Coronavirus: Architects Plan for a Comeback

Coronavirus: Architects Plan for a Comeback bizjournals.com/cincinnati/news/2020/07/03/cincinnati-architects-plan-for-a-comeback.html

By Tom Demeropolis – Senior Staff Reporter, Cincinnati Business Courier 5 hours ago Tom Fernandez knew from the uptick in phone calls from contractors that fear was growing about how Covid-19 would impact construction.

Fernandez, CEO of Queensgate-based Elevar Design Group, one of Greater Cincinnati’s largest architectural firms, said many contractors have a backlog of work for the remainder of 2020. It’s next year they’re concerned about.

“People in the construction trades, you can tell when they start getting nervous that their plate is not as full,” Fernandez said. “They’ll do whatever they can to fill that plate up.”

One strong measure of how construction and development activity will unfold is the ABI, the American Institute of Architects’ Architecture Billings Index. It is an economic indicator for nonresidential construction activity, with a lead time of about nine to 12 months. It can help predict and track the development and construction market.

Architecture firm billings plummeted in March due to the Covid-19 pandemic and efforts to stem its spread. In March, the ABI fell by 20 points to a score of 33. A score above 50 indicates increasing billings; a score below 50 indicates declining billings.

March was the largest single-month decline the index has seen in its 25-year history.

Billings sank even lower in April, hitting an all-time low of 29. More than half of firms responding reported a further decline in billings from March to April.

Finally for May, from data that was released June 24, the ABI showed signs of improvement. The billings index climbed to 32, while new project inquiries scores jumped to 38 from 28 and the design contract score rose to 33. All of the indices are still below the expansion score of higher than 50.

“There are growing signs of activity beginning to pick up in some areas, but others are seeing a pause as pandemic concerns continue to grow,” said Kermit Baker, chief economist with the AIA. Cincinnati architecture firms said Covid-19’s impact on projects was quick and widespread.

But overwhelmingly, firm leaders believe the Tri-State will rebound strongly.

“For some strange reason, I’m still optimistic,” Fernandez said. “If you search and get creative, there will be some opportunity, that’s what we’re doing.”

Tom Fernandez is CEO of Elevar Design Group. Courtesy of Elevar Design Group

A healthy architecture community now means a healthy construction and development community in the future. New projects architects are working on typically mean work for contractors to bid on in six to 12 months.

A strong construction industry is crucial for Greater Cincinnati. Most construction dollars stay local and are spent locally. Fernandez said money spent on manufacturing turns over 1.5 to two times. Construction spending is rolled over four to five times in the community.

“It has a much bigger effect than manufacturing and other industries,” he said.

Dave Spaulding, general manager of Turner Construction Co. in Cincinnati, said construction is an economic driver and a sign of progress. Turner calculates that if 300 people are working on a construction job site, the actual number of people whose work went into that project is closer to 3,000. That includes everything from people hauling dirt and bringing products to the site to fabrication of materials in other cities.

Construction also touches every economic level, providing good wages to blue collar workers.

“These are people who will spend and help drive the economy,” Spaulding said.

Trying to determine what the future holds for architecture firms, and by extension the construction industry, is difficult. Matthew Schottelkotte, CEO of GBBN, said he is deep in the throes of budgeting for the downtown-based architecture firm’s 2021 fiscal year, which starts Nov. 1. But trying to do that during a global pandemic, a presidential election year, a recession and protests all happening simultaneously ... is challenging.

Matthew Schottelkotte is CEO of GBBN. Courtesy of GBBN

“Any one of those affects our ability to effectively project,” Schottelkotte said. “We’ve never had to deal with four of them at one time.”

As the country came out of the Great Recession, health care led the way for development and construction. Although architects say a comeback now could be client-specific, here’s a breakdown of how it could look by industry:

Many hospitals and health systems have been hit with a double-whammy of taking care of Covid-19 patients while losing lucrative elective procedures. Spaulding said most local health systems, including St. Elizabeth and TriHealth, have needed projects. St. Elizabeth Physicians is working on a $14 million expansion that will nearly double the size of its Newport office.

Private developers with cash or access to financing continue to develop. In recent weeks, Corporex announced it would go forward with a $45 million phase of Ovation, and PLK Communities plans to continue its work on a more than $100 million renovation of the former U.S. Playing Card site in Norwood. “If you have cash, it’s not a bad time to be building,” Schottelkotte said.

For higher education, not much will happen until colleges and universities figure out what they’ll do with students in the fall. Doug Marsh, executive vice president of downtown-based KZF Design, said that because of increased enrollment at University of Cincinnati and other universities due to higher unemployment, it’s possible that higher education will not pull back as much on projects.

K-12 education will likely see a slow down, as going to taxpayers for additional levies is unlikely to happen in the near future. Marsh expects work to be necessity functions, such as operations and maintenance.

Local architecture leaders said office work will largely be limited to remodeling and retrofitting space to help companies safely bring their employees back to the office.

With many companies keeping their employees at home, there will be a great deal of wait-and-see about what the office environment will look like. “I don’t foresee a significant amount of commercial office work for the next six months to a year,” Marsh said.

Multifamily development also continues to be a strong sector, including low-income and other tax credit projects. Graham Kalbli, principal of Pendleton-based New Republic Architecture, recently landed three multifamily projects that represent 35% of its billings for 2020. Kalbli is looking to hire three to four designers and architects.

On the industrial side, projects related to food processing, e-commerce or computer networking remain very strong, Marsh said. Rob Humason, partner with West Endbased ATA Beilharz Architects, said his firm’s work on distribution centers has not softened in the pandemic. Many of the larger players are anticipating an acceleration from retail to at home distribution. “The canary is eating pretty well right now,” Humason said.

While opportunities slowed during the beginning of the pandemic, architecture firms have still been able to go after new work. Local firms have done remote interviews for projects.

The process overall has been slower, but it’s another good sign that activity is beginning to pick up.

A couple of the firms plan to make strategic hires this year, as others have made cuts. It’s a rare opportunity for adding experienced employees, because the industry has been dealing with a talent shortage for years.

Thanks to a strong backlog of federal government work, KZF has hired a few workers since the beginning of the year and expects to add four to six more. GBBN is planning to make a few hires. Elevar is looking to hire, too. So is CR Architecture + Design, which had initially instituted a 10% staff reduction.

David Arends, CEO of downtown-based CR Architecture, just recently took his first flight since the start of the pandemic to the firm’s Denver office. Then he’s on to the Seattle office for interviews.

“Our industry has had a lot of layoffs and change,” Arends said. “There is a lot of good talent on the street.”

A common theme from architecture leaders is that 2021 is going to be difficult. But those same leaders are optimistic about the challenges ahead. They are looking to improve, get back to focusing on best practices, and make deeper connections with their clients.

“We’ll get projects moving, just with a different formula than ever before,” Fernandez said.

“We’ll weather the storm.”