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February 3, 2025
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- February 3, 2025
with Taylor St. Germain
THE CABOOSE OF THE ECONOMY: TRENDS IN COMMERCIAL CONSTRUCTION
Key economic trends and leading indicator data suggests challenges ahead in 2025 for the commercial construction industry. What can business leaders expect for this downturn? And will there be opportunities for growth? Tune in to this week’s TrendsTalk for our actionable insights!


MEET YOUR HOST
Taylor St. Germain
As an experienced economist, Taylor St. Germain provides consulting services for small businesses, trade associations, and Fortune 500 companies across a spectrum of industries. His dynamic personality and extensive knowledge of economic trends and their business relevance are highly valued by clients and colleagues alike.
“Join me on the TrendsTalk podcast to explore the world of economics. Episodes offer insightful discussion and expert interviews. We cover relevant economic concepts in an accessible way. Whether you are a curious layperson or an industry professional, TrendsTalk is your go-to source for thought-provoking analysis and a deeper understanding of the economic forces shaping our world.”

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.
Taylor St. Germain:
Hi, everyone. My name is Taylor St. Germain with ITR Economics, and it’s really nice to be back on TrendsTalk. Thanks to my colleague, Mike, for filling in for me while I was out. We have a lot to discuss, and I wanted to start off my first TrendsTalk back with you after a few weeks with commercial construction.
The commercial construction industry is slowing down now, still growing year over year, but is slowing down. And despite all the positivity around economic growth in 2025, commercial construction might be in for some tumultuous times. Now, I’m not suggesting the bottom is going to fall out of commercial construction, but we are projecting some year over year decline for many of the commercial construction verticals.
Now, I want to start off by highlighting that, as we’ve talked about in the past, commercial construction is what we like to refer to as the caboose of the U.S. economy. So the housing market tends to lead the way. That’s the residential construction side. Then the economy comes, and then shortly after, we see commercial construction go through the cycle. The housing market has about a 24-month lead time compared to commercial construction. So what happens in the housing market impacts commercial construction about two full years later.
So the first thing to note is that the recent decline that we saw in the housing market back in 2022 and even some of 23 is going to detail some of the weakness we’re seeing in commercial construction. That’s the first leading indicator I would call out to get a little bit more technical with you. If you take the 12/12, the annual growth rate for single-family housing, and you shift it two years into the future, it provides a great leading indicator with a high correlation to commercial construction. So we are expecting to see some of that recent decline in weakness, I should say previous decline in weakness in housing to create some downside in commercial construction in 2025.
There are other leading indicators that also tell us that’s going to be the case. We look at the relationship between commercial construction and the commercial real estate occupancy rate. So when we see occupancy slowing or declining, that tells us with about a year lead time into the future, 14 months to be exact, where commercial construction is going. And we did see recent decline in the commercial real estate occupancy rate.
So we’ve got the housing market telling us commercial construction’s in for a weaker year. We’ve got commercial real estate occupancy rates telling us 25 will be a weaker year. And another indicator I’d like to call out is the Green Street All Commercial Property Price Index. That is also a 13 month leading indicator. And as that indicator has declined, the 12/12 has declined, and is still below the year ago level as we speak here today. So really what this is highlighting is the majority of these highly correlated indicators that have a lead time ranging from 12 to 24 months is telling us 2025 is going to be a bit of a challenging year from a commercial construction standpoint.
Now, just to give you some numbers to work from, we have private office construction expected to be down 3.6% in 2025, education construction being down 2% in 2025 compared to 2024, hospital construction about flat, that’s down 0.3%. And then finally manufacturing and retail construction, we have down 1.3% and 2.3% respectively in 2025 compared to 2024. So a lot of these commercial construction segments are in for a period of what I’d call mild decline in 2025. Again, these are low single digit negative growth rates. So certainly not the bottom falling out in 2025, but it’s not the robustness that we’ve seen in ’23 and ’24 when it comes to commercial construction.
Now, there are areas of opportunity. We always want to provide those. If you look at data center construction, yeah, we’ll likely see a little bit of a slowdown, but still positive growth rates. And we also have warehouse construction up 6% in 2025. So those might be two areas where you’d want to allocate a little bit more of your time and resources while many of these other commercial construction verticals will be down below the year ago level.
Now, that being said, it’s just a blip in 2025, a period of some mild decline by ’26 and ’27. The majority of these commercial construction segments will rebound and we’re expecting to see growth. So ’25, despite all of the record GDP and the uptick in manufacturing and industrial activity, just that lag time that commercial construction has it’s going to result in some mild negativity this year for most markets.
Now we’re always here to provide you with states of opportunity in vertical markets of opportunity and that’ll be important and an important exercise to go through as a business if you’re in commercial construction in ’25. Yes there’s some negativity but there’s always areas of opportunity and reach out to us if we can help you out there. Again the long-term profile is growth we just need to make it through 2025 and some of this weakness as we move forward.
Hopefully you found this information helpful. Thanks so much for joining me on this episode of Trends alk. Please remember to like and subscribe to Trends Talk wherever you listen to your podcasts and I’m looking forward to seeing you all in the next one. Take care for now.