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Construction Bump Turns to Slump
Data centers remain a bright spot, while warehouse and multifamily construction could be on the verge of making a positive turn.
Construction activity has changed over the past 18 months from high growth to slow growth to no growth. Only a few signs suggest that the sector is about to pull out of its nosedive.
Exhibit A is the Census Bureau’s estimate for private nonresidential construction spending put in place. The bureau reports on spending each month on projects under way, based largely on data from general contractors. As of January 2024, spending was rising at a rate of 12% year over year. By August 2024, growth had slowed to a 0.5% rate. Each month since then, spending has trailed the year-earlier total. In May, spending contracted 4% year over year.
The declines were most pronounced across nearly all income-producing property types, including retail, warehouse, multifamily, lodging and office. However, differences were apparent in the rates of decrease and in whether the trends were worsening or moderating. There was also one big exception to the gloomy news: data centers.
Among the categories as classified by the Census Bureau, the biggest decreases in construction spending between May 2024 and May 2025 occurred at dining and drinking establishments (down 25%) and shopping centers (down 23%). Most other retail segments also were in decline. (The data is adjusted for seasonal variation but not for inflation; spending on nonresidential structures includes renovations as well as new construction.)
Warehouse construction spending in May slumped to its lowest annual rate since September 2021, sliding 10% from the May 2024 level. However, the rate of decline has slowed significantly in recent months, suggesting that warehouse starts may be close to bottoming out.
Similarly, investments in multifamily construction are showing signs of flattening, despite an 11% decrease from May 2024 to May 2025. The annual spending rate has been roughly unchanged since November. In addition, a separate census series shows the number of multifamily units (in structures with five or more units) that started construction in March, April and May exceeded the year-earlier totals for each of those months. The data is subject to large month-to-month variations, but this was the first time since late 2022 that starts had risen year over year for three months in a row. Taken together, the spending and starts figures suggest multifamily construction could be on the upswing by the end of the year.
Lodging construction spending fell 8% from May 2024 to May 2025. While this decline was not as steep as others, the trend has worsened each month since a 2% year-over-year drop in January.
Office construction continues to shrink, despite scattered reports of office conversions and return-to-office mandates. Spending on private office construction (including remodeling and repurposing) in May fell to the lowest seasonally adjusted annual rate since January 2016. The May rate was 12% below the year-earlier level and more than one-third less than the peak set in February 2020, immediately before the pandemic devastated office occupancy.
It is important to note that the Census Bureau distinguishes actual office construction spending from data center construction only in the “Historical data — Private” file on its detailed construction spending website. The bureau’s monthly press release includes data centers in the office total, which presents a very misleading picture.
In fact, data center construction spending remains the one bright spot among private nonresidential categories, having posted year-over-year increases for 51 consecutive months as of May, a streak that began in March 2021. While the data center boom has slowed in the past year, the construction spending level this past May was nevertheless 25% higher than in May 2024.
To summarize, the short-term outlook remains negative overall for construction of income-producing structures apart from data centers. However, a few green shoots suggest that an upturn may appear for multifamily and warehouse construction before long.
Ken Simonson is the chief economist with the Associated General Contractors of America. Contact him at ken.simonson@agc.org.
