Construction industry
Construction industry
Overview
Rafael Laurindo Director, Americas
Despite a 2025 slowdown, North America's construction outlook remains positive; data centers, semiconductors, and infrastructure will drive growth through 2026.
Construction industry output
US
The US construction industry is expected to have contracted in 2025, with output declining by 2.7% in real terms, compared to a 6.5% growth in 2024. Investor caution, rising costs, and project delays weighed on overall construction activity. Tariffs have increased material prices, while skilled labor shortages, particularly for electricians, plumbers, and specialty trades, continue to be a key challenge. Construction hotspots, where sectors such as data centers and manufacturing are expanding simultaneously, are facing more pronounced challenges due to the high demand for skilled labor.
Despite these headwinds, the US construction industry is expected to grow at a 1.9% average annual growth rate from 2026 to 2029, driven by continued investment in transport infrastructure, data centers, semiconductors, and advanced manufacturing. This positive trajectory is evident across individual market segments.
The US data center sector is one of the fastest-growing sectors, with spending reaching US$3.7bn in August 2025, up 25% YoY. The US government has identified 16 sites as suitable for AI-ready data centers. However, power remains a critical bottleneck for data center project delivery. Trends like on-site power generation and data center operators building and managing their own energy infrastructure, such as generators, batteries, and substations, are gaining momentum across the US.
The industrial sector is expected to have grown by 0.4% in 2025, fueled by private investment in semiconductor and manufacturing facilities. Labor shortages, tariffs, and rising import costs delayed some projects. The sector is projected to gain momentum in 2026, with strong backing for semiconductor, chemical, and pharmaceutical plant construction.
Energy and utilities are projected to have increased by 4.1% in 2025, supported by investments in renewables, water, and power generation. To meet the increasing demand for power from AI and data centers, the government is turning to coal-fired plants to boost capacity.¹
Canada
Canada’s construction industry is expected to have rebounded in 2025, with output growth estimated at 2.2% YoY in real terms after two years of contraction. The recovery is being driven by renewed investment across both residential and non-residential sectors. From 2026 to 2029, the industry is forecast to grow at an average annual rate of 2.8%, supported by major spending on transport, renewable energy, water systems, and sewage infrastructure. Office development and tourism projects are also expected to pick up, adding to the positive outlook.
The data center sector remains a key growth driver, with a project pipeline valued at US$96bn as of Q3 2025. Industrial construction is likely to have increased by 2.2%, led by chemical, pharmaceutical, and manufacturing projects. Infrastructure is projected to have grown by an estimated 4% in 2025, with steady gains anticipated in the years ahead.
In addition to infrastructure gains, interprovincial trade is expected to strengthen as the government works to reduce internal barriers, potentially unlocking new industrial investment. However, risks remain. Labor shortages are intensifying, exacerbated by recent immigration policy changes. The industry is projected to need over 380,500 workers by 2034, including 111,600 new entrants, with skilled trades under particular pressure.²
External risks compound these challenges. Tariffs and geopolitical tensions continue to disrupt planning and procurement. Ontario’s March 2025 ban on US-based contractors and consultants has affected CA$190.7bn worth of infrastructure projects. Further tariff threats could disrupt supply chains and raise costs, particularly for MEP equipment.¹
Construction inflation
Construction inflation in the US is expected to range between 3.0% and 4.0% in 2025. For 2026, forecasts indicate a slight increase, with inflation likely to stay between 4% and 5%. While overall US inflation is cooling, construction inflation remains persistent, driven by continued tight labor markets, elevated subcontractor workloads, and sustained pressure in key mechanical and electrical trades.
While labor availability varies by region and trade, skilled labor shortages continue to weigh on costs, particularly in high-tech and mission-critical sectors. To manage these risks, firms are adopting strategies such as modular solutions, offsite fabrication, strategic contractor partnerships, and proactive labor-market assessments.
Subcontractor availability is another challenge in locations with high construction activity, especially in the data center and manufacturing sectors. When subcontractors are fully booked, pricing escalates due to reduced competition and more selective bidding, as well as higher labor premiums, overtime, and risk allowances. This adds further pressure on project budgets.
Front-loading in early 2025 delayed the full impact of tariffs, but cost increases are now evident, particularly on metals. Copper, aluminum, steel, and cement have all trended upward in 2025. Tariffs are expected to remain elevated through 2026, prompting firms to prioritize local sourcing in procurement strategies. Contractors are already factoring these pressures into 2026 bids and schedules.
Material and equipment demand remains strong nationwide. Items such as switchgear, electrical gear, HVAC packages, and steel are critical for large programs and continue to drive costs upward.
Canada’s construction industry is expected to have grown in 2025 but continues to face challenges driven by tariffs and a weakening economy. Construction inflation is projected to remain steady at 3-4% in 2026, similar to 2025, as subdued economic conditions weigh on overall demand. While steel and diesel prices have eased, cement costs continue to rise, adding pressure to material budgets.
Labor shortages persist in some Canadian regions, with rising wages increasing costs. Uneven availability of skilled workers across provinces continues to affect project timelines and budgets.¹
Supply chain outlook
Supply chain timelines in the US have improved for some equipment, but volatility is expected in the coming quarters. This improvement is largely due to enhanced supplier responsiveness and expanded production capacity. Suppliers are scaling operations to meet rising demand, localizing supply chains, and adopting new sourcing strategies.
Discussions with North American suppliers indicate that lead times in the US have stabilized or shortened, driven by the increased use of locally assembled equipment and imports from Mexico, following significant front-loading in early 2025. Many key mechanical, electrical, and plumbing (MEP) components are now assembled domestically and supplied to the data center market, with some products also sourced from Europe.
In Canada, much of the supply now comes from North America, particularly the US, as rising shipping costs make overseas procurement less viable. While regional sourcing increased in the first half of 2025, unpredictable tariff policies are causing extended customs processing and classification disputes. Many vendors are holding inventory in anticipation of tariff clarity, further straining operations.
Import timelines from APAC remain unclear, largely because sourcing patterns have shifted toward local and regional suppliers. For example, transformers now primarily come from Mexico, and major high-value items are increasingly produced domestically. This trend reflects efforts to reduce shipping costs and mitigate tariff-related risks, which have made overseas procurement less viable in recent months.
Despite regional improvements, global pressures persist. Overseas shipping timelines remain uncertain, and strong demand in data centers and manufacturing may shift sourcing back to overseas suppliers, increasing variability. While supplier resilience has improved, rising demand may limit production capacity as manufacturers balance equipment orders across clients. For specialized, high-demand equipment, key components continue to be sourced internationally.
Global supply chains face mounting pressure from geopolitical challenges, trade restrictions and shipping delays, leading to longer lead times and higher project risk. Limited vessel availability, labor disruptions and port congestion further cause inconsistent delivery schedules. Security risks in the Red Sea and Suez Canal have forced vessels to reroute via the Cape of Good Hope, causing significant shipping delays. The World Bank’s Global Supply Chain Stress Index shows port and shipping delays well above long-term trends, reaching 1.9 in October 2025, matching peak disruption levels from early 2022.
To address these challenges, clients should strengthen supplier relationships and secure long-term contracts to reserve production capacity. Additional steps include standardizing equipment designs for bulk orders, diversifying suppliers, and using analytics to reduce forecasting bias. Accurate demand forecasting is critical, as errors can lead to overproduction or shortages, resulting in surplus inventory, wasted resources, and missed delivery schedules. Improving forecasting accuracy and honoring order commitments are essential for a stable, resilient supply chain. Monitoring emerging vendors, exploring alternative suppliers, and diversifying investments will further reduce risk and enhance resilience.
Sustainability remains a key focus across the data center industry. Adoption of low-emission fuels such as hydrotreated vegetable oil (HVO), energy-efficient cooling technologies like liquid cooling, and circular-economy practices, including reverse logistics, is helping reduce emissions and strengthen long-term supply chain resilience.¹
Most equipment lead times referenced in this report reflect items sourced within North America. For example, transformers are primarily sourced from Mexico. More than 80% of low-voltage (LV) switchgear used in Canada comes from the United States, with the balance imported from China.
The timelines provided are based on specific specifications and brands, as reported in Q3 2025, and reflect market conditions at that time. They should be considered indicative and subject to change. Due to ongoing market volatility and frontloading in the first half of 2025, timeline trends projected for Q4 2025 and Q1 2026 remain provisional and may fluctuate.
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