FMI’s 2025 Construction Industry Forecast: Thriving in an Evolving Landscape
Published on by Eric Goodman in Construction
What key trends are driving construction in 2025, and what’s the industry’s expected trajectory this year?
On February 7, 2025, Barnes Dennig, BMO, Michaelis Corporation, and USI Insurance hosted top construction consulting firm FMI’s Emily Beardall as she unpacked emerging trends in the construction industry. Right now, industry leaders and stakeholders are closely analyzing market trends, economic pressures, and shifting demands, and Beardall shared valuable insights into the construction industry’s expected trajectory – opportunities as well as challenges.
Beardall focused on three main themes: planning for the near term, positioning for long-term success, and preparing for industry transformation. Planning involves evaluating organizational backlog, identifying skill gaps, and preparing for immediate hiring needs. Positioning requires understanding where the market is shifting and aligning business strategy accordingly. Preparing for industry transformation means recognizing macroeconomic shifts, technological advancements, and evolving competition.
Market performance and growth trends
Overall construction growth
FMI forecasts a 2% overall growth in construction for 2025, driven largely by non-building structures such as power, highways, and water infrastructure. Certain segments will outperform others, with manufacturing, public safety, and water supply leading growth. However, sectors including commercial, lodging, and multifamily are expected to decline or stagnate.
Residential market challenges
The 2025 housing market is projected to be the least affordable in U.S. history, with median home prices expected to exceed 7.5 times the median household income. Mortgage rates are likely to stay between 6-7% through 2026, further dampening homebuyer activity. Home improvement activity is expected to increase due to affordability concerns and severe weather-related renovations.
Commercial and institutional sector outlook
Lodging and hospitality
Despite a 7% decline in 2024, the lodging market is poised for long-term growth due to global events such as the FIFA World Cup, the Los Angeles Olympics, and Formula One races. Hotel design is shifting toward extended stays and flexible workspaces to accommodate changing traveler expectations.
Office and data centers
Traditional office space remains under pressure, with office utilization at about 50% of pre-pandemic levels. Meanwhile, data center construction is booming, growing by 60% year-over-year, driven by increased demand for digital infrastructure. Markets leading the charge include Northern Virginia, Dallas, Chicago, and Phoenix are leading this expansion.
Retail and warehousing
The warehouse sector is cooling after years of overbuilding, with vacancy rates rising to nearly 8% in 2024. Brick-and-mortar retail construction is increasingly tied to mixed-use developments, rather than standalone retail buildings. The U.S. saw 7,000 retail closures in 2024, emphasizing challenges in the commercial real estate sector.
Infrastructure and industrial sectors
Manufacturing boom
Manufacturing construction is at record highs, with $250 billion in planned projects for 2025, driven by the CHIPS Act, electric vehicle production, and semiconductor manufacturing. Long-term sustainability remains a concern, with spending expected to stabilize at $220 billion by 2028.
Transportation and energy infrastructure
Airports are expanding, with billion-dollar terminal renovation projects planned at major hubs such as JFK. Highway and bridge construction is expected to stabilize after rapid growth in 2024. Renewable energy remains dominant, but natural gas will continue to play a key role in power generation. Coal is expected to decline below 15% of the U.S. energy mix by 2030, although data center and manufacturing demands may slow this transition.
Workforce and business strategy considerations
Talent and succession planning
A major challenge for construction firms is the aging workforce and a lack of formal ownership transition plans. Over the next decade, $8 trillion of wealth is expected to transfer within the industry as baby boomer-owned firms transition. Only 25% of firms plan to sell to employees, down from 38% in 2020, raising concerns about long-term leadership continuity.
Alternative delivery methods
Firms are increasingly embracing collaborative delivery models such as progressive design-build and construction manager-at-risk (CMAR) contracts. Public and private project owners are shifting procurement strategies to attract the best construction firms, as labor shortages limit project competition.
Emerging trends and future industry shifts
Artificial intelligence (AI) is reshaping construction, particularly in Building Information Modeling (BIM), project scheduling, and risk assessment. Adaptive reuse of buildings is becoming more critical as urbanization and sustainability concerns drive redevelopment efforts. E-sports venues, food and beverage processing facilities, and life sciences laboratories are among the emerging high-growth sectors. The “undeniable arrow of progress” points toward automation, digitalization, and decentralized infrastructure as long-term trends.
Future-proofing
As Beardall emphasized, construction firms must be proactive in addressing workforce challenges, adopting new technologies, and strategically positioning themselves in high-growth sectors. The industry is evolving rapidly, and organizations that effectively navigate these changes will be best positioned for long-term success. As the construction landscape continues to shift, firms should ask themselves: are we ready for what’s next?
You can watch the full keynote on-demand here: Thriving in an Evolving Landscape. Also, our 2024 Construction Compensation & Benefits Study is a great tool to help you build a competitive advantage in a tight labor market.
If you’d like to talk about how this forecast may impact your construction business, contact us for a free consultation with one of our top construction industry pros. As always, we’re here to help.