Apple just committed $600 billion to U.S. manufacturing. Microsoft, Google, and Amazon are racing to build billion-dollar data centers. Yet overall construction activity dropped 13% year-over-year in 2025, with the industry projected to decline 2.7% in real terms.
The construction market isn’t shrinking. It’s splitting. A handful of sectors are absorbing unprecedented investment while traditional commercial and residential work dries up. Understanding which side of this divide you’re on determines whether your firm survives the next three years.
Data Centers and AI Infrastructure Dominate New Spending
Power demand from U.S. data centers could reach 106 gigawatts by 2035, up from 33 gigawatts in 2024—enough to power every home in California, Texas, and Florida combined. AI data centers alone could grow more than thirtyfold, hitting 123 gigawatts.
Commercial planning activity surged 30% year-over-year in August 2025, driven almost entirely by data centers, energy infrastructure, and power generation. Public sector bids are up 3.4% while private sector bids fell 3.8%. The projects getting funded share one characteristic: they support digital infrastructure.
Office buildings, retail centers, and standard residential projects face the opposite trend. Developers can’t secure financing. Architects report the softest billings since 2020.
Tariffs Hit Education and Healthcare Projects Hardest
Tariffs on steel, aluminum, and lumber added approximately $10,000 to the cost of a typical home in 2025, according to the National Association of Home Builders. But the pain isn’t distributed evenly.
Imports account for 10% of construction inputs industry-wide. Education and healthcare facilities depend on imports 75% more than average, making these projects particularly vulnerable to trade policy. Schools and hospitals that penciled out in 2024 no longer work financially.
Firms are holding onto workers despite reduced hiring, betting on recovery. Construction workers earn 19% more than the average U.S. worker, making this talent too valuable to lose.
Homeowners Won’t Sell, Creating a Builder’s Market
69% of outstanding mortgages carry rates of 5% or less. Nearly a quarter locked in rates below 3%. These homeowners aren’t moving. Existing home sales hit 30-year lows in 2024 and 2025.
Builders stepped into the vacuum. They’re constructing smaller, more affordable homes and buying down mortgage rates to 4-5%. Residential construction is rebounding 12% in 2025 after two years of decline. New-home sales and single-family starts are up 13.8% over 2024.
The strategy works because builders face no competition from existing inventory. Homeowners with 3% mortgages aren’t listing properties to buy new ones at 7%.
Federal Policy Unlocks Manufactured Housing and Conversions
The Senate Banking Committee passed the ROAD to Housing Act of 2025 with a rare 24-0 vote, the first bipartisan housing markup in nearly a decade.
The legislation eliminates the permanent chassis requirement that made manufactured homes more expensive and harder to finance. It provides grants to local governments for accessory dwelling units, duplexes, and townhouses. The bill also creates funding to convert vacant office buildings and strip malls into affordable housing.
Developers focused exclusively on traditional single-family subdivisions will miss this pipeline. The federal government is directing capital toward manufactured housing and adaptive reuse projects that can deliver units faster and cheaper.
Where the Work Is—and Isn’t
Non-residential building activity will grow 8% in 2025, but manufacturing projects account for 27% of that total. Strip out data centers, chip fabrication plants, and defense work, and most commercial segments are flat or declining.
The industry is projected to grow 1.9% annually from 2026 through 2029, powered entirely by AI infrastructure, energy projects, and federal affordable housing initiatives.
Three characteristics separate winning firms from struggling ones: they moved into technology infrastructure sectors early, they maintained workforce capacity through the downturn, and they built relationships with the limited number of clients—tech companies, utilities, federal agencies—who control the capital.
The 2019 construction market isn’t coming back. Office towers, shopping centers, and spec residential subdivisions face structural headwinds. The next decade belongs to firms building data centers, converting vacant commercial space, and delivering federally-backed affordable housing.
If your backlog doesn’t include at least one of these project types, you’re on the wrong side of the split.
