2025 Construction Outlook

Now that 2024 has come to an end, we all are interested in what lies ahead for the construction industry in 2025. Many are hoping the momentum from 2024, which saw an easing of interest rates and good overall construction activity will carry through into the new year. However, concerns over changes in the political landscape and regulations continue to cause concerns going forward and many remain cautiously optimistic.

Spending Outlook

Many are anticipating continued easing of interest rates and inflation in 2025, two areas which were of upmost concern in the past year. This continued easing, if true, will only go to help company’s bottom lines and increase profits. Experts continue to believe robust growth in artificial intelligence will continue to support growth in the construction of data center facilities with tech companies leading the charge. On the residential front, many experts believe residential starts will increase by at least 5% after a difficult year in 2024, although many political and economical factors will play a role in whether this comes to fruition. 

Value and Growth

Industry experts are forecasting that 2025 will be a year of geographic expansion and repositioning with firms focusing on higher returns and minimization of short term risks. Mergers and acquisition activity will likely continue to be important for the industry as a whole as well. According to Deloitte, between August 2023 and July 2024, M&A deals in the construction industry totaled $38Billion dollars. Deloitte anticipates continued consolidation in the industry through 2025, with firms acquiring companies to address supply chain issues and horizontal consolidation of similar sized companies to support forecasted geographic expansion efforts. Finally, given the anticipated changes with governmental spending with the new Administration, Deloitte anticipates PE firms may seek to invest in certain areas of the construction sector as well, which may include industrial and manufacturing sectors.

Skilled Labor Issues Persist

Unfortunately, what has been experienced in the past years relating to skilled labor is expected to persist through 2025. The need for skilled labor in an aging workforce continues to plague the construction industry. The construction industry will not only continue to adapt by integrating new technologies to aid in output performance but also continue to focus on new ways to attract and train young talent as the aging workforce retires.

Conclusion

2025 is set to be a year of both challenges and opportunities for the construction industry. Improving economic conditions will provide some relief and the industry’s continued adoption of technological advancements and focus on growing skilled labor will increase productivity and efficiency while offsetting an aging workforce. Companies are anticipated to focus on growth initiatives and increasing profit which may be aided by both horizontal and vertical consolidation within the industry. However, no one has a crystal ball and only time will tell if these forecasts become a reality.

For more information or to discuss any of these topics, please contact Pat Johnson a member of Honigman’s Real Estate Services Practice Group.