How A&E firms can address sector challenges and build resiliency

Middle market architecture and engineering (A&E) firms across North America and the UK are navigating one of the most transformative periods in the sector’s history. Rapid advances in technological innovation, evolving client expectations, economic uncertainties and increasingly complex regulatory landscapes are reshaping how firms compete, deliver projects and plan for the future. 

Leaders must adapt by embracing digital tools, aligning with green building trends and strengthening workforce capabilities to achieve sustainable growth in a dynamic environment.

The challenge of AI adoption

Artificial intelligence is changing how A&E work is delivered. Building information modeling has evolved into a foundational analytic platform that integrates design, cost, schedule and performance data to enable scenario analysis, risk reduction and more informed decision making across the project lifecycle. Early adopters report measurable gains in productivity and predictability. They are leveraging data-driven models to reduce rework, optimize resources and improve project outcomes.

But AI adoption has been uneven in the sector. Many middle market firms grapple with the cost and complexity of integrating AI tools, along with cybersecurity concerns as systems become more connected. Firms need to ensure that they are AI-ready and consider the areas in which they will see the most benefit. This will require leaders to closely review cash flows, their client base and the type of work performed to pinpoint where AI can add value.

A&E leaders should integrate digital capability into their core planning. Firms benefit by treating investments in AI, automation and data analytics as strategic enablers that affect productivity and the quality of work, not as discretionary information technology spending. 

Leaders should also keep in mind that implementing AI is as much a human transformation as it is a technological one, which makes change management essential to success. Embedding AI into the business through effective change management helps shift the focus from purchasing a tool  to redesigning work processes.

Cost pressures and economic headwinds

Economic uncertainty often hits A&E firms harder than other professional services businesses. High interest rates and inflation have cooled private sector development, contributing to the softest architecture firm billings since 2020. Public sector projects, especially in infrastructure and manufacturing, are driving growth. Many global firms are getting some of their biggest projects in the Middle East. For many UK firms, this is bolstering their revenues substantially.

Economic uncertainty also significantly affects the A&E sector through the increased cost of materials and volatility in supply chains. This adds significant pressure to project delivery and margins for construction.

A&E leaders would be wise to adopt scenario-based planning. Firms should model multiple economic, regulatory and market scenarios—rather than a single baseline forecast—to stress-test revenue, staffing and capital assumptions.

Sustainability and evolving regulatory expectations

Green building and sustainability have moved from being a differentiator to becoming a baseline expectation. The U.S. green construction market exceeded $150 billion in 2024. Regulations in the U.S. and UK have tightened, requiring firms to adopt low-carbon designs and advanced performance reporting. 

In the UK, the rate of regulatory change increased following the Grenfell Tower tragedy and  continues to be overhauled. Sustainability is an area of focus within the UK Net Zero Carbon Buildings Standard and the UKGBC Net Zero Carbon Buildings Framework. In the public sector space, firms must also contend with the Government Workplace Design Guide’s Sustainability and Net Zero Annex for public sector buildings.

In the U.S., sustainability has also become an operational expectation for A&E firms, driven by client demand, investor scrutiny and expanding regulatory requirements. Federal and state policies increasingly emphasize energy efficiency, carbon reduction and climate resilience, while public sector clients are embedding sustainability criteria directly into procurement and funding programs. Evolving disclosure and compliance expectations are pushing firms to measure, document and substantiate environmental performance across projects. Together, these dynamics are elevating sustainability from a design consideration to a core component of risk management, compliance and long-term competitiveness for U.S.-based A&E firms.

Firms need to factor these concepts into their planning to ensure compliance and assess internal capabilities to meet the increasing demand. 

Talent shortages and the evolving workforce

The A&E sector faces major labor shortages, with new skills in digital tools, sustainable design and data analysis in high demand. Recruitment and retention challenges are particularly acute for middle market firms. According to the RSM US Middle Market Business Index Special Report: Workforce 2026, over half of executives surveyed expect moderate to significant hiring needs over the next year, a trend consistent within the A&E sector. 

The reasons for the talent shortages include a declining student pipeline in the U.S., staff burnout and global competition for the same talent. A&E leaders must review their workforce structure and strengthen planning, upskill existing staff and improve retention. Working with regulatory bodies to attract talent into training programs will help improve the talent pipeline.

Furthermore, A&E leaders should align workforce planning with market demand. Firms can forecast talent needs by discipline and geography, factoring in retirements, skills gaps and evolving client expectations.

In addition, firms should leverage digital tools to reduce pressures. Demand is rising for professionals with strong digital and data-driven skill sets alongside technical skills. Firms that invest in digitally fluent talent are better positioned to drive productivity, improve project outcomes and remain competitive in a technology-enabled delivery environment.

Shifting market dynamics and the role of M&A

Mergers and acquisitions in the A&E sector surged over 30% in 2024, driven by private equity and strategic buyers. M&A activities can help firms access economies of scale, reduce their cost base, expand across markets and diversify service offerings. Market consolidation has largely occurred through mergers of established firms. But this could change.

Firms need to review internal structures and systems and their readiness for a merger. Leaders will need detailed cash flow forecasts. They will also require an analysis of their pipeline and possible efficiencies that could be gained from a merger.

Those firms not considering M&A will need to create strategies that help them grow despite future economic and cost pressures.