AEC 2025 Forecast: Navigating Workforce and Market Changes

If you are looking toward the new year thinking, “It’s déjà vu, all over again,” you’re not alone. The famous Yogi Berra quote captures the uncertainty many are feeling right now as we head towards 2025.

What-Ifs are Not a Strategy

Government leadership changes, especially at the Federal level, often bring uncertainties and a fair share of “what-ifs.” For architecture, engineering, and construction firms, some areas to monitor include potential adjustments to uncommitted funds from the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) and possible increases in tariffs on construction material imports, which could affect project costs. While these possibilities were discussed on the campaign trail, their actual impact on the industry remains to be seen.

From a strategy perspective, it is important to closely monitor trends that can significantly impact your firm. What-if scenarios are useful for scenario planning, but it is even more important to look at the trends impacting AEC firms right now to ensure that your strategy allows you to leverage strengths, pursue opportunities, overcome weaknesses, or mitigate threats.

Last year, the annual Stambaugh Ness industry outlook survey found that recruiting staff was the most pressing issue facing AEC firms, with more than three-quarters of survey participants indicating this was a current challenge. Does this still hold true almost one year later? In a majority of firms, the answer is still yes.

Workforce Challenges & Demographic Shifts

Certainly, some AEC companies have been struggling in 2024 as their markets have continued to be flat. Commercial and developer-driven projects, which are very interest rate dependent, continue to be down, as do office projects and single-family residential. The Deltek/American Institute of Architects Architectural Billings Index has generally been in decline for two years, with only a couple of months of positive readings during this period.

Yet many sectors, such as streets and highways, manufacturing, and sewage/waste disposal, have seen continued growth, driving the need for more employees.

Aside from growing and declining markets, however, the trend of demographic change is significantly disrupting AEC firms – and well beyond, including our clients. In the United States, we’ve reached Peak 65, with 11,000 Baby Boomers turning 65 every single day. Our most experienced talent is leaving the industry and our firms at an accelerated rate. Yet the fertility rate in the U.S. is less than half of what it was in 1960, meaning that we have an exodus of talent from the workforce and the pipeline to replace them is shrinking. Enrollment at engineering schools has been off more than 4% since 2019, and that is with a significant uptick in enrollment this past year.

And while the Great Resignation may be over, we are seeing declining levels of loyalty in AEC firms. The average employee in an architectural or engineering firm has been there for 4.9 years – a decade ago, this number was 7 years. On the construction side, average tenure tends to hover around 4 years. Millennials and Gen Zers – that is, workers age 44 and younger – already comprise the majority of the workforce, and they tend to spend less time with employers than prior generations.

Growth & The Missing Middle

When conducting strategic planning, the concerns over staffing and lack of available talent are almost always front-and-center, as they negatively impact clients’ growth plans. And growth is still one of the major priorities of firm leaders right now.

The AEC industry is very much a people business. It’s not just about having enough people; it’s about having enough of the right people. Our ability to land and deliver work depends upon this.

Last year, the Stambaugh Ness survey found that among the many people-centered challenges identified, the “missing middle” was near the top. This missing middle refers to the lack of mid-career professionals, those emerging leaders moving into senior positions in their firms, leading teams, and leading projects.

One reason for this is the Great Recession of 2008, which lasted far beyond in the built environment. Many college students pursuing degrees in AEC pivoted to other programs and never entered our workforce.

That recession is one driver for the lack of talent. Another driver is not a one-time event but a systemic problem in the AEC industry. According to research from the Society of Women Engineers, 70% of women who earn a bachelor’s degree in engineering do not work in engineering 20 years after graduation. The industry is simply not viewed by many as a safe space or a place where women can advance in their careers. Couple that with a general lack of racial and ethnic diversity, and you can see how the talent shortage will continue for years to come – and just how much work the industry has to do.

Next Steps

Watch our annual industry outlook, where Brad Wilson, CMA, MBA, and I will share the survey results and help set you up for success in the coming year: 2025 AEC Industry Outlook: Key Insights to Shape Your Future.