Commercial
Sections: Overview Project activity Key considerations
Commercial
Sections: Overview Project activity Key considerations
The commercial sector is poised for potential recovery, driven by demand for premium spaces and ESG initiatives, despite challenges from labor shortages and rising construction costs.
Simon Jones-Davies Associate Director, Americas
Overview
The US commercial construction sector is experiencing moderate but stable growth. While new commercial office developments slow, investments in green and high-quality retrofits continue to grow. Sustainability, technological advancements and financing adaptations will shape the sector's trajectory in 2025 and beyond.
The US office market is at an inflection point. After years of decline in construction and rising vacancies, policy shifts and renewed investor interest are setting the stage for a potential rebound. With just 48.6m ft² under construction - only 0.7% of total stock - the development pipeline has hit a historic low, and 2025 is on track for even fewer new office completions.¹ However, recent return-to-office (RTO) mandates, such as the US administration’s directive for federal workers and corporate in-office policies could reignite demand. At the same time, the trend of converting outdated office buildings into residential spaces continues. Premium Grade A and ESG-compliant buildings are emerging as the clear winners, particularly in tech hubs like Boston and Seattle. This trend is also evident in Canada, where overall office vacancy rates are elevated, but premium buildings in key markets like Toronto and Vancouver experience tighter conditions, driven by strong demand from the life sciences and tech sectors. Ultimately, with the slowdown in new construction, occupiers seeking high-quality spaces may need to consider fitting out existing stock, so the fit-out market is likely to continue to be bolstered in that regard. Challenges persist from elevated borrowing costs, shifting workplace preferences toward flexible office designs, and economic uncertainty driven by inflation and policy shifts.² ³ Furthermore, the strength of new construction in other sectors will push general construction costs upwards, increasing the competition in what is already a tight market for labor and materials. Despite a reduction in federal support for sustainability upgrades in commercial construction many US companies remain committed to carbon-neutral developments and energy-efficient buildings, driven by market demand and local regulations. For example, the cities of Chicago and Seattle have continued enforcing stricter building performance standards, with Chicago’s Energy Transformation Code and Seattle’s near-zero carbon benchmarks.⁴ ⁵
Project activity
US
Boston is the most active market, with 7.55m ft² of office space under construction, largely driven by life sciences conversions. Austin is also adding 3.56m ft².¹
The above mentioned office-to-residential conversion trend continues, with an increase in conversion projects, particularly in New York, Washington D.C. and Chicago. The fit-out market is also expanding, as businesses adapt existing spaces to meet hybrid work needs.
Canada
In Canada, 6.57m ft² of office space is under construction, with 88% in Toronto and Vancouver. Toronto’s pipeline includes 2.58m ft², boosted by sustainable office towers, while Vancouver adds 3.2m ft². New project announcements are flat, but retrofitting of older Grade B offices has surged, supported by federal tax incentives, such as the Accelerated Investment Incentive and Clean Technology Investment Tax Credit.⁶ ⁷
A growing share of commercial developments are integrating smart technologies and energy-efficient materials, with more companies investing in net-zero buildings as part of long-term ESG goals.
Key considerations
01
Tariffs
While uncertainty around tariffs is impacting project costs, broader concerns could also lead occupiers to pause or delay investment plans. The United States has imposed a 25% tariff on all imported steel and aluminum as of March 2025, affecting trade partners worldwide. In 2024, Canada was the leading supplier of steel and aluminum to the US, with exports totaling US$16.6bn, surpassing Mexico, the second-largest supplier, by more than four times.
02
Skilled labor shortages and rising costs
Skilled trade shortages continue to challenge office construction and the broader industry in 2025 across the US and Canada, with no significant improvement in labor availability, and competition between sectors for that limited resource pool, pushing wages higher. Construction wages have risen by 6.0% in the US (BLS, February 2025) and 5.2% in Canada (Statistics Canada, January 2025), intensifying budgetary pressure on new office developments amid weakened US demand, and steady but constrained Canadian activity.⁸ ⁹
03
ESG-driven retrofits and building efficiency standards
Many US and Canadian cities are mandating stricter energy efficiency regulations as of 2025, compelling landlords to upgrade aging office buildings to meet specific performance targets. New York, St. Louis, and Boston have mandated emissions or energy intensity caps for large commercial building, while Toronto encourages deep retrofits through a voluntary zero-emissions framework. These policies are pushing building owners to shift from simple, component-level upgrades to integrated, system-based retrofits—combining HVAC, lighting, controls, and envelope improvements for deeper impact. Driven by regulatory pressure, ESG goals, market demand, and post-pandemic priorities like health and flexibility, commercial retrofits are accelerating. Though challenges like limited skilled labor, and scaling hurdles remain.
Sources
- May 2025 office market report, CBD Office Markets Struggle Amid High Vacancies, Discounted Sales and Slowed Development, Commercial Edge, May 20, 2025
- Mortgage Rates Still Expected To Decline Slightly In 2025, Forbes Media LLC., March 25, 2025
- Influence of Monetary Easing on Housing Construction Costs in 2025: A Forecast for Developers, Coldwell Banker Horizon Realty, October 29, 2024
- Trump Is Bringing Project 2025’s Anti-Climate Action Goals to Life, TIME USA, LLC., March 25, 2025
- Here’s what to know about Trump’s executive actions on climate and environment, NewsHour Productions LLC., January 27, 2025
- Accelerated investment incentive, Government of Canada
- Clean Economy investment tax credits (ITCs), Government of Canada
- Employement Cost index, U.S. Bureau of Labor Statistics
- Statistics Canada, January 2025
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