As we move into 2025, the construction industry, on the surface, is facing a more complicated landscape. The return of tariffs, particularly on imported steel, aluminum, and critical manufacturing components, is driving material costs higher and creating ripple effects throughout the supply chain. Combined with tighter financial conditions, this is putting real pressure on project budgets at a time when owners and developers are already navigating rising interest rates and stricter underwriting requirements. The current environment is reshaping how we approach planning, bidding, and execution. It demands earlier engagement, sharper cost control, and a more deliberate focus on strategy, risk, and long term value at every stage of development.

That said, we continue to see opportunity. While tariffs and their effects may seem daunting, the true impact averages between 1.5% to 3% of total project cost. Although total construction spending remains healthy at 2.2 trillion dollars, much of this is concentrated in public infrastructure and energy investments. We have seen the backlog for multifamily, industrial, self storage, and hospitality projects burn off, and both design firms and contractors are reaching out to us in search of work. In our opinion, now is the time to lean in if you are focused on these sectors, as we are seeing cost reductions and talent concentrating on early movers.

At the same time, we are seeing resilience in sectors supported by long term demand drivers. These include data centers tied to artificial intelligence and cloud expansion, healthcare facilities responding to demographic trends, institutional projects aligned with population shifts, and residential developments in supply constrained markets. As demand continues to build, these sectors may also see pricing pressure return in 2026 and beyond, further underscoring the opportunity for early investment and strategic positioning.

Data centers continue to outperform other asset classes. This sector is no longer just about location and fiber. It is about power, scale, and speed to market. Markets like Dallas-Fort Worth, Las Vegas, Columbus, and Reno are gaining momentum as developers pivot toward sites with reliable energy access, available workforces, and entitlements in place. With AI and compute heavy workloads driving demand, success will come to those who plan for energy from the outset. CREDE is actively supporting clients in this space with a focus on entitlement readiness, power coordination, and long range planning.

The industrial market is entering a more selective phase for big box development. Demand for logistics space remains intact, but new development is clearly slowing, with speculative activity pulling back and pipelines thinning. Shallow bay light industrial is emerging as the new focus, both for ground-up development and for modernizing existing parks. Well positioned projects in supply constrained areas will lead the next cycle once vacancy levels stabilize.

Hospitality remains strong in the luxury sector for ground-up development, with continued interest from both operators and capital sources. We are seeing brands agree to delay required property upgrades until the FF&E market stabilizes, allowing for better pricing and availability of materials. This momentum reflects a broader understanding of value creation for the customer through distinctive renovation strategies and the introduction of new product that enhances brand identity and guest experience.

Infrastructure remains one of the most reliable drivers of construction activity through the start of 2025. Federal and state funding is flowing into transportation, water systems, and energy resilience, generating real momentum in civil construction. We are seeing strong gains in bridges, airports, and utilities—projects that not only address aging infrastructure but also support long-term growth and regional competitiveness. At CREDE, we are tracking this activity closely and positioning our teams to support both public and private efforts where speed, coordination, and accountability matter most.

Each sector is focused on a return to fundamentals. Cost pressures are real—both on the labor and material side. While some material costs have come down, securing the right workforce and team is critical. Tighter timelines are making predictability essential, along with long term real estate strategies that can endure short term volatility. At CREDE, we are encouraging our clients to take a proactive stance: secure entitlements early, manage costs carefully, and keep projects moving forward. 2025 is not a time to wait and see. It is a time to act with discipline and clarity. The projects that are best prepared will lead the way.