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Architecture & Engineering Firms

What’s Trending in the Architecture & Engineering Space?

Posted on November 1, 2022 by

Jake Mouradian

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Architecture and Engineering TrendsWe recently attended the Zweig ElevateAEC Conference and wanted to share some of the top industry trends that you should be thinking about as an architecture & engineering firm owner.

1. Ownership Transition and Strategies

Ownership transition and strategies is still at the top of mind for many architecture & engineering firms whether it’s internal through an Employee Stock Ownership Plan (ESOP) or external through Private Equity. Private Equity investment has continued to increase in this industry and is the driver of a significant number of A&E transactions. The right partnership can provide both operational and financial benefits that can elevate an organization to the next level.

2. R&D Tax Credits

Understanding R&D tax credits and what qualifies is essential. Many firms think these credits sound too good to be true or that their efforts in the A&E space would not qualify; however, there are a variety of opportunities available for firms to take advantage of the R&D Tax Credit. Some examples of R&D activities that would qualify related to this industry include:

  • Obtaining Leadership in Energy and Environmental Design (LEED) certification
  • Energy/usage efficiency design and improvement (lighting, HVAC, electrical, plumbing)
  • Development of new or improved designs for structures
  • Developing unique infrastructure design Building Information Modeling (BIM)
  • Developing new software applications to use internally to interact with customers or vendors

3. Employee Retention and Recruiting

Employee retention and recruiting continues to be a hot topic for growth-driven architecture and engineering firms. The most valued employee retention benefit for many firms is offering their employees more training and development opportunities. Many award-winning firms believe project management is the most sought-after training as this specific area is where employees would like to develop further. With a focus on employee retention and recruiting, firms have also increased their HR costs across the board to accelerate efforts in retaining and attracting top talent. Many firms are moving from using recruiting agencies to hiring in-house recruiters. The thought here is that an in-house recruiter would develop a better understanding of the firm and their culture, making them better suited to identify candidates that best align with the firm.

4. Strong Balance Sheets 

Firm balance sheets continue to get stronger. Many firms have benefited greatly from programs such as PPP and ERC and this has translated to improving debt-to-equity ratios in the industry. The increased firm values across the board are certainly a contributing factor to the increased transactions we’re seeing in the industry. Firms looking to sell can certainly capitalize on their higher value.

5. High Backlog 

Average backlog decreased slightly from last year, but is still at approximately 8.7 months which is higher than the previous 10 years in the industry. This growth provides a strong foundation for A&E firms to build upon. Growth-driven firms need to focus on how to successfully manage this growth and tap into opportunities in new and expanding markets.

Continue the Conversation

Clayton & McKervey’s architecture & engineering team is ready to help. Contact us to discuss these five A&E industry trends and how they could impact your firm.

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Jake Mouradian

Manager

Jake supports closely held businesses with financial audits and reviews through the firm's advisory & assurance group.

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