Architectural Services NAICS 541310

Apr 21, 2025 - Construction Spending Growth to Slow

• North American construction and engineering spending in 2025 is expected to grow by 3% after increasing an estimated 7% in 2024, according to FMI’s second-quarter 2025 North American Engineering and Construction Outlook. Nonresidential building construction spending is forecast to be flat in 2025 as growth in amusement and recreation (+7%), transportation (+3%), public safety (+3%), and educational (+3%) is offset by weakness in commercial (-7%), lodging (-5%), and manufacturing (-1%). Amid high mortgage interest rates and a lack of affordability, single-family construction spending is forecast to rise by 3% in 2025. A recent jump in new apartment supply and unfavorable cost conditions will reduce multifamily spending by 12% in 2025.
• The Dodge Momentum Index (DMI) decreased by 6.9% in March 2025 to 205.6 (2000=100), down from the revised February reading of 220.9. 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 declined by 7.8%, and institutional declined by 5%. Dodge’s associate director of forecasting, Sarah Martin, said, “Increased uncertainty around material prices and fiscal policies may have begun to factor into planning decisions throughout March. While planning data has weakened across most nonresidential sectors this month, activity remains considerably higher than year-ago levels and still suggests steady construction activity in mid-2026.”

• Higher home prices could weaken demand for new homes, as a lack of affordability was a significant headwind for the US housing market before tariffs added additional uncertainty, according to ABC News. On April 9, the Trump administration paused its reciprocal tariff agenda for 90 days for most countries but left in place a baseline 10% import duty on all countries except China, which faces total tariffs of 145%. Canada and Mexico are not subject to the new 10% baseline tariffs, and goods trading under the US-Mexico-Canada Agreement will remain duty-free. Key home-building materials, including gypsum from Mexico and Canadian lumber, avoided additional levies. However, tariffs are expected to increase prices for other housing inputs, including steel, aluminum, copper, and home appliances. Before Trump’s tariff pause, a UBS analyst estimated that reciprocal tariffs could add about $6,400 to the cost of building the average house.
• Some cities are mitigating housing shortages by converting shuttered hospitals into residential space, according to The Wall Street Journal. Because hospitals’ patient rooms often have high ceilings and individual bathrooms, they’re easier to convert into housing than office buildings. Hospitals are also usually situated near city centers and transportation hubs. Federal tax incentives for redeveloping old hospitals are helping to fuel the trend as cities struggle with housing shortages. In 2023, the 20% federal historic tax credit for eligible projects reached $225 million, according to Wall Street Journal analysis of National Trust for Historic Preservation data. Such projects are particularly attractive for rural communities as more hospitals in outlying areas close. The Center for Healthcare Quality and Payment Reform estimates that as many as 700 rural hospitals are at risk of closing.