"Hold on", It's gonna be a bumpy ride!

With last Friday’s Market correction drop. Are we finally slipping down the correction we’ve all been anticipating? Especially following concrete data from AIA’s Architectural billing index. On July 23 AIA released the numbers for June with an ABI index of 46.4% which no one seem to bat an eye! But do you know we’ve been constantly at or below 50% for now 36 months? In comparison to the 2008-2011 Great Recession, we only experienced a total of 33 months of negative decline. Clearly we are just getting off the ski lift off the top and a now headed down the slopes. On the commercial real-estate side we’ve been in a “silent recession” now, for the last 2 years.

AIA Archtiectural Billing Index June 2024

Back in December 2008 when we hit the lowest point of the ABI index at a low of 34%. We then rebounded above 50% some 23 months later. Once again, the whole time period of up and down during 2008 was just 33 months. With the rebounding starting at 38% obviously we haven’t seen the bottom yet. If we follow the current negative base line trend we will see such low around this November to January 2025. Still if we predict the low to be 6 months away. We will have been in a 42 month period of negative growth in the AEC industry. Since most agree we haven’t hit this low period yet, nor have we started the build back up yet. We are on pace to over take the “Great Recession” as this long period of gradual decline is like nothing we’ve seen before. So if we follow the data we can agree that we are only in the beginning stages of this “Quite Recession”. We can also all agree that there is a long dry period being built up that no one is talking about!

?

So once again that entire economic collapse of 2008-2011 was only 33 months long! From start to finish. Once the ABI index moved up in the positive territory it took about 10 months later for construction industry to pick up again somewhere around 2014. A total lapse of about 6 years. ?

?

Most financial experts now agree the economic collapse is just months away. With the commercial real-estate (CRE) loans coming due this year and next with a total around $1 Trillion in value. With most owners still seeing vacant offices with the remote-working trend that continues with younger generations. While also the Fed continues to keep interest rates flat, most owners are not willing to take on higher interest loans for less desirable real-estate. We can expect falling values to continue. So the ABI index will continue to move slowly upwards as the commercial side will be dry for a much longer period into at least 2026. So this dry period we are in will surpass the 2008 collapse by a mile.

Why isn’t anyone posting about this?

Recently I’ve had several dm’s from folks all around the industry discussing today’s health of the AEC industry. The main topics of discussion has been how’s things going? and is this anything like the Great Recession?

Especially coming from entry level designers and engineers. Whom were just in grade school at the time. So majority of folks were just too young to remember the 2007-2010 Great Recession!

Which I remember it very well.

So, I wanted to share my story of then. Since, that time was different than today’s market conditions. We did not have the skyrocketing, materials, labor and now insurance costs to mend with. Nor did we have a Federal Reserve that continues to deny commercial lending for such a long-period. In 2008 it was solely related to the sub-prime mortgage and banking collapses. Banks gave out loans to folks that could not afford the house they wanted. With ballon mortgages we all saw it coming. But, eventually it shut down our AEC industry. How is that any different than today’s market, people over spent on houses they had to have, and they overspent on car’s, rv’s and boat’s they had to have during covid. Is the typical American House-Hold set-up to weather an income shock that is coming…

All of which drove our industry into a dry period of 2008-2014. Lastly just 6 years. If we follow this same trend of over extension of debt, will it take us to build back up in 2028? That will be almost 10 years of solid decline.

Back in 2007 I remember being in Orlando working for an Architectural firm, my colleagues and I would always have lunch with-in sight of interstate 4. We would always notice how many folks were driving south bound. These were out of state license plates and the number of U-hauls we would see was just unbelievable! Then one day we started to notice this migration stopped and the reverse happened. It was the opposite. Everyone including those U-hauls were leaving Florida. Then the amount of for sale signs just plagued every neighborhood. That is when we noticed this can’t be good! Then the downfall of 2008 came. So we saw it coming.

Now in today’s news we read articles such as: “There is a mass exodus’ out of Florida from MSN, CNBC, etc. We are seeing the exact same thing simply different conditions. With the boom and bust of Florida. So many folks had flocked down to Florida during covid and now they are regretting their decisions. Florida is having a net migration and losing the most folks to the State of Georgia. With PODS? annual moving trends report we are seeing this flip back occurring while a dip in the economy occurring at the same time. Just a mirror of 2008.

PODS moving Trends May 2024

This time folks are leaving Florida for different reasons! Such as higher insurance costs, escalating HOA fees and the current state of their public schools. But still this will push down real-estate values both commercial and residential. Putting pressure on an already tight labor market.

So what’s going to be my tale for this 2022-2030 downturn? What is the one moment in which I knew there was something brewing?? What will be my post 10 years from now when I re-live this moment? While I write another article telling folks of this time-period and how its different then the next recession 20 years from now?

That moment for me will be the tale of when I would drive downtown Atlanta on a regular basis around 2022 and all I could see is nothing but construction. I would be stuck in traffic and would have a tough time counting all the Tower Cranes Currently in the air.? Then in the 2024 I could drive by downtown Atlanta-(very slow by the way), and count in one hand the amount of tower cranes. So, I would preface this era when there was “free money” to a time with “no money”. Clearly every major metro area is seeing this same thing, as others in every metro city have told me they notice the same thing.

So how did we get here? And how long has this been going on? So back in January 2024, AIA released the ABI numbers and I was shocked that we were in a negative growth period already at 29 months. I was even more shocked to see there was no posts around such. When I posted back in January of this year “Stay Alive to 25”, noting that the AEC industry was headed to negative growth. Predicting a late summer’s dramatic economic slip. Which clearly, we are! I knew the billings index was very good at predicting the future trends.

So, there is a downturn in the AEC industry across the board. With several large and mid-size firms have recently cut staff or have forced senior folks to early retirements. Which is exactly how I remember the start of 2008. Entry-level and senior positions were cut across the board. Which I account to a lot of the reasons we have in our industry with the strength of our drawings. We clearly are in an industry that fails to promote what to draw not vs how we draw. We focus a lot on technology to fix our drawings but have lost the art of creating buildable drawings.

Now if the economic data follows these trends this means the AEC industry could show a negative decline for a total of 60 months. With construction looking to pick up 10 months later. So means this dry spell in our industry is at least double the size of “Great Recession”. ?

With such a long dry spell this will clearly impact the amount of folks that will go into our industry as well of those who will leave. One of the biggest mistakes our industry did in 2010’s was removing senior level Architects and Engineers, who really knew what to draw. But, they were the highest paid individuals. Had they stayed they would have been vital to today’s industry on mentoring and training entry level designers. To this day we are struggling to fill mid-level positions, we will have an even more trouble to fill not only mid-level but entry level positions after this recession. With today we are experiencing around 11,000 ?baby-boomers retiring every day. So we will see this natural trend of senior leadership exiting out of our industry. Which we’ve known about for 10 plus years. Will this wave of boomers be this large when the cost of retirement will simply be more than the expected, even with a sell off in the market that has only started. No one knows what will happen exactly.

??????????????? With Millennials and Gen Z being the next group to repopulate the ranks for potential engineers and architects. Whom which have the lowest birth rate, that continue to put off marriage and having children. While now we are headed towards a major recession new births will continue to be on the downward slide. We can expect a “Generational Gap” that will be no where near the numbers we will need to keep up with construction growth.? Even as we can predict construction to continue based of population growth, but there simply will be not enough people who could afford such as well as skilled laborers to provide any inventory. ?

During the period of the Great Recession, universities and trade schools simply didn’t have anyone go into the AEC industry because there were no jobs. For about 6 years. I remember going to a career fair at an SEC school known for engineering and seeing just a hand full of companies with tables, and maybe a few dozen students looking for a job. They were simply told do not go into this industry because there are no jobs. Even more so at the High-School level prospective students was told to stay away. During that time our industry had a gap of new designers and engineers. That is why there is a huge gap between entry level and senior veterans. There really is not a lot of folks with the 10-20 years’ experience in our industry. They simply left the industry all together because lack of work or their firm simply closed their doors. But, that gap was only 33 months, we are currently on track for a 70 month period. So if we visit today’s junior high schools do you think that generation wants to go into our industry yet alone take on a job that is physically demanding like a field engineer? Imagine as they move onto high-school two years from now, and they read just about every article stating “Commercial Real Estate Collapse”, ” Residential Market Slow”…. Do you think that generation will be wanting to move into our AEC industry? I think you know they answer to that.

So why is a BIM guy writing an article about this “Silent Recession”?

Well during 2007 it was obvious the residential market was going to come to a complete stop, firms had to change their business model asap. They had to diversify, change their area’s of focus, either do more commercial work or more international work. Which many firms noted during the new ABI numbers in June 2024. Which is keeping our commercial side of design work busy but, the domestic side which helps construction is much lower than reported.

??????????????? One notable difference AEC firms picked up to be more competitive was the use of Revit. It was known to reduce production tasks, being more efficient while reducing re-work. Ultimately firms could draw faster and cheaper than others! Owners took notice of which firms was using Revit and it just took off!

So much so that firms when looking to hire would get a large stack of resumes in the 2010’s from senior veterans to entry level designers. They had to make the decision on a less expensive more efficient hire. Which set individuals with Revit on the top of the pile. Which like many of my peers who used Revit early on are the ones that make up the majority of the mid-level employees in our industry today. We simply used our technology skills to set us apart from others.

??????????????? So you have to ask yourself are you willing to take on this next recession head-on or are you willing to see how things pan out? One thing is certain technology is not going any-where but people are!

What is going to be your technology skill set they will set yourself and your firm a-part from others on this new journey we are just starting?