AIA Architecture Billing Index
Trying to predict the future cost of construction can be a guessing game. With costs being affected by worldwide material demand as well as local manpower supply, it can seem like anyone’s guess as to the future of building construction cost. Too much escalation included in the budget and clients are frustrated that parts of their project were cut during the value engineering phase to save room for all that extra escalation. They end up being able to afford the VE items that were deleted. If not enough escalation is incorporated early into the budgeting and estimating process, when bid day comes, the client may find they can’t afford the building as it was designed, and have to go back through a re-design and re-bid process.
There are several leading indicators as to future cost, and we’ve found we are most accurate concentrating on a few key signs. One of those keys is the AIA Architecture Billings Index (ABI). The ABI tracks new work won by design firms across the country. When there is an increase in demand for design services, the index tracks above 50. Conversely, when there is a decrease, it dips below 50. It’s a great indicator, because it gives us as Construction Manager a twelve-month head start as to the future demand of construction. Twelve months is about the length of time it takes for the increase in design demand to translate into an increase in construction demand, and therefore cost.
The ABI appears to have bottomed out in early 2009 at 33 was back to 47 in July of 2010. In late 2010, the ABI passed that ever-important 50 mark, showing an increase in demand for architectural services. December’s report had it up two additional points from November, to 54.2. Hopefully, 2011 will be the year that construction begins to see a strong recovery.
Give us a call, we’ll do our best to take the guesswork out of budgeting, and keep your project on the path for success.