Breaking New Ground in Nonresidential Construction

Leading indicators such as Architectural Billings remain subdued, signaling that project pipelines are sluggish. Overall, we expect softness to extend into the first half of next year before positive momentum begins to build in the second half of the year, with outcomes highly varied by specific vertical market. This cycle just does not have the ultra-low interest rates that fueled earlier construction surges, although some bright spots may be found in construction related to data centers and in the public component of nonresidential construction.

The Outsized Impact of Megaprojects

High borrowing costs continue to weigh on private development and reshape the construction landscape. Financing headwinds and tariff-related uncertainty have paused many planning-stage projects, moderating the volume of project bids. However, the value of “megaprojects” (projects costing $1 billion or more) was up 47% over the first three quarters of the year compared to the same three quarters in 2024, according to ConstructConnect. Megaprojects now account for around one-fifth of total nonresidential construction spending, a trend that highlights the regional variability of opportunities. Understanding whether to expand into new regions and knowing which regions to expand into will be of utmost importance.

Labor Pressures, Immigration, and Tariffs

Finding and retaining qualified workers remains one of the construction industry’s defining challenges. While the nonresidential construction market continues to add jobs, hiring has slowed considerably. Firms are advertising fewer openings even as pay rates rise. The imbalance between labor availability and project demand will continue to constrain growth and raise costs in 2026.

The construction labor force is heavily reliant on immigration, but the extent of that reliance is highly variable depending on the state (between 1% and 53%). Among the most heavily reliant are Washington DC (53%), New Jersey (52%), California (52%), Texas (51%), Maryland (50%), Nevada (48%), Florida (47%), and New York (46%) as of 2023 data. ITR Economics does not have an opinion on immigration policies, nor do we forecast political events. Instead, we lay out the economic impact of the policy. We want clients to know that businesses selling into construction end-markets should be aware of potential labor disruptions. This could lead to some investors scaling down or delaying projects in immigration-reliant states, or it could result in higher abandonments in 2026 that could leave suppliers and developers in a difficult spot. Companies that sell into construction markets should take extra care to evaluate their level of exposure and employ insurance and risk management strategies accordingly.

Key Takeaways

Nonresidential Construction’s next growth phase will likely be uneven. High-tech projects will provide a buffer against the softer manufacturing construction sector, while localized political and regulatory environments will continue to shape regional opportunities.

For industry leaders, adaptability through flexible sourcing, workforce retention strategies, and careful capital allocation will be essential as the market transitions from stabilization toward selective recovery in 2026.

• Plan for higher costs: labor shortages and tariffs suggest pricing pressures ahead.
• Target markets of opportunity — do your research on regional growth and specific opportunities/threats in vertical markets (see the ITR Trends Report^TM for help).
• Do not skimp on your risk management; you might need more of a cash buffer in 2026 than is typical for this phase of the business cycle.