U.S. Commercial Construction Reaches Historic Peak—But Storm Clouds Gathering

The U.S. commercial construction sector has reached unprecedented employment levels while facing unprecedented challenges, with May 2025 marking 8.3 million construction jobs—the highest since records began in 1939—yet preliminary data signaling potential weakness ahead, according to an analysis of the sector by QBE North America.

The construction industry’s trajectory has been remarkable, according to QBE. After the devastation of the 2008 financial crisis, employment rebounded consistently for over a decade, surpassing pre-crisis peaks in 2023. Federal infrastructure investment, private sector demand for data centers and advanced manufacturing facilities, and offshoring trends created powerful tailwinds that propelled the sector forward. Construction wages have also grown faster than the national average, rising 4.2% from June 2024 to June 2025, as contractors competed intensely to attract talent.

However, 2025 data suggests this momentum may be fading, QBE’s report said. Construction employment declined for three consecutive months from June through August—marking the first such drop since 2012. Commercial construction spending has fallen for a second consecutive year, sliding to pre-2022 levels.

These declines coincide with broader economic cooling, as job creation nationwide has slowed to levels unseen since the early recovery from the 2008 crisis, while foreign direct investment and gross domestic product growth both underperformed analyst expectations in the first half of 2025.

Constraints Limiting Growth Potential

The labor shortage represents the most immediate constraint on sector growth, the report said. Despite record employment levels, demand for workers continues to outpace supply.

The Associated Builders and Contractors estimates the industry must attract 499,000 new workers in 2026 alone to meet anticipated demand. A joint survey by the Associated General Contractors of America and the National Center for Construction Education & Research found that 92% of construction firms reported difficulties finding enough workers to fill open positions.

Two demographic forces are compounding this shortage. The construction workforce is aging, with more than one in five workers age 55 or older, while younger Americans have shifted away from vocational training toward college education.

Simultaneously, immigration—which has become critical to plugging U.S. labor gaps—is becoming more constrained. Foreign-born workers now represent 25.5% of the construction workforce, compared with 17.7% of the total U.S. labor force. The current administration’s restrictive immigration policies and deportation initiatives are likely to intensify shortages in the coming three years.

Material costs pose a second major challenge, QBE noted. The administration’s sweeping tariff increases have boosted the average weighted tariff rate to approximately 20%, up from 2-3% in January. Tariffs on critical construction materials are even steeper: 50% on steel and aluminum, and 10% on imported lumber.

These policies have already driven nonresidential construction input costs up 2.6% year-over-year as of August 2025, with iron and steel prices rising 9.2% and copper and cable prices jumping 13.8%.

Trade uncertainty surrounding 2026 renegotiations under the U.S.-Mexico-Canada Agreement could further dampen investor sentiment and additional material price increases. the report added.

Federal subsidies that energized the sector in recent years are also waning. The CHIPS and Science Act, Infrastructure Investment and Jobs Act, and Inflation Reduction Act collectively provided more than $100 billion in subsidies and tax credits that fueled a construction spending boom since 2022. However, funding under the CHIPS and Science Act and the Infrastructure Investment and Jobs Act will be fully allocated by the end of 2026.

The administration has additionally frozen tens of billions of dollars in Inflation Reduction Act grants while working to repeal or accelerate sunset deadlines for hundreds of billions in tax incentives.

Substantial Opportunities Amid Uncertainty

Despite near-term headwinds, significant growth opportunities in construction remain, according to QBE.

Demand for renewable energy generation is projected to increase dramatically, with renewable power generation capacity expected to nearly triple from 340.7 to 823.8 gigawatts between 2023 and 2033. The expansion of electric vehicle charging infrastructure will create additional construction demand.

Private sector drivers offer particularly strong growth prospects. Data centers represent a major opportunity, as artificial intelligence and cloud computing expansion will accelerate infrastructure needs. The Electric Power Research Institute forecasts that data center electricity demand will grow from 4% of total generation in 2024 to as much as 9% by 2030.

The Bureau of Labor Statistics projects nonresidential building construction employment—which includes data centers—will grow 5.9% over the coming decade.

State-level incentives continue fueling industrial construction, the report said. Texas has disbursed more than $100 million in grants through its Enterprise Fund since fiscal year 2022, which has attracted nearly $25 billion in private capital commitments. Michigan, New York, Georgia, Ohio and Arizona maintain similarly robust funds focused on advanced manufacturing.

Recent corporate tax cuts and restored bonus depreciation will also stimulate construction demand by lowering costs for companies building new structures and facilities. Private equity activity in the sector is likely to accelerate, particularly in specialized trades. Between 2022 and 2024, private equity investors purchased at least 800 HVAC, plumbing and electrical companies—a trend representative of broader consolidation across the sector.

Green construction represents another sustained growth area, QBE said. Market research firms predict the U.S. commercial green construction market will nearly double between 2025 and 2030, driven by state regulations and private sector priorities. Even in Texas, the country’s largest construction market with less stringent sustainability mandates than California, developers are increasingly integrating green building standards and energy-efficient technologies in response to consumer demand and resource constraints.

Long-term attractiveness of the U.S. as an investment destination may also be bolstered by geopolitical factors, according to the report. Europe faces shallow financial markets, political fragmentation and tensions with Russia, while China’s economy is slowing after decades as the global growth engine. Foreign governments have pledged to invest trillions of dollars in U.S.-based projects, with significant commitments from the European Union, United Kingdom, United Arab Emirates, Japan and South Korea.

Obtain the full report here. &