This quarter reinforced a simple truth: strength comes not from chasing momentum, but from anticipating change and positioning ahead of it. As we move through mid-2025, the construction market is defined less by shocks and more by steady headwinds. Tariffs on steel, aluminum, and other key imports are now largely priced in, creating pressure without disruption. Financial conditions remain tight, forcing owners and contractors to sharpen discipline around budgets and schedules. The pace has slowed, but it has also become more deliberate — making foresight, earlier engagement, and a focus on long-term value the true differentiators.

Within that backdrop, opportunity is shifting. Total construction spending holds near $2.2 trillion, but the mix has changed. Public infrastructure and energy remain strong, while private backlogs in multifamily, industrial, and hospitality have thinned. Contractors, chasing fewer opportunities, responded with sharper pricing, more aggressive bidding, and better availability of skilled teams than late 2024 and Q1 2025. Q2 underscored a clear truth: disciplined planning and smart positioning give owners and developers an edge, even in a market defined by constraints.

Certain sectors proved resilient in Q2, driven by long term demand rather than short term cycles. Data centers continue to expand on the back of AI and cloud growth, where power and speed to market remain decisive. Healthcare and institutional projects are holding steady as demographics reshape community needs, and residential in supply constrained markets continues to attract capital despite broader housing headwinds. These sectors are positioned to lead the next wave of growth, and we expect renewed pricing pressure as demand accelerates into 2026.

Data centers remain the clear outperformer, with growth defined less by land and fiber and more by power, scale, and speed to market. In Q2, demand tied to AI and high density compute kept pressure on markets like Dallas-Fort Worth, Phoenix, Columbus, and Reno, where power access and entitlement readiness are now the true gatekeepers of development. The sector is only gaining momentum, with absorption running ahead of supply. We expect competition for power and entitled land to rise through 2026 as demand for energy-hungry facilities accelerates.

The industrial market continues to cool with new supply falling well below recent peaks and absorption moderating. Speculative big box projects are slowing, but shallow bay light industrial remains active as tenants seek flexible space near population centers. Rents are still edging higher, though at a slower pace, and the pipeline is thinning to levels not seen since 2018. We see the next wave of opportunity forming in well-located infill and supply-constrained markets, where stabilization will set the stage for renewed growth into 2026.

The hospitality sector continues to carry momentum led by strength in the luxury and upper-upscale segments. Development remains selective, with the pipeline weighted toward early planning while under-construction activity is slightly lower year over year. This reflects a market focused less on volume and more on high-value projects and strategic repositionings. Renovation timelines are also being stretched, especially while supply chains for furniture and fixtures remain tight, but operators and brands continue to lean into distinctive upgrades that elevate guest experience and long-term value.

Infrastructure remained one of the most reliable drivers of construction in Q2, with federal and state funding continuing to flow into transportation, water systems, and energy resilience. Civil activity posted some of the strongest gains in the industry, led by bridges, airports, and utilities, as public investment held steady even while private development cooled. These projects are not only addressing deferred maintenance but also shaping the foundation for regional competitiveness and long-term growth. In our view, infrastructure will continue to carry the construction market into 2026, setting the stage for private development to follow.

Each sector is refocusing on fundamentals. Materials are no longer the drag they were a year ago, with steel, lumber, and copper showing relief even as energy and electrical inputs remain volatile. Labor is still tight, but thinner pipelines have opened access to skilled teams that were harder to secure just a few quarters ago. That combination is bringing a degree of predictability back into planning, bidding, and scheduling. From our vantage point, 2026 is setting up as a year of renewed momentum. The early movers who are securing entitlements, locking in talent, and keeping projects active today will not just weather the current cycle—they will be the ones leading the next one.