By Commerce Bank

Amid opportunities and questions, the U.S. construction industry continues to evolve in dynamic but sometimes challenging ways. 

The first half of the 2020s was a study in contrasts for contractors. As the country and construction industry emerged from the slowdown and economic tumult caused by the COVID-19 pandemic, supply chain disruptions caused costs to soar. Labor shortages sapped the workforce. As a result, many outfits expressed concerns that profits would slip in the near-term, according to Associated Builders and Contractors. 

Yet despite those headwinds — real and perceived — the U.S. construction industry remained strong in the first half of the decade, especially when compared with other countries. A similar dichotomy exists as the second half begins. 

Lower rates and rising labor pressure. 

One reason for companies’ optimism may be the Federal Reserve Board’s slow but continued easing of interest rates. Recent rate cuts, paired with two in 2024, brought the rate down from its 10-year high of 5.5% in early 2024. As falling interest rates begin to push up demand for services, the need for workers will only increase. In fact, Associated Builders and Contractors predict that the industry will need to add nearly 500,000 workers in 2026. 

Slow payments tightening the screws on subcontractors. 

Rising material costs, shifting tariff policies, unpredictable supply chains, and the ongoing labor shortage will no doubt continue to squeeze contractors’ and subcontractors’ already-slim profit margins, with the latter shouldering much of the burden. 

Strengthening resilience in an unpredictable market. 

Setting aside some of the factors that are harder to control, such as the economy or tariffs, contractors should focus on a few key areas in the coming year to strengthen their ability to weather the unpredictability, such as managing bidding and contracting risk to ensure project viability and prevent cost overruns and scheduling delays. Cybersecurity should continue to be a priority as well. More than two in five contractors report experiencing increases in phishing, data breaches and ransomware attacks in the previous year.  

Technology driving a safer jobsite. 

Construction comes with more than just business risks. On even the most well-managed jobsites, workers are exposed to many potential physical hazards, from falls to electrocutions, and injuries and deaths have remained high for more than a decade. The construction industry accounted for 1,075 workplace fatalities in 2023, the most recent year for which data is available. That’s the highest number of annual deaths in construction since 2011. 

However, firms have a range of new devices and technologies from which to choose for providing their workers with a safer workplace such as monitors, sensors and location geofencing. Developing and maintaining a culture that prioritizes safety over speed and conscientiousness over corner-cutting can reduce accidents by signaling to employees that their well-being comes before profit.  

The data center boom reshaping the industry. 

One significant cause for optimism within the industry is the sustained — and now surging — strength of data center construction. Driven by ongoing demand for cloud computing infrastructure as well as an explosion in artificial intelligence investment, McKinsey & Company estimates that companies will pour a staggering $2.6 trillion into data center construction by 2030. Construction can last upwards of 18 months and require as many as 1,500 workers from various construction-related industries at its peak. Overall, the data center industry is estimated to have contributed 74,000 jobs and $5.5 billion in labor income, with most of the economic benefits coming from the construction phase. 

The AI impact. 

As is the case in almost every other industry, AI is also poised to change how construction firms work — though to what degree and how quickly are still up for debate. In theory, incorporating AI into day-to-day operations could have many advantages. Construction produces a tremendous amount of data every day, including cost estimates, project schedules, safety reports and material usage. Gaining truly usable insights from that data, however, is challenging and time-consuming for anyone, much less someone managing multiple crews across dozens of jobsites. Well-designed algorithms, however, can find patterns in that data and provide actionable insights for increasing efficiency and addressing challenges in everything from cost estimating and site safety to automating contract review.  

Mergers and acquisitions momentum accelerating into 2026. 

Mergers and acquisitions activity in the construction industry remain significantly up, according to Capstone Partners’ 2025 Construction Services Market Update. Driven primarily by the data center boom and pent-up demand for new residential construction, transactions increased for the third year in a row — and by a wide margin. Those tailwinds contributed to a 33.8% jump in deals year over year, with companies ramping up acquisitions of businesses that expand market share or broaden service capabilities across key end markets. 

The case for modular in a strained market. 

One modest — but growing — sector to keep an eye on is the modular construction industry, which accounted for just over 5% of the overall construction industry in 2024. Modular construction has a handful of characteristics that make it attractive in the current economic environment and account for the Modular Building Institute (MBI) and FMI Consulting’s prediction that the industry will grow at a compound annual growth rate of 4.5% over the next five years to $25.4 billion, outpacing the overall construction sector by 1.3%. Chief among those characteristics is lower cost. Also, because the vast majority of a modular construction project occurs indoors, it can also typically be completed much more quickly than a traditional site-built project. 

Sustainability moving from nice-to-have to necessity. 

Another sector to keep an eye on in 2026: sustainable building. Long considered a nice-to-have, sustainability in construction is turning a corner in terms of perception within the industry. More than 60% of companies classify improving sustainability as a good short-term business decision according to a 2025 Autodesk survey, signaling that the practice is seen as good for business overall. 

Why 2026 may be a turning point. 

Perhaps the best word to describe the state of the construction industry in 2026 is “transitional.” Though demand for new construction — particularly housing — is strong, high material costs, shifting policies, and stubborn supply chain complications continue to hold the overall market in check. Bright spots, such as the overwhelmingly strong demand for data centers, are helping to buoy the sector. But on balance, construction firms — both general contractors and subcontractors — would be wise to take advantage of opportunities to expand and diversify while managing risks and exploring emerging technologies. 

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