Construction industry prepares for 2025 with cautious optimism, expecting growth in infrastructure. Challenges include labor shortages, inflation, and technology adoption. Firms urged to focus on workforce development, manage inflation, and embrace innovative solutions for sustainable growth.
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The construction industry is "cautiously optimistic" going into the new year. Infrastructure makes up the largest market sector and it's expected to grow in 2025. And while growth will continue, it'll be incremental heading into the fourth year of the federal IIJA, now that many of the projects launched under this act have started or are under construction.
ARTBA predicts public highway, pavement and street construction will grow by 8 percent to $128.4 billion next year.
Alison Black, the association's chief economist, noted that the sector reached $119.1 billion this year. She said several factors support continued growth.
Besides the launch of IIJA projects, several states have hiked revenues to meet federal fund levels. They've tapped a combination of general fund transfers, bond issues, business taxes and other user-fee increases to do so, said Black.
ARTBA believes overall transportation construction work, including highways, will grow 7.5 percent … to $219.4 billion in 2025, she said. That's good news for contractors, even though industry economists are taking a more prudent view of the market next year.
Mixed Bag of Expectations
In its fall webinar on the construction economy, ConstructConnect noted that commercial construction is up this year, but will slow down in 2025.
The U.S. Census Bureau reports that non-residential commercial construction spending has increased by nearly 7 percent this year.
Kermit Baker considers that "healthy" growth, but monthly drops in spending will result in a real growth rate of about 5 percent to 5.5 percent.
Chief economist for the American Institute of Architects (AIA), Baker expects spending to fall even more next year. Citing an AIA survey from last summer, he said non-residential spending growth is predicted to be only 2 percent in 2025. Still considered increases, he noted, they continue to get smaller. That's troubling when you add in other factors, such as the continued labor challenges.
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The AGC learned more than 90 percent of contractors who responded to a recent association survey have trouble filling hourly and salaried positions. That's up from 80 percent of AGC members in 2023. But, Ken Simonson, association chief economist, said employment is up nearly 4 percent this year. In fact, the federal Bureau of Labor Statistics reports that 40 states have tracked an increase in construction employment.
Infrastructure remains "a bright spot," reports SmartBrief. In fact, highway, transportation and water systems are expected to sustain investment next year.
"We're seeing growth opportunities, especially in infrastructure and data centers," Simonson said. "But labor constraints and regulatory confusion will continue to be significant headwinds.
"Nevertheless," Simonson said during the ConstructConnect webinar, "contractors tell us that finding workers is still their number one challenge."
Trained positions, including surveyors, estimators, pipefitters and welders, prove the hardest positions to fill, he said.
Simonson said contractors are finding it easier to fill entry-level positions this year. Traffic control and general labor fall into those categories.
"People who shunned construction because they thought they could get an indoor job, perhaps with flexible hours, [are now] finding those aren't so available."
"Or, they're not paying as well as construction," he said. "So, more people are showing up to apply for entry-level construction jobs."
As SmartBrief reports, it's a systemic problem that's been years in the making. So, it's nothing new to contractors.
The aging workforce is retiring faster than new workers can be recruited and trained, while projects in remote locations make it tough to attract trade workers.
"Unlike sectors that can adopt hybrid or fully remote work arrangements, construction remains tied to the job site," said SmartBrief. "This dynamic not only limits flexibility but also makes it harder for younger professionals to learn from veteran workers."
That's because mentorship and skill transfer are simply more challenging at a distance.
Construction Industry Meets Fork in the Road
Inflation remains "stubbornly high" for certain materials, reports SmartBrief. While interest rates have dropped, long-term financing costs may stay elevated.
Simonson said that even if inflation stabilizes, mortgage rates and long-term borrowing costs could remain in the 6 percent to 7 percent range. That in turn will exert pressure downward onto certain types of construction projects.
Although improving, supply-chain issues remain. Certain items — like large generators and specialized electrical components —are still hard to source reliably.
"Unexpected disruptions, from low river levels to plant shutdowns, can create ripple effects that delay projects and increase costs," noted SmartBrief.
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"If labor and material challenges define the industry's current struggles, technology may shape its future," said the publication.
Contractors seeking to boost efficiency and reduce errors are adopting drone, (BIM) and project management technology.
Yet not all innovations inspire confidence, SmartBrief discovered. In fact, AGC survey respondents were hesitant about AI and autonomous machinery. More than half of the AGC members who responded expressed concerns about adopting AI on job sites.
"This skepticism often stems from liability worries and uncertainty about ROI," said SmartBrief.
Contractors want hard evidence that these tools deliver tangible benefits before committing.
"People need to see case studies that demonstrate feasibility, methodology and measurable results," said Kris Lengieza.
Global technology specialist at Procore Technologies, Lengieza was part of the SmartBrief report, "Future Focus: The AEC Industry Outlook for 2025."
He believes that without that proof, AI and robotics may remain on the industry's periphery.
Business management firm Deloitte notes that while the construction industry in 2024 was defined by strong fundamentals, it remains "challenged."
The industry saw a 10 percent addition in nominal value this year, and a 12 percent increase in gross output. Spending passed $2 trillion and maintained a balanced trajectory in the first half of the year, reports the firm.
"Despite facing a pervasive talent shortage, the sector's employment level reached 8.3 million in July 2024," said Deloitte.
That surpassed the market's previous peak of 7.7 million from 2006 and has been increasing steadily for more than a year.
Plus, the Dodge Momentum Index, measuring nonresidential building dollars, has also steadily risen, showing owner confidence in market conditions.
"Nevertheless, the industry had its fair share of challenges," said Deloitte, including high interest rates and price inflation that hit residential and commercial.
On the other hand, construction investment being driven by government investments and an expected decrease in interest rates may provide relief next year.
Bracing for Future Possibilities
As Deloitte states, disruption and volatility are nothing new to the construction market. Evolving economic and regulatory factors, said the business consulting firm, are expected to shape the industry in 2025.
"Nonetheless, 2025 could present opportunities for continued growth," and contractors should pay attention to several factors.
The "labor mismatch" and evolving skills requirements require innovative workforce strategies, automation, enhanced worker experiences, and diversity.
"The sector's ability to adapt … will be important in working to meet the demands of a rapidly evolving market and ensuring a robust … workforce," said Deloitte.
Advancements in technology will continue to modernize the industry next year, according to Deloitte. Technologies, such as digital twins, robotics and AI, can streamline project management, collaboration and decision-making as they reduce delays and costs.
"With wide-scale adoption," noted the firm, "companies could experience improved productivity, safety and resource allocation."
Changing economics will shape the industry next year. Lower interest rates and falling inflation could reduce the cost of project financing. That, in turn, could encourage both public- and private-sector investments in construction, said Deloitte.
Finally, federal infrastructure investment will continue to benefit non-residential projects. This includes transportation, manufacturing and utilities.
"The recent increase in tariff rates on strategic materials like steel and aluminum aims to boost domestic production capacity," noted Deloitte.
At the same time, it also has the potential to heighten the risk of reciprocal tariffs.
At the ConstructConnect webinar in November, economists summarized the industry outlook for next year as a combination of optimism and caution.
"While commercial construction spending continues to grow, it will likely do so at a slower rate next year," according to the organization.
Despite an increase in entry-level construction staffing, finding experienced help is still a challenge. But that's not hindering bidding on new projects.
"As is the case every year, it will be important for contractors and firms to keep a keen eye on market factors and trends in 2025," said the firm.
SmartBrief's take is that despite the challenges, many firms remain hopeful. Nearly 60 percent of the AGC survey respondents believe markets will be healthy.
And almost half plan to purse new markets next year. SmartBrief urges contractors to address labor shortages with robust workforce development.
The organization suggests businesses "recalibrate" project bids and supply agreements to counteract inflation's effects, and strategically adopt technology.
SmartBrief suggests "focusing on tools that deliver clear returns and build trust among stakeholders."
The firm believes that cultivating a flexible, forward-thinking mindset and forging strong partnerships contractors can navigate the uncertainty.
"For those willing to embrace change … the next few years hold the promise of sustainable growth, improved efficiency and a more resilient industry." CEG
Lucy Perry
Lucy Perry has 30 years of experience covering the U.S. construction industry. She has served as Editor of paving and lifting magazines, and has created content for many national and international construction trade publications. A native of Baton Rouge, Louisiana, she has a Journalism degree from Louisiana State University, and is an avid fan of all LSU sports. She resides in Kansas City, Missouri, with her husband, who has turned her into a major fan of the NFL Kansas City Chiefs. When she's not chasing after Lucy, their dachshund, Lucy likes to create mixed-media art.
Read more from Lucy Perry here.
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