The Reckoning: What Firm Leaders Can Do Now to Navigate the Architecture Economy

Written By Leah Ray

As layoffs ripple through some of the profession's most prominent firms — Stantec, HDR, HKS, and SmithGroup among them — and the AIA/Deltek Architecture Billings Index continues its stubborn decline, the question isn't whether the industry is under pressure. It is. The question is: what do you do about it?

We sat with the data, the transcripts, and the insights from AIA Chief Economist Richard Branch — both from his conference presentations and his January 2026 industry outlook report — and came away with a clear set of priorities for firm leaders navigating this moment.

"Surviving, Not Thriving"

That's how Richard Branch characterized the U.S. economy at the AIA Conference on Architecture in San Diego, and it's a phrase that hurts when you're managing a firm. Branch, who stepped into the AIA chief economist role in January 2026 after nearly three decades at Dodge Construction Network, was precise in his assessment: we’re not in a recession, but we’re not in a recovery either.

The ABI — the profession's leading economic indicator, tracking architectural billings 9 to 12 months ahead of construction spending — tells the story in data. Architecture billings have been contracting since 2023, an anomaly that Branch noted. Historically, a recession-free economy brings rising billings. Not this time. The May 2026 ABI came in at 44.5, its lowest reading since January, as the ongoing conflict in Iran drove up energy prices, stoked inflation, and gave clients yet another reason to pause.

Design contracts weakened to their lowest level since January. Inquiries slipped below 50 for the first time in four months. One quarter of firm leaders now expect billings to decline by 5% or more in the third quarter. Since the post-pandemic employment peak in June 2023, the profession has shed more than 4,100 positions nationwide.

A Market Split in Two

Branch's most clarifying insight — shared in both his conference remarks and his written outlook — is that the construction economy has fractured into two realities, and most architecture firms are living in the wrong one.

Data centers, high-tech manufacturing, and warehousing are driving nearly all private nonresidential construction growth. Data center spending alone is projected to reach $51.8 billion in 2026 and $60.3 billion in 2027, up from just $8.5 billion in 2019. These three sectors now represent 40% of all private nonresidential building construction — up from just 25% in 2019.

But how many architecture firms work primarily in data centers? Very few. The majority of architectural billings come from healthcare, education, office, and retail — sectors either flat or declining. Traditional office construction is expected to be down 7% when data centers are stripped out. Manufacturing spending is forecast to fall 3.9% this year. Retail remains soft.

The result is economically polarizing, with some firms thriving, most struggling, and very few experiencing middle ground.

Three Forces Driving the Pressure

Branch organized the industry's headwinds into three categories at the AIA Conference, and they're worth articulating.

  1. Cyclical shifts: High interest rates, rising energy costs, and anemic GDP growth — projected at just 2.2% in 2026 and 2.1% in 2027 — are causing developers and owners to rethink timelines. Credit standards for construction loans are tight. Budget uncertainty is real. In January, AIA asked architects to name the primary reason projects were being delayed or canceled: 40% cited market indecision and uncertainty. Another 15% cited financing challenges.

  2. Structural shifts: An aging U.S. population, a decline in immigration, and the continued movement toward hybrid work are all reshaping demand patterns. The return of workers to offices — even partially — is driving suburban multifamily development, which in turn seeds future demand for schools, clinics, and neighborhood retail. But that demand is upstream; it hasn't reached the design table yet.

  3. Policy shifts: Tariff uncertainty, stricter immigration enforcement, and heightened geopolitical risk — particularly around the Iran conflict — are stacking headwinds. Construction materials costs are forecast to rise 3% to 5% this year, and potentially much more if elevated oil prices are sustained. Every category of material is exposed: oil is a direct input for many, energy drives manufacturing, and diesel drives transportation costs.

The Fed, Branch noted, is watching all of it. Rate cuts are off the table. A rate increase by the end of summer is increasingly possible.

What This Means for Firm Leaders

Branch was direct in his conference remarks about what all of this demands from firm leadership. Not panic — but precision. Here is what the data, and his guidance, tell us to do right now.

1. Track the ABI — but track your backlog harder

The ABI tells you where the industry is headed. Your backlog tells you where you are. Branch's advice to leaders: if your billings are slipping alongside a declining ABI, protect your backlog aggressively. Prioritize quality of work won over volume of proposals submitted. Improve your win rate before increasing your pursuit activity.

When the ABI turns — and it will — the firms that had eyes on both the macro indicator and their own pipeline will be positioned to move fast. Branch noted that in the last recovery cycle, firms that waited for the ABI to clearly signal growth missed the first six to nine months of opportunity.

2. Pivot to public-sector and funded work — now

Public work is more insulated from the economic cycle. Schools, government buildings, and institutional projects are bonded and budgeted well in advance. They are less interest-rate sensitive. They are not subject to a developer's crisis of confidence.

Branch explicitly recommended that architecture firms ride out this period on the public side of the market. Education spending is forecast to grow modestly but steadily — and with the average U.S. K–12 building now 50 years old, renovation and modernization demand is structural, not cyclical. Healthcare, driven by the hub-and-spoke expansion of hospital systems into outpatient networks, remains the most consistent growth sector.

3. Take renovation seriously as a strategy, not a fallback

More than 50% of architectural billings now come from renovation, rehabilitation, and adaptive reuse work. Branch was emphatic that this is no longer just a downturn behavior; it's becoming a structural characteristic of the profession.

Building stock is aging. Office vacancies are creating conversion opportunities. Retail footprints are being reimagined. Schools built in the 1970s need replacement.

Renovations are one of the profession's most durable growth opportunities — and a place where architects can reposition themselves not just as designers, but as advisors helping clients find viable paths when ground-up construction isn’t economically feasible.

4. Watch the material cost curve and help clients understand it

Branch is most concerned, in the near term, about building material prices accelerating sharply over the next three to six months as oil price increases work their way through supply chains. No category is safe — whether the input is petroleum-derived, energy-intensive to manufacture, or diesel-dependent to transport.

This is a moment for firm leaders to advise clients, not just design for them. 

When a client gets cold feet on budget, an architect who can reframe the project — alternative materials, phasing strategies, domestic supply options — is adding irreplaceable value. The "yips," as Branch called the moment developers look at costs and walk away, can be interrupted by a firm that brings solutions alongside the design.

5. Advocate for housing — for your pipeline's sake

It sounds counterintuitive, but Branch clearly stated: single-family residential development is a leading indicator for nonresidential construction. New homes bring new schools, retail, clinics, and civic buildings in their wake. The U.S. is an estimated one million or more units short of what its population needs. AIA is actively supporting housing legislation — specifically the 21st Century Road to Housing Act — to increase supply and cut regulatory barriers.

Firm leaders who advocate for housing policy aren't just doing civic good. They're seeding future work.

6. Invest in operational efficiency before the recovery comes

Branch urged firms to invest now in technologies and systems that streamline workflows. Not only does this reduce overhead in a constrained market, but it also positions the firm to scale quickly when the recovery arrives without over-hiring in a rush. Firms that emerge from this period leaner and more efficient will grow faster than those that do not.

The Staffing Paradox is one of the more striking data points from the May 2026 ABI survey: while 23% of firms report being currently understaffed, 15% report being overstaffed — and 63% say recruiting architectural staff is presently a problem.

This apparent contradiction reflects how fragmented the market has become. Firms in the South and West, where public and institutional pipelines remain stronger, are still competing for talent. Firms in the Midwest and Northeast, where commercial and office slowdowns hit hardest, are managing excess capacity. The right staffing posture depends entirely on your sector mix and regional footprint — which is exactly why Branch urged firm leaders to measure their own position against the ABI, not just track the index in the abstract.

The Firms Feeling It Most

The layoffs at firms including Stantec, HDR, HKS, and SmithGroup are not isolated events. They are the visible surface of a broader contraction that has taken more than 4,100 positions from the profession since the post-pandemic peak. SmithGroup's Midwest reductions, noted in recent industry forums, reflect what Branch described as the uneven regional experience of this downturn — with Midwest markets, after showing some resilience in late 2025, slipping back into decline in early 2026. These are firms with deep benches, diverse sector exposure, and long track records. The fact that they are making reductions is a signal that this is a real cycle, not a blip.

For smaller and mid-sized firms, the margin for error is narrower. This is the moment to be unsentimental about which pursuits are worth the investment, which clients are genuine, and which projects are real.

The Tailwinds Are Real, Too

Branch made a point of not leaving his audience in despair — and we won't either. Hotel renovation is picking up, with the last major upgrade cycle having been cut short by the pandemic in 2020, creating six years of pent-up demand. Multifamily is forecast to grow 10% to 12%. Amusement, recreation, and transportation spending are all ticking upward. The "one big beautiful bill" tax legislation will deliver modest productivity gains to families and businesses this year.

And inquiries — the earliest-stage signal of future work — have been rising for months, even as billings contract. Developers want to build. They are exploring. They are knocking on doors. The question is whether you are positioned, visible, and ready to catch them.

The Bottom Line

The architecture economy is not in freefall. It is in a prolonged, frustrating, uneven contraction — the kind that rewards discipline and punishes emotional reactions. Branch's message, delivered twice at the AIA Conference and underscored throughout his January outlook, is clear: use this period to protect what you have, build the systems and relationships that will carry you forward, and stay close to the data.

The firms that watch their own backlog alongside the ABI. That pivot to funded public work. That take renovation seriously. That advise clients rather than just serve them. Those are the firms that will not only survive this — they'll be the ones who grow when the recovery arrives.

And it will arrive.

Sources:

Leah Ray https://www.theraygency.com
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