Courtesy of the ASSOCIATION OF THE WALL AND CEILING INDUSTRY

According to the 2025 North American Engineering and Construction Outlook published by consulting and investment banking firm FMI Corp., this year will wrap by showing a significant slowdown in U.S. engineering and construction spending – with only a 1 percent increase projected for 2025, which is a sharp decline from 7 percent growth in 2024.

This deceleration, FMI’s report suggests, is primarily attributed to persistent weakness in the residential sector, marked by affordability issues, rising costs and tight credit. Multifamily development, in particular, is expected to continue its decline due to rising vacancy rates and slowing rent growth. Single-family residential and residential improvements are projected to stabilize by the close of 2025, with a modest rebound anticipated in 2026 – although affordability constraints will likely keep the overall residential sector under pressure.

Nonresidential building and infrastructure segments are expected to show mixed but resilient performance through 2025 and 2026. Short-term growth is anticipated in segments like office, amusement and recreation, religious, transportation, power, sewage and waste disposal and water supply. Longer-term growth (for 2024-2029, a compound annual growth rate exceeding 5.5 percent) is projected for lodging, office and water infrastructure. Nonbuilding structure investment is forecast to outperform nonresidential buildings over the next five years, driven by public and private infrastructure needs.

The Nonresidential Construction Index (NRCI) improved to 49.8 from 43.5, indicating a rebound in contractor sentiment and greater confidence in economic and business conditions, although it remains just below the neutral threshold of 50, suggesting stabilization rather than expansion.

Key trends impacting the industry include:

Office Construction
More than 23 million square feet of office space have been projected for demolition or conversion in 2025, with more than 70 percent converting to multifamily use. The national office vacancy rate reached 19.4 percent in May, with limited near-term improvement. Data center investment, a subset of office, is slowing after rapid growth, mainly due to power and labor constraints.

Commercial Construction (including warehouses)

An estimated 15,000 store closures have been projected for 2025, more than double last year’s closures, reflecting pressure on traditional retailers. Warehouse vacancy rates are increasing and are expected to peak slightly below 8 percent in 2026.

Health Care

Growth is still being led by hospital and specialty care facility investment, while medical office development continues facing headwinds. A shift from inpatient to outpatient care is driving investment in decentralized facilities.

Education

Public investment is a key driver, supported by higher education spending. Private educational construction has declined modestly in 2025.

Faith-Based

Church construction growth is driven by pent-up facility needs and a return to in-person engagement, with focus on high-growth regions and multipurpose campuses.

Public Safety

Attention is shifting to modernization of existing security infrastructure, with a decline in illegal border crossings. Increased privatization of corrections infrastructure is expected.

Amusement and Recreation

Investment remains strong due to major global events and demand for technology-enabled venues. Public spending accounts for more than one-half of total investment.

View the full report.