Architects’ Path to Economic Stability and Growth

At SN, we closely monitor the economic trends impacting the architecture and engineering (AE) industry. Since 70-80% of our revenue is tied to this sector, our success is deeply linked to its performance. The industry’s economic indicators have been largely positive over the past 15 years, barring a brief pause during the pandemic. However, in the past 12-18 months, we’ve identified a shift that warrants closer examination. Talking about the AE industry as a unified whole may no longer be accurate. Emerging data suggests a growing divide between architecture and engineering firms, one that is driven by differences between vertical and horizontal construction projects and, more fundamentally, by the contrast between privately funded initiatives and public infrastructure work.

Working with architecture firms nationally, we have noted that some of our clients focused on private sector projects—particularly those with corporate or developer ties—are experiencing layoffs. Meanwhile, engineering firms working on public infrastructure projects are still grappling with workforce shortages and struggling to meet the high demand. While this division isn’t entirely new—local and regional variations and the distinct nature of the architecture and engineering professions have always played a role—the current situation raises concerns.

Specifically, we’re seeing signs that lessons from the 2008-2011 recession may be fading and that outdated cost-cutting strategies might reemerge without fully considering their long-term consequences in today’s labor market. To be clear, we are not equating the current slowdown in certain sectors with the severity of the Great Recession. However, we are seeing management teams grappling with excess capacity and cost-cutting for the first time in their tenure. Increasingly, firms are asking us to help them prepare for potential economic contractions.

As we’ve observed, the traditional playbook that prioritizes capital preservation above all else feels out of sync with today’s market realities—especially when it comes to labor dynamics. Therefore, rather than limit our guidance to individual firms, we’ve developed a comprehensive webinar to share data-driven strategies and actionable advice. Our goal is to equip your firm with the insights needed to navigate market fluctuations and, if necessary, manage costs intelligently.

We recommend a three-step approach for this preparation:

1. Conduct targeted research on the economic conditions affecting your firm. Few design firms are large enough to be directly tied to national economic trends. Most architecture firms are influenced by local and regional factors, each with its own mix of clients and building types. Making decisions based solely on macroeconomic data can be misleading.
2. Establish and refine your firm’s forward-looking metrics. This involves improving the accuracy of key indicators—primarily project opportunities and your firm’s work pipeline. There are innovative ways to gather actionable insights from your business development activities, which can help identify when cost-cutting measures may become necessary.
3. Prepare a thoughtful cost-reduction strategy in advance. Waiting until financial pressures mount is the worst time to make decisions about human capital. By proactively planning based on the results of your research and metrics, you can safeguard your firm’s long-term success. Many of us at SN witnessed the reactive, sometimes desperate, layoffs during the Great Recession, and their lasting impact on the AE industry is still evident today.

Next Steps

There’s not enough space here to explore each of these steps fully, so we encourage you to join Dean Gratz and me for a deeper dive into the current state of the architecture industry and how your firm can be better prepared to weather any downturns it may face.