1. Economic Outlook and Growth Projections
- Overall Industry Growth: The U.S. construction industry demonstrated robust performance in 2024, with a 10% increase in nominal value added and a 12% rise in gross output. Construction spending surpassed $2 trillion, maintaining a balanced trajectory into the first half of 2024. Employment levels reached 8.3 million in July 2024, exceeding the previous peak of 7.7 million from 2006.
- Sector-Specific Trends:
- Manufacturing: The U.S. manufacturing construction sector is anticipated to stabilize in 2025, following significant growth driven by reshoring efforts and supply chain realignments. Federal initiatives like the CHIPS and Science Act have catalyzed substantial investments in semiconductor manufacturing and other high-tech industries, leading to nearly 200 large-scale manufacturing projects valued at approximately $400 billion and potentially creating around 135,000 jobs.
- Hospitality: Hospitality construction is projected to experience a 4% to 6% growth in 2025, driven by improved financing conditions, increased travel demand, and strong expansion in the hotel sector.
2. Impact of Tariffs on Construction Costs
- Increased Material Costs: The implementation of 25% tariffs on imported steel and aluminum has led to higher prices for some essential building materials. For instance, steel prices have risen by 4%, and softwood lumber costs have increased by nearly 3%, as contractors face higher input prices due to these tariffs. Canadian lumber was exempt from the tariffs, so we also anticipate that the lumber markets will eventually settle.
- Broader Economic Implications: These increased costs are contributing to broader inflationary pressures, affecting both builders and consumers. The National Association of Home Builders (NAHB) estimates that tariffs on building materials could raise the cost of constructing a single-family home by approximately $9,200 per home. For commercial projects, the impact varies greatly depending on the type of materials used. For a typical TI project, we haven't seen significant cost increases yet.
3. Technological Integration and Innovation
- Off-Site Construction: The industry is increasingly adopting off-site construction methods to enhance efficiency and reduce costs.
- Digital Tools: The integration of artificial intelligence, building information modeling (BIM), and project management software is streamlining operations and improving project outcomes.
4. Labor Market Dynamics
- Workforce Challenges: The industry continues to face labor shortages, particularly in skilled trades, leading to project delays and increased labor costs. For example, the U.S. Bureau of Labor Statistics reports that 40 states have seen an increase in construction employment, with Alaska, Hawaii, Oklahoma, Nevada, and Montana experiencing the largest gains. However, Oregon reported a 4% drop in construction jobs, highlighting regional disparities.
- Workforce Development: Initiatives to attract new talent and upskill existing workers are critical to addressing these shortages.
5. Sustainability and Environmental Considerations
- Green Building Practices: There continues to be a growing emphasis on sustainable construction methods, with a focus on reducing carbon footprints and enhancing energy efficiency.
- Regulatory Compliance: Adherence to evolving environmental regulations is driving the adoption of sustainable materials and practices.
What’s Next for 2025?
The commercial construction market is poised for cautious optimism. Growth is steady but uneven, with economic headwinds tempering private-sector enthusiasm. Yet, opportunities abound in niche sectors - data centers, infrastructure, and sustainable retrofits are set to dominate. The winners will be those who adapt quickly, leverage technology, and prioritize resilience.
At Avara, we’re ready. Our team combines deep industry insight with hands-on innovation to turn trends into results. Whether you’re breaking ground on a cutting-edge facility or reimagining an existing space, we’ve got the expertise to make it happen.
