
After a period of robust growth in construction spending in nonresidential building—commercial, industrial, and institutional facilities—with nearly 20% in 2023 and an additional 6% in 2024, the construction industry is set for a stark slowdown. The American Institute of Architects’ Consensus Construction Forecast predicts subdued growth in the coming years, with increases pegged at just 2.2% for 2025 and 2.6% for 2026 across nonresidential sectors. Spending on institutional facilities is projected to see the strongest gains of 6.0% this year while commercial construction spending is expected to increase by only 1.7% in 2025.
The Consensus Construction Forecast panelists, a group comprised of the leading construction forecasters from across the country,
• Projected gains not expected to increase construction volume: Increases in construction spending so modest that they likely won’t even cover rising material and labor costs
• Increase in spending on offices due to data centers: Overall weakness in that market but projected increase is coming from strong spending on data centers
• Warehouse construction has driven retail and commercial growth, expected to slow: Warehouse construction has become overbuilt in many areas of the country
• Health care and education poised for health gains: The major institutional sectors less prone to boom and bust pattern
Sector-Specific Opportunities and Challenges
Institutional Facilities: These are expected to experience the strongest growth among all sectors, especially in healthcare and education. Projections show a 6.0% increase in 2025, primarily fueled by investments in healthcare and educational facilities. With an aging population, the demand for healthcare facilities continues to evolve, shifting from traditional large hospitals to more accessible community health centers and specialized clinics.
The focus within healthcare is shifting towards smaller, community-based health centers from large institutional campuses, in response to an aging population and consolidation among healthcare providers. This transition opens opportunities for construction firms specializing in smaller, more technologically advanced facilities that can meet the needs of a changing healthcare landscape.
In education, the demographic shifts indicating a decrease in school-aged populations suggest a potential decline in new school construction. However, there remains a significant opportunity for renovation and modernization of existing facilities, particularly to accommodate new technologies and create more adaptable learning environments.
Commercial Construction: This sector’s growth is heavily influenced by changes in the workspace environment, with an increasing shift toward remote work leading to high vacancy rates and reduced demand for traditional office spaces.
Commercial and Retail Spaces: The commercial sector, particularly office spaces, faces significant headwinds due to the rise in remote working. The traditional office market may continue to experience soft demand, but this also presents an opportunity to repurpose and redesign office spaces to suit hybrid working models that blend in-person and remote work. Growth in commercial construction is significantly more tepid, with an anticipated rise of only 1.7% in 2025, improving slightly to 4.2% in 2026.
Similarly, the retail sector can adapt to the growing e-commerce trend by transforming retail spaces into experiential centers that offer services and experiences not easily replicated online.
However, the hotel sector might see better growth rates due to recovering travel and tourism post-pandemic.
Manufacturing and Industrial: The warehousing sector, after years of growth driven by e-commerce, is expected to face a downturn, considered overbuilt in many areas.
The industrial sector will see a modest increase of 2.6% in 2025, but forecasts suggest a contraction of 2.5% in 2026. The industrial sector, particularly manufacturing, has benefited from reshoring but faces future contractions.
Manufacturing facilities, particularly those for computers, electronics, chemicals, and pharmaceuticals, have seen significant investment, driven by reshoring initiatives and increased domestic production due to global supply chain disruptions during the pandemic. Firms involved in the construction of manufacturing facilities must adapt to the cyclical nature of this sector, potentially by diversifying into industries with more consistent investment, like pharmaceuticals and biotechnology, which have shown robust growth and resilience.
Conversely, manufacturing has seen significant growth, partly due to reshoring but also due to specific increases in sectors like plastics, stimulated by domestic oil and gas production.
Data Centers: A notable exception to the broader slowdown is the data center sector, which is projected to see explosive growth of 21.9% in 2025 and 14.6% in 2026. This sector benefits from the increasing move towards digital transformation and the growing need for data processing capabilities.
Economic Influences Impacting Construction
Kermit Baker, the AIA’s Chief Economist, has cited several economic headwinds that are expected to challenge the sector in the near term. "Potential tariffs on imports and the effects of emerging immigration policies on the labor force are anticipated to be significant disruptors," Baker said. The construction industry, reliant on a steady supply of materials such as lumber, cement, and electronics predominantly imported from Canada, Mexico, and China, could face increased costs and supply chain disruptions due to proposed tariffs.
Labor Market Concerns
The labor market is another critical factor in the construction industry’s forecast. With about 12 million workers, approximately three million are foreign-born, including an estimated 1.5 million undocumented workers. Changes in immigration policy could drastically affect the availability of skilled labor, potentially leading to delays and increased costs for construction projects.
The View from Architecture Firms
The forecasted economic environment poses varied implications for architecture firms across the country. While some firms report a pickup in project inquiries and stabilizing commercial property values, overall sentiment remains cautious.
A survey conducted by AIA in October 2024 revealed that while just over forty percent of firms expect revenue gains of 5% or more, a substantial number foresee losses, and many anticipate flat revenues for 2025.
Strategic Adaptations for Construction Firms
Diversification: Construction firms might consider diversifying their project portfolios to include a mix of commercial, industrial, and institutional projects to buffer against the volatility in any single sector. Specializing in sustainable construction practices can also provide a competitive edge, as there is a growing demand for green and energy-efficient buildings.
Technology Integration: Embracing new technologies such as Building Information Modeling (BIM), prefabrication, and modular construction can enhance efficiency, reduce costs, and shorten project timelines. This technological adoption can be particularly beneficial in a market environment where cost pressures are intensifying.
Labor Strategies: With potential disruptions in the labor market due to immigration policy changes, construction firms need to invest in training and development programs to build a more skilled, reliable domestic workforce. Partnerships with trade schools and apprenticeship programs can help mitigate labor shortages and prepare for future demands.
Economic and Policy Monitoring: Firms need to stay informed about economic policies that could impact the construction industry, such as tariffs, tax reforms, and infrastructure spending. Proactive engagement with policymakers and participation in industry associations can help firms influence decisions that affect the sector.
Long-Term Outlook and Strategic Planning
Firms and investors in the construction sector are recommended to engage closely with the detailed forecasts and interactive data available on the AIA’s website. This resource provides invaluable insights into how different segments of the market are expected to perform, aiding strategic planning and investment decisions.
As we look towards 2025 and 2026, the construction industry faces a landscape marked by modest growth projections, influenced by economic policy changes, labor market fluctuations, and sector-specific dynamics. Stakeholders across the industry will need to navigate these challenges with strategic foresight, relying on comprehensive data and adaptive strategies to mitigate risks and capitalize on new opportunities.
“The modest outlook is partly based on a few expected headwinds to building activity, including potential tariffs on imports,” said Baker. “There is also policy concern around how the construction labor force might be impacted by emerging immigration policy. Construction sector spending has been exceedingly strong – albeit unusually unbalanced – and coupled with these headwinds the projections are only very modest gains the next two years.”
Complete details on the latest Consensus Construction Forecast can be found on AIA’s website.