Why navigating uncertainty will be key to construction gains in 2025

In 2025, an evolving tangle of climate events and policy shifts will create new pressures for project sponsors.

With a new administration in 2025, new economic and trade policies may disrupt the construction industry. But despite changing economic, environmental and technological conditions, the 2025 outlook for the construction sector is positive.

While net construction growth is anticipated in 2025, the growth will likely be uneven across property types. For example, office and core industrial project starts have slowed down, while data centers, healthcare and advanced manufacturing projects are going strong. The most recent interest rate cut will not resolve every construction industry issue, but it has created a pivotal moment. So, what has led to this modestly optimistic, but uncertain outlook for 2025?

A year in retrospect

As noted in JLL’s recent 2025 U.S. Construction Outlook, the first three quarters of 2024 saw materials pricing leveling out, the start of interest rate cuts, and overall, an incredibly strong performance by the construction industry. In fact, once the numbers settle, 2024 is expected to show a 7% increase in construction spend over 2023. 

2025 will likely see more modest gains. One indicator is that the Architecture Billings Index has reported architectural industry contraction for nine of the last 12 months and project starts have been at record lows. These impacts will appear in construction spending data over the next few months.

​Nonetheless, interest rate cuts and increased loan originations should make for a robust round of starts in late 2025 and drive net spending growth for the year. In a welcome reprieve, construction cost growth was nearly flat in 2024. However, our report finds cost growth will be between 5% and 7% in 2025. Increases will vary by materials, reflecting demand shocks from natural disasters, booming sectors and vulnerability to changing economic policy.

Embracing sustainability and innovation

From a constriction trend perspective, environmental sustainability will continue to be a long-term and immediate priority in construction projects. Advanced technologies — including artificial intelligence, internet of things devices and digital twins — are driving new building design, construction and management approaches to improve efficiency, conserve resources and create value.

Resource conservation will be especially important. Regardless of federal government priorities, many corporations — along with state and local governments — will undoubtedly continue investing in decarbonization initiatives.

Many corporate owners and occupiers have been investing in energy-efficient building operations for decades. As employees increasingly expect their employers to provide sustainable workplaces that foster well-being and productivity, JLL has forecasted a 70% shortage of low-carbon buildings by 2030. 

Embracing sustainability and innovation, green building practices, energy efficiency and reduced carbon footprint is no longer a ‘nice to have’ — it is imperative for talent recruitment and retention, and for meeting corporate commitments to decarbonization.

It’s reasonable to expect in 2025 that sustainable design and operations will continue to shape project requirements. Data centers, healthcare and advanced manufacturing, in particular, have embraced sustainable design and operations as integral to controlling operating costs and supporting growth, and are unlikely to abandon their conservation strategies.

Combatting obsolescence with resiliency

As noted in JLL’s Opportunity Though Obsolescence report, around $1 trillion in capital expenditure globally could be needed to bring legacy office assets up to current standards. The U.S. and Europe together are home to 78% of potentially obsolete office space.

Obsolescence is an opportunity to keep the construction industry’s recent momentum going by tackling retrofit challenges. For selected office properties, adaptive reuse is another option. Some cities and investors are targeting under-utilized office properties with the right characteristics for conversion to housing. 

When developing strategic plans, asset owners, investors and city authorities will need to consider the many facets of obsolescence — age, design, location, regulatory considerations, product type life cycle and much more — to maximize their return on investment.