Navigating Construction Industry Volatility in 2025

Unparalleled challenges: The 2025 U.S. construction landscape

From AI to tariffs to workforce, real estate decision makers are facing some of the biggest and toughest questions ever on their projects this year.

The U.S. construction industry entered a period of uncertainty in 2025. New developments in global trade, potentially impacting construction materials costs alongside changes in domestic immigration policy are two areas in focus for the sector right now. As explored in JLL’s 2025 US Construction Outlook, the industry faces greater volatility and cost growth this year. Commercial real estate decision-makers pursuing opportunities in 2025 and beyond will need to navigate these complexities thoughtfully, especially when it comes to balancing long-term real estate plans with short-term volatility.

Entering a new cycle at a complicated moment

Upcoming changes to federal policy, particularly those that involve tariffs, could cause construction materials costs to rise in 2025. Roughly one-third of construction-related goods are imported, and about half of those come from Mexico, Canada or China. The specific items and their sectoral impact vary from partner to partner and the lack of certainty on the nations and goods are facing cost increases complicates forecasting and budgeting for projects. 

With construction activity from the current cycle declining and limited projects refilling the pipeline, 2025 is a critical year for the industry. Positive signals from falling interest rates and material cost stability in 2024 guided contractors in difficult decisions around margins and staffing, and most prioritized labor retention in anticipation of work picking up. As a result, finances are stretched thin and backlogs have little padding, compromising firms’ ability to be proactive around changing conditions for construction materials. The obvious strategic responses to tariffs and other trade related problems like stockpiling are not financially feasible for most, while global conflicts and supply chain issues are significant practical barriers even for well-capitalized contractors considering their options.

Domestically produced construction materials are subject to shifts in supply and demand from tariffs too and will see costs increase as a result. With prices down significantly from peak, production has slowed for several major construction goods, and stakeholders have little incentive to increase supply in the near term to counteract tariffs. The U.S. steel industry is running at 76% capacity but, after major declines in prices in early 2024, has little incentive to offset cost increases with more production. Similarly, annual softwood lumber production capacity has slowed since the COVID-19 bubble burst in 2022, with curtailments and sawmill closures in the US (and Canada). For more complex finished goods, the ability to increase production in the short run is limited. HVAC orders are at historic highs, yet domestic production is lagging, and an increasingly large portion of demand—almost 36% in 2024—is getting filled by imports.

How CRE Decision-Makers Can Navigate These Challenges

Commercial real estate strategy can still be proactive even when the construction industry is in a reactive mode. Engaging with an expert partner that can offer industry expertise, strategic guidance and informed solutions can help decision-makers successfully navigate the current environment. Here’s a look at how JLL is helping clients do now to stay ahead of the curve with their real estate:

1. Leverage Global Knowledge Locally: From labor shortages to local regulations, a global knowledge platform prevents unexpected challenges and allows JLL to apply innovative approaches and best practices from across the globe.
   
   
2. Prioritizing Capital Planning: Evaluating and managing real estate needs along different timescales remains critical. JLL balances addressing project-level impacts to reduce short-term risk with achieving broader organizational goals.
   
   
3. Strategic and Alternative Sourcing: Understanding the individual risks for each project lets JLL leverage strategic sourcing to manage supply chain disruptions and costs. Landfill diversion and reuse tactics can relieve pressure due to procurement challenges while achieving corporate sustainability goals.
   

By taking a proactive approach and working with experienced partners, commercial real estate decision-makers can navigate the challenges of 2025 and mitigate the risks associated with rising costs and industry volatility. Staying informed about market trends, policy changes, and innovative solutions will be key to success in this evolving landscape.

To learn more about the challenges and opportunities facing the construction industry in 2025, download the 2025 U.S. Construction Outlook.