July 28, 2025

Hi everyone, this is Taylor St. Germain with ITR Economics and welcome to this edition of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence and today I wanted to discuss Commercial Construction, Nonresidential Construction.

Private Nonresidential Construction, which is really our proxy series for the overall commercial construction market, has just entered phase D recession. We are seeing the annual growth rate is now down 2.3%, that’s the 12/12 with the latest reading of data. So we have entered that contraction period. This isn’t a new forecast. This is what we anticipated coming into the year.

Now I’ll highlight again that commercial construction tends to lag behind the economy. Some of the weakness we felt in 2024, in industrial production in particular, about 12 months later we tend to see that same weakness appear in the commercial construction segments. Now not every segment in commercial construction is negative, but the overall index that combines all of nonresidential construction did turn down. We’re not projecting a major downturn like we saw back in 2009-2010. This is a period of mild single digit contraction before we start to see that momentum build again as we move into 2026.

So again this is just a temporary pause, and again if you look at the Trends Report, in particular that construction dashboard in the Trends Report, you’ll see that not every commercial construction segment is down. Yes, private office construction is down almost 14%. We have multi-tenant retail construction down just over 7%, and then warehouse construction down 16%. So those are the segments that are really driving a lot of that negativity. But we still have positive growth rates from education construction which is up 6.5%, hospital constructions up 7.5%, manufacturing constructions up almost 12%. So again it’s a little bit of a mixed bag.

Now again the overall index is being pulled down but that’s not to say there aren’t some near-term opportunities out there. And when we look at the leading indicators it’s not a surprise that we’re seeing a little bit of weakness. Most of the architecture billings indexes are below that value of 50. So anytime we look at architecture billings data, the way this index is put together it’s called the diffusion index but really all it means is anytime the values are below 50 it highlights the architects pipeline is depleting, it’s contracting. Anytime that value is above 50 we’re seeing expansion. The unfortunate reality is, whether you’re looking at a particular industry or region, most of that architecture billings data is down below that 50 value.

So again, some of this weakness we’re experiencing in some of the commercial construction segments is not a surprise to us. And we already have some leading indicators that are suggesting as we move into 2026, things are going to get better. Backlogs for commercial construction companies are negative down below the year ago level, but they’re in the recovery phase of the cycle. And that’s about a seven month leading indicator. Same thing when we look at prices, we look at the Green Street all commercial property price index, that’s a 13 month leading indicator and that data has recently shifted positive.

The reason I share that these leading indicators are getting less negative or even positive, it means this period of contraction really is temporary for commercial construction. And we will start to see some of that positive momentum bill as we move into 2026. So again, the sky is not falling as it relates to commercial construction, we are going through a period of mild single digit contraction that will extend through the end of this year into early 2026. But as we move into the second half of 2026, you will see some of that positive momentum.

And again, we there are still a number of positives out there. We look at data center construction, for example, the year over year growth rate for data center construction is up 45.7%. Really, what this means is we have to be very specific, we have to get very granular when we’re looking at where these opportunities in commercial construction lie, as we look at the next three to four quarters. Some markets are going to continue to remain positive, some markets will show some of that negativity.

And that’s really where we at ITR can help. We break construction data down not just by vertical market like I’ve been sharing, but also by region, we can go all the way down to the county in the MSA level, when we look at our construction data. So please let us know how we can be useful, we have a pretty vast construction database. And again, bottom’s not falling out of the market. We just have a little bit of weakness for the next few quarters before we see that uptick coming as we move deeper into 2026.

Certainly hope you found this information helpful. Thanks for joining me on this episode of TrendsTalk. Please remember to like and subscribe to TrendsTalk wherever you listen to your podcasts, and I look forward to seeing you all in the next one. Thanks so much, and take care for now.