NJ construction spending to rise amid new uncertainty

The basics:

• NJ construction spending projected to rise 5% in 2026, reaching about $17B
• Civil projects dominate spending — roads, bridges, highways account for two-thirds of construction dollars
• Tariffs, rising oil prices could push construction inflation higher; slow interest-rate cuts
• Planned projects total $152B statewide; South Jersey shows the fastest growth in future starts

New Jersey construction spending is expected to rise 5% in 2026 despite growing uncertainty. 

During a March 4 presentation for Associated Construction Contractors of New Jersey, Otteau Group Inc. Managing Partner and Chief Economist Jeffrey Otteau projected the increase in sector expenditures for new and existing projects in 2026.  

The jump to $17 billion in construction spending marks slower growth than last year. However, beginning with an overview of the economy, Otteau noted the situation “was very positive up until five days ago.” 

“Now when we look at what the inflation forecast is going forward, this war in Iran has changed things,” he said later in the presentation. 

ACCNJ represents building contractors; construction managers; and heavy, highway, site development and utility contractors. Matawan-based Otteau Group specializes in real estate market analysis and advisory services.

The latest economic curveball underscores the continuing theme “that uncertainty will prevail.” Still, optimistic figures, on-the-ground developments and improving lending conditions signal continued construction growth. 

Over the session, Otteau listed indicators to watch, how they impact the economy and which sectors present the most opportunity. The analysis also offered a look at where construction is concentrated, key commercial real estate markets and more. 

Civil awareness

In 2025, New Jersey outperformed the rest of the U.S. in terms of construction spending, increasing 13% to $16 billion, according to the analysis. Otteau noted the novelty of the Garden State leading in this way. 

He also highlighted stark differences across sector spending, with civil the clear leader. 

Otteau said roads, bridges and highways account for two-thirds of every construction dollar spent in New Jersey. He attributed that activity to impacts of the Infrastructure Spending Bill. Construction starts in the vertical totaled $4.7 billion in 2025. Health and education, the next closest (and growing) sector, topped $2.9 billion. 

At the same time, new starts slowed slightly to 4%. 

Otteau noted a corresponding dip in construction employment due to the drop. 

This is a number that we’ll continue to watch going forward.

“I can tell you that New Jersey’s share of foreign born workers in the construction industry is one of the highest in the nation. And it is likely that some of the immigration actions that are taking place are having some effect on the labor pool here. And then certainly the pullback in new starts would be part of that. … There’s also the possibility that New Jersey may have an underground construction economy component where people are working that are not actually on the books, and that may be an additional factor here.”

He continued, “But this is a number that we’ll continue to watch going forward.” 

The analysis attributed declines in sectors like multifamily and health and education to elevated interest rates, “which make borrowing more costly and tend to stall out some construction spend.” Meanwhile, the industrial sector’s 59% drop in 2025 starts, per the presentation, reflects an ongoing course correction after significant buildup. 

Pick a card

Looking ahead, recent leaders in terms of activity will also see some shifts. 

As federal dollars run out – or are held back – infrastructure spending eventually will slow down.

“Some of this has to do with how the federal government is doling out that money. Some of it’s now been expended; and some of it is being released more slowly,” Otteau said. “We saw direct evidence of that with the Gateway Tunnel Project. The courts subsequently ruled that the federal government needed to release those funds, but that tug of war continues to play out.” 

Otteau cited several “wild cards.” 

“And were it not for the recent developments in the Middle East, we would see a continuing stream of interest rate cuts heading into 2026, which is very beneficial to the construction economy,” he said. 

Preceding “Operation Epic Fury,” Otteau described the recent U.S. Supreme Court decision on tariffs as the first recent surprise added to the mix. Though, he discounted their effects on general inflation, as that figure continued to trend lower in 2025 despite their enactment. Tariffs do directly affect construction materials.

Otteau highlighted 2.9% and 4.1% increases in inflation in North and South Jersey, respectively. “It’s nowhere near what it was back in the pandemic when we had 18, 20, 22% cost inflation for construction materials and construction costs, but it’s elevated.”

Then there’s oil prices, which Otteau actively monitored on a separate screen throughout the presentation. After trending down over the past year, prices have now spiked.  

Positive indicators

Even with the geopolitical tension, he didn’t project a recession. Instead, rising job creation and falling unemployment claims indicate the economy found its footing, according to Otteau. He also cited loosened lending standards from banks.  

Lenders “had become more willing to extend credit for real estate construction projects,” he said. “And as a result of that, we had been expecting that the increased access to debt for developers would pass through into rising levels of construction spending.” Otteau cautioned this is another wait and see area. 

Cost segregation studies help NJ businesses cut tax bills. Read more here.

Additional factors shaping the economic landscape include the 2025 One Big Beautiful Bill Act, $10 billion in planned investments in the U.S., and the Federal Housing Finance Agency recently purchasing $200 billion of mortgage bonds with the intent to lower mortgage interest rates, he said.

Otteau highlighted a facet of the new tax bill with particularly favorable effects for construction spending. The update allows for depreciation of funds spent on equipment and certain forms of construction in one year, rather than needing to spread it out over 15 or 20 years, he explained. “Which means that the more money you spend on construction and equipment, the lower your tax bill goes because of that accelerated depreciation.” 

Otteau noted expanding deal flow in the commercial real estate sector signaled a step in the right direction for local construction.  

Transaction value rose from $6 billion in 2023 to $10 billion in 2026.

Big picture

Rising CRE prices are also a good sign. In New Jersey, valuations are up by 23%, Otteau said, and rising faster here than anywhere else in the tri-state region. New York City recorded a 12% drop, according to the presentation; while eastern Pennsylvania was up by only 1.7%.  

“That’s very favorable to new construction,” Otteau explained. “Because one of the impediments to new construction is that it’s expensive, more expensive to build a new building than to acquire an existing building. … But as the prices of those older existing buildings rise, it makes new construction and the costs of new construction, labor, benefits, materials more increasingly competitive.” 

Otteau offered several concrete examples of opportunity in New Jersey, including the Garden State’s Hollywood moment. 

He led with an overview of impacts from the $1 billion Netflix Studios Fort Monmouth under development in Monmouth County, which add up to more than $8 billion in economic output. Otteau also noted other, and larger, projects underway to expand the film and TV production sector across the state, such as Lionsgate’s Newark development, Paramount’s lease at 1888 Studios in Bayonne and Paterson’s recently revealed $250 million Filmology Labs plan.

“These are big deals and they will create long-term construction spending in our state,” Otteau said. “And we’ve not really had heard stories like this for decades now where we could say, ‘Boy, New Jersey’s really in a great spot. We’re seeing our construction economy grow exponentially.’  

“That’s what we think will happen now. It’s going to take a little while for this to ramp up, but it’s coming and it’s something that we can look forward to.” 

Wait and see

Construction spending is set to rise the year ahead, buoyed by lower interest rates and growth in areas such as apartments, data centers and refrigerated warehouses. Planned project values for construction spending statewide total s$152 billion — an 11% increase over the last year, Otteau said.

“Now, not all of those projects will start in 2026. A small portion of that will never start. Some of them may get pushed out to 2027,” he said. “But it is an indication that over the next two years, we should see a continuing increase in the size of the construction economy here in New Jersey.” 

Right now, he said South Jersey’s outlook shows the largest increase in planned future new construction starts (50% growth compared to about 5.5% in North Jersey). 

Despite macro and geopolitical uncertainties, Otteau said New Jersey’s construction economy is poised for growth, though risks remain. 

But this too may yet pass. 

“You’ll remember that last March and April and May, the entire economy was in an uproar over what would the effects of tariffs be? And then eight, nine, 10 months later, we found out the effects were outside of the construction industry with construction materials. The effects were non-existent.  

“And that may happen here as well, or it may not.”