Commercial Construction Trends & Outlook in 2025

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The commercial construction industry is gearing up for an exciting year in 2025, with exciting growth opportunities across sectors like multifamily housing, healthcare, and hospitality and, technology trends becoming more important. The outlook is extremely positive.

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While challenges like labor shortages and rising costs remain at the forefront, there’s plenty of optimism. Think of this year as a new blueprint—filled with challenges, sure, but also brimming with ways to build bigger, better, and smarter.

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And hey, if you’ve ever wished for fewer surprises on the job site, innovations like AI and modular construction might just be the subcontractors of your dreams.

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Let’s dive into the trends shaping the industry and how you can use them to your advantage.

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Highlights of What to Expect in 2025

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Global Construction Growth: Forecasted at 3.0%.
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U.S. Commercial Construction Growth: The AIA consensus forecasts, forecasts the commercial construction industry growing by 2% next year. However they also predicted 2024 to be a slower year but it ended up exceeding expectations by a lot.
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Fastest Growing Commercial Construction Industries in 2025: Hotels, health and education.

U.S. Construction Starts: Projected to rise by 8.5%.
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Fastest-Growing Sectors in Commercial Construction: Data centers, healthcare facilities, and retail projects are among the fastest-growing sectors in 2025
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Key Challenges: Persistent labor shortages, rising costs, and supply chain disruptions may impact timelines and budgets. More on how to address these challenges below

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The overall stock market is trending in the right direction. But what about construction?

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Economic Outlook Shaping the Industry
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Interest Rates: Lower interest rates in 2025, following Federal Reserve cuts in late 2024, are expected to make financing more accessible across all commercial construction sectors. Reduced borrowing costs will likely revive delayed projects, boost private-sector investments, and enable long-term infrastructure planning.
Inflation: Stabilized inflation in 2025 is expected to create a more predictable environment for budgeting and investment, reducing risks associated with fluctuating material and labor costs. This stability will boost confidence in funding large-scale projects and encourage long-term growth across commercial construction sectors. While some material costs may remain elevated due to supply chain issues, the broader trend toward moderation supports steady industry expansion.
Infrastructure Investments: Infrastructure investments are expected to increase in 2025, driven by funding from federal programs such as the U.S. Infrastructure Investment and Jobs Act. Key areas of focus include highways, bridges, water systems, and energy infrastructure, with significant allocations toward green initiatives and modernization efforts.
Material Costs: Material costs are expected to rise by 3%-6% in 2025, driven by natural disasters, inflation remaining higher for construction materials, ongoing supply chain disruptions, and potentially new tariffs.
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Actionable Insight: Contractors should lock in long-term supplier contracts and explore alternative materials to mitigate rising costs.
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Workforce and Supply Chain Trends

Workforce Challenges

The industry faces significant hurdles in workforce recruitment, retention, and skill-building:

Labor Shortages: Over 900,000 additional workers are needed in 2024-2025, with 300,000-400,000 job openings each month.
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Aging Workforce: More than 20% of workers are over 55, and nearly 40% will retire by 2035.
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Attracting Young Talent: Misconceptions about the industry and a societal focus on college education deter younger workers.
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Skills Gap: 62% of firms report candidates lacking essential skills or certifications.
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Retention Issues: High turnover persists, with many new hires leaving shortly after starting.
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Training Needs: Specialized training programs are critical for addressing skill deficits and boosting efficiency.
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Most Affected Trades: Electricians, carpenters, plumbers, HVAC technicians, heavy equipment operators, and concrete workers are among the hardest-hit trades. This might give you some insight into the most profitable construction trades.
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Actionable Insight: Partner with trade schools, and vocational programs and create internal training pipelines to build a skilled workforce. Train your team and sub-contractors and treat them right in order to retain them
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Supply Chain Challenges

Ongoing disruptions continue to affect construction timelines and costs:

Persistent Disruptions: Supply chain challenges from 2020 still linger, impacting material availability.
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Rising Costs: Construction costs are expected to increase by 3%-6% in 2025.
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Material Shortages: Stockpiles are expected to dwindle by February 2025, causing potential delays.
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Potential Tarrifs: Potential new tariffs on imports from the new administration.

Actionable Insight: Diversify suppliers and invest in predictive tools to anticipate shortages and optimize procurement.

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Sector-Specific Trends in Commercial Construction for 2025
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1. Multifamily Construction

Growth: Starts projected to rise 9.5%, reaching 362,000 units.
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Opportunities: Occupancy rates are expected to remain high at 94%, presenting a strong case for continued investment in multifamily projects. Rising urbanization and a growing preference for rental housing among younger generations further bolster the sector. Office to residential conversions will continue to be popular.
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Challenges: High-growth markets like the Sunbelt face oversupply risks, with potential pressure on rental rates and slower lease-up times.
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2. Manufacturing Construction
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Growth: 6.9% growth in starts for 2025, driven by investments in advanced manufacturing and clean technology.
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Opportunities: The U.S. manufacturing construction sector is poised for stabilization in 2025, following significant growth spurred by reshoring efforts and supply chain realignments. While the rapid expansion observed in previous years is expected to moderate, the sector remains robust, with continued investments in advanced manufacturing facilities and clean technology production.

Federal initiatives like the CHIPS and Science Act have catalyzed substantial investments in semiconductor manufacturing and other high-tech industries. These policies have led to nearly 200 large-scale manufacturing projects, collectively valued at approximately $400 billion, potentially creating around 135,000 jobs.
Challenges: Labor shortages in specialized fields and potential policy shifts could delay projects. For instance, TSMC's Arizona fab faced delays due to skilled labor shortages.
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3. Hospitality Construction
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Growth: Hospitality construction could see an 4 - 6% growth in 2025, driven by improved financing conditions, increased travel demand, and strong expansion in the hotel sector.
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Opportunities: Developers are heavily investing in hotels, resorts, and urban accommodations to meet rising tourism demand, especially in high-tourism and urban regions. Projects focused on boutique hotels and large-scale resorts provide significant opportunities for contractors with expertise in creative layouts and complex builds. Hospitality developers are also focusing on offering unique experiences, positioning contractors to deliver on innovative design and functionality.
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Challenges: Rising construction costs and unpredictable travel patterns may impact project profitability. Contractors must navigate fluctuating material prices and labor availability.
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4. Retail Construction
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Growth: Anticipated growth of 2%, fueled by rising consumer spending and reimagined retail spaces.
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Opportunities: The revitalization of retail includes mixed-use developments that combine shopping, dining, and entertainment to create experiential spaces. These projects require contractors skilled in creating adaptable, multi-purpose designs. Retail developers are also focusing on converting underperforming spaces, like traditional malls, into thriving community hubs, offering another area of opportunity. Mixed-use developments combining shopping, dining, and entertainment offer significant opportunities. Revitalizing underperforming malls into community hubs is another growing trend.
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Challenges: E-commerce continues to reshape retail, requiring hybrid shopping spaces and innovative designs. Rising material and labor costs remain obstacles.
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5. Healthcare Construction

Growth: Construction starts are estimated to be up 11% and overall growth up 4%. Robust growth is expected, driven by outpatient services, senior care, and mental health facilities.

Opportunities: Healthcare providers are investing in facilities that prioritize patient-centric care, including outpatient clinics, ambulatory surgery centers, and wellness-focused senior living communities. Large-scale hospital expansions and specialized centers for oncology, cardiology, and behavioral health are also on the rise. Contractors can differentiate themselves by offering expertise in compliance with healthcare-specific regulations and innovative designs that improve operational efficiency.
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Challenges: Rising costs for specialized materials, strict regulations, and labor shortages add complexity to projects.
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6. Education Construction

Growth: Overall growth of 4% is predicted. Steady growth in K-12 and higher education facilities due to federal and state funding but also by the expansion of new private education trends.

Opportunities: Key opportunities include building modernized classrooms, STEM labs, and multipurpose facilities to meet the demands of 21st-century education. Contractors specializing in flexible and modular designs can capitalize on the growing trend toward adaptable learning spaces. Higher education institutions are also investing in residential halls and athletic facilities to enhance campus experiences and attract students.

Challenges: Budget constraints and rising costs require creative solutions. Tight construction windows to avoid disrupting academic schedules add pressure.
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7. Senior Living Construction

Growth: Projected growth of 5–7%, driven by the aging Baby Boomer population.

Opportunities: Developers are focusing on wellness-oriented designs, including features like walking trails, fitness centers, and social spaces to cater to active seniors. There is also increasing interest in mixed-use senior living communities incorporating retail and medical facilities. Contractors with experience in healthcare construction and specialized senior care features can find opportunities in this growing sector.Developers are focusing on wellness-oriented designs with fitness centers, walking trails, and social spaces. Mixed-use senior communities with retail and medical facilities are also gaining traction.

Challenges: Rising land and construction costs, labor shortages, and stringent safety regulations create hurdles.
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8. Military and Government Projects

Growth: Projected growth of 3–5%, depending on policy shifts under the new administration.
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Opportunities: Key opportunities include constructing advanced training facilities, cybersecurity hubs, and energy-efficient government buildings. Contractors with expertise in security compliance and large-scale infrastructure projects will find significant demand. Additionally, there is an increasing focus on disaster preparedness, leading to investments in resilient design and technology for public infrastructure.Key projects include advanced training facilities, cybersecurity hubs, and disaster-resilient public infrastructure.
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Challenges: Complex procurement processes, material shortages, and high competition for contracts pose significant challenges.

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9. Data Centers and Technology Construction

Growth: Data center construction is expected to grow by 24%, driven by AI processing, cloud storage, and mobile data demands.
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Opportunities: Developers are prioritizing energy-efficient and high-capacity data centers to support advancements in AI, 5G networks, and edge computing. Contractors specializing in mission-critical infrastructure, advanced cooling systems, and renewable energy integration are well-positioned to benefit. Emerging trends include modular and prefabricated designs for faster deployment and scalability.Developers are prioritizing energy-efficient, high-capacity designs with modular solutions for scalability. Contractors specializing in advanced cooling systems and renewable energy integration are well-positioned.
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Challenges: Specialized expertise in electrical systems, cybersecurity, and site selection processes is essential. Rising material and energy costs add to project complexity.

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Technological Trends in Construction: 2025 and Beyond

The construction industry is rapidly embracing cutting-edge technologies to address challenges like labor shortages and cost management while staying competitive. Here’s a concise overview of the top innovations transforming the field.

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Yes, I did make this with Ai and I am proud of it.

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Artificial Intelligence (AI) Impact on Construction

What It Is:
AI uses data to automate and optimize workflows, helping contractors plan, execute, and manage projects more efficiently.
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How It Helps:
AI improves scheduling, quality control, and safety monitoring. For example, it can predict weather delays, analyze site photos for errors, and streamline bidding by generating accurate proposals based on historical data.
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AI in Action: Real Use Cases:
Tools like ALICE Technologies optimize schedules, Doxel detects errors in real-time, Smartvid.io monitors job site safety, and Procore simplifies cost estimation.
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Modular Construction

What It Is:
Modular construction involves building components off-site and assembling them on-site, speeding up timelines and improving quality.
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How It Helps:
This method reduces waste, improves safety, and accelerates project delivery. Healthcare facilities and multifamily housing are common applications.
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Modular Construction: Real Use Cases:
Factory OS uses modular techniques for apartments, while Modular Building Institute supports rapid healthcare facility expansions. Remote projects benefit from modular solutions by Katerra.
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Building Information Modeling (BIM) and Digital Twins

What They Are:
BIM is a 3D modeling tool for planning and managing projects, while digital twins are dynamic replicas of physical structures.
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How They Help:
These tools enhance collaboration, reduce planning errors, and simulate real-world scenarios like energy efficiency or structural durability.
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BIM and Digital Twins: Real Use Cases:
Autodesk enables seamless coordination for large projects, while Willow offers digital twins to optimize energy performance and streamline renovations.
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Drones: Transforming Construction from Above

What They Are:
Drones provide aerial views for surveys, inspections, and progress tracking.
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How They Help:
They save time on manual surveys, improve safety by reducing worker risks, and offer real-time updates to stakeholders.
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Drones in Action: Real Use Cases:
DJI and Propeller Aero supply drones for site monitoring, while developers use them to share progress updates with clients.
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Robots and Automation

What They Are:
Robots perform repetitive or hazardous tasks like bricklaying and material handling, while automation systems streamline workflows.
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How They Help:
They enhance precision, reduce labor costs, and improve safety by minimizing worker exposure to high-risk environments.
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Robots in Action: Real Use Cases:
Built Robotics automates heavy equipment, FBR speeds up bricklaying, and Boston Dynamics offers robots for site inspections.

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Virtual Reality (VR) and Augmented Reality (AR)

What They Are:
VR creates immersive environments, while AR overlays digital information onto the physical world.

How They Help:
VR enables virtual walkthroughs for better planning, while AR assists on-site workers by providing precise installation guidance.

VR and AR in Action: Real Use Cases:
Trimble provides AR tools for on-site visualization, while IrisVR supports VR-based design reviews and client presentations.

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Key Takeaway

These technologies are not just trends; they are transforming how contractors manage projects, address labor shortages, and meet rising demands. Embracing these tools in 2025 will position construction businesses for long-term success in an evolving industry.

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The Road Ahead: Navigating 2025 in Commercial Construction

The commercial construction industry in 2025 presents a mix of promising opportunities and critical challenges. Sectors like healthcare, data centers, and retail offer robust growth potential as demand continues to rise. However, achieving success will require strategic adaptation to workforce shortages, supply chain disruptions, and evolving economic and regulatory landscapes.

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Next Steps for Contractors and Developers

Focus on High-Growth Sectors
- Target industries such as healthcare, where patient-centric facilities are in high demand, or data centers, which continue to grow due to advancements in AI and cloud computing.
- Evaluate market conditions to avoid oversaturated areas, particularly in multifamily housing and retail, ensuring investments align with projected demand.
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Invest in Workforce Development:
- Partner with trade schools and create apprenticeship programs to attract and train the next generation of skilled workers.
- Embrace technology like robotics and automation to alleviate labor shortages and enhance productivity.
- Offer competitive wages and benefits to improve retention in a competitive labor market.
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Strengthen Supply Chain Strategies:
- Diversify suppliers to reduce reliance on a single source and mitigate risks from geopolitical tensions and natural disasters.
- Implement long-term procurement agreements to lock in pricing and availability for key materials.
- Leverage technology for real-time tracking and forecasting to avoid delays and optimize inventory.
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Adopt Innovative Technologies, Processes, and Best Practices:
- Technologies: Incorporate tools like BIM, AI-driven project management, and IoT to streamline workflows and improve project outcomes.
- Processes: Standardize workflows and adopt lean construction principles to reduce waste and improve efficiency.
- Best Practices: Implement robust project management practices, such as consistent progress tracking, regular stakeholder updates, and detailed post-project reviews to identify areas for improvement.
- Explore modular construction and prefabrication techniques to reduce costs and accelerate timelines.
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Stay Agile Amid Economic Shifts:
- Monitor interest rate trends and inflation to adjust project budgets and timelines accordingly.
- Proactively engage with policymakers to understand and adapt to regulatory changes that could impact project planning and execution.
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Key Takeaway

The future of commercial construction in 2025 is bright for those who are proactive and adaptable. By focusing on high-growth sectors, addressing workforce and supply chain challenges, and embracing technology, processes, and best practices, contractors and developers can position themselves for long-term success in a dynamic market.

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Sources

This report and analysis were informed by insights and data from the following industry-leading sources:

These sources provided essential data and analysis on current trends, economic projections, workforce challenges, and sector-specific outlooks that contributed to this report.

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Commercial Construction Trends & Outlook in 2025

Commercial Construction Trends & Outlook in 2025

Highlights of What to Expect in 2025

Economic Outlook Shaping the Industry
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