Prairie Industry Perspective – Architecture & Engineering May 2025

May 29, 2025

Business conditions in the architecture and engineering industry are highly impacted by the performance of the construction industry. Due to high inflation, the Federal Reserve (“Fed”) raised interest rates 11 times in 2022 and 2023, which posed challenges to the construction industry in myriad ways. While the Fed began to cut rates in the latter half of 2024, construction starts growth proved to be relatively modest during the year, especially compared to the residential construction boom that took place during the COVID-19 pandemic as well as the post-pandemic expansion of nonresidential construction starts. Moreover, in early 2025, the construction industry began to experience some setbacks as uncertainty about the economy took hold in light of tariff policies put forth by the Trump administration.

Indeed, while projects in the planning stage are high at many architecture, engineering, and construction firms, developers have expressed concerns about the state of the economy and are unwilling to move forward on certain projects. According to Engineering News-Record (“ENR”), some developers anticipate that both tariff policies and immigration enforcement could offset any benefits from lower interest rates.

At the same time, ENR reported a surge in its Construction Industry Confidence Index, which rose to 61.0 during the first quarter of 2025. This was the highest level of confidence among construction executives since the first quarter of 2022. The economist Anirban Basu, CEO of Sage Policy Group and an advisor for the Construction Financial Management Association, says, “What seems to be happening here is a lot of contractors are thinking that the President is playing 4D chess. That all this talk about tariffs is posturing that might create some price and material availability turbulence in the short term, but a year from now we’ll have a construction market that’s in good shape, with a strong economy under a pro-growth president.”

Recent Industry Performance

During 2024, total U.S. construction starts reached a value of $1.15 trillion, up 6.0% from 2023, according to Dodge Construction Network (“Dodge”). Specifically, nonresidential building construction starts were up 4.0% to $434.1 billion, residential building starts increased 7.0% to $389.2 billion, and nonbuilding construction starts expanded 7.0% to $324.3 billion. Within the nonresidential segment, commercial starts increased 8.0% in 2024, while institutional starts were up 16.0% and manufacturing starts were down 35.0%. Looking at the residential segment, single-family starts grew 15.0% in 2024, and multifamily starts fell 7.0%. Finally, nonbuilding segments saw the following pattern: environmental public works starts, up 24.0%; highway and bridge starts, up 6.0%; utility/gas starts, down 14.0%; and miscellaneous nonbuilding starts, up 26.0%.

Then, during the first three months of 2025 (latest available), total construction starts declined 1.0% compared to the same three-month period in 2024, with nonresidential starts down 9.0%, residential starts down 5.0%, and nonbuilding starts up 16.0%. “Construction activity grew [in March 2025], but sector-specific data continued to show mixed trends,” notes Eric Gaus, chief economist at Dodge. “Looking ahead, growing uncertainty around trade policy and the direction of the economy will likely weigh on construction activity. Rising delays in the planning pipeline suggest that developers are already bracing for impact, grappling with higher tariffs, dwindling federal funding, and ongoing labor shortages. We expect headwinds to grow as long as the uncertainty remains.”

Further, each month, the American Institute of Architects (“AIA”) publishes the AIA/Deltek Architecture Billings Index (“ABI”), which is a leading economic indicator for nonresidential construction activity. If the ABI score is below 50.0, that indicates a lack of billings growth, while a score above 50.0 indicates billings are growing. The ABI dropped below 50.0 in October 2022 following a post-COVID-19 pandemic boom. Firm billings declined in 27 of the 30 months that followed, and the ABI registered a score of 44.1 in March 2025 (latest available) due to economic uncertainty. The AIA notes that “this period of softness and uncertainty has been challenging for many firms. And prospects for future work remain soft as well.” Indeed, new work inquiries fell for the second consecutive month in March 2025, and the value of newly signed design contracts declined for the 13th straight month. At the same time, the AIA reports that backlogs are “reasonably healthy” at 6.5 months, on average.

Meanwhile, several of the industry’s largest engineering firms reported strong financial results in recent quarters:

Jacobs Solutions Inc. (“Jacobs”) – Jacobs reported gross revenue of $2.9 billion for its fiscal first quarter of 2025, which ended December 27, 2024, up 4.4% year-over-year. Adjusted net revenue increased 5.1%. Moreover, the firm’s backlog totaled $21.8 billion, up 18.9% year-over-year. Then, during its fiscal second quarter, gross revenue totaled $2.9 billion, up 2.2% year-over-year, with adjusted net revenue up 3.1%. Backlog reached $22.2 billion during the quarter, up 20.0% year-over-year. Bob Pragada, Jacobs’ chair and CEO, notes, “We ended the first half of fiscal year 2025 with solid performance across our business, led by strong Life Sciences, Transportation and Energy & Power revenue growth within Infrastructure & Advanced Facilities (I&AF). Additionally, we saw strong results in PA Consulting, with revenue growth increasing to 5% in the second quarter, driving 12% operating profit growth for the segment.” Pragada adds, “As we look ahead to the second half of the fiscal year, we continue to see tailwinds in both segments from robust bookings as well as a healthy pipeline of opportunities across our end markets. Based on this performance, we are reaffirming our full-year fiscal 2025 guidance.” The firm anticipates that adjusted net revenue will grow “mid-to-high single digits” in comparison to fiscal 2024, with an adjusted EBITDA margin ranging between 13.8% and 14.0%.
NV5 Global, Inc. (“NV5”) – During 2024, NV5 reported gross revenue of $941.3 million, up 10.0% from 2023, while gross profit expanded 13.0% to $483.2 million. Adjusted EBITDA was $143.5 million in 2024, up 7.0% from $133.8 million. Then, during the first quarter of 2025, NV5’s gross revenue totaled $234.0 million, up 10.0% from the first quarter of 2024. Gross profit rose 10.0% to $123.2 million, and adjusted EBITDA expanded 8.0% to $29.7 million. “NV5 delivered strong first quarter results for revenue and profitability, positioning us for an excellent 2025,” says Ben Heraud, CEO of NV5. “Gross revenues increased 10% over the first quarter of 2024, representing 5% organic growth. Cash flows from operations totaled $38 million, which is a 96% increase over the first quarter in 2024. Our performance demonstrates the positive results of our initiatives to accelerate organic growth and cash flows, and we anticipate continued growth in revenue and profitability as we enter what is traditionally our busiest quarters of the year.” As a result of a strong performance during the first quarter of 2025, as well as a strong backlog and opportunity pipeline, Heraud anticipates that gross revenue will total between $1.026 billion and $1.045 billion in 2025.
Stantec, Inc. (“Stantec”) – The firm reported a record-setting year in 2024, with net revenue up 15.8% to $5.9 billion, driven by 7.5% acquisition growth and 7.4% organic growth. Project margin increased 16.4% to $3.2 billion in 2024; notably, as a percentage of net revenue, project margin reached 54.5%, up 30 basis points from 2023. Adjusted EBITDA grew 18.0% to $980.3 million in 2024. Then, for the first quarter of 2025, Stantec reported another record for net revenue, which totaled $1.6 billion, up 13.3% from the first quarter of 2024. This increase was mostly driven by 3.2% acquisition and 5.9% organic growth. During the first quarter, project margin expanded 13.6% to $843.5 million and increased by 10 basis points to 54.3% as a percentage of net revenue. Adjusted EBITDA rose 19.2% to $252.3 million. “Stantec delivered solid first quarter results, supported by strong project execution and operational performance,” says Gord Johnston, president and CEO of Stantec. “Amid a dynamic market environment, we remain confident in our outlook and reaffirm our 2025 guidance. With a record-high backlog of $7.9 billion and a robust pipeline of growth opportunities ahead of us, we are well-positioned to build on our momentum and deliver another record year for Stantec.” The firm anticipates net revenue growth of 7.0% to 10.0% in 2025.
Tetra Tech, Inc. (“Tetra Tech”) – For its fiscal first quarter 2025, which ended December 29, 2024, Tetra Tech’s revenue reached $1.4 billion, up 16.0% year-over-year and a record quarterly high for the firm. Net revenue increased 18.0% to a record $1.2 billion. Backlog also reached an all-time high, up 15.0% year-over-year to $5.4 billion. Then, during its fiscal second quarter of 2025, Tetra Tech’s revenue was up 6.0% year-over-year to $1.3 billion, while net revenue grew 5.0% to $1.1 billion. However, during the quarter, the firm was notified that almost all of its contracts with USAID were terminated. Nonetheless, excluding USAID and the State Department, backlog during the fiscal second quarter of 2025 totaled $4.1 billion, up $127.0 million year-over-year. According to Dan Batrack, chairman and CEO, “We generated record second quarter results for revenue and net income despite the decrease in revenue associated with the reorganization of USAID. Our growth in State and Local, U.S. Commercial, and International revenues more than offset this headwind, which resulted in net revenue and EPS exceeding consensus and the upper end of our guidance range for the quarter.” Overall, Tetra Tech projects that net revenue for fiscal 2025 will range from $4.400 billion to $4.765 billion.

Outlook for 2025

According to the AIA’s Consensus Construction Forecast Panel (“Panel”)—which is an average of the forecasts issued by nine leading economists—total nonresidential building construction spending is forecast to slow “dramatically” in 2025 and 2026, with projected growth of 2.2% and 2.6%, respectively. Institutional construction spending is likely to see the strongest gains, with 6.0% growth anticipated for 2025 and 3.4% in 2026. Meanwhile, commercial construction spending is forecast to expand by 1.7% in 2025 and 4.2% in 2026, while spending in the industrial sector will likely grow by 2.6% and 2.5%, respectively.

The Panel suggests that there are several headwinds expected to impact the nonresidential construction market moving forward, including tariffs on imports—which would be both inflationary to the overall economy and could limit the availability of construction materials—in addition to stricter immigration policy and its enforcement. Notably, the Panel says that immigration policy is “perhaps the biggest policy concern” for the industry due to the fact that, of the 12.0 million construction workers in the U.S., approximately 3.0 million are foreign-born, and of the foreign-born, about half are undocumented. The Panel notes, “The concern is not only the potential deportation of undocumented workers but also the chilling effect on potential new immigrants who might otherwise fill construction positions in the coming years.”

Further, the AIA reports that just over four in 10 architecture firms project revenue growth of 5.0% or more in 2025, while 25.0% anticipate losses of 5.0% or more. One-third of architecture firms forecast that revenue in 2025 will be flat. On average, architecture firms surveyed by the AIA in October 2024 (latest available) anticipate that design billings will increase very modestly in 2025.

Meanwhile, the “Engineering Business Sentiment” study, conducted by the American Council of Engineering Companies’ (“ACEC”) Research Institute between January 14 and January 27, 2025, found that future sentiment is positive across all metrics and improved significantly from the previous survey taken during the fourth quarter of 2024. By sector, future industry sentiment is highest in the data centers, energy and utilities, and industrial and manufacturing facilities segments. In addition, 53.0% of engineering firms anticipate a higher project backlog by early 2026. At the same time, the top concerns of engineering companies include continued upward pressure on existing staff wages (63.0% of respondents expressed concern in this area); continued upward pressure on new hire wages (60.0%); political disruption due to Trump administration policies (44.0%); unknown or unforeseeable events (40.0%); business disruptions due to government cut-backs, furloughs, or shut-downs (38.0%); and project delivery delays or cancellations resulting from high inflation or interest rates (38.0%).

Architecture and Engineering Industry Trends

Infrastructure Investment and Jobs Act (“IIJA”) Celebrates Its Three-Year Anniversary – In November 2021, President Biden signed the IIJA into law. According to a fact sheet published by The White House in November 2024, during the legislation’s first three years, federal agencies announced over $568.0 billion in IIJA funding for over 66,000 specific projects and awards across all 50 states, Washington, D.C., the U.S. territories, and for Tribes. Specifically, this includes improvements on approximately 196,000 miles of roads; work on more than 11,400 bridge repair projects; funding for 580 port and waterway projects; investment in over 400 airport projects to modernize and expand terminals, over 200 of which are under construction or completed; financing for around 2,400 drinking water and wastewater projects, including the replacement of hundreds of thousands of lead service lines; and funding for 95 previously unfunded Superfund projects.
U.S. Department of Transportation (“DOT”) Reviews Grant Awards – According to ENR, at an April 2, 2025, U.S. Senate Committee on Environment & Public Works hearing, Transportation Secretary Sean Duffy affirmed that he would not delay infrastructure projects as the DOT continues to process a historic backlog of 3,200 grant awards dating back to the Biden administration. This discussion came as lawmakers began shaping the next multi-year surface transportation reauthorization bill, following the upcoming expiration of the IIJA. Duffy emphasized his commitment to Congressional directives while navigating political scrutiny tied to changes in funding requirements—particularly the removal of “green and social justice” language added under President Biden. He advocated for reducing federal regulatory hurdles and empowering states to streamline project execution, citing the expedited post-Hurricane Helene repairs on Interstate 40 as a model of innovation. Meanwhile, Senator Shelley Moore Capito, chair of the U.S. Senate Committee on Environment & Public Works, outlined her legislative priorities for the upcoming reauthorization bill, which include improving safety, increasing funding efficiency, and tailoring solutions to state-specific transportation needs.
Presidential Budget Request and Construction Projects – The Trump administration’s proposed discretionary budget for fiscal year 2026 outlines $163.0 billion in non-defense spending cuts, targeting numerous federal programs that support construction, environmental protection, and social initiatives. According to ENR, key reductions include cutting funds for the U.S. Environmental Protection Agency’s water infrastructure efforts, renewable energy programs within the Department of Energy, and the Superfund cleanup program. Conversely, the proposal allocates increased funding for transportation-related construction, including significant boosts to the Infrastructure for Rebuilding America grant program, Federal Aviation Administration infrastructure upgrades, rail safety initiatives, and shipbuilding and port infrastructure. The budget also prioritizes workforce training through the “Make America Skilled Again” initiative, requiring more investment in apprenticeships while cutting other training and employment support programs. While praised by Republicans as a fiscally responsible roadmap, Democrats have denounced the proposal for undermining critical public services and environmental protections.
American Society of Civil Engineers (“ASCE”) 2025 Report Card for America’s Infrastructure – The ASCE released its “2025 Report Card for America’s Infrastructure” in March 2025, awarding the U.S. an overall grade of “C”—the highest since the grading began in 1998 and an improvement from the “C-“ in 2021. The report attributes this progress to increased federal investment from the IIJA, though it emphasizes a continued $3.7 trillion investment gap that must be addressed to fully modernize U.S. infrastructure. The report card evaluates 18 categories, with grades ranging from a “B” for ports to a “D” for stormwater and transit, noting both advancements and ongoing deficiencies. Energy and rail were the only two categories to receive lower grades in this year’s “Report Card.” The ASCE stresses the need for sustained and strategic investment from federal, state, and private entities to maintain momentum, improve economic productivity, ensure public safety, and support resilience in the face of climate change and aging infrastructure.
2024 ASCE Civil Engineering Salary Report – The “2024 ASCE Civil Engineering Salary Report” reveals that civil engineering salaries continue to grow, with a median salary of $135,000—up 6.0% from 2023—though the rate of increase has slowed compared to previous years. Despite this deceleration in salary growth, job satisfaction remains robust: 85.6% of civil engineers report being satisfied or very satisfied with their jobs. Further, the survey highlights high demand in the sector, driven by infrastructure projects advancing from planning to implementation, prompting 8.5% of respondents to change jobs—most citing better pay, new responsibilities, or career advancement. Remote and hybrid work arrangements are declining slightly, with a growing share of civil engineers working fully in-person. The report, based on responses from approximately 3,000 ASCE members, underscores a workforce facing both opportunity and strain amid nationwide infrastructure development.
Rider Levett Bucknall (“RLB”) Survey Results Reflect Economic Uncertainty – A recent RLB survey of fixed tower crane activity across 14 U.S. and Canadian cities revealed a marked hesitancy to advance major construction projects amid lingering economic uncertainty, despite improving financial conditions such as falling interest rates and slowing cost increases. The overall number of cranes remained stable during the first quarter of 2025, but seven cities recorded over 20.0% declines in activity, including a steep 39.0% drop in Seattle, WA. In contrast, Toronto, ON experienced a surge, gaining 23 cranes for a total of 80. New activity was also noted in cities like Honolulu, HI and New York, NY, particularly in residential and multi-use developments.

Recent M&A Trends for the Architecture and Engineering Industry

Morrissey Goodale, a management consulting and research firm, reports that, during the first half of 2024 (latest available), the architecture and engineering industry experienced significant merger and acquisition (“M&A”) activity. The firm tracked 243 transactions involving U.S. design and environmental firms in the first six months of the year, matching the total for the same period in 2023 and second only to 2022’s high-water mark of 268 first-half deals. This surge in M&A activity was driven by several factors, including increased federal funding for infrastructure projects and an emphasis on green building and sustainability practices. Notably, the number of high-value transactions increased in the first six months of 2024, with 11 deals exceeding $100.0 million, up from eight in the first half of 2023. Moreover, demand for firms serving the water and wastewater market was the highest, while transportation infrastructure and energy and power remained strong areas of interest. Other markets that gained traction in the first half of 2024 were the industrial, science and technology, and healthcare sectors.

Further, while private equity (“PE”) and PE-backed firms accounted for 42.0% of transactions during the first six months of 2024, employee-owned buyers completed 126 acquisitions, accounting for 52.0% of all U.S. deals. Five firms completed three or more deals, while three firms made five or more acquisitions. Atwell and LJA Engineering each made six deals during the first six months of 2024, followed by IMEG with five deals. Nonetheless, compared to the first half of 2023, deals announced by employee-owned buyers fell by five percentage points during the first half of 2024 and declined by more than 20.0% over the past five years. Morrissey Goodale indicates that this is a result of “an increasing number of firms [that] have opted to recapitalize.” Regardless, the firm notes that the absolute number of acquisitions by employee-owned firms “remains historically high” because “these firms often boast healthy balance sheets and a steadfast commitment to reinvesting profits into growth opportunities.”

Meanwhile, Morrissey Goodale reports that there are currently over 90 PE firms with active holdings in the architecture and engineering industry, following new investments by Bernhard Capital Partners Godspeed Capital, H.I.G. Capital, Morgan Stanley Capital Partners, New Mountain Capital, and Wind Point Partners. During the first six months of 2024, Blackstone was the most active investor in the industry.

In addition, numerous M&A deals involving architecture and engineering firms took place during the second half of 2024 and the first several months of 2025, including the following:

In June 2024, Southfield, MI-based Atwell acquired Florida-based Biscayne Engineering. This acquisition expanded Atwell’s presence in Florida, adding over 50 employees and establishing its first office in Miami. Biscayne Engineering, founded in 1898, has been integral to South Florida’s development, offering services in engineering and GIS mapping.
In July 2024, Green Bay, WI-based Foth acquired Jacksonville, FL-based Olsen Associates. Foth’s acquisition of Olsen Associates, a coastal engineering firm with over 42 years of experience, enhanced its capabilities in coastal modeling, beach and inlet management, and environmental permitting, particularly in the southeastern U.S., and is a complement to Foth’s strong presence in the Northeast, West, and central/fresh coastal regions.
In August 2024, Dallas, TX-based C1S Group acquired Orlando, FL-based Conquest Engineering. This acquisition brought together C1S Group’s design-build expertise with Conquest Engineering’s strengths in healthcare, municipal, education, and industrial design, expanding C1S’s market expertise and technical resources.
In August 2024, Reston, VA-based Bowman’s acquisition of Robau & Associates, a civil engineering and water resources firm based in Naples, FL, marked a significant expansion into Florida’s southwest region, enhancing Bowman’s service offerings to municipal and private sector clients.
In January 2025, Atwell expanded in the Southeast by acquiring SEI Engineering, a Marietta, GA-based firm specializing in land development and public infrastructure projects. This move strengthened Atwell’s capabilities in the region.
In January 2025, Raleigh, NC-based McAdams acquired the Carolina operations of TPD, formerly known as Traffic Planning and Design, Inc. McAdams expanded its transportation solutions division by acquiring the Asheville, NC, and Greenville, SC, offices of TPD, enhancing its presence in the Carolinas.
In January 2025, Meridian, ID-based J-U-B Engineers acquired Anderson Consulting Engineers, based in Fort Collins, CO. J-U-B Engineers strengthened its water resources engineering capabilities by acquiring the firm, which is known for its expertise in hydrologic and hydraulic engineering across Colorado, Wyoming, Utah, and Nebraska.
In February 2025, Craig Gaulden Davis Architecture, based in South Carolina and Maryland, joined Houston, TX-based design firm PBK. The merger of the two companies expanded the combined firm’s reach across 31 offices nationwide. According to Morrissey Goodale, this will make the company “one of the most comprehensive architectural firms in the country.”
In February 2025, Austin, TX-based Murfee Engineering Company, known for its expertise in water and wastewater infrastructure, joined Amarillo, TX-based Consor, enabling the combined entity to expand its planning and design resources for water and wastewater projects.

Publicly-Traded Architecture & Engineering Firms

Architecture & Engineering Index Performance vs. S&P 500

Sources: S&P Capital IQ and Public Data

Three years after the enactment of the IIJA and the end of the pandemic, A&E firms continue reporting record revenue and backlog. However, uncertainty about the impact of tariffs and immigration enforcement is cooling down growth in the first quarter of 2025.