Architectural Services NAICS 541310

Aug 19, 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) Consensus Construction Forecast released in July. 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 Trump administration’s proposed $27 billion cut to federal rental assistance programs—amounting to a 43% reduction—has triggered concern across the affordable housing sector, stalling projects and shaking lender confidence, according to The Wall Street Journal. Some developers have halted construction due to postponed Section 8 subsidies, while lenders cite uncertainty over HUD funding as a significant deterrent. Although the House Appropriations Committee rejected the overhaul, HUD continues lobbying for the cuts, which would slash its budget by 44%. Critics warn that the move could destabilize the housing system, jeopardizing billions in multifamily loans and undermining gains from recent tax law changes that expanded the Low-Income Housing Tax Credit. Despite these incentives, developers argue that new affordable units may lack the operating revenue to remain viable without voucher programs.

• The Dodge Momentum Index (DMI) increased 20.8% in July 2025 to 280.4 (2000=100), up from the revised June reading of 232.1. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which has been shown to lead construction spending for nonresidential buildings by a full year. On a monthly basis, the commercial planning component improved by 14.2% and the institutional component increased by 35.1%. Dodge’s associate director of forecasting, Sarah Martin, said, “Planning data skyrocketed in the month of July on the back of several large projects entering the planning queue for data centers, research & development labs, hospitals and service stations. Combined with more organic momentum in planning for hotels, warehouses, and recreational projects, cumulative activity drove record highs in the DMI. After months of wait-and-see due to tariff uncertainty, owners and developers have begun to move forward with projects and assumed higher costs for them. As economic and fiscal uncertainty remains prevalent, volatility in planning activity will remain elevated.”
• Fewer construction projects were paused, abandoned, or delayed in July, according to ConstructConnect’s latest Project Stress Index report. Overall, the index for stressed construction projects declined by 24.3% in July compared to June. Project abandonments fell 37.1%, while projects on hold were down 15.5%, and bid delays fell 4%. However, despite the drop in July, private and public sector project abandonments remain near historic highs. The abandonment portion of the Project Stress Index in July was 14.1% above the 2021 baseline. Year-to-date, overall project stress is up nearly 30% compared to the first seven months of 2024. Higher costs, changes in trade policy, and high interest rates are contributing to the increase in project abandonments.