Navigating 2025: Key Trends and Challenges for the A&E Industry

Megan Miller, Senior Director of Product Marketing, shared the "State of the Industry" in the opening session of the Morrissey Goodale Southeast M&A and Business Symposium. Highlights are captured below.

As we move further into the year, the architecture and engineering (A&E) industry remains in a state of cautious optimism. While it's still early to make definitive projections, industry experts anticipate steady performance in 2025, with some concerns that growth may taper off this year. Engineering firms continue to operate with substantial backlogs, though the outlook for future projects varies by sector. Meanwhile, architecture firms are experiencing mixed expectations—some foresee revenue growth, while others brace for declines. The American Institute of Architects (AIA) Architecture Billings Index (ABI) recently showed that most architecture firms saw billings decline in January and many firms remain hesitant about what the rest of the year will bring.

The Top Three Challenges Facing A&E Firms

While the industry's core challenges haven't drastically shifted, they continue to center around three key areas: people, processes and technology.

1. Leadership Transitions & Workforce Shifts
   Firms are less focused on the intense hiring efforts of previous years and now face the challenge of aging leadership. Effective succession planning and employee retention are crucial to ensuring long-term stability and knowledge retention.
2. Tighter Margins & Pricing Pressures
   As competition intensifies and pricing pressures continue, firms face tighter margins. The added strain on profitability calls for a potential shift in fee structures focusing on value-based pricing proposals and better monitoring of project performance to sustain financial health. High construction costs and inflation continue to impact project budgets, making strategic project management more critical.
3. Technology Integration & Artificial Intelligence (AI) Adoption
   The rapid expansion of AI and automation offers both opportunities and challenges. Many firms are overwhelmed by the sheer volume of available technology and struggle to determine the best ways to integrate these tools into their workflows.

Leveraging Technology and Process Improvements

The good news is that many firms already have access to technology that can streamline operations—they just need to maximize its potential. AI, for example, offers significant time-saving benefits, but firms must actively embrace it. Deltek solutions incorporate AI-driven features like Smart Summaries to help summarize project and client details into an easy-to-read document for quick review. Ask Dela (a digital assistant) and Intelligent Character Recognition (ICR) for expense receipts, business cards and AP invoices, can free up valuable time for project managers and back-office staff.

For firms using Deltek ERP solutions, taking full advantage of recent enhancements is essential. Leveraging workflows to automate processes and ensuring widespread user adoption can help firms operate more efficiently and eliminate unnecessary manual interventions.

Mergers & Acquisitions: Managing Data for a Smooth Transition

The A&E industry has witnessed record-breaking mergers and acquisitions (M&A) in recent years, and this trend shows no signs of slowing, as Morrissey Goodale highlighted during the symposium's opening session. While firm leaders focus on closing the deal, they must also prioritize data integration strategies to ensure seamless transitions and informed decision-making shortly after the merger or acquisition.

Swift consolidation of financial and project management systems is key for acquiring firms. Delays in migrating newly acquired firms off legacy systems can create operational inefficiencies and obscure overall business performance. Maintaining well-organized data is crucial if your firm is positioning itself for acquisition. Ensuring data is accessible and structured to facilitate integration can significantly ease the transition process. While a complete system overhaul may not be necessary, clearly understanding where data is stored and how it aligns with industry standards will help streamline M&A activities.

To navigate these complexities, firms should seek expert guidance on data migration. By leveraging the expertise of professionals specializing in M&A data transitions, firms can focus on strategic growth while ensuring that critical information remains intact and valuable.

Looking Ahead

While some uncertainty remains in the A&E industry, firms that prioritize leadership transition strategies, expand AI and automation adoption, and implement proactive project management with strategic fee structures will be best positioned for near-term success. With many firms looking to M&A as part of their leadership transition approach, firms should prioritize data transitions for better visibility to stay competitive in the market and to understand how to best position the firm for future success.

As the year unfolds, firms that take a strategic and proactive approach will weather potential challenges and set the stage for sustainable growth in the years ahead.