Projects on hold as clients wait out economy, election

“We had more staff than we had work to do,” said firm founder Geoffrey Butler. “Right now, billings are pretty stable and we’ve turned around. It was unfortunate that we had to let those people go, but the work wasn’t there.”

It seems that the firm – the largest architecture firm in Springfield, according Springfield Business Journal’s 2008 Book of Lists – is not alone in its effort to match the work levels of the last few years.

Cautious optimism

The American Institute of Architects’ Architecture Billings Index hit 43.4 nationally in May; a score less than 50 indicates a decline in architectural billings.

The Midwest outlook was slightly better at 51.9, but that followed an extended stretch of numbers below 50, including four straight months of being the weakest region nationally.

“The overall economy has severely dampened the enthusiasm of a lot of people that wanted to do something,” Butler said. “If you think back a couple of years, everyone was wide-eyed, bushy-tailed and optimistic, but what’s happened is everybody I’ve talked with, their business is off.”

Architects say clients are hesitant to pull the trigger on planned projects.

“People are waiting to see what’s going to happen with the elections and the economic issues,” said Michael Sapp, president of Sapp Design Associates. “There are a lot of projects on the horizon; they’re just in hold mode at this stage, waiting to see where things are headed.”

One issue is the credit crisis; while interest rates are still low relative to historic levels, many architects say commercial lenders are more cautious about who gets financing.

“The retail centers are expected to get a portion leased before the banks will loan money, and condominiums – especially around Table Rock (Lake) – have to have some signed contracts in hand,” said Alan Bates of Bates & Associates Architects Inc. “Banks have definitely tightened their standards.”

The result, at least for Butler, is companies going into master-planning mode.

“We’re doing a lot of long-range visions with our clients that can go on line in a couple of years when the market levels out,” Butler said. “Everyone is fairly optimistic that this is a time deal that you have to work your way through.”

Around the bend

While it might be logical to think that less design work in the pipeline means fewer projects under construction, local general contractors aren’t yet feeling the pinch. Springfield building permit numbers through June were up slightly compared to the same period in 2007, though construction values were down more than 50 percent to $70.2 million for the same period.

Butler is not surprised that the builders have yet to see the impact of lower architectural billings; he said there’s always a lag of up to a year between a client approaching an architect about designing a building and filing for a building permit.

“A lot of the current permits are things that started before the real downturn, which I think hit really hard in November,” Butler said. “We would notice it before the construction guys. Now, those builders that were busy in January, February and March, they’re looking past what they’re doing and saying to us, ‘Hey, do you have anything I can do?’”

But some builders already are aware that the other shoe could drop soon.

“I have noticed a slowdown of late – within the last 30 days – as far as what’s out there to price,” said Rich Kramer of Rich Kramer Construction. “(The market) is strong, but not as much as two months ago, or six months ago or nine months ago.”

Like Sapp, Kramer thinks the coming presidential election is affecting market conditions. Kramer said that potential clients always tend to become more hesitant in presidential election years due to uncertainty about the impact of the winner – although, he adds, “it honestly doesn’t usually matter.”

Morris Dock of MoDoCo Construction said he also has noticed some clients putting projects on hold, though he thinks the situation is temporary.

“People are skeptical; they’re watching what’s happening to petroleum, to the stock market, and to everything going on,” he said, noting that his firm’s project numbers are down slightly from last year. “The economy is in a shambles right now, but it’s not to the point where projects are going to die.”

A silver lining

The news is not all bad for area commercial construction.

Bates said that while “the phone is not ringing off the wall quite like it was last year,” business overall is still good – his billings are up 15 percent compared to last year.

Sapp has added four employees since the beginning of the year and said that overall billings are holding steady from 2007.

Even Butler said that work has leveled out since the lows of earlier in the year – a fact he attributes to the area’s strong health care and education markets.

“School districts have to build schools, and people still get sick and the medical profession still needs to provide facilities and care,” Butler said. “All of that is going on, but a lot of the elective stuff that people would be doing, they’re not.”

Chris Ball, president of Jack Ball & Associates Architects PC, said his firm was aware several years ago that a slowdown could be coming, especially in the education market where his firm does the majority of its work.

He said that’s why the firm made an effort to help its school clients with their long-range planning efforts.

“That allowed us to help them understand the projects they’d need to work on and when they’d need to develop them, … which gave us better information about when we’d have projects,” Ball said. “That way, we’re able to make decisions based on what was going to happen, not what we hoped would happen.”

Dock said the future should be brighter, especially when companies realize the market has changed.

“The heyday of the 1990s is over,” Dock said. “We can’t all just sit still and wait for things to get better. They’re not going to get better; they’re just going to get different.”

Reporter Matt Wagner contributed to this story.