The American Institute of Architects (AIA) has released its latest Consensus Construction Forecast, predicting modest gains in nonresidential building expenditures over the next two years. The forecast anticipates a slowdown in spending on commercial, industrial, and institutional facilities after significant increases in recent years. This shift is influenced by various economic challenges, including potential import tariffs and policy concerns regarding the construction labor force. Despite some sectors showing growth, overall projections for 2025 and 2026 indicate only slight improvements.
The AIA's report highlights a mixed outlook across different building types. Data centers are expected to see substantial investment, while warehouses may experience a decline. Additionally, the construction sector has been robust but unevenly distributed, with manufacturing and data centers driving much of the activity. Many architecture firms anticipate further economic adjustments before their workloads recover, reflecting cautious optimism about future revenue prospects.
Slowing Momentum in Nonresidential Construction
The construction sector's impressive performance over the past few years is set to decelerate, as indicated by the AIA's forecast. After experiencing notable growth in 2023 and 2024, the sector is now facing a period of slower expansion. The AIA predicts that nonresidential building expenditures will rise by just 2.2% in 2025 and 2.6% in 2026. This trend is attributed to several factors, including potential trade barriers and uncertainties surrounding immigration policies that could impact the labor force. These headwinds are expected to temper the sector's momentum, leading to more restrained growth in the coming years.
Despite these challenges, certain segments within the construction industry are still expected to perform well. For instance, data centers are anticipated to see a significant increase in spending, rising by nearly 22%. Conversely, warehouses are projected to face a slight decline. The forecast also notes that commercial spending will grow modestly, with office and institutional projects seeing moderate increases. However, this positive outlook is overshadowed by the broader slowdown, which suggests that the construction sector will need to adapt to new economic realities.
Varied Prospects Across Building Types and Regions
The AIA's analysis reveals divergent trends across different building categories. While some areas show promise, others face more subdued expectations. Manufacturing, warehouses, and data centers have been key drivers of construction spending, accounting for nearly 40% of all investments in the commercial, industrial, and institutional sectors. In contrast, other sectors such as offices, health, and education have seen only modest gains, and retail construction has declined. This imbalance underscores the need for a more diversified approach to construction investments.
Beyond the construction sector, the AIA's survey of architecture firms provides insight into industry sentiment. Many firms believe that additional economic corrections are necessary before their workloads can fully recover. The survey found that 40% of firms expect revenue growth of around 5% in 2025, while 25% anticipate losses of the same magnitude. Design billings are projected to increase only marginally this year, with larger firms and those specializing in institutional projects being more optimistic about their prospects. Regional differences also play a role, with Southern firms expressing greater confidence in their 2025 performance. Overall, the construction sector faces a period of adjustment as it navigates these changing dynamics.