Since mid-March, every major industry in the United States has felt the shock waves of shuttered offices, mandatory telework—and in some cases, even layoffs—as federal, state, and local governments implemented social distancing policies in a bid to contain COVID-19. While architects can reasonably be expected to adjust to designing remotely in the short-term—moving presentations and collaborative design sessions to video calls, working with colleagues in Revit from home—the long-term impacts of shrinking client budgets and stop-work orders on the larger AEC industry are still evolving. As of late March, Jeffries Financial Group, which has developed a weekly activity indicator based on common social and business behaviors, estimated that business activity was only at about 36% of normal levels. In the longer term, architects and the nation at large may be dealing with a fractured economic landscape, with no clear answers about its condition when it does ultimately bounce back.
In the short-term, architects are already seeing clear signs of a slowdown. March brought fewer new design projects as compared to their expectations entering the month—50% of firms reported that their number of new projects was down. The percentage increased to 59% regarding inquiries for future design work.
In the realm of residential design and homebuilding, which has historically been an accurate leading indicator of economic cycles both heading into a downturn and coming out of one, an AIA survey indicates that the industry will see activity cycle down for at least the next several months. Looking forward to April, 92% of residential design firms expected revenue declines, and over two-thirds of firms (69%) anticipated that the revenue falloff would exceed 10%.
At nonresidential architecture firms, revenue for March was an estimated 10% lower than expectations at the beginning of the month, while April was expected to be 15% below previous expectations. On the residential side, the numbers were a bit higher; 70% of residential firms indicated that inquiries for new work declined in March, and 78% of firms had already seen slowing or stoppage of projects.
Two-thirds of responding firms in the nonresidential survey reported that they had seen prospective project inquiries or negotiations for new projects moving more slowly or completely stopping due to issues related to the COVID-19 outbreak, with 17% saying that many prospective projects had slowed or stopped, and 50% saying that some projects had slowed or stopped. However, 33% reported that at this time, all prospective projects were still moving ahead as expected.
In the larger construction industry, contractors are likewise seeing a slowdown in project activity. A survey conducted by Associated General Contractors of America in April found that 65% of respondents reported project delays or disruptions. Respondents reported that these delays were caused by a variety of reasons: problems with deliveries of materials or equipment; shortages of workers for either the contractor or subcontractors; shortage of personal protective equipment; potentially infected persons visiting the jobsite; or delays in obtaining permits, certificates of occupancy, inspections, or other approvals.
If your firm has experienced or is currently experiencing a loss of business due to the ripple effects of the pandemic, you’re certainly not alone. In total, three-quarters of firms have seen problems with current projects due to COVID-19, with firm revenue declines expected to accelerate in the coming months.
Day-to-Day Impacts
On a smaller—but still critical—scale, firms largely made the transition to remote work for the majority of their staff, with just under half (48%) indicating that all, or almost all, of their employees were working remotely, while 31% reported that some were working remotely. Few firms reported a major impact to their staff due to family/personal reasons, but 15% of firms said that this situation has caused at least some of their staff to be unable to work at all.
The largest share of firms, 79%, said that they were limiting in-person client meetings, and/or moving those meetings to virtual meetings. But so far, few firms have made active changes to redesign their office space to implement social distancing, probably primarily because so few staff are currently working in the office. And while nearly half of firms have implemented temporary work-related travel restrictions, just 19% have implemented a strict no-travel policy for work in the foreseeable future.
Federal Assistance
The good news, for the time being, is that monetary and fiscal policy has ramped up significantly in an effort to avert economic hardships across every sector of our economy. In March, the Federal Reserve Board initiated two interest rate cuts, bringing the short-term federal funds rate effectively to zero. Additionally, it committed to providing necessary liquidity to keeping financial institutions afloat and to purchasing short-term and long-term debt as necessary to stabilize the economy. The CARES Act provides approximately $2 trillion in funding for programs to support an economy-boosting response to COVID-19. The policies in the legislation most helpful to architects include the creation of a $349 billion loan program for small businesses (which, although quickly depleted, is expected to be replenished in a second round of legislation), the establishment of a $500 billion lending fund for impacted industries, $100 billion for hospitals, and a significant boost to worker unemployment insurance benefits, including expanding eligibility and offering workers an additional $600 a week for four months on top of what state unemployment programs pay.