I think it’s safe to say that we’re well past any lingering economic impacts of COVID-19 although it has undoubtedly left an indelible imprint on the lives of many, including those still working remotely as reflected in the empty office spaces around the country.
But with Trump 2.0 now here, new uncertainties face the country and the construction industry as President Trump imposes tariffs on goods and materials, cracks down on immigration, and attempts to shrink the government’s footprint.
While President Trump and his proteges (e.g., Elon Musk) have been dominating the news headlines since the end of January, according to Dodge Construction Network’s “Outlook2025,” notably issued in November 2024 before the new administration took office, believes that “the change in administration is unlikely to have considerable impact on the construction forecast.” Rather, according Dodge (not to be confused with “DOGE“), “[p]erhaps most significant for the construction outlook is the Federal Reserve’s changing stance on interest rates,” referring to the Fed’s rate cuts in 2024 which totaled 1 percentage point, which it believes “will begin to positively impact the economy, particularly in interest-rate-sensitive industries such as construction, during 2025.”
Notwithstanding its sunny view on interest rates, Dodge warns:
The impact of interest rates cuts may not be enough to significantly counter other existing market conditions, such as labor shortages and the higher cos of labor, land, and materials. These limiting factors mean more may be needed to move most construction projects forward. Even with further rate cuts in 2025, enthusiasm for a strong rebound in starts may need to be tempered.
According to the report:
Residential Construction
Residential construction starts are expected to increase 12% in 2025 to $441 billion. Within the single-family sector, construction starts are expected to increase 9% to $292 billion, and within the multifamily sector, construction starts are expected to increase 16% to 148 billion.
According to the report, in 2024 “residential construction has been strongest away from dense urban cores” with the resulting benefit of “more nonresidential building as demand for stores, schools, and healthcare facilities increases accordingly.” This is expected to continue into 2025.
Despite the continued strength of residential construction, “housing affordability and lack of supply (especially entry-level homes) remain the main issues facing the residential market,” according to the report, and “[e]ven as mortgage rates have fallen, home prices have risen by more than enough to offset any improvement in overall affordability.”
Nonresidential Construction
Nonresidential construction starts are expected to increase 6% in 2025 to $467 billion. Within the commercial sector, construction starts are expected to increase 7% to $170 billion, institutional starts are expected to increase 4% to 232 billion, and manufacturing starts are expected to increase 9% to $66 billion.
According to the report, nonresidential construction “continues to be a tale of two markets.” “Weakness caused by Amazon’s exit from the warehouse market and much weaker demand for traditional office space has held back growth. However, burgeoning strength in hotel and data center starts has somewhat countered that weakness.”
New grocery stores and quick service food outlets supporting new residential construction as well as hotels benefitting from increased leisure and business travel are expected to be a bright spot within this market segment. Institutional starts are also expected to be “robust” due to its direct connection to residential activity and because high interest rates do not affect institutional constructions as much as commercial and manufacturing construction. However, manufacturing starts are expected to be “underwhelming” due to slowing electrical vehicle demand and lack of skilled workers, but on the upside, semiconductors, petrochemicals and reshoring is expected to be above their long-term historical averages.
Nonbuilding Construction
Nonbuilding construction starts, such as bridges and highways, are expected to increase 9% in 2025 to $368 billion. Within the public works sector, construction starts are expected to increase 11% to $288 billion, and in the electrical power/utility sector, construction starts are expected to increase 1% to $81 billion.
According to the report, nonbuilding construction is expected to be “generally favorable” as this segment continues to benefit from the $1 trillion Infrastructure Bill with funding expected to last through 2027.
A full copy of Dodge Construction Network’s “Outlook2025” report can be found here.
