As the architecture, engineering, and construction industry approaches 2025, decision-makers find themselves at a critical juncture. Growth in sectors like renewable energy, data centers and public infrastructure suggests ample opportunities. Yet, persistent challenges—ranging from labor shortages and rising material costs to evolving technologies—underscore the complexity of the road ahead. To learn more about the biggest challenges and opportunities for the industry, SmartBrief, a division of Future B2B, has published a report, Future Focus: The AEC Industry Outlook for 2025, analyzing a survey of more than 200 leading contractors, engineers and architects. The report includes insight from Ken Simonson, chief economist at the Associated General Contractors of America, and Kris Lengieza, global technology evangelist at Procore Technologies, to offer some added insight based on outside market reports and the responses we received.
Top Concerns: Labor, Costs, and Supply Chains
Among a plethora of factors affecting the industry, three challenges rose to the top:
- Labor shortages (60.3%): The difficulty in finding and retaining skilled workers continues to hamper productivity and project timelines.
- Inflation and material prices (43.5%): Rising costs for essential components have squeezed margins and complicated long-term planning.
- Supply chain volatility (22.0%): While not as severe as during the height of the pandemic, unpredictable supplies of key materials and equipment remain a significant hurdle.
The combined effect of these issues weighs heavily on firms trying to align resources with what is expected to be growing demand in several key markets.
Bright Spots Amid Market Complexity
Despite these challenges, the economic outlook for the AEC sector remains “cautiously optimistic,” according to Ken Simonson, chief economist at the Associated General Contractors of America. Certain areas look particularly promising. Data centers are expanding as companies invest in digital infrastructure, manufacturing plants are benefiting from reshoring and advanced production needs, and renewable energy projects continue to proliferate, driven by government incentives and market demand.
Infrastructure also stands out as a bright spot. Highways, transportation projects, and water/wastewater systems are expected to see sustained investment. This shift may help offset weaknesses in traditionally strong categories like multifamily housing and office construction, which have struggled under changing work patterns, demographic shifts, and lingering uncertainty. “We’re seeing growth opportunities, especially in infrastructure and data centers,” Simonson says, “but labor constraints and regulatory confusion will continue to be significant headwinds.”
Labor Shortages: A Lingering Crisis
The top concern—labor shortages—reflects a systemic problem years in the making. An aging workforce is retiring faster than new workers can be recruited and trained. Some projects are in remote locations where housing and amenities are limited, making it tougher to attract talent. Unlike sectors that can adopt hybrid or fully remote work arrangements, construction remains tied to the job site. This dynamic not only limits flexibility but also makes it harder for younger professionals to learn from veteran workers, as mentorship and skill transfer are more challenging at a distance.
Cost Pressures and Supply Chain Risks
Inflation remains stubbornly high for certain materials, and while interest rates have recently dipped, long-term financing costs may stay elevated. According to Simonson, even if inflation stabilizes, mortgage rates and other long-term borrowing costs could remain in the 6% to 7% range, exerting downward pressure on certain types of construction projects. Supply chain issues, though improved, still loom large. Certain items—like large generators and specialized electrical components—remain hard to source reliably. Unexpected disruptions, from low river levels to plant shutdowns, can create ripple effects that delay projects and increase costs.
Technology: The Promise and the Hesitation
If labor and material challenges define the industry’s current struggles, technology may shape its future. Many firms have embraced drones, Building Information Modeling, and project management software to boost efficiency and reduce errors. Yet not all innovations inspire confidence. Survey respondents were notably hesitant about artificial intelligence and autonomous machinery, with over half expressing concerns about adopting AI on job sites.
This skepticism often stems from liability worries and uncertainty about ROI. Contractors want hard evidence that these tools deliver tangible benefits before committing. “People need to see case studies that demonstrate feasibility, methodology, and measurable results,” says Kris Lengieza, global technology evangelist at Procore Technologies. Without that proof, AI and robotics may remain on the industry’s periphery rather than becoming central to everyday operations.
Preparing for 2025 and Beyond
Despite the complexity, many firms remain hopeful. Nearly 58.5% of survey respondents believe their key markets will be healthy by 2025, and close to half plan to pursue new markets. To seize the opportunities ahead, AEC businesses must address labor shortages through robust workforce development, recalibrate project bids and supply agreements to account for persistent inflation, and adopt technology more strategically—focusing on tools that deliver clear returns and build trust among stakeholders.
AEC leaders understand that the road to 2025 is paved with uncertainty, yet they also recognize the potential rewards. By cultivating a flexible, forward-thinking mindset and forging strong partnerships—with technology vendors, educational institutions, and policymakers—they can navigate this transition. For those willing to embrace change, balance tradition with innovation, and confront challenges head-on, the next few years hold the promise of sustainable growth, improved efficiency, and a more resilient industry.