Navigating the Changing Landscape

Ronald J. Eagar

More than halfway through 2024, change remains a constant for the construction and architecture & engineering (A&E) industries amid a year marked by growth and ongoing challenges. Despite facing a range of operational hurdles, industry leaders maintain an optimistic outlook for the remainder of the year and beyond. 

In response to the shifting landscape, Grassi's comprehensive industry survey of nearly 250 construction and A&E leaders identified key insights on revenue expectations, top risks, technology investments and more. The study reveals a complex landscape marked by confidence and caution. Despite some challenges, the industry is resilient by adapting its strategies and seeking new solutions.

While 56% of respondents anticipate revenue growth this year, the industry is grappling with the effects of inflation and labor shortages, which are casting a shadow over this positive outlook. More than half of executives identify the rising cost and limited availability of skilled workers as the most significant threat to their businesses in the next 12 months. Inflation is the top overall risk for construction companies, while A&E firms are primarily concerned about financial issues.

These macroeconomic pressures are indeed impacting the bottom line, with over 80% of companies reporting higher overhead costs than a year ago. However, the industry is not sitting idly by. A third have seen these expenses jump by 10% or more. Supply chain disruptions are compounding the financial strain, causing significant pricing volatility. In response, construction firms are taking proactive measures — rethinking their estimating practices, negotiating purchase agreements, expanding their vendor networks and strategically raising prices.

Despite the challenges, the industry is demonstrating its resilience. Access to credit has remained largely stable, with some contractors even noting more accessible financing compared to a year ago. While there are areas of concern, such as less optimistic views on the NYC residential sector among subcontractors, many leaders are approaching the future with a sense of pragmatic confidence.

Technology is emerging as a critical area of focus and investment. More than half of companies plan to upgrade their tech capabilities in the next 12 to 18 months, with project management and collaboration platforms leading the way. Artificial intelligence (AI), building information modeling, data analytics and wearables are also gaining traction as firms look to harness innovation for competitive advantage.

Forward-thinking companies are also beginning to embrace Environmental, Social and Governance (ESG) frameworks to build long-term value and resilience. While formal ESG programs are still nascent, a quarter of general contractors and a third of A&E firms have either established initiatives or are actively exploring this space.

On the ownership front, Employee Stock Ownership Plans are attracting increased attention as succession planning vehicles, particularly in the A&E sector, where a quarter of firms are considering or have already adopted this model.

In this dynamic landscape, adaptability is not just a choice but a necessity. As one industry executive noted, 'Change is inevitable, but we're not making drastic shifts. We're making subtle adjustments with vendors to secure better pricing.' This sentiment underscores the industry's need to stay agile and responsive to emerging trends and challenges. Another leader summed up the imperative for innovation: "The advancements in AI technology will be drastic in the future. We'll have to implement AI technologies in the architecture industries to make sure we're competitive enough. AI, VR, AR — everything will be a major influence everywhere."

Download the complete Grassi Construction and A&E Industry Outlook report today on our website (see address below) for a deeper dive into these trends and position your firm for a successful year ahead. 

For more information, please contact Ronald J. Eagar, CPA, CCIFP Partner at Grassi, at reagar@grassiadvisors.com, www.grassiadvisors.com or 516-336-2460.