Louis Molinini is Americas market lead for project and development services at global real estate investment firm JLL. Opinions are the author’s own.
In 2025, an evolving tangle of climate events and policy shifts will create new pressures for project sponsors.
With a new administration in 2025, new economic and trade policies may disrupt the construction industry. But despite changing economic, environmental and technological conditions, the 2025 outlook for the construction sector is positive.
While net construction growth is anticipated in 2025, the growth will likely be uneven across property types. For example, office and core industrial project starts have slowed down, while data centers, healthcare and advanced manufacturing projects are going strong. The most recent interest rate cut will not resolve every construction industry issue, but it has created a pivotal moment. So, what has led to this modestly optimistic, but uncertain outlook for 2025?
A year in retrospect
As noted in JLL’s recent 2025 U.S. Construction Outlook, the first three quarters of 2024 saw materials pricing leveling out, the start of interest rate cuts, and overall, an incredibly strong performance by the construction industry. In fact, once the numbers settle, 2024 is expected to show a 7% increase in construction spend over 2023.
2025 will likely see more modest gains. One indicator is that the Architecture Billings Index has reported architectural industry contraction for nine of the last 12 months and project starts have been at record lows. These impacts will appear in construction spending data over the next few months.
Nonetheless, interest rate cuts and increased loan originations should make for a robust round of starts in late 2025 and drive net spending growth for the year. In a welcome reprieve, construction cost growth was nearly flat in 2024. However, our report finds cost growth will be between 5% and 7% in 2025. Increases will vary by materials, reflecting demand shocks from natural disasters, booming sectors and vulnerability to changing economic policy.
Embracing sustainability and innovation
From a constriction trend perspective, environmental sustainability will continue to be a long-term and immediate priority in construction projects. Advanced technologies — including artificial intelligence, internet of things devices and digital twins — are driving new building design, construction and management approaches to improve efficiency, conserve resources and create value.
Resource conservation will be especially important. Regardless of federal government priorities, many corporations — along with state and local governments — will undoubtedly continue investing in decarbonization initiatives.
Many corporate owners and occupiers have been investing in energy-efficient building operations for decades. As employees increasingly expect their employers to provide sustainable workplaces that foster well-being and productivity, JLL has forecasted a 70% shortage of low-carbon buildings by 2030.
Embracing sustainability and innovation, green building practices, energy efficiency and reduced carbon footprint is no longer a ‘nice to have’ — it is imperative for talent recruitment and retention, and for meeting corporate commitments to decarbonization.
It's reasonable to expect in 2025 that sustainable design and operations will continue to shape project requirements. Data centers, healthcare and advanced manufacturing, in particular, have embraced sustainable design and operations as integral to controlling operating costs and supporting growth, and are unlikely to abandon their conservation strategies.
Combatting obsolescence with resiliency
As noted in JLL’s Opportunity Though Obsolescence report, around $1 trillion in capital expenditure globally could be needed to bring legacy office assets up to current standards. The U.S. and Europe together are home to 78% of potentially obsolete office space.
Obsolescence is an opportunity to keep the construction industry’s recent momentum going by tackling retrofit challenges. For selected office properties, adaptive reuse is another option. Some cities and investors are targeting under-utilized office properties with the right characteristics for conversion to housing.
When developing strategic plans, asset owners, investors and city authorities will need to consider the many facets of obsolescence — age, design, location, regulatory considerations, product type life cycle and much more — to maximize their return on investment.
Navigating a complex environment
While the impact of any new regulatory, fiscal and trade policy changes will not be felt for some time, near-term policymaker decisions in 2025 may affect labor, infrastructure spending and supply chains. Owners and developers will need to anticipate market shifts and be prepared for potential project delays. The construction industry will need to navigate new policy priorities while transitioning into AI-driven automation.
The coming year will also require construction companies to adapt to evolving economic conditions, regulatory changes and market dynamics. Leveraging insights gained from recent challenges, construction professionals can develop strategies for resiliency and flexible approaches to managing projects and risks.
With lower interest rates, moderating inflation, and steady economic activity, the outlook for 2025 is positive for the construction sector. However, shocks from natural disasters, and potential trade policy changes, are likely to raise prices across a broad range of materials in 2025 — and the impact may be greater for in-demand sustainable building materials sought by some industry sectors.
The construction industry is primed for growth, but this opportunity comes with uncertainty. In this complex landscape, one of the best strategies for ensuring that a project achieves its desired outcomes is to assemble a well-rounded, multi-disciplinary team, and leverage project management technology to reduce cost and risk and streamline project delivery.
