August 24, 2026

The below transcript is a translation of the podcast audio that has been machine generated by Notta.

Hi everyone. This is Taylor St. Germain with ITR Economics. Thanks so much for joining me on this episode of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence. And today I wanted to provide an update on nonresidential construction, the commercial construction markets, and also share how we’re thinking about the outlook for commercial construction as we move into 2027.

So I want to first highlight where we’ve been. It’s been a challenging 12 to 18 months for commercial construction. Most commercial construction vertical markets have been in the contraction territory. If you look at our primary series, overall private nonresidential construction, which is an all encompassing series, that’s down about 5% as we’re talking here today. However, I do have better news, as far as what the path forward looks like. I will highlight, please go over to our Trends Report and check out our Trends Report, we have that whole construction module, which really breaks down a lot of the information that I’ll be sharing with you all here today. There is some good news, which is that many of These commercial construction verticals, even though they’re negative or in contraction territory, have transitioned to that recovery phase of the business cycle . And when we say the recovery phase of the cycle, what us economists at ITR mean is we have surpassed the low point. So we might not be positive yet, but we’ve passed the low point and we are seeing the data get at least less negative. And that is the case for manufacturing construction, multi-tenant retail construction, private office construction and private warehouse construction. So those datasets are yes, still down, but are in that recovery phase. We have momentum continuing to build throughout the year. There are two exceptions to this, which is office construction, which is down 7%, which is still in the recession phase for us, meaning there’s a little bit further decline to go. And that’s also the case for education construction. So there are still some sectors, some vertical markets that are lagging behind. But we’re expecting to see a lot of these transitions to recovery or even to growth as we move into next year.

In 2027, we do not have a single commercial construction vertical in our Trends Report that shows a negative number. So let me give you some perspective. We have manufacturing construction growing 5.3% in ’27. And these numbers I’m referencing are all year-over-year growth rates, so it’s 2027 relative to ’26. So manufacturing is up 5.3%, retail construction is up 2.7, office up 6.3, warehouse up 13%, education up 5.3, and hospital up 4.2. So all of these vertical markets that have gone through this pain, the overall commercial construction industry that has gone through this pain, we expect to really be characterized by nothing but growth in 2027. And I think a lot of our commercial contractors have been waiting to see some positive numbers like that. So I don’t want you to read too much into the negativity that we’re experiencing today, as you’re planning for 2027, because one of the biggest mistakes that I feel like commercial contractors could make, or businesses that support the commercial construction industry would make, is assuming that what’s happening this year is going to simply continue into next year. We don’t think that’s the case. I want you to be ready for this growth that we’re forecasting really across the board in 2027. Now, again, There’ll always be certain regions, certain vertical markets that are outperforming others that you might want to look to for more growth . Like I mentioned, you know, we have a data series like retail construction up 2.7% in ’27, yet warehouse is going to be up 13% in 2027. So, still important to unpack some of these verticals and understand where the growth is coming from.

Now, I also want to highlight what has us optimistic about this growth as we look out into the future. And I’m going to share a few leading indicators with you. One of the leading indicators, I’ve mentioned on TrendsTalk in the past, that we correlate to commercial construction is commercial property prices. If you look at commercial property prices on an annual growth rate compared to construction starts for the commercial construction industry, there’s about a 13 month lead time that commercial property prices have relative to starts. And commercial property prices are expanding about 3% right now, a positive 3%. So that’s a great forward looking leading indicator to say we should be more optimistic about the commercial construction industry as we look into next year. Another indicator that I watch closely is a 14 month leading indicator, and that’s commercial real estate occupancy rates. And commercial real estate occupancy rates are positive for really the first time since going all the way back to 2023. So that’s very encouraging, and again, it’s a 14 month leading indicator that says we should be more optimistic about next year. So we’re not just looking at one leading indicator, we never do here at ITR as economists. We always have to look at a basket of a number of these leading indicators to be confident in our forecast. But these leading indicators continue to point to positive numbers for 2027. So again, I hope as folks are planning as we move into the second half of this year, if you are selling into the commercial industry, if you are a commercial contractor, if you’re a supplier for the industry, understand some vertical markets will give you more growth opportunities than others, but we are planning for growth across the board. Good news after some challenging year, year and a half from the industry.

I hope you found this information helpful. As always, please like and subscribe to TrendsTalk wherever you listen to your podcasts. Thanks for joining me on this one, and I’m looking forward to the next one. Thanks so much. Take care for now.