The construction industry will continue to evolve in 2025, presenting both challenges and opportunities for growth.

The industry was defined by strong fundamentals in 2024, marked by a 10% increase in nominal value added and a 12% increase in gross output. Construction spending crossed US$1.47 trillion and maintained a balanced trajectory in the first half of 2024. An Associated General Contractors (AGC) survey found that 94% of firms were finding it difficult to find craft labor, while 92% were having difficulty filling salaried positions. As a result, some employers are taking a more holistic approach and working on career readiness skills. Despite facing a pervasive talent shortage, the sector’s employment level reached 8.3 million in July 2024, surpassing its previous peak of 7.7 million in 2006. This number has been increasing steadily for more than a year now.

The Dodge Momentum Index (DMI), a measure of nonresidential building spending, has been on a steady rise in the second quarter of 2024, reflecting growing confidence in market conditions among owners and developers. We see stresses in the commercial real estate (CRE) sector, mostly driven by office vacancies, which are powering an increase in adaptive reuse — converting office space to other uses, such as residential. Reports suggest that work-from-home and hybrid work have dramatically reduced office occupancy rates, with vacancy rates plummeting in cities such as Washington DC and San Francisco. This trend doesn’t account for under-use, where tenants entered into longer-term leases but aren’t using their full space. Actual office occupancy appears to be at 50%. When leases on underused spaces expire, official vacancies will increase further.

High interest rates and price inflation continued to affect the residential and commercial segments. The challenging lending market and ongoing weakness in billings of architecture firms are expected to continue through the year. However, construction investment, largely driven by government investments, and an expected decrease in interest rates may provide relief to the industry over the next few quarters.