2025 U.S. Construction Outlook​

As 2024 draws to a close, the construction industry reflects on a year of contrasts. The first three quarters saw consistent costs, the start of interest rate cuts, and high activity levels, indicating a healthy sector despite financing challenges and the current pipeline waning. However, the year's end brought new variables: natural disasters in the Southeast were followed by major political shifts in the U.S., both major disruptions to the construction industry’s expected trajectory into 2025. The 2025 forecast addresses the challenges and opportunities, with guidance on key areas to succeed with these shifting foundations. While changes in regulatory, fiscal and trade policies will take time to solidify, the fundamental need for transformative growth in the built environment and areas of focus for CRE stakeholders remain clear.​

The construction industry’s incredibly strong performance in 2024 will be followed by a more modest 2025. The Architectural Billings Index reported contractions for nine of the last twelve months and starts have been at record lows; impacts that will appear in the spending data over the next few months. ​Nevertheless, interest rate cuts and increased loan originations, should make for a robust round of starts in late 2025 and drive net spending growth for the year. However, federal policy changes may alter this trajectory, potentially affecting factors such as infrastructure spending, trade policies and regulatory environments.​

Going forward, leaders should anticipate continued evolution in demand while preparing for potential project delays. Economic and environmental factors on project feasibility across diverse regional markets have shifted with recent natural disasters and will have consequences for years to come.

After a respite in 2024, construction materials and costs are poised to resume growth, signaling a pivotal moment for commercial real estate decision-makers. Although elections introduced uncertainty around environmental and energy policies, the push for green building practices, energy efficiency and reduced carbon footprints will continue shaping project requirements through local regulations and client targets. ​

Data centers, healthcare and advanced manufacturing have embraced sustainability as integral to growth, putting extensive pressure on related materials. With added shocks from natural disasters, prices are set to rise in 2025 across a broader range of inputs. Having the right technologies and team is critical for managing costs. However, technical capacity is in short supply within the construction industry and corporate real estate function as well.

The trajectory of the environment, built and natural alike, is shifting with people, policies and development. Where and how we work and live has changed at an accelerated pace. Supporting this uneven pattern of growth is an increasing challenge, especially as the construction industry continues to face structural challenges with labor, compounding climate risks and revised policy objective.

To capitalize on the virtuous cycles of growth and capacity in the construction industry, CRE leaders should focus on existing and future resilience of their assets and the surrounding regions. They need to be prepared for the impact of infrastructure investments and be ready to leverage the interconnected nature of development, where one resilient project can spur resilience across a city.

The construction industry is primed for growth, but this expansion comes with complexities. The strategic positioning of real estate required to navigate environmental, social, demographic and financial changes is far from simple or uniform. Leaders must balance short-term operational efficiency with long-term goals, all while adapting to rapidly changing organizational needs, technological advancements, and policy priorities.​

In this complex landscape, the value of real estate lies in its ability to drive organizational value through strategic space utilization, technological integration and sustainable practices. While uncertainties may arise in the short-term, those who can effectively balance these diverse factors and maintain focus on long-term objectives will be best positioned to thrive as the construction industry continues to evolve.​