Surging data center construction remains at the forefront of the industry as other sectors struggle to find their footing. Meanwhile, labor and materials price woes persist.
“What we are seeing in our third quarter data is an industry navigating a complex, two-speed market,” said Paul Brussow, president of Rider Levett Bucknall North America. “While residential activity is cooling, non-residential construction remains exceptionally strong, with jobs expanding 2.6 percent over the past year.”
Dodge Construction Network reports total construction starts rose 17% year-to-date through the first seven months of the year. The large increase is “predominantly being propped up by data center and institutional planning,” says Sarah Martin, director of economic research at Dodge. “Projects continue to move through the planning process more slowly alongside labor constraints and uncertainty around project costs. In July, it took a median of 17 months for non-residential projects to move from planning to start, up from 16 months in July 2025.”
Residential starts declined 2% through July when compared with the same period last year, according to Dodge data. Single-family starts, down 6%, are the cause for the drop, while multifamily starts have increased by 6%.
The largest multifamily projects to begin in July were the $535-million NY Vue-Harbor Station South Residential Tower/Retail in Bayonne, N.J., and the $343-million ICON Beach Waterfront Condominiums in Hollywood, Fla. “Rising mortgage rates have continued to price out first-time homebuyers, exacerbating an already tight supply of affordable housing,” says Martin. “As a result, demand has remained strong for more affordable rental units, as well as townhomes and condominiums.”
Non-residential starts are up 22% in the same time period. Unsurprisingly, office starts—which includes data center work—are the catalyst for the increase, up a whopping 118% year-to-date. Parking garage starts also experienced growth, at a rate of 10%. July’s largest non-residential projects were the $12.8-billion data center portion of the Project Jupiter Data Center and Microgrid Phase 1 in Santa Teresa, N.M., and the $12-billion Micron Semiconductor Mega-Factory Fab 1 – Phase 1 in Clay, N.Y. “Data center construction continues to be a bright spot, with robust starts activity alongside outsized demand for AI and cloud infrastructure,” Martin says.
On the flip side, “heightened volatility in global supply chains and labor availability has weighed on warehouse construction, which has fallen 9% in the first seven months of the year,” she says. Retail and hotel starts are also down year-to-date, as are starts in the institutional sector, which includes education and health care. “Reduced access to federal funding, tighter state and local budgets, and ongoing material and labor pressures are all weighing heavily on publicly funded construction activity.”
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“Strong domestic investment in AI, energy and infrastructure is expected to keep the construction industry growing, despite geopolitical uncertainty.”
Sarah Martin, Director of Economic Research, Dodge Construction Network
In the non-building sector, starts are up 30% year-to-date through the first seven months, due to strong showings in the utilities, streets and bridges and miscellaneous non-building categories. This market, spurred during the past several years by federal funding, is expected to cool as funding from the Infrastructure Investment and Jobs Act (IIJA) expires in September.
In July, the biggest non-building projects to begin work included the $2.4-billion CHSRA New Track and Systems (Two Sections) in Bakersfield, Calif., and the $2.3-billion microgrid portion of the Project Jupiter Data Center and Microgrid Phase 1 in Santa Teresa, N.M.
“The macroeconomy remains more resilient than expected, but construction faces downside risks from inflation, policy uncertainty and uneven demand across regions and building types,” says Martin. “Strong domestic investment in AI, energy and infrastructure is expected to keep the construction industry growing despite geopolitical uncertainty, though that growth will be uneven.”
Lumber prices are expected to increase through the third quarter. “North American lumber spot prices and firmer pricing conditions [are expected] across major lumber-producing regions,” says Ashika Jugwanth, research analyst at S&P Global Market Intelligence. “Canadian softwood lumber prices are expected to record particularly strong gains, while U.S. lumber prices also move higher.”
Plywood prices are predicted to increase 3.9% for the year, with softwood lumber prices forecast to rise 4.8%, according to S&P Global Market Intelligence’s third quarter forecast. After the spike in the third quarter, Jugwanth looks for fourth-quarter prices to be more subdued.
“Looking ahead, price growth is expected to moderate in Q4 2026 as recent spot market gains begin to level off and construction demand remains relatively subdued. Ongoing trade policy uncertainty, including tariffs on imported lumber products, may contribute to localized pricing volatility, but the broader forecast points to generally stable lumber markets through the end of 2026,” Jugwanth says.
In the steel market, carbon steel prices are “very high,” says John Anton, director, pricing and purchasing, at S&P Global Market Intelligence. However, “there are tentative signs that relief may be coming for buyers,” he says. “Rebar imports are rising although not extreme, causing it to have one of the lowest prices of all steel products, although well above historical norms.”
The S&P forecast predicts carbon steel prices to increase 20.9% by the end of 2026 before falling 9% in 2027. As for rebar, a 13.4% jump is forecast for this year, with a 6.7% decline next year.
Source: www.enr.com
