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ITR Experts Say: The Economy and the Midterms
Although midterm elections never occur in an economic vacuum, the notion that the economy is the “key” to their outcome is not true.
Explore strategies to navigate the uneven nonresidential construction market, focusing on data center growth and long-term resilience amid ongoing economic challenges.
Although the broader US economy continues to grow, today's nonresidential construction market tells a more nuanced story.
Overall, private nonresidential construction spending remains in recession, but beneath the surface, market conditions vary dramatically depending on sector exposure. Companies that are participating in the rapid expansion of data center construction continue to experience exceptional growth, while many traditional commercial markets remain under pressure.
Data center investment is creating a growing divide. Construction spending tied to AI infrastructure and hyperscale data centers continues to expand at an extraordinary rate, and it is fundamentally changing demand patterns for electrical equipment, power infrastructure, and HVAC systems manufacturing. Even with this explosive growth, the overall nonresidential construction market remains in contraction, underscoring the challenges facing companies that are not participating in the data center ecosystem.
Despite current weakness, several leading indicators point toward improving market conditions over the next two years. Architectural inquiries are generally climbing, commercial real estate occupancy is showing signs of recovery, lending standards have eased, commercial real estate lending is accelerating, and corporate cash holdings remain strong. Collectively, these indicators support expectations for gradual market improvement during 2027 rather than a rapid construction boom.
The webinar also explores important differences across construction segments. Public infrastructure projects — including highways, bridges, and other state-funded work — continue to benefit from longer planning cycles and infrastructure funding, creating more stable demand than many privately funded commercial markets. Meanwhile, manufacturing construction appears weaker on the surface, largely because of the post-CHIPS Act normalization of semiconductor fabrication projects. Outside of large electronics facilities, broader manufacturing construction appears to be stabilizing.
Connor Lokar also discusses the long-term outlook for the data center market. While forecasts remain favorable through 2027, businesses should recognize that today's extraordinary growth rates are unlikely to persist indefinitely. Companies heavily benefiting from data center work are encouraged to maintain customer relationships in healthcare, education, transportation, and other commercial markets to preserve their market share when the current cycle eventually moderates.
Long-term strategic positioning is essential. Demographic trends continue to favor the Southeast, Texas, and many Interior Western states, while population growth remains sluggish across several Midwestern and Northeastern markets. Combined with construction's inherently lagging nature, these trends provide businesses with valuable visibility into future market shifts and allowing organizations to make more informed decisions around investment, expansion, forecasting, and resource allocation well before broader market conditions change.
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