What Construction Experts are Warning About the Industry, and What Contractors Should Do About it

In Short:

• Pick your sectors and geographies deliberately. Roughly half of non-residential subcategories are forecast to grow faster than construction inflation; the other half are contracting off 2025 peaks.

• Get into private projects before the bid window opens. Private planning activity is up 26.2% year over year in ConstructConnect's verified pipeline, and owners are selecting GCs and subs at the design stage. By the time a public RFP posts, the relationship is often already won.

• Model material escalation into your bids now. Construction input costs are up 4.4% overall, but tariff-exposed materials are running far hotter: steel up 15%, aluminum up 34%, copper up 21%, diesel up 51%. AGC's chief economist says most of that hasn't hit owners yet—but it will.

• Hold your crews. New hires as a share of the construction workforce are at a 25-year low, and union settlements averaged 4.7% wage increases in 2025. With megaprojects competing for the same skilled trades through the decade, the cost of losing a crew now is higher than the cost of keeping one.

Non-residential construction in 2026 is a K-shaped market, and where your company lands on that K depends almost entirely on which sectors and geographic areas you're chasing.

At the recent bi-annual Construction Economy Outlook event, chief economists from ConstructConnect, the American Institute of Architects (AIA), and Associated General Contractors of America (AGC), along with ConstructConnect's Director of Content Acquisition, presented a market defined by a widening split: data centers and power infrastructure growing at triple-digit rates, while traditional commercial, education, and office construction remains stuck in a multiyear flatline.

Is non-residential construction actually slowing down in 2026?

Yes, for most of the market, according to AIA Chief Economist Richard Branch.

"Real construction activity, that is boots on the ground, has been flat at best in the non-residential building space,” he told the audience.

Even though the U.S. economy is not technically in a recession, Branch added activity has been flat, at best, for the past two years.

Branch attributes the flatness to three overlapping shifts:

• Cyclical (high interest rates, rising energy costs, weak consumer confidence)

• Structural (a rapidly aging U.S. population, return-to-office mandates)

• Political (tariffs, stricter immigration enforcement, geopolitical risk).

The result of these shifts coming together is a “K-shape” economy, where one segment scales upward and the other goes downward; much like the shape of the letter “K.” In this instance, Branch says data centers, power, healthcare, and AI-fueled megaprojects are growing fast while traditional commercial and education construction is stuck.

Architecture Billings Index remains in a “contraction” state

The AIA Deltek Architecture Billings Index is a regular pulse survey of the AIA’s member architects, and an indicator of non-residential construction spending. The index has slipped from “growth” to “contraction,” and has stayed in that area for most of the past three years.

There is some nuance to this, Branch cautioned. Even though 2023 and 2024 saw increases in construction activity, the Billings Index was still in “contraction.” He explained this is because most of the growth in those years went to manufacturing, warehousing, and data centers; three areas that architects largely do not bill on. Architects, however, do bill on healthcare, education, retail, and traditional office construction, and those categories are still struggling, which is weighing down the average.

When the AIA asked architects in January which factor was most responsible for project delays and cancellations, the top 5 answers were:

• Client Delays/Indecision (20.1%)

• Changing Market Conditions Making Clients Nervous (17.9%)

• Insufficient Budgets (17.5%)

• Financing Issues (14.6%)

• Permitting / Zoning / Approval Delays (7.8%)

"Developers are curious,” Branch said. “They're asking about building projects. But as soon as they get the cost, as soon as they look at budgets, labor, and financing, they get a case of the yips and either slow the project down or cancel it outright."

The ‘yips’ is a term often used in sports, referring to an unknown condition that causes talented people to suddenly lose the ability to perform.

There is one bright spot, according to Branch, though: renovation work. Renovations counted for more than half of all architecture billings in 2025, with office (vacancy rates near record highs) and K–12 education (US school buildings, on average, are about 50 years old) leading that charge

How are tariffs and labor really affecting construction costs in 2026?

The effect of tariffs on construction in 2026

Material costs are running well ahead of consumer inflation, and the gap is about to widen. According to Ken Simonson, AGC's chief economist for the past 25 years, the producer price index for inputs to new non-residential construction was up 4.4% between March 2025 and March 2026, but the underlying components tell a sharper story:

• Diesel fuel: Up 51% year over year. According to the BLS, that’s the second-largest single-month increase since they began tracking diesel costs.

• Steel mill products: Up 15% year over year

• Aluminum mill shapes: Up 34% year over year

• Copper and brass mill shapes: Up 21% year over year

Simonson said most of that has not been passed through to owners yet, but it will have to be.

"Construction, because it's so dependent on materials and, particularly these ones that are being hit by heavy tariffs, can expect to see much higher costs going forward than many other industries,” he explained.

However, on June 1, 2026, it was announced that President Trump had signed a proclamation to amend certain tariffs on some imported copper, steel, and industrial products, in the hopes of boosting industrial investments stateside. The reductions, changing tariffs on these items from 25% to 15%, are said to stay in effect until December 2027.

The effects of labor on construction in 2026

On labor, survey data from the U.S. Bureau of Labor Statistics (BLS) tells an unexpected story. New hires as a percent of the construction workforce are at the lowest level in the 25-year history of the BLS’ Job Openings and Labor Turnover Survey (JOLTS). While job openings in the industry are near record lows, so are layoffs. That is unlike previous downturns, per Simonson.

“Contractors aren't hiring now,” he said. “They're not even advertising for jobs very much. Nevertheless, they sure want to hang on to the workers who are still there."

The wage data confirms it. Citing the Construction Labor Research Council, Simonson said union construction settlements averaged 4.7% increases in 2025, up sharply from the 1–3% typical of 2022–2023 contracts. Non-union surveys from PAS show construction firms expecting 4–4.5% pay increases by the end of 2026.

The impact of foreign-born labor in construction in 2026

The immigration picture is uneven by state. In California, Nevada, Texas, Florida, and Maryland, 50% or more of the construction workforce is foreign-born. In several northern-border states, the share is in single digits. Simonson’s commentary on this aspect was blunt.

“Construction relies much more heavily than other industries on immigrant workers. So, we're very vulnerable to what happens on deportations and immigration enforcement."

Which construction project types are growing fastest right now?

Industrial, data centers, and multi-residential projects are widely the fastest growing in construction, according to Kristy O'Brien, ConstructConnect's Director of Content Acquisition. O’Brien determined this by studying project data in ConstructConnect Project Intelligence, the public-facing pipeline her team maintains by connecting daily with the architects, developers, owners, and contractors behind every project.

O’Brien shared the headline numbers from her team's verified pipeline (year over year):

• US bid counts: Up 10.9%

• Canada bid counts: Up 16.5%

• US planning projects down 4.5% overall. While private projects are up 26.2%, public projects are down 20.6%, which helped tank the overall percentage.

• Industrial (US, by building use): Up 341%. This jump is driven almost entirely by AI supercomputer facilities and manufacturing reshoring.

• Data centers (US): Up 94%

• Data centers (Canada): Up 1,233%

The proliferation of data centers continues to grow. ConstructConnect's research team has verified and published nearly twice as many US data center projects in the first four months of 2026 as it did in the same window of all of 2025.

Another number from ConstructConnect that may grab attention is warehouse and distribution projects have dropped nearly 20% year-over-year. O’Brien said this is more so a “managed correction” than a reason to panic.

She also flagged a shift in owner mood that does not show up in these numbers.

"Owner sentiment is genuinely improving,” O’Brien said. “There's a 'we can't wait anymore' feeling that we didn't hear this time last year."

Projects that had been quietly parked are starting to move again, and new entries in the pipeline lean heavily toward AI, data centers, energy, and manufacturing reshoring. The public side is the soft spot, however. O’Brien noted federal and state stimulus dollars from the last administration are winding down faster than new public projects are entering planning.

For contractors who only check public requests for proposals (RFPs), the bigger story is hidden. Private commercial work is the larger share of total construction spend, and most of it never appears on a public portal. If you ask O’Brien, she says Project Intelligence is the part of the picture most contractors are missing when they ask, "what's bidding near me?"

What's the construction starts forecast through 2030?

Construction starts are projects that actively broken ground, versus those still being planned. Michael Guckes, Chief Economist for ConstructConnect, said the construction starts forecast through 2030 will likely be dominated by megaprojects (those valued at $1,000,000,000 and up), with data centers and power generation leading the way. According to Guckes, three aspects carry most of the story:

1. Megaprojects are now a regular part of the construction landscape

"Megaprojects now make up over one quarter (25%) of all non-residential spending,” Guckes explained, adding that big billion-dollar builds used to be just 10% of the total. He does not see the share of megaprojects shrinking anytime soon.

2. The “Office” category is almost entirely data centers

In 2025, 92% of all office construction starts in ConstructConnect's database were associated with data center projects. The Q2 2026 forecast puts office spending at $826 billion over the next five years, and the vast majority of that is data centers. Power infrastructure, which is needed to supply data centers, is forecast to grow 55% over five years, which Guckes pointed out is a 9.2% compound annual growth rate.

The domination of data centers in non-residential construction is such that if you remove the office category from forecast, U.S. non-residential building goes from 1.5% growth in 2026 to a roughly 9% drop.

3. The demand-side drivers are weakening

ConstructConnect's GDP forecast is 1.9% for 2026, accelerating to 2.5–3% in 2027 and beyond. ConstructConnect's exclusive Project Stress Index™, which tracks holds, bid-date delays, and abandoned projects over the past 30 days, sits at 98.7, essentially back to its 2021 baseline of 100. Since 2024, abandonments have been the primary driver of the index, which Guckes attributed to owners realizing projects no longer pencil at "higher for longer" interest rates.

Productivity and labor also have an impact

In addition to the other aspects above, Guckes noted productivity is down roughly 10% from 2019 in both US and Canadian construction, a persistent post-COVID decline. There’s also the previously mentioned issue with that labor force growing far less than it has historically. This is part of why ConstructConnect is seeing tools like Takeoff Boost™ for both On-Screen Takeoff® and PlanSwift® are showing up on more bid-day tech stacks, because their AI-powered estimates recover the hours that the labor market is no longer giving back.

What should contractors do about all of this?

Here are four moves for contractors the panel of experts recommended:

1. Pick your subcategories and geographies deliberately.

For any contractor trying to plan for the rest of 2026 and beyond, Guckes advised them to concentrate on two things.

"[Focus on which] subcategories you decide to compete in along with which geographies. Those are the two most important things that will decide your company's future,” he said.

This is because data is showing roughly half of non-residential subcategories are forecast to grow, and many will grow faster than construction inflation. The other half are coming off 2025 peaks and will contract. According to Guckes, the choice of what you bid on and where matter more in the next five years than the last ten.

He went into more detail on how contractors should read into the subcategories. Those details can be found in our sister article on ConstructConnect News.

2. See projects earlier. The bidding stage is too late.

O'Brien's data showed private planning activity up 26.2% year over year. She said this shows owners are picking GCs and subs in planning, and not at bid invitation. Contractors who only chase public RFPs are competing for a shrinking pool, against everyone else doing the same thing. For commercial work in particular, a researcher-verified pipeline is the difference between seeing a project in design and finding out about it after the bid window opens.

3. Model material escalation into your bids.

Simonson noted that the recent increases in material costs will eventually be passed on to owners. His advice is that any contractors hoping the spike fades by Q4 2026 should plan for the opposite. Simonson, through the AGC, publishes a weekly Data DIGest report that documents the gap between construction inflation and the Consumer Price Index (CPI). That’s something that could come in helpful when negotiating escalation clauses with owners.

4. Hold on to your crews.

The combination of immigrant-labor risk and a long pipeline of megaprojects all competing for the same skilled trades means the cost of losing a crew is much higher than the cost of paying to keep one, per Simonson.

Frequently Asked Questions (FAQ)

What is the construction outlook for 2026 and 2027?

ConstructConnect's Q2 2026 forecast calls for 1.5% growth in non-residential building construction in 2026, with most of the growth driven by data centers. Without data centers, non-residential building would contract roughly 9% in 2026. Growth then accelerates in 2027 and 2028 as activity in commercial and institutional categories is expected to pick back up. The AIA Consensus Construction Forecast, a panel of nine forecasters that includes ConstructConnect, projects total construction spending growth of 1% in 2026, with industrial declining from its 2024–2025 peak.

Are construction material prices going up in 2026?

Yes, and the gap between construction inflation and consumer inflation is widening. The producer price index for non-residential construction inputs was up 4.4% in the 12 months through March 2026, but key materials are running far hotter: Diesel fuel up 51% in the latest reading, steel mill products up 15% year-over-year, aluminum mill shapes up 34%, and copper and brass mill shapes up 21%, per AGC analysis of BLS data. Most of that has not been passed through to owners yet, so contractors should expect further increases through summer 2026 as potential Iran-related oil shock and tariff costs work through the supply chain.

Which construction sectors are growing fastest in 2026?

Industrial (driven by AI supercomputer facilities and manufacturing reshoring), data centers, multi-residential, retail, and healthcare. In ConstructConnect's verified pipeline, US industrial projects are up 341% year over year, data centers up 94%, multi-residential up 64%, retail up 40%, and medical up 23%. The fastest-shrinking categories are warehouse and distribution (down 19%, likely normalizing after recent spikes) and public categories where past administration stimulus dollars are winding down.

How much of US construction labor is foreign-born?

It varies sharply by state. In California, Nevada, Texas, Florida, and Maryland, 50% or more of construction workers are foreign-born, per AGC analysis of BLS data. In several northern-border states, the share is in the single digits. The national construction workforce relies much more heavily on immigrant labor than the overall economy does, which makes the industry particularly exposed to deportation and enforcement policy changes.

When are data center construction starts expected to peak?

ConstructConnect's Q2 2026 forecast projects data center starts will peak around 2029–2030. The five-year office construction forecast (which is now 92% data centers) totals $826 billion, with starts roughly doubling from 2025's $82 billion level at the peak. Power infrastructure to feed those facilities is forecast to grow 55% over the same five-year window. After the peak, construction starts slow rather than contract sharply.

Will the Federal Reserve cut interest rates in 2026?

Most likely once, late in the year, if at all. ConstructConnect's economics team sees the 10-year Treasury staying near 4.2% with core Personal Consumption Expenditures (PCE) inflation at 3.8%, which leaves little room for the Fed to cut. AIA's Richard Branch said bond markets are even pricing in the small chance of a hike over the short term, given persistent energy and tariff pressure on inflation. The Federal Reserve's own commentary suggests rates will stay "higher for longer" through 2026.