- Construction ended 2025 with broad nonresidential slowing, while data centers and infrastructure stayed relatively strong amid high rates and costs.
- Nationwide expects cautious improvement in 2026 as input costs and financing ease and federal incentives support select segments.
- Severe skilled-labor shortages from retirements, immigration limits, and wage pressure are likely to constrain capacity into early 2026.
- Key risks are tariff-driven materials inflation, supply-chain uncertainty, and a potential demand drop as IIJA funding sunsets in October 2026.
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The recent Nationwide Mutual report “End‐of‐Year Construction Outlook: What to Know Heading into 2026” details an industry in transition. 2025 has been characterized by sluggish nonresidential building activity—with high financing costs, tariff‐related material inflation, labor shortages and policy uncertainty weighing heavily. The standalone successes in data centers and infrastructure suggest that where there is public investment or compelling demand (especially tech‐driven), construction continues to perform.
Labor is one of the most critical pinch points. Although demand for new construction has soft‐ened, the supply of skilled labor remains constrained. Aging tradespeople, restrictive immigration policies, and retirements are shrinking capacity. Wage pressures persist—a double‐edged sword: necessary for attracting workers but squeezing margins.
Input costs remain elevated. Tariffs, trade policy, and constraints on domestic supply have inflated the costs of key materials such as steel, aluminum, copper, and plastics. Shawding inventories and modest tariff increases in 2025 may worsen in 2026. Carve‐outs in recent federal tax incentives (for clean energy, domestic production) could help alleviate strain depending on firms’ ability to shift sourcing.
Public sector and infrastructure spending stands as an anchor. IIJA funding has supported highways, water/sewer, and civil engineering, partly mitigating slower activity in private commercial and manufacturing segments. But with IIJA funds set to sunset in October 2026 and with increasing pressure for federal spending cuts, firms reliant on public contracting face an uncertain pipeline.
Residential construction is showing signs of bottoming. Elevated mortgage rates and affordability constraints depressed single‐family and multifamily starts in 2025. Forecasts from NAHB and ConstructConnect anticipate modest gains in single‐family in 2026, though multifamily may continue to decline or stagnate.
Strategic implications for investors, contractors, and risk managers are clear. Firms positioned in infrastructure, technology‐intensive nonresidential (like data centers), or specialty trades resilient to interest rates may outperform. Tight cost controls, supply chain diversification, anticipatory risk management (especially for labor and input costs), and alignment with federal incentive programs will be critical. Open questions include timing of rate cuts, clarity around infrastructure funding reauthorization post‐IIJA, and how persistent tariffs and trade policies will shape input cost trajectories.
Supporting Notes
- Nationwide notes that nonresidential construction slowed in 2025 due to high costs and interest rates, with data centers an exception.
- Labor demand in construction softened while supply shrank; shortages driven by retirements and immigration policy constrain hiring in 2026. Wage pressure remains elevated.
- Input costs remained mostly stable during 2025, but tariff‐related increases are expected to rise as inventories deplete; trade uncertainty remains a risk.
- Infrastructure‐funded heavy & civil engineering segments performed well in 2025, but IIJA funding is scheduled to expire in October 2026, posing risk to future public works.
- According to ConstructConnect’s winter 2025 forecasts, 2025 construction spending is projected to contract ~3.3%, with strong rebound—7%+ growth—anticipated in 2026 and 2027.
- Consensus Construction Forecast from AIA projects nonresidential building spending gains of 2.2% in 2025 and 2.6% in 2026; commercial spending in particular expected to climb to ~4.2% in 2026.
- NAHB forecasts single‐family housing starts at ~944,000 in 2025 (down ~7%), with only ~1% growth expected in 2026; multifamily starts modest rebound in 2025 then decline.
- ABC reports that construction input prices rose ≈43% since early 2020 through Sep 2025; fabricated structural metals and wire/cable among worst hit.