While the construction industry is no stranger to uncertainty, a volatile market and geopolitical concerns have worsened the familiar challenge of managing the unmanageable. Despite strong growth currents and improved housing starts in the first half of 2026, construction continues to face obstacles due to interest rate and bond market status, supply chain constraints, development demand, and a retiring labor force.
This article outlines key industry trends, with relevant supporting data from the 2026 economic report provided by Construction Industry CPAs and Consultants (CICPAC). With construction experiencing a highly bifurcated market, we explore the current state of the industry and provide insight on what contractors can expect moving into 2027.
Key Insights
- Q2 GDP came in at 1.5%, below the average of nearly 2%, despite many construction sectors performing well. Current GDPNow estimates predict a growth of 5.8% at the start of Q3, though that will likely cool.
- Despite mortgage rates remaining high, there has been an increased housing demand, with private-owned rates 19% above revised May 2025 numbers. However, there are strong indicators that a rate hike may soon be warranted to address the inflation threat.
- The fuel crisis has worsened supply chain issues by limiting trucking availability and increasing raw material prices.
- Inflation has caused wage hikes in the industry, with the construction Employment Cost Index growing faster than inflation at 3.4%. Paired with a workforce that is aging out — and not enough skilled labor to replace them — means many companies are grappling with labor issues.
- Data center development has remained strong, but many traditional sectors of construction are expected to continue flagging.
5 Construction Industry Trends Shaping the Market
1. Market Outlook Will Remain Split
Investment in data centers, power generation, and certain civil projects remains strong, while many traditional residential and nonresidential categories face weaker demand. The 2026 American Institute of Architects (AIA) Consensus Construction Forecast projected total nonresidential building spending to increase 3% in 2027. However, that aggregate estimate masks significant differences.
Data center spending was projected to grow 24.7%, while manufacturing spending was expected to decline 0.6%. Commercial construction was forecast to grow 5.8%, but growth excluding data centers was expected to be only about 1%.
The CICPAC report’s longer-term estimates point to a similar divide, forecasting a three-year compound annual growth rate (CAGR) of 28% for data center construction compared to 2.2% for new single-family construction.
|
CategorY |
Current |
2025 |
3-year Forecast |
5-year |
| Residential | $932,950 | $908,177 | 0.8% | 1.8% |
| New single family | $410,014 | $419,245 | 2.2% | 2.8% |
| New multifamily | $115,115 | $114,671 | -3.8% | -1.5% |
| Nonresidential (Totals) | $728,241 | $742,578 | 5.5% | 4.5% |
| Manufacturing | $195,309 | $218,899 | 7.0% | 6.0% |
| Office | $93,209 | $89,868 | 1.5% | 1.8% |
| Healthcare | $52,947 | $53,213 | 3.2% | 3.5% |
| General | $46,062 | $46,062 | -2.5% | -1.0% |
| Data center | $41,100 | $41,100 | 28.0% | 22.0% |
| Higher education | $13,089 | $13,089 | 5.2% | 5.5% |
These figures do not suggest that contractors should pursue every high-growth sector, as those areas often require specialized capabilities, bonding capacity, relationships and technical talent. Instead, leadership teams should evaluate where the company has a defensible right to win.
Action Steps for Contractors
To better navigate a split market in 2027, contractors should evaluate whether partnerships, acquisitions, or targeted hires may provide entry into higher-growth segments. Additionally, companies can compare their internal capabilities with the expected demand in data centers, power, healthcare and manufacturing.
However, it's important for contractors pursuing fast-growing specialties to balance their exposure with more stable institutional, or recurring, projects. As we head into 2027, it will be wise to avoid treating a strong aggregate forecast as evidence that every end market will improve.
2. Interest Rates Will Influence Project Viability
Financing conditions are expected to remain a key important variable of the construction outlook in 2027, particularly for residential, commercial and other privately financed projects.
The 10-year Treasury yield is currently around 5.18%, while the average 30-year mortgage rate is 7.34%, according to the national average. Because mortgage and commercial borrowing rates generally carry a premium over Treasury yields, elevated bond rates have sidelined many homebuyers, speculative builders and some commercial projects.
The residential market illustrates the challenge. Total residential construction had increased 1.8% year over year as of May 2026, but housing permits were down 1.8% year over year through June. The monthly supply of new homes stood at 9.3 months, compared with approximately six months in a balanced market.
While overall construction activity could accelerate in 2027 if Treasury yields ease, contractors should not build operating plans around a single interest-rate assumption. Inflation, government deficits, energy prices and geopolitical risk could keep borrowing costs higher for longer.
Action Steps for Contractors
Contractors can prepare by modeling multiple demand and financing scenarios rather than relying on one base forecast. These scenarios could include:
- A gradual easing scenario, in which financing conditions improve and delayed projects begin moving forward.
- A higher-for-longer scenario, in which residential and speculative commercial activity remains constrained.
- A renewed inflation scenario, in which costs and interest rates increase further.
Companies should also review customer and project concentration, monitor the financial capacity of owners and developers, and assess the risk of delays between contract award, notice to proceed and revenue recognition. A healthy pipeline does not always translate into predictable cash flow when financing remains unsettled.
3. Material and Transportation Volatility Will Require Increased Risk Management
Rising construction costs are not limited to a few isolated commodities. The transportation sector is facing its most inflated environment since the global supply chain crisis in 2021. With higher demand and tighter capacity, rates are expected to remain elevated into the next year. For example, flatbed transportation rates are up 35% year-over-year, with an additional 25% fuel surcharge added to most shipments.
Spurred by tariffs, fuel costs, geopolitical disruptions, and competition for critical electrical equipment, higher rates will be particularly impactful for contractors serving data centers, power generation and advanced manufacturing projects. The demand for copper, transformers, control panels, and other specialized components is high within these sectors, meaning material volatility should be treated as a financial and operational risk.
Action Steps for Contractors
In an unpredictable environment, contractors will benefit from a more proactive approach to risk management, such as implementing contract provisions that can help allocate risk more effectively when market conditions do change. Contractors should also understand how cost increases move through individual contracts. The risk profile of a fixed-price agreement can be materially different from that of a cost-plus or guaranteed-maximum-price arrangement when input prices are changing quickly.
Many contractors are also shortening the validity period of bids and quotes to reduce exposure to unexpected cost increases. Before schedules and pricing are finalized, it is important to identify long-lead materials and evaluate opportunities for early procurement or owner-funded purchases that can lock in availability and pricing.
4. Labor Availability May Limit Growth
Even where demand is strong, labor capacity could prevent construction companies from pursuing or completing additional work. Retirements are reducing the supply of experienced professionals, supervisors and project leaders, while the number of new entrants may not be sufficient to replace them. The Associated Builders and Contractors forecast that in 2027, an estimated 456,000 new workers will need to enter the construction industry to meet demand.
Construction job openings exceeded 350,000, according to the August CICPAC report. Meanwhile, the construction employment cost index was growing at approximately 3.5% annually, and wages alone were rising at about 4.3%. Skilled roles are experiencing some of the greatest pressure.
For construction companies, labor constraints create more than a recruiting problem. They have the potential to impact nearly every facet of the workflow, from project selection and reliable scheduling to poor knowledge transfer and obstacles entering new markets.
Action Steps for Contractors
Workforce planning should be directly connected to business development and backlog planning. Before pursuing additional projects, contractors must understand which skills and roles will be required, when those individuals will be needed and whether the organization can realistically secure them.
Potential actions to help close the labor gap include:
- Building relationships with trade schools and apprenticeship programs
- Formalizing succession and knowledge transfer plans
- Cross-training employees in high-demand functions
- Evaluating compensation and retention by critical role
- Improving labor forecasting across projects
- Reviewing subcontractor capacity and financial health
As teams prepare for 2027, the objective needs to shift to improving the amount of safe, profitable work the organization can deliver with its available workforce.
5. AI and Digital Tools as Standard Practice
Technology adoption remains one of the most significant construction trends, particularly as contractors look for ways to address labor shortages, protect margins, and manage increasingly complex projects.
Building information modeling (BMI) is now commonly used in larger projects and artificial intelligence (AI) has the power to speed up project management, scheduling, estimating and more. These technologies can also help identify design conflicts earlier and provide management teams with faster insight into project performance.
While the technology trend will continue to rise in 2027, construction companies should avoid pursuing a specific platform simply because it is gaining attention. Construction firms do not need every tool out there, but companies can gain a competitive edge when technology is used intentionally. The value comes from tying an investment to a measurable business problem and integrating it into day-to-day workflows.
Action Steps for Contractors
To ensure a tool or technology platform will support your business, it's important to identify current gaps or inefficiencies. For each investment, establish a baseline, define the expected operational or financial result, and assign responsibility for adoption. You may want to fix slow estimating, manual reporting, inaccurate labor forecasting, or limited margin visibility.
Governance, cybersecurity, employee training, and the appropriate review of AI-generated information must be addressed for thorough, effective implementation and process improvement. While technology alone will not resolve construction industry challenges, when used strategically it can help contractors operate more efficiently and make earlier, better-informed decisions.
Creating Opportunities for Construction Businesses
The 2027 market is expected to remain fragmented by sector, geography, funding source and customer type. Contractors that rely only on national spending forecasts may miss both the risks within seemingly strong categories and the opportunities within slower ones. To remain competitive, leadership teams should use the planning cycle to address five priorities:
- Determine where the company can compete profitably. Evaluate sectors based on demand, margins, technical requirements, client relationships and internal capacity.
- Strengthen forecasting and scenario planning. Model the impact of changing interest rates, project delays, cost escalation and labor constraints.
- Protect working capital and liquidity. Monitor project cash flow, billing cycles, retainage and borrowing availability.
- Align backlog with execution capacity. Assess whether labor, subcontractors, bonding and management resources can support projected work.
- Improve visibility into project risk. Use timely job-cost reporting and operational data to identify margin deterioration before it becomes difficult to correct.
For some contractors, 2027 may create an opportunity to move into expanding markets. For others, the more valuable strategy may be to protect margins, improve project selection, strengthen liquidity and prepare for an eventual improvement in interest-rate-sensitive demand. In either case, the companies best positioned for the year ahead will be those that translate economic signals into specific operational and financial decisions.
How 2027 Rates Could Impact Companies
A lower-rate environment would generally be positive for construction because:
- Home affordability improves, increasing new housing demand
- Developers can finance projects at lower costs, improving project feasibility
- Commercial real estate projects that were delayed due to financing costs may move forward
- Private equity and real estate investors often become more active when borrowing costs fall
- Construction spending typically accelerates as pent-up demand is released
If inflation remains stubborn and the Federal Reserve keeps monetary policy restrictive:
- Residential construction will likely remain under pressure
- Speculative commercial projects may continue to be postponed
- Developers may struggle to achieve required investment returns
- Borrowing costs on land acquisitions, equipment, and working-capital lines remain high
- Owners may delay projects, creating longer sales cycles and a less predictable backlog
Frequently Asked Questions
The construction industry is expected to experience modest growth, but certain sectors will likely bolster that growth. Data centers, infrastructure and healthcare are anticipated to be the industry drivers next year.
In 2026, average 30-year mortgage interest rates remained above 7%, a higher rate that slowed demand. If rates are lowered in 2027, pent-up housing demand would likely move. On the other hand, if rates stay elevated due to inflation, housing and speculative commercial projects would remain slowed.
Yes, the forecast remains sensitive to both economic and policy developments. Inflationary pressures that have reemerged in recent months will continue to influence the cost of materials and other inputs, while the Federal Reserve's response will impact the cost of short-term borrowing.
Broader market conditions, including fiscal policy and the nation's growing debt burden, will also influence long-term interest rates. Tariff policy remains highly volatile, with sudden changes in trade actions creating planning challenges for businesses. Policy uncertainty also remains elevated, as Congress faces difficult decisions regarding future spending priorities amid growing fiscal pressures, including the future of federal infrastructure investment following the September 2026 expiration of Infrastructure Investment and Jobs Act (IIJA).
Your Guide Forward
By connecting industry trends with company-specific financial and operating data, construction leaders can make more informed decisions about which projects to pursue, how much risk to accept, and where to invest for the future.
Cherry Bekaert's Real Estate & Construction team serves a wide range of clients across the real estate, construction and hospitality industries. Our professionals provide tailored, multidisciplinary solutions to help clients navigate economic uncertainty, emerging technology and shifting market demands. Connect with a Cherry Bekaert advisor to learn how our solutions can help you plan for success in 2027.
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