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Mid-Year Construction Market Update
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Mid-Year Summary
09
Trends Shaping the Construction Industry
08
Construction Claims Trends
07
Construction Safety and Risk Management
06
Technology-Led Transformation
05
Construction Material Costs
04
Employment and Labor Market
03
Construction Spending
02
Construction Starts
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Market Overview
Contents
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2026 Mid-Year Construction Market Update
The U.S. construction industry enters the second half of 2026 amid moderating economic growth and uneven sector performance, reflecting broader macroeconomic shifts and structural realignment within the built environment. With real GDP growth around 1.9%, elevated interest rates, persistent inflation, and cautious business sentiment are keeping nonresidential construction largely flat in this softer economic environment. ConstructConnect expects GDP growth to rise to 2.6% in 2027 as energy prices normalize toward pre-war levels. Emergence of a K-Shaped Construction Market A defining feature of the 2026 construction landscape is the emergence of a K-shaped market dynamic, wherein growth is increasingly concentrated in select high-demand segments while traditional sectors experience stagnation or contraction. On the positive side, data centers, power infrastructure, advanced manufacturing, and AI-driven megaprojects are witnessing robust expansion, supported by digitalization trends, reshoring initiatives, and rising energy demand. Conversely, commercial office, education, and broader institutional construction continue to face structural headwinds, including changing workplace dynamics, aging demographics, and constrained financing conditions. This divergence highlights a fundamental shift in capital allocation patterns, with investment increasingly flowing toward technology-enabled and infrastructure-intensive assets.
At a structural level, the industry is being reshaped by the growing dominance of large-scale megaprojects, which now account for approximately 25% of all non-residential construction spending, a significant increase from historical norms.
U.S. construction activity in the first half of 2026 showed uneven but overall expansionary growth, while strong gains in nonresidential and civil construction offset continued weakness in residential building. Total construction starts rose 12.6% YoY in Q1, and spending was up 6.4% from January to May versus the same period in 2025, driven in part by a record surge in megaprojects: In Q1, 21 projects over $1 billion were launched, totaling $57.7 billion. This surge in megaproject activity has materially elevated aggregate construction volumes and underscores a structural shift toward high-value project concentration. The nonresidential sector has been the main growth engine, with nonresidential building up 46.9% YoY in Q1, led by commercial construction, which more than doubled, increasing 103.2% YoY, with private office construction—particularly data centers—emerging as the standout subsector, expanding by 381.8% YoY. Institutional construction grew 16.6% YoY, supported by strong gains in prisons and hospitals, though declines in some subsectors and continued weakness in manufacturing, warehouses, and sports facilities kept the nonresidential market uneven. Residential construction remained a significant drag on overall market performance, with starts down 26.7% YoY in Q1 across both single-family and multi-family segments due to elevated interest rates and persistently high construction costs. Overall, 2026 reflects strong but uneven growth, with nonresidential and civil construction leading the way supported by megaproject activity, infrastructure investment, and data center–driven demand, while residential construction remains in decline and month-to-month volatility continues to increase.
U.S. construction activity in the first half of 2026 showed uneven but overall expansionary growth, while strong gains in nonresidential and civil construction offset continued weakness in residential building. Total construction starts rose 12.6% YoY in Q1, and spending was up 6.4% from January to May versus the same period in 2025, driven in part by a record surge in megaprojects: In Q1, 21 projects over $1 billion were launched, totaling $57.7 billion. This surge in megaproject activity has materially elevated aggregate construction volumes and underscores a structural shift toward high-value project concentration. The nonresidential sector has been the main growth engine, with nonresidential building up 46.9% YoY in Q1, led by commercial construction, which more than doubled, increasing 103.2% YoY, with private office construction—particularly data centers—emerging as the standout subsector, expanding by 381.8% YoY.
According to ConstructConnect’s Spring 2026 Put-in-Place Construction Forecast, total U.S. construction spending is expected to reach $2.27 trillion in 2026, a 5.1% YoY growth. While the overall forecast remains steady, growth is shifting toward stronger nonresidential momentum, offset by weaker residential prospects. The market is increasingly driven by large-scale, capital-intensive investments, particularly in digital infrastructure, with spending patterns influenced by rising material costs, tight labor markets, and changing interest rate expectations. Nonresidential Building Spending The outlook for nonresidential building has strengthened considerably, with spending projected to grow 6.5% YoY in 2026, up from the previous forecast of 5.7%. This growth is largely driven by a surge in private office construction, particularly data centers, which are expected to increase by 25.2% in 2026, followed by 14.8% growth in 2027 and 7.4% in 2028.
decline in 2026 and 2027, resulting in a negative five-year growth trajectory (-1.5% CAGR). This shift highlights a reallocation of infrastructure investment toward energy and technology-enabling assets rather than traditional utilities. Private vs. Public Construction Spending ConstructConnect’s forecast continues to favor the private construction sector, which is expected to grow at a five-year CAGR of 5.8%, driven by strong investment in commercial, industrial, and technology-focused projects. In contrast, the public sector is projected to grow at a more modest 1.3% CAGR, though this marks an improvement from earlier projections that anticipated contraction. Notably, much of the public-sector growth is expected to materialize in the later years of the forecast period (2028–2029), suggesting a delayed impact of infrastructure funding programs.
This trend reflects an AI-driven investment super cycle, with cumulative private office spending anticipated to reach $659.3 billion by 2030.
Within civil construction, power and communications infrastructure is expected to grow by more than 8% annually between 2026 and 2029, reflecting the increasing importance of energy and digital projects. However, traditional utility infrastructure, including sewage, waste disposal, and water supply construction, is expected to
Construction employment in the U.S. during the first half of 2026 shows gradual recovery in hiring activity, driven by growth in nonresidential construction, while residential employment continues to decline. Nonresidential sectors have consistently added jobs, with specialty trades leading the gains in April (+13,000 jobs), followed by nonresidential building (+6,000 jobs), and heavy and civil engineering construction (+1,000 jobs). These trends build on March data, where nonresidential employment increased by 12,200 jobs across all subsegments, and continued into May with specialty trades adding 11,000 jobs, heavy and civil engineering construction 3,000, and nonresidential building 2,000. In contrast, residential construction employment remains in decline, with residential specialty trades losing 9,000 jobs and residential building shedding 2,000 positions in April, reflecting the ongoing slowdown in housing driven by elevated financing costs, affordability constraints, and reduced new project activity. Despite these challenges, construction employment remains attractive in a tight labor market, though elevated labor costs continue to pressure overall project budgets.
04 Employment and Labor Market
Labor Shortages as a Delivery Constraint The U.S. construction industry faces a growing labor shortage, projected to reach 499,000 workers in 2026, up from 320,000 in 2020, according to Associated Builders and Contractors (ABC). This shortage is increasingly a delivery constraint rather than a cost-driven issue, directly impacting project timelines, overhead absorption, and exposure to liquidated damages. High turnover rates further exacerbate financial pressures, with skilled-trade turnover reaching 73% within 24 months, and replacement costs ranging from $8,000 to $21,000 per worker. When applied across a typical 60–80-person field workforce, these costs can quickly accumulate to hundreds of thousands of dollars. Notably, these costs are frequently absorbed within general overhead rather than being directly attributed to project performance, leading to distortions in project-level profitability and cash flow visibility. Rising Labor Burden and Productivity Decline Labor now accounts for 46% of total project costs, up from 38% in 2020, intensifying margin pressures. Rising wages, which have increased nearly 40% since 2020, from $28.50 in 2020 to $39.80 in 2026, combined with a 15% decline in productivity, have driven a 64% increase in the effective cost per installed unit. This disconnect between estimating and execution amplifies cost pressures, as initial assumptions fail to account for real-time productivity losses.
Material cost dynamics in the first half of 2026 reveal that cost pressures have not disappeared but have become more concentrated, sector-driven, and externally influenced. Metals and electrical components, particularly steel and copper, are re-emerging as primary drivers of cost escalation, while materials such as lumber, concrete, and insulation exhibit relative stability but at elevated levels. This divergence underscores a critical shift in the construction cost environment: from broad-based inflation to targeted pressure points linked to infrastructure investment, energy costs, and technology-driven construction demand.
The U.S. construction industry is undergoing a rapid transformation driven by technology adoption, shifting from fragmented digital experimentation to fully integrated, data-driven operations. In 2026, technology is no longer a differentiator but a baseline requirement, as contractors face persistent labor shortages, rising project complexity, and increasing owner expectations. The industry is simultaneously leveraging automation, AI, real-time data platforms, and advanced construction methods to improve productivity, reduce risk, and enhance project outcomes. With the industry needing 349,000–556,000 additional workers annually and facing a 41% workforce retirement by 2031, technology is emerging as the key solution to bridge labor gaps and sustain growth.
From Digital Adoption to Operational Integration The shift from digital adoption to the stage of deep operational integration has embedded technology across all aspects of project delivery, enabling real-time visibility into performance and data-driven decision-making. Contractors are no longer experimenting with isolated tools but are actively implementing integrated platforms that connect job costing, payroll, field operations, and project management functions into a unified ecosystem. As a result, decision-making is increasingly driven by live data rather than retrospective reporting, enabling contractors to respond more effectively to cost, schedule, and productivity challenges.
Labor Shortages Driving Automation and Productivity-Focused Innovation Persistent labor shortages are driving automation and robotics adoption, with technologies such as autonomous equipment, robotic construction tools, and AI-driven layout solutions becoming standard components of large-scale projects. This evolution reflects a fundamental change in industry dynamics, where technology is not viewed as a substitute for labor, but as a critical enabler for sustaining productivity in the face of structural workforce constraints.
Data-Driven Decision-Making and Real-Time Project Intelligence The increasing complexity of construction projects has driven the adoption of data-driven decision-making frameworks, making analytics a key competitive advantage. Contractors are leveraging integrated reporting systems to evaluate job profitability, labor utilization, cost accuracy, and project performance in real time, replacing traditional reliance on historical benchmarks, enabling teams to detect inefficiencies earlier, improve forecasting accuracy, and optimize bidding strategies.
06 Technology-Led Transformation
Evolution of Digital Twins and Continuous Project Monitoring Building Information Modeling is evolving into dynamic digital twin environments, enabling continuous monitoring of construction projects throughout their lifecycle. These next-generation systems integrate field data, sensor inputs, and real-time progress tracking to create continuously updated representations of project conditions, allowing stakeholders to track deviations from schedules, identify coordination issues across trades, and maintain greater control over execution quality. Increasingly, project owners are demanding fully digitized and verifiable records at project completion, signaling a shift toward lifecycle asset management and enhanced transparency.
Industrialization of Construction Through Modular and Prefabrication Methods Modular and prefabrication technologies are reshaping project delivery by shifting construction activities from site-based operations to controlled manufacturing environments and offering faster project delivery timelines, cost savings, and reduction in material waste. The global modular construction market is projected to grow from $173 billion to $302 billion over the next decade.
Sustainability-Driven Technology Adoption Technology is also playing a central role in meeting tightening environmental regulations and sustainability requirements. Cities across the U.S. are implementing stricter emissions standards and building performance mandates, while capital markets increasingly incorporate embodied carbon metrics into investment decisions. This shift is accelerating the adoption of energy-efficient techniques, sustainable materials, and digital tools for carbon tracking. The green building materials market is projected to reach approximately $914 billion by 2035, reflecting the scale of transformation underway.
Predictive Safety Systems and Risk Management Transformation Predictive safety systems that shift the focus from reactive reporting to proactive risk identification are transforming risk management by using AI, sensors, and drones to proactively identify potential hazards in real time and improve jobsite safety culture. Together, these advancements are redefining how construction projects are planned, executed, and monitored, positioning technology as the cornerstone of industry growth and resilience.
Learn more about emerging technologies in the construction industry
Risk Mitigation Priorities Industry guidance emphasizes that continued improvement in safety outcomes will depend on proactive and sustained investment in risk management practices. Key focus areas include: Fall protection systems and real-time safety monitoring Workforce training to address experience gaps Cultural initiatives, such as “stop-work authority” policies and leadership accountability Broader risks, such as mental health, substance use, and heat stress, are also being addressed. Targeted measures for fall prevention, equipment safety, and struck-by hazards are expected to yield significant improvements. A comprehensive approach is vital to enhance safety outcomes and operational resilience.
Overall Safety Performance The most recent available data on U.S. construction safety indicates measurable improvement in fatality outcomes, although the industry continues to remain one of the highest-risk sectors for workplace incidents. According to the U.S. Bureau of Labor Statistics, total occupational fatalities across all industries declined to 5,070 deaths in 2024, representing the lowest level since 2020. Within construction, worker fatalities decreased to 1,034 deaths in 2024, down from 1,075 in 2023, reflecting a YoY decline of approximately 4%. This reduction signals incremental progress in workplace safety practices, particularly in high-risk construction environments. Leading Causes of Fatalities Fatality data continues to show a high concentration of incidents across a small number of recurring risk categories, pointing to persistent operational hazards. Falls are the leading cause, with 389 fatalities in 2024—down from 421 in 2023—and account for more than one-third of all construction deaths, including many from significant heights. Transportation incidents were the second-largest cause with 244 fatalities, followed by harmful substance/environment exposure (187), contact incidents such as struck-by events (161), workplace violence (46), and fires/explosions (5), highlighting clear opportunities for targeted risk reduction. Safety risks in construction are rising due to increased activity driven by infrastructure investments, manufacturing growth, and residential demand. Workforce changes, including the retirement of experienced workers and the influx of less-experienced labor, exacerbate vulnerabilities, especially on complex, fast-paced projects.
07 Construction Safety and Risk Management
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Occupational Health and Safety Administration (OSHA) Violations and Regulatory Enforcement Trends Improper fall protection remains the most frequently cited OSHA violation in the U.S. construction industry, underscoring persistent gaps in compliance within one of the sector’s highest-risk activities. Penalties range from $16,550 per violation, including additional daily penalties if employers fail to correct previously cited issues, up to $165,514 for willful or repeated offenses, posing significant financial and operational consequences of non-compliance. While penalty levels remain unchanged in 2026 due to administrative delays linked to a federal government shutdown in the prior year, enforcement remains active, with recurring violations in fall protection, equipment safety, and hazard communication driving regulatory actions across construction sites.
Rising Injury Claims Amid Evolving Jobsite Conditions Construction injury claims across the U.S. are increasing in 2026, reflecting a shift in underlying risk dynamics despite recent improvements in fatality rates. Industry reporting indicates that labor shortages, accelerated project timelines, and increasing jobsite complexity are placing additional strain on safety oversight, contributing to a rise in both incident frequency and claims activity. This trend is evident across both new construction and renovation projects, where the combination of overlapping subcontractor activity and compressed delivery schedules has created more challenging operating environments. Incidents such as falls from height, equipment-related accidents, electrical contact, and trench collapses continue to account for a significant share of injury-related claims.
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Learn more about the evolution of complex claims investigations
Multi-Party Liability and Increasing Claims Complexity A defining feature of the current claims environment is the growing complexity of liability structures. Construction injury claims increasingly involve multiple parties, including general contractors, subcontractors, equipment providers, and project owners. The collaborative nature of modern construction projects, particularly large-scale developments where multiple trades operate simultaneously within constrained jobsite environments, leads to claims investigations becoming more extensive, with greater documentation requirements, longer resolution timelines, and higher legal costs. Additionally, contractual risk transfer mechanisms, including indemnity clauses and additional insured provisions, are expanding the scope of liability, increasingly pulling project owners into insurance claims and litigation processes.
08 Construction Claims Trends
Labor Market Pressures The industry’s reliance on less-experienced labor, driven by a need for 349,000 additional workers in 2026, is linked to inconsistent safety adherence, particularly in fall protection, equipment handling, and trench safety. At the same time, multi-trade congestion and coordination gaps on large jobsites are emerging as recurring contributors to incidents, with communication breakdowns frequently cited as a root cause that further contributes to incidents. These factors collectively indicate that while safety systems may be improving structurally, operational execution challenges are increasing exposure to injury-related claims.
Learn more about how to navigate the risks of cargo theft
Construction and Cargo Theft Construction claims trends continue to show that theft is becoming more organized, more technology-driven, and harder to recover. Construction equipment theft alone is estimated to cost the U.S. $300 million to $1 billion annually, with a recovery rate of less than 25% each year due to limited equipment identification systems and the difficulty of tracking missing assets once they leave the jobsite. The most targeted assets are often the easiest to move and resell: mowers and riding/garden tractors, loaders, and tractors. High-value materials, tools, and equipment remain frequent targets, but the risk now extends beyond the jobsite as goods move through warehouses, carriers, subcontractors, storage yards, and delivery routes. This broader exposure ties directly to inland marine risk, where cargo theft tactics, such as rerouting, insider access, and digital interference, can lead to project delays, replacement costs, and more complex claims handling. Owners need to think beyond traditional jobsite security and consider the full movement of materials, equipment, and goods from warehouse to site.
Trade-Level Risk Concentration Exposure to injury claims varies significantly across construction trades, reflecting the nature of specific jobsite activities. High-risk segments include: Roofing, framing, and structural trades, which face the greatest exposure to fall-related incidents Electrical trades, which are exposed to energized systems and arc-flash risks Excavation and utility contractors, where trench collapse remains a significant hazard Mechanical and plumbing trades, which experience higher rates of struck-by and confined-space incidents Equipment operators and laborers, who are more exposed to transportation-related risks
Overall Insight The evolving claims environment provides a direct foundation for understanding current insurance market dynamics. The combination of rising claims frequency, increasing severity, and expanding liability exposure is a key driver behind continued pressure in casualty insurance lines. At the same time, the complexity of claims, especially those involving multiple stakeholders, reinforces the need for more structured risk management, enhanced safety protocols, and detailed documentation practices across construction projects.
Data Center and Infrastructure-Led Growth Construction activity in 2026 continues to be significantly influenced by strong demand for data centers, energy infrastructure, and select public-sector projects. Rapid expansion in AI and cloud computing has driven sustained investment in digital infrastructure, placing data centers at the center of nonresidential construction growth. This demand is further reinforced by broader infrastructure needs, particularly in power and utilities, where investment is being driven by rising electricity consumption associated with digital and industrial activity. Despite broader market uncertainty, these segments remain among the most resilient, supported by long-term demand fundamentals and committed capital pipelines. U.S. data center construction activity has surged sharply in 2026, with year-to-date spending reaching $58.1 billion—more than four times the record level in 2025, highlighting unprecedented growth in the segment. Monthly spending remains elevated, with $7.9 billion recorded in May 2026, while strong momentum is reflected in high moving averages and a growing project pipeline. Construction volume is geographically concentrated, as Virginia, Texas, Louisiana, Illinois, and North Carolina account for nearly 60% of new spending, with the South and Midwest dominating activity and relatively limited investment in the West and New England. The development pipeline is robust, with nearly 100 projects in preconstruction totaling over $101 billion in planned investment, signaling sustained growth through 2026, representing over one‑fifth of all U.S. nonresidential building starts. This rapid expansion is also driving adjacent sectors, particularly energy, with power infrastructure construction expected to rise 30.8% in 2026.
Learn more about key risks shaping data center construction and strategies for mitigation
09 Trends Shaping the Construction Industry
Technology Adoption and Alternative Construction Methods Technology adoption is emerging as a key structural trend across the construction industry, with growing integration of automation, data analytics, and AI into project delivery and operational workflows. These technologies are increasingly being used to improve cost estimation, scheduling accuracy, and safety monitoring, as firms seek greater efficiency in a constrained environment. At the same time, modular construction is gaining traction as an alternative delivery method, supported by its ability to reduce project timelines and improve cost predictability. The modular construction segment is projected to grow at a CAGR of approximately 4.5%, reaching an estimated $25.4 billion over the next five years, reflecting increasing adoption within a resource-constrained industry.
Learn more about safety challenges and solutions in modular construction
Increasing Project Selectivity and Capital Discipline A defining trend in 2026 is the shift toward more selective project execution, with developers, lenders, and investors prioritizing well-capitalized and high-confidence developments. While construction activity remains active, marginal projects are increasingly being delayed or re-evaluated due to tighter financing conditions and elevated costs. Early indicators reflect this cautious approach, with metrics such as the Dodge Momentum Index posting only 1.8% growth in March, following a 7.3% decline in February construction starts, largely driven by variability in project pipelines. This transition reflects a broader industry move toward disciplined underwriting and risk-adjusted investment strategies, where projects with clear demand drivers, such as healthcare, infrastructure, and data centers, are advancing, while speculative or rate-sensitive developments face delays.
Construction activity is expected to remain steady but increasingly selective, with capital flowing toward data centers, infrastructure, and high-confidence projects. Smaller, rate-sensitive developments will continue to face delays, reinforcing a market where project viability and funding strength drive execution rather than overall demand. Despite signs of moderation in some materials, construction costs will remain structurally elevated and uneven across trades. Tariffs, energy constraints, and supply variability will sustain 4%–6% escalation ranges, requiring contractors to operate with flexible pricing strategies and stronger cost controls. The labor shortfall will continue to act as a capacity ceiling, shifting risk from budgeting to execution. Workforce shortages, high turnover, and declining productivity will drive schedule disruptions, margin pressure, and increased operational risk, making labor management the most critical success factor. Project complexity, multi-trade congestion, and labor gaps will sustain higher claims frequency and severity, particularly in large-scale developments. This will continue to translate into longer claim cycles, higher legal exposure, and tighter underwriting conditions in casualty insurance lines. The industry will see a continued shift toward technology-enabled execution, with firms investing in automation, data analytics, and integrated systems to offset labor constraints and improve efficiency. Competitive advantage will increasingly depend on operational visibility, productivity tracking, and data-driven decision-making. Growth in high-demand sectors, such as data centers, will increasingly depend on power availability, permitting timelines, and infrastructure readiness. This will drive geographic shifts, greater specialization, and phased development strategies, influencing where and how projects move forward.
10 Mid-Year Summary
Construction | Gallagher Bassett
