

Accordingly, AIA anticipates that overall spending on nonresidential buildings, not adjusted for inflation, will increase only 1.7% this year and grow very modestly to just 2% next year, Olick reported.  

“Spending on the construction of manufacturing facilities, which had been a bright spot in recent years, is now expected to decline 2% this year, with an additional drop of 2.6% next year,” she wrote. “Institutional facilities are expected to be the strongest sector with projected gains of 6.1% this year and another 3.8% in 2026.” 

That projection dovetails with an upbeat comment cited by AIA. “Lots of opportunities related to public school work,” according to a 35-person firm in the West with an institutional specialization. 

Other comments quoted by AIA were more somber. “We are seeing fewer opportunities, and more people competing for those opportunities,” a representative of an 18-person firm in the Northeast with residential specialization told AIA. “Clients seeking financing are having trouble closing deals, and those who have financing are pretty risk-averse – they want assurance that projects will meet their budgets.” 

From a 20-person firm in the South with commercial/industrial specialization: “Things are still stagnant, we’re getting enough work to survive, but just getting by.” At a five-person shop in the Midwest, the current outlook is “solid with a big push toward World Cup 2026 completions, but we’ll see how things fall off in the next 3-6 months in the Kansas City metro area.”  

In addition to a slowing economy, unclear and constantly changing tariff policy is creating growing uncertainty in the architect, engineer and construction services (AEC) industry, reported Olick.  

“Not knowing what products will cost in the future, whether they will be available, how these changes might affect their supply chain, and whether they will provoke a trade war with the exporting countries are all questions that the AEC industry is asking before proceeding with planned projects,” according to AIA’s report.  

A current concern is the extent to which tariffs are inflationary, AIA said. “With a few exceptions to date, consumer prices and producer prices have not increased much with the imposition and threatened imposition of tariffs. While this may change, recent research published by the National Bureau of Economic Research concludes that transitory tariffs are neither inflationary nor contractionary (generating an economic downturn). This suggests that if current tariffs are a negotiating mechanism that may be lowered or eliminated in the near future, they may not be a major headwind to the economy.” 

Another concern is immigration policy and its impact on construction employment. “The Associated General Contractors of America and the Associated Builders and Contractors each estimate that there is an almost half-million-worker shortage nationally in the construction industry,” AIA reported. “The National Association of Home Builders estimates the shortage to be closer to 750,000.” With undocumented immigrants accounting for a “significantly higher” share of construction employment than in any other industry, potential deportation is “a major concern.” 

A final threat as far as AIA is concerned is cutbacks in federal spending. “The magnitude of the cutbacks is still unfolding, but job losses are expected to be hundreds of thousands of positions,” reported AIA. “Additionally, efforts are underway to reverse almost $10 billion in previously approved spending, a so-called rescissions package.” 

In view of current market conditions, AIA asked members about staffing levels. Nearly two-thirds (64%) say their staffing levels are appropriate, while 24% consider their firms understaffed and the remaining 12% say they’re overstaffed. Where overstaffing occurs, it’s by a smaller margin than understaffing. It’ll be interesting to see how the assessment of staffing levels compares a year from now.