Construction Forecast: Nonresidential Buildings Doldrums Continue

 Spending in 2025 and into 2026 Not Keeping Pace with Inflation 

The AIA Consensus Construction Forecast does not see any end in sight to the sluggish U.S. nonresidential buildings sector.

“The consensus is that overall spending on nonresidential buildings not adjusted for inflation will increase only 1.7% this year and grow very modestly to just 2.0% next year,” said the report released in July 2025.

That puts spending on projects involving commercial, manufacturing, warehouse, and institutional buildings below inflation, which has been running at about 3 percent in 2025.

The AIA says it could have been worse as the construction industry faced some serious headwinds this year in addition to inflation including high long-term interest rates, falling consumer confidence scores, disappointing levels of home building activity, rising tariff rates for many construction inputs, and labor shortages exacerbated by restrictive immigration policies.

Despite those hurdles, spending was largely unchanged from predictions entering 2025, but those estimates were pessimistic to begin with so consider that a Pyrrhic victory.

Winners and Losers by Sector

Not all sectors in nonresidential building were equal with manufacturing (-5.8 percent) and warehouse (-2.0 percent) forecasted for negative growth in 2025 and institutional spending (6.1 percent in 2025) faring the best.

“Spending on the construction of manufacturing facilities—the industry bright spot in recent years—is expected to decline 2.0% this year, with an additional decline of 2.6% next year. Institutional facilities are expected to be the strongest sector with projected gains of 6.1% this year and another 3.8% in 2026,” said the AIA report.

The institutional sector’s 6.1 percent growth projected this year is built upon almost double digit growth in amusement & recreation buildings (9.9 percent).

The commercial sector is projected to grow at just 1.5 percent, but that positive growth can be attributed to supercharged spending on data centers (33.7 percent growth) to meet growing artificial intelligence (AI) compute demand, and healthy office buildings (6.9 percent). The retail area is projected to fall 3.1 percent in spending this year.

Warehouse spending, projected to be down 5.8 percent this year, will recover to 1.4 percent growth in 2026.

Here is the full AIA forecast on spending change for nonresidential buildings:

About the AIA Consensus Construction Forecast: For nearly 20 years, the American Institute of Architects (AIA) has compiled a consensus construction spending forecast that looks at conditions in the next 12 to 18 months. Published twice a year, the AIA Consensus Construction Forecast utilizes an average from the following forecast sources: Dodge Construction Network, S&P Global (Market Intelligence), Moody’s Analytics, FMI, ConstructConnect, Associated Builders and Contractors, Wells Fargo Securities, Markstein Advisors, Piedmont Crescent Capital, and Free Agen Economist.

Economic Slowdown Ahead Concerns Rise

One of the main factors in the projected stalled spending for nonresidential building for the remainder of this year and on into 2026 is the odds of an economic slowdown ahead are increasing.

“Entering the year, the economy was expected to grow about 2%, with the probability of a recession over the coming twelve months estimated at 22%, according to the Wall Street Journal’s quarterly economic forecasting survey in January. However, since then, the outlook for the year has deteriorated,” says the AIA. “There is a growing list of threats to the economy, including tariffs, labor market implications of federal immigration policy, and federal job losses and spending cuts.”

While the probability of a recession in the next 12 months in the Wall Street Journal quarterly economic forecast has slid from 45 percent in the summer to 33 percent in October, it still is above forecasts at the start of the year.

Tariffs and Labor Shortages are Front and Center

The construction is keeping a close eye on tariffs and labor shortages.

“Ever-changing tariff policy has created unusually high levels of uncertainty across the economy. Not knowing what products will cost in the future, whether they will be available, how these changes might affect their supply chain, and whether they will provoke a trade war with the exporting countries are all questions that the AEC (architecture, engineering, and construction) industry is asking before proceeding with planned projects.” said the AIA report.

The AIA notes that tariffs can have a greater impact on some construction sectors than others: “Analysis conducted by Wells Fargo Economics on Commerce Department data concludes that while imports account for about 10% of construction inputs by value across the entire industry, they account for about 75% more than the industry average for education and health care facilities, about a third less than the industry average for commercial facilities, and 50% less for residential projects.”

Besides tariffs, labor shortages are a concern in the construction industry with the National Association of Home Builders estimating a shortage close to 750,000 workers.

“While this estimated worker shortfall is a concern, even retaining the current immigration workforce in construction is becoming a significant challenge,” said the AIA, noting that 25 percent of the 12 million payroll and self-employed workers in the construction industry (and about a third of craft workers) are foreign-born.

The concern, according to the AIA, is that the share of undocumented immigrants in the construction workforces runs as high as 50 percent, slightly higher than in agriculture and significantly lower than any other industry.

Sector News to Watch in 2026

Sector news that will influence nonresidential construction spending in 2026:

• Slowdown in key growth sectors: Much of the overall growth in nonresidential construction spending in recent years has come in a few key sectors such as manufacturing, warehouses, and data centers. Manufacturing spending is declining as government programs end or curtail their funding, such as the Infrastructure Investment and Jobs Act, the CHIPS and Science Act and the Inflation Reduction Act. Warehouse construction rose dramatically during the pandemic fueled by e-commerce but that sector has been overbuilt and is slowing down.
• Focus returns to traditional nonresidential building sectors: Emphasis will return to core sectors such as commercial which has been kept afloat by robust data center spending. A bright spot appears to be the hotel sector which is forecast for 3 percent growth this year, doubling to 6 percent in 2026.
• Institutional sector is facing its own headwinds: While the institutional sector is forecast to grow faster than commercial and industrial sectors, there are still some issues of concern. Medicaid and the Children’s Health Insurance Program (CHIP) are reducing spending on health care facilities. The education sector may take a hit with federal spending on health care research retracting. The other two factors are that 6 percent of the U.S. higher education population are international students that face tougher restrictions on visas, which could lessen enrollment and the need for new education facilities. Finally, the under-18 population in the U.S. will decline by over three million people over the next 10 years, which will also reduce the need for spending on buildings.

At Green Span Profiles we know that every construction dollar counts. Contact us today to learn more about our cost-effective insulated metal panels (IMPs) for your next nonresidential construction project.