Racing to keep up…
Image courtesy Maico Amorim - Unsplash
Over the past decade, competition within the AEC industry has intensified, fundamentally reshaping traditional business models and prompting firms to rethink their strategies in order to stay competitive. Industry consolidation, demographic shifts, and the blurring of roles and boundaries between participants have all contributed to a fiercely competitive environment.
Firms of all sizes are now navigating a range of pressures, forcing them to innovate and find ways to stand out in an increasingly crowded marketplace. Read on to learn about the major shifts transforming the practice environment and the challenges firms are facing in this evolving industry.
DEMOGRAPHIC AND CULTURAL SHIFTS
Until recently, most firms relied heavily on long-standing relationships and professional networks built through school, the golf course, and church to procure work. Project teams typically consisted of the same firms, with work protocols developed over years of collaboration. However, the landscape has drastically changed, and the days of relying solely on tight-knit, relationship-driven networks are fading. Baby boomers are retiring, passing the baton to Gen X and Millennials, who are now being joined in the workplace by Gen Z. At the same time, immigration has diversified Canada’s workforce, introducing talent from all corners of the world.
This shift is not only demographic but also cultural. The internet, social networks, and digital technologies are now integral to the lives of younger generations, shaping how they perceive the world and assess people and companies. While older firm leaders may still downplay the importance of a polished website, believing "that's not how we get work," younger professionals, tasked with assembling project teams and with sourcing subconsultant and suppliers—are more likely to choose firms with a sophisticated digital presence that aligns with the latest design trends. As the workplace continues to evolve, firms must refine their marketing tools and presentations to meet the expectations of this new, digitally savvy clientele.
AN EVOLVING COMPETITIVE LANDSCAPE
Competition in the AEC industry has taken on new dimensions, driven by three major factors:
Consolidation: Over the last 20 years, the AEC industry has experienced unprecedented consolidation. Canadian mega-firms like WSP [70,000+ employees], Atkins Réalis [40,000+ employees], and Stantec [30,000+ employees] have emerged as dominant players, competing directly with much smaller regional firms. These conglomerates offer “one-stop-shop” solutions, challenging traditional collaboration models and creating new pressures for smaller firms.
Globalization and Starchitects: High-profile cultural and institutional projects often prioritize foreign “starchitects” over local talent. This trend has relegated many Canadian firms to supporting roles. This pattern repeats itself at the regional level, where large firms from Toronto and Montreal dominate projects in other parts of the country. For smaller or regional firms, competing on this globalized stage is an uphill battle.
Blurring Roles: The traditional role of architects as “prime consultants” is diminishing. General contractors, real estate giants, and vertically integrated firms are expanding their scope, taking on responsibilities like pre-design work and project management. This shift has disrupted the industry’s traditional hierarchy, forcing architects to adapt to new competitive realities.
INDUSTRY PLAYERS “WEARING NEW HATS”
Image courtesy Mario La Pergola - Unsplash
Real Estate Conglomerates: Once focused on brokerage and leasing, these firms have expanded into design and construction, offering end-to-end services that include engineering, architecture, workplace design, and project management.
Their sales expertise and integrated approach are reshaping the competitive landscape. Often the first point of contact for clients due to their brokerage businesses, these professionals quickly sell their full range of services, positioning themselves as one-stop shops. This proposition is highly attractive to clients and effectively shuts out traditional design firms, who in previous years would have handled the design and project management. For professional services firms, which were once restricted from actively promoting and "selling" their services, these sales-driven, integrated service providers are proving to be tough competitors.
Design-Build Ventures: Construction firms partnering with licensed architectural technologists are increasingly gaining market share, particularly in residential and small-scale commercial projects. By offering design-build and design-product-build services, these ventures provide a cost-effective and efficient alternative to traditional project delivery models. As clients seek faster, more cost-efficient solutions, design-build ventures are becoming a compelling choice, disrupting the traditional separation between design and construction services.
A CHANGING PROCUREMENT LANDSCAPE
Mid-sized and smaller architecture, engineering, interior design, and construction firms face significant challenges in navigating the evolving procurement landscape. High competition from larger national and international firms, along with multi-stage bidding processes, makes it difficult for smaller firms to stand out. These firms often struggle with costly and complex bids, where the financial impact of losing a proposal can be substantial. Additionally, stringent qualification criteria, such as high experience or revenue requirements, frequently disqualify smaller firms, even if they are capable of completing the work.
The administrative burden of compliance is another challenge, with extensive paperwork, security clearances, insurance, and bonding required for each bid. These demands, coupled with risk-heavy contract terms and slow payment cycles, further strain smaller firms. Many are unable to meet the stringent conditions or take on projects due to the financial and operational risks involved. As procurement processes grow more complex, the mismatch between the capabilities of smaller firms and the requirements of the system reduces their chances of participating in public infrastructure projects, limiting diversity in the industry.
FEE PRESSURES
Lastly, the tried-and-true competitive tactic of lowering fees has become a common strategy as competition intensifies across the AEC industry. Many firms are resorting to aggressive pricing to secure projects, often sacrificing profitability in the process. This approach, driven by the pressure to remain competitive and win contracts, can lead to a race to the bottom, where firms are forced to compromise on pricing just to stay in the game and expand their portfolios.
At the same time, large firms are leveraging their economies of scale to offer lower prices, using their size and resources to "buy" market share. This puts smaller firms at a disadvantage, as they struggle to compete on price without the same financial flexibility or manpower. However, nimble boutique firms can undercut competitors by keeping their overheads low, allowing them to offer competitive pricing while maintaining quality. General contractors and vertically integrated firms are further increasing the pressure by offering bundled services, combining design, construction, and project management under one roof at highly competitive rates. This makes it harder for traditional design firms to stand out unless they match these lower prices. As a result, many firms are reevaluating their pricing strategies, seeking ways to deliver value more efficiently—often at lower margins—just to remain competitive in this challenging market.
