Constructive Activity – July 21, 2025
Economic turbulence creates challenges for the construction industry, along with development opportunities
In every disruption, there’s opportunity—depending on your vantage point and your response. That applies to development and construction as well, JLL points out in its 2025 Construction Perspective: U.S. Mid-year Update.
“The growth outlook for the construction industry has fallen due to economic turbulence, with an expected late-2025 surge of starts delayed,” the report states. “Private investment will return unevenly as stakeholders assess changing priorities and public support, limiting construction demand.
“As disruptions vary significantly by sector and location—with select industries maintaining robust activity—the underlying impact is more complex. Critical sector investments ensure opportunities remain, though delays will alter their shape and timing.”
Far from a near-term surge in activity, current forecasts anticipate real construction spending growth to remain at its lowest point since the pandemic through 2026. Limited activity now will complicate the industry’s capacity to ramp up quickly as uncertainty dissipates and conditions improve, JLL says.
The report identifies three main areas of disruption:
Uneven development dynamics. Public investments continue to disproportionately reshape both the economy and construction landscape, with private investment responding unevenly as investors assess changing priorities and funding support. With federal funding being redirected, data centers nevertheless continue to expand at a remarkable pace, looking to more than double real spending from 2023 to 2026.
Material cost volatility. Over the past six months, the cost environment has dramatically shifted “from modest contraction to potentially one of the largest increases in recent history,” the report states. Overall cost growth forecasts now sit in a range of 7% to 12% for 2025. “Reliance on imported materials is not even, with goods critical to data centers and advanced manufacturing facing particularly high exposure across their supply chains,” according to JLL. “Delays and renegotiations have pushed back the impacts of tariffs and increases will emerge more fully over the back half of this year and into 2026.”
Labor market disruption. “Construction has long relied on foreign-born labor as a partial solution to structural deficiencies in the labor force,” the report points out. Under the current administration, the construction sector faces “unprecedented pressure” from immigration policy. “Enforcement actions at jobsites have created a chilling effect, with contractors reporting increased absenteeism and project delay concerns. These disruptions affect both existing projects and future work capacity, compounding labor challenges that already constrain the construction sector.” The effects vary by geography, impacting regions in different ways that will shift project viability, timelines and wage premiums across the U.S.
“With activity currently slowed, the full effects of lower labor growth won’t be clear right away,” said Andrew Volz, research manager, Project and Development Services, JLL. “As we ramp up demand in 2026, however, the extent of the disruption will become readily apparent. Labor retention and development will remain the primary concern of forward-looking contractors, regardless of current backlogs.”
Amid these challenges, JLL cites opportunities for strategic advantage:
- Select industries and locations remain extremely active, with data centers and advanced manufacturing driving growth despite broader hesitancy
- Critical sector investments ensure construction opportunities remain, though delays will alter their shape and timing
- Forward-thinking organizations are implementing flexible approaches to procurement, labor sourcing, and project timelines
“Looking ahead to the next 12 months, strategic adaptation to challenges and flexibility will be key,” said Louis Molinini, head of Project and Development Services, Americas, JLL. “Understanding that project exposures aren’t equal and local factors matter most for project outcomes is essential for success in today’s environment.”