4Q Cost Report: Data Centers, Multifamily Lead Modest Growth

Tariffs and other ongoing challenges remain

While 2025 may be coming to a close, economic uncertainty is expected to continue as concerns linger within the construction industry as well as on the health of the overall economy.

“Consumer spending has been stagnant, housing sales have slowed considerably and the job market continues to weaken. Businesses, in aggregate, have also been cautious about taking on new investments and overextending their activities,” says Sarah Martin, associate director of forecasting at Dodge Construction Network. “As market participants and consumers get used to the heightened levels of uncertainty, they will become more active; however, higher borrowing costs through risk premiums will rise, making investment more challenging.”

Related Link:

ENR 2025 Fourth Quarterly Cost Report (PDF)

(Subscription Required)

Dodge data shows that while projects are being planned, the period before breaking ground has lengthened. In September, the median number of months a non-residential project spent in the planning stage reached 19 months, according to Dodge. However, says Martin, “recent trends show improvement, with the median dropping to 16 months in November. Viewed in aggregate, the data suggest that rising uncertainty and deeper labor shortages in the construction sector will yield weaker growth in 2026.”

Overall, Dodge reports that starts increased 5% year-to-date through November. In the residential sector, starts are down 5% in that period, which Martin notes is due to a “marked pullback” in single-family construction, at a rate of 13%. “While mortgage rates ticked down to 6.24% in November, the elevated risk of recession and ongoing economic uncertainty is keeping homebuyers on the sidelines,” she says. “Slower demand has contributed to home price declines, driving marginally better affordability that could spur some buying activity on the margins—but not by much.”

While single-family work dropped, multifamily construction rose 12% through November. “As buyers continue to be priced out of the single-family market, demand on the rental side will be sustained—or buyers will opt for more affordable townhouses or condominiums.”

Non-residential starts rose 5% in the first 11 months of the year, according to Dodge. Office starts, which include data centers, are up 41%, while retail stores and parking garage starts rose 8% and 12%, respectively. Weaker markets include hotel construction, down 1% in the same period, and warehouse starts, which fell 7%. Manufacturing is down 8% through November, as “changing tariff policies elevated risks around higher input costs and supply chain issues creating a pronounced pullback in the first quarter of 2025,” says Martin. While the sector rebounded in the second quarter due to the groundbreaking of large semiconductor plants and petrochemical refineries, she adds, starts dropped 71% in the third quarter “as tariffs ratcheted up again.”

Prices for reinforcing bars are expected to end this year up 5.8% before falling 2% next year, according to S&P Global Market Intelligence’s 4th quarter forecast. Sheet metal prices are up 3.8% in 2025, with another 2.1% increase expected in 2026. “Prices in the U.S. have room to decline following tariff-driven increases,” says John Anton, director, pricing and purchasing at S&P. “In Asia and Europe, prices are near cost and will lead to production restraint that puts upward pressure on pricing.”

He adds: “Mills were able to push through price increases following the June increase of Section 232 tariffs from 25% to 50%. However, we expect soft overall demand and the domestic premium over imports plus tariffs will undercut the leverage of domestic suppliers.”

In the lumber market, S&P predicts a 3.2% decline in softwood lumber prices in 2026, following a 4.3% increase in 2025. Plywood prices are expected to end the year down 1.5%, rising 1.4% next year.