AEC Futures: Navigating Challenges and Seizing Opportunities in 2024

AEC futures navigating challenges seizing opportunities 2024

Too often, design and construction firms don’t focus enough on the trends and forecasts that will impact their firm in the coming months and years. As part of our normal strategic planning process at Stambaugh Ness, we conduct a highly interactive trends workshop to identify the technology, regulatory, demographic, environmental, and business trends that have the potential to significantly affect the client in the coming years.

As renowned inventor Charles Kettering shared in 1939, “I am interested in the future because I expect to spend the rest of my life in the future.” Likewise, our companies will spend the rest of their existence in the future, so it is critical to understand the macroeconomic conditions, AEC-specific trends, and market sector forecasts. We need to understand our client’s clients and the headwinds – or tailwinds – they are facing.

Through one of these client trend workshops a few years ago, I first learned about professional licensing being under threat across the country. Several states are considering legislation potentially abolishing licensing boards and specific licensing requirements. Imagine, for instance, if professional engineers were no longer required to be licensed. What would that mean for the competitive landscape? Or your rate structure? Or the health, safety, and welfare of society?

Shifting Talent Dynamics

A 2022 article in Forbes magazine stated that 40% of the current construction workforce will be retiring by 2030. This statistic is a double-whammy for the design and construction industry as it not only heralds the exodus of talent from construction – when 85% of firms are already struggling to find talent – but also signifies that the challenges of a less talented workforce will only be exacerbated in the coming years.

Will the contractors even be able to understand and interpret the designs coming from engineering and architectural practices? For the successful, leading construction firms across the country, this may not be an issue – but the lower-cost, low-bid contractors may increasingly be hiring unqualified and untrained labor, creating serious project issues and reflecting poorly on the industry. And perhaps reflecting poorly on the design firms associated with those projects.

Economic Forces at Play

The macroeconomic conditions remain mixed, and we all know the challenges that rear their heads during significant election years – like 2024. The horizontal construction industry will continue to benefit from Infrastructure Investment and Jobs Act (IIJA) funding, and the forecasts for the next few years continue to project a high level of design and construction activity. However, the current state of interest rates is impacting commercial construction, and we’re seeing design firms operating in this sector laying off staff.

Furthermore, so much of commercial, institutional, and industrial construction is driven by what is happening in the residential construction sector, and right now, that market is down. Multi-family residential construction has declined, and projections for the next year don’t suggest an uptick. Single-family residential construction is at a low point and will likely continue that way in the coming year. This segment is a big feeder into the nonresidential design and construction community because new homes drive infrastructure, manufacturing, education, and health care construction.

But the news isn’t all doom and gloom, of course. There is still a lot of work out there. Even with the current state of decreased housing starts, it is still well above the level seen in the Great Recession and is not projected to decline further. Housing demand is still high, yet the combination of low inventory and high-interest rates is pricing would-be homebuyers out of the market.

PE Creating Waves

Private Equity investment in AEC firms is another trend we should monitor as it disrupts the industry. Also known as PE, these companies seek firms to acquire, often consolidating several firms from different geographies under a single umbrella. It’s a trend that’s changing the face of competition and, in many cases, bringing now-national companies into local markets. PE-backed firms typically have significant growth goals and may aggressively recruit new talent. Although PE is a response to the trends of AEC firms having limited ownership transition plans plus the availability of capital looking for investment, PE firms are learning the challenges of operating in the built environment, including all the governmental regulations that AEC companies must address daily – right down to ownership of shares and structure of directors on boards.

Talent Challenges Keeping Us On Our Toes

And we must remember the talent shortage in the built environment. Economists look at metrics like quit rates to deduce that the great resignation is over and power is shifting back from the employee to the employer. Yet, in the design and construction market space, firms are still reporting talent shortages and challenges with delivering projects already under contract. Emerging leaders are overworked and burning out, and many younger workers aren’t interested in 50- or 60-hour work weeks. There continues to be a shocking lack of diversity across the AEC spectrum, and the pipeline – particularly college programs – foretells continued diversity challenges in terms of gender, race, and ethnicity. Add to this decreasing college enrollments and an enrollment cliff rapidly approaching – fewer high school graduates mean fewer college students – added to the known challenge of increasing Baby Boomer retirements, and AEC firms are getting squeezed from both ends.

Next Steps

What trends are on your radar for 2024 and beyond? How are you positioning your company to deal with the potential challenges? For further insight into these potentially challenging trends, Stambaugh Ness is presenting our annual webinar, AEC Outlook: Looking Toward 2024. I hope you’ll join me and my colleague Brad Wilson, CMA, MBA, to discuss the current economic outlook, market drivers, and the overall state of the AEC industry.

And if you’re not future-ready, we can help! It may be time to dust off your strategic plan and create an anticipatory strategy to position your firm for a successful future. Or maybe you need to focus on making your business more resilient. Reach out – we’d love to discuss your challenges and opportunities moving forward.

Scott D. Butcher, FSMPS, CPSM