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Bad sign for commercial real estate: The architecture business is slowing down

Key Points
  • All aspects of the architecture business are suddenly slowing, indicating an overall weakening in commercial real estate demand.
  • A key read on the industry, the Architecture Billings Index, fell into negative territory in June, according to the American Institute for Architects.
  • Inquiries for new projects hit a decade low, while design contracts also fell.
Contractors haul a slab of concrete onto the framework of an apartment complex under construction in Chicago.
Christopher Dilts | Bloomberg | Getty Images

All aspects of the architecture business are suddenly slowing, indicating an overall weakening in commercial real estate demand.

A key read on the industry, the Architecture Billings Index, fell into negative territory in June, according to the American Institute for Architects. Inquiries for new projects hit a decade low, while design contracts also fell.

"With billings declining or flat for the last five months, it appears that we are settling in for a period of soft demand for design services," said AIA chief economist Kermit Baker. "With the new design contracts score reaching a 10-month low and the project inquiries score hitting a 10-year low, work in the pipeline may start to get worked off, despite current robust backlogs."

The index does not include single-family housing but does incorporate multifamily apartment construction. That sector was negative in June, as a strong pipeline of new supply hits the market. Demand for rental apartments is still quite strong, but there has been concern of oversupply, and that is likely now showing up in the early planning stage.

Regionally, on a three-month running average, the ABI was positive in the South but negative in the West, Midwest and Northeast.

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Correction: This story has been updated to reflect that the design contracts score reached a 10-month low, according to AIA chief economist Kermit Baker.