Commercial Building Contractors NAICS 2362

Sep 4, 2025 - Weak Nonresidential Building Construction Spending

• Construction spending for nonresidential buildings is expected to remain sluggish in 2025 and 2026, according to the American Institute of Architects’ (AIA) most recent Consensus Construction Forecast. Total spending for nonresidential building construction is expected to rise 1.7% in 2025 and 2% in 2026 after increasing 2% in 2024. For the next two years, growth will be led by data centers. Spending on institutional projects should remain steady as they are less susceptible to cyclical factors. AIA Chief Economist Kermit Baker said, “A multitude of factors are preventing substantive growth in nonresidential construction. Stubbornly high long-term interest rates, falling consumer confidence scores, rising tariff rates for many inputs to construction and construction labor shortages exacerbated by restrictive immigration policies are limiting prospects for positive sustained growth.”
• The total value of nonresidential building starts decreased in July compared to June, according to Dodge Construction Network. Nonresidential building starts fell 30.1% in July, as a 33.1% decline in office activity led to an 8.5% drop in commercial starts. Institutional building starts fell 4.6% amid a 13.3% drop in education-related activity, and healthcare starts decreased 13.5%. After a significant uptick in June starts, manufacturing projects plummeted 84.7% in July. Despite weaker groundbreaking activity in July, nonresidential building starts were up 4.3% for the first seven months of 2025 compared to the same period in 2024.

• The domestic policy bill signed by President Trump on July 4, 2025, sunsets a tax credit program that could slow the burgeoning office conversion trend, according to Construction Dive. The new law repeals the Section 179D commercial building energy efficiency tax deduction. For nearly two decades, the deduction provided financial incentives for energy-efficient upgrades—such as HVAC and lighting improvements—that often served as a catalyst for broader renovations and conversions. Industry experts warn that without this federal support, property owners may be less inclined to invest in upgrades, especially in foreclosure or bankruptcy scenarios where risk mitigation is critical. The loss of 179D could stall office-to-residential conversions, reduce job creation in trades and engineering, and leave firms that invested in sustainability infrastructure without a viable path forward. The Biden-era Inflation Reduction Act made the 179D deduction permanent, but the new law requires the deduction to expire for projects beginning after June 30, 2026.
• North American construction and engineering spending in 2025 is expected to grow by 1% after increasing an estimated 7% in 2024, according to FMI’s third-quarter 2025 North American Engineering and Construction Outlook. With growth of 32%, the data center subsector will lead 2025 nonresidential building construction, followed by amusement and recreation (6% growth over 2024), educational (+4%), and public safety (+4%). Commercial construction spending is expected to decline 4% in 2025 amid a 4% drop in warehouse demand, which accounts for more than half of annual commercial spending. Lodging construction spending is forecast to fall by 3%, and stubbornly high office vacancies are expected to hold new office construction to 2% growth in 2025.