Taking the Long View

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Firm owners and leaders contend daily with the near-term challenges of finding work for their firms through market cycle ups and downs. But larger forces will increasingly play an outsized role in your company’s continuing health. Several stand out for their potential impact on your operations: demographic shifts in demand, surplus properties, shrinking labor pools, AI and other disruptive technologies, and hazard insurability. These changes could transform the ways you do business more drastically than the introduction of computer-assisted design and drafting some years ago. Smart firms will capitalize on the opportunities these disruptions will bring.

Age-related demographic shifts in demand

The U.S.-born population growth is declining, and thanks to advances in healthcare and a lower mortality rate among younger people, the median age is rising. According to the Congressional Budget Office, the U.S. fertility rate, which hovered around 2.02 births per woman and dropped after the Great Recession, should stabilize at about 1.70 births per woman through 2050, which is below the replacement rate for our current population. Dropping fertility rates are even more pronounced in many industrialized European and East Asian countries, whose populations are expected to shrink more. Net immigration, which has previously offset the U.S. fertility rate, is projected to drop dramatically, from 3.3 million in 2024 to 1.1 million annually from 2027 to 2054.

At the same time, the Congressional Budget Office projects the ratio of people ages 25 to 64 to people age 65 or older to drop from 2.9 to 1 in 2024 to 2.2 to 1 in 2054. The U.S. is already experiencing demographic shifts in demand. Unless fertility rates and immigration increase, firm owners should expect two things: 1) the education market will shrink, even with its new focus on lifelong learning, resulting in fewer new engineers, and 2) the healthcare and senior living markets will grow.

On a larger level, the drop in immigrant labor will prompt deeper changes felt in the national economy and in engineering businesses. Less-skilled immigrants have powered the service, construction, and agriculture industries, as well as many healthcare roles. Skilled immigrants work in engineering, as well as technology and science, and many come from countries experiencing drops in fertility rates. With a smaller native-born and immigrant workforce, economists worry that Social Security will not be able to offer the retirement incomes most older Americans depend upon, and many people would have to work longer to survive. Fewer people to fuel the economy and assist an aging population may accelerate the adoption of robotics and AI in American industry and daily life. For engineers, building expertise in changing construction technology, particularly fabrication, may expand their firm’s market position and profitability.

Post-Covid demographic shifts

The Covid-related shift to hybrid and remote work has triggered enduring changes to workplaces and to office district services. Many white-collar jobs have become partially or fully remote or stimulated demand for more offices in smaller business districts and outlying suburbs. A McKinsey Global Institute report projects office space demand in global “superstar” cities like Houston, New York, and San Francisco to drop through 2030. Engineering businesses that specialize in high rise construction have been affected by this shift for some time, and problems will persist until U.S. cities remake their office districts into vibrant places to both live and work. Engineering firms should consider advocating for downtown renewals, which may translate into business opportunities and greater professional stature.

On an operational level, if your main offices are located in such places, what will be the impact on your operations? While you may enjoy lower lease costs than before, you may face changing your business model to effectively work elsewhere without relocating.

Surplus properties

Many have suggested that office building conversions offer opportunities to recycle the existing building stock and produce needed housing while reducing construction-related carbon emissions. CommercialEdge data released in late 2024 noted that 30 U.S. cities, whose central business districts and surrounding urban submarkets hold about 167 million square feet of aging and underutilized office space, afford excellent conversion potential to residential and mixed-use, and they have even more buildings that are largely viable for conversion. Such conversions decarbonize construction.

City leaders are encouraging office-to-residential conversions and other adaptive reuses within their commercial business districts. Adaptive reuse is also attractive to institutional capital, which typically have carbon and greenhouse gas reduction goals to meet. As a global real estate investment executive commented, “the most sustainable thing is to repurpose and reuse, because ultimately, any kind of new development is adding to the current [climate change] problem.” But not every building is suitable for residential conversion, whether due to the price of the building or the need for fresh air and daylight. Some have raised more creative adaptive reuses, like data centers, or placing structural exoskeletons around obsolescent buildings, effectively converting them to podiums, and constructing towers on top of them. If carbon reduction remains a priority for the institutional capital partners funding the U.S. commercial real estate market, deconstruction and building material reuse may rise in popularity. This is already pioneered in Europe and promoted in AIA, ASLA, and Urban Land Institute conferences.

Demographic shifts in engineering labor pools

A declining population of U.S.-born citizens also affects building industry labor pools. According to Danny Bachman, former U.S. economist at Deloitte Touche, the growth of the prime labor pool of individuals between 25 to 55 years old has now slowed to 0.5% annually and will likely drop further, to 0.2% annually in the next several years, as the U.S. population ages. If our immigration policies restrict the influx of skilled professionals or the ability of recent graduates to stay in the U.S., engineering firms will have to rely on business models that use fewer people through software and other technologies, hire offshore staff, or partner with offshore firms.

Traditional growth may be more difficult to achieve, unless companies bulk up their recruitment and retention programs. Bachman says that reduced growth in available candidates will prompt companies to focus more on retention and encouraging former employees to “boomerang” back to their companies. Chris Petteys, CEO of Forell Elsesser, located in San Francisco, remarked recently that offering remote positions has given the firm stability and kept talent: “Our decision to allow people to go fully remote and move out of the area was a big retention decision. Had we not done that, my tone on the topic might be different.” Andrew Rastetter, San Francisco office director for Buro Happold, offered a slightly different angle, noting “besides the typical interest in attractive compensation—quality of life, the work environment and meaningful careers will come to the fore.” Rastetter said he focuses on getting employees to invest in their office time: “It makes a strong team … People should prioritize this.”

AI and disruptive technologies

Many firms already use AI to streamline work. 3-D scanners like Matterport have trimmed the time to document existing conditions and convert the data for Revit models. UpCodes speeds code research. ChatGPT and other AI technology can summarize large documents and provide findings, based on the queries they are given. Microsoft Office and Adobe Creative Cloud have AI features that can set up files and create graphics based on verbal prompts.

Autodesk continuously rolls out new advances: 3-D point clouds to map existing conditions and models that allow users to work simultaneously or manipulate datasets for different uses, and AR/VR for clash detection and virtual walkthroughs. But until the software becomes completely intuitive, firms should plan to both invest in people who can use AI to reduce their labor costs and anticipate increased hardware costs for operating AI-based software. As AI fully integrates into the market, the authors believe that clients will expect reduced fees for many traditional basic services, yet offering new services can make up for those shortfalls. Vicki Arbitrio, an Associate Principal at New York-based Gilsanz Murray Steficek said, “Harnessing AI is the only way where we can get the work done that we need to do.” Petteys agreed: “We aren’t trying to replace human positions but to enhance our work and respond to project demands,” he said. AI adoption is likely to underscore the importance of A/E professionals as trusted advisors and prompt firms to move into project management and fabrication.

Construction companies are likely to experience even more disruptions than engineers. Labor efficiency has increased in recent years, because technology and construction methods have plateaued. “We need to use robots and other machinery in construction to speed things up,” Arbitrio said. Rastetter stated, “I’ve seen a lot of evidence that this labor shortage is causing construction costs to go up. 2009 decimated the labor force and we haven’t yet recovered that, and it’s a big thing driving costs up. New technologies may help fill this shortfall … In construction, AI has the potential for bringing in quality control and reducing labor costs.”
Structural engineers could aid efficiency and reduce costs through new technologies. “We need alternative solutions for steel and concrete,” Rastetter said. “By bringing AI and increased automation in the construction process, we can get more efficient material use. Now we design for the worst-case scenario, with all components being overbuilt, when only one needs to be. We can have in situ 3-D printing to shape a steel beam along its length. A straight extrusion is not needed, and we could reduce material and carbon. You don’t need so much material at the ends, because they don’t bend.”

Climate change and hazard insurability

Whatever your stance on climate change might be, the ability to obtain hazard insurance reckons to impact where construction will take place and how we build. The National Oceanic and Atmospheric Administration’s “Billion-Dollar Weather and Climate Disasters” chart, which is adjusted for inflation, indicates the U.S. experienced an annual average of 3.3 “billion dollar” disasters in the 1980s. From 2013 to 2023, the annual average of such losses leapt to 19.1, with insurance rates trending upward each year. Severe storms, characterized as tornado outbreaks, high winds, and hailstorms, have risen the most. Catastrophic events like the January 2025 firestorms in Los Angeles will affect business and home insurance across the United States.

Insurability causes problems for real estate investment, both for individual building construction and for regional economies. Using the Fall 2024 windstorms in the Southeast as an example, commercial real estate executive Parren James said, “We have eliminated markets we would have typically invested in because they aren’t considered resilient. It’s not just about a hurricane striking Orlando, but the insurance costs in Florida are high, and they are increasing rapidly, which makes it difficult to underwrite the property because their share is increasing within the operating costs…You can find yourselves with an insurer who’s pulled out of the market. We can underwrite a 10% increase, but what if you can’t find an insurer? That becomes a very risky problem.” Moreover, approximately 31% of commercial mortgages are expected to expire in the next three years, 51% in the next five years, and almost 82% in the next 10 years.

Lenders expect properties to be insured. The higher interest rate environment also contributes to a greater level of refinancing risk that developers and owners must underwrite along with increased insurance prices, driving up development costs even more. The insurance industry is already responding with hazard-hardening requirements for buildings. By becoming familiar with climate resilience measures, engineers can help owners planning to build in a region experiencing insurability crises by improving the building’s resilience to flood, storms, fire, and other hazards, just as engineers in Florida have done with hurricane-proofing and seismic engineering in California. Otherwise, the owner may have to “go it on their own,” with no insurance and consequently, no outside financing, or resort to insurers with less financial capacity.

The global investment executive reinforced the problems hazard insurability poses on a regional scale, saying that their company factors in a location’s economic resilience. “I think there are markets and economies over time that will become unsustainable from a climate perspective; therefore, it doesn’t matter how good the asset performs.” Both executives noted that the real estate market will likely bifurcate, with investors funding long-term investments in areas where climate risks are addressed, and areas with rising climate risks becoming short-term plays for investors to walk away after a climate event, leaving communities saddled with marginal construction. The global investment executive said, “The disproportion of growth in this country is in places that are not sustainable … we might make a short-term investment while we own it, but we will expect to divest it.” If insurance and real estate capital partners pull out of high-risk areas, the U.S. could end up with greater geographic migration triggered by climate events. Engineering firms would face the choice of moving their companies elsewhere to retain their existing service offerings or adapting their business models to the owners who are willing to remain and self-finance construction.

New challenges for structural engineering companies will rise in the coming years, but these also present new opportunities, if one is willing to invest in new modes of practice to get a jump on the competition.

About the Authors

Kacey Clagett is the founder of Appleseed Strategy, which provides business strategy consulting to design and construction organizations.

Tiany Galaskas is a principal of Appleseed Strategy and founder of AECO, which provides online training in marketing and business development for the design and construction industry.