The “2025 North American Engineering and Construction Outlook,” published in July 2025 by FMI, forecasts a significant slowdown in U.S. engineering and construction spending, with only a 1% increase projected for 2025, a sharp decline from 7% growth in 2024. This deceleration 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 in 2025, with a modest rebound anticipated in 2026, though 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 (2024-2029 CAGR exceeding 5.5%) 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:
- Residential Sector: Single-family sales are improving in more affordable and disaster-affected regions. Mortgage rates are expected to remain between 6% and 7% through 2026, and tariffs are keeping construction costs elevated. Builder sentiment is cautious, with many relying on incentives. Multifamily activity will remain subdued into 2026 due to elevated costs, rising vacancy rates, and limited capital availability.
- Nonresidential Buildings:
- Office: Over 23 million square feet of office space are projected for demolition or conversion in 2025, with over 70% converting to multifamily use. The national office vacancy rate reached 19.4% in May, with limited near-term improvement. Data center investment, a subset of office, is slowing after rapid growth, facing power and labor constraints.
- Commercial (including Warehouses): An estimated 15,000 store closures are projected for 2025, more than double last year’s closures, reflecting pressure on traditional retailers. Warehouse vacancy rates are expected to rise through 2025, peaking slightly below 8% in 2026.
- Health Care: Growth is led by hospital and specialty care facility investment, while medical office development faces headwinds. A shift from inpatient to outpatient care is driving investment in decentralized facilities.
- Educational: Public investment is a key driver, supported by higher education spending. Private educational construction declined modestly.
- Religious: 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 over half of total investment.
- Nonbuilding Structures:
- Transportation: Public spending, particularly on air terminals and port infrastructure, is leading growth. Efforts to improve automation and resiliency are accelerating due to supply chain demands.
- Communication: Demand is driven by continued investment in data centers, manufacturing, transportation, and logistics. Changes to the BEAD program expand eligibility for satellite internet providers.
- Manufacturing: Spending is expected to plateau in 2025 and decline slightly over the next few years, mainly due to a slowdown in semiconductor investments. New tax incentives and permitting reforms are expected to support long-term growth in advanced sectors.
- Power: Utilities are increasing capital investment to meet rising electricity demand from data centers, new manufacturing facilities, and electric vehicles.
- Highway and Street: Programmed highway funding under the IIJA is set to expire in September 2026, with unspent funds expected to be redirected to roads and bridges. Roads and bridges represent the largest category of infrastructure needed in the U.S. through 2033.
- Sewage and Waste Disposal & Water Supply: Significant investment is driven by migration trends, aging infrastructure, and increased frequency of severe weather events. New spending bills include substantial cuts to the Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF), which will limit states’ ability to finance upgrades.
Overall, the construction industry is entering a slower and more selective phase of expansion, with elevated costs, political and geopolitical uncertainty, and tight credit conditions expected to weigh on growth through at least mid-2026. This report was generated in June 2025.