2026 Construction Outlook

As we start 2026, the construction industry is set to navigate a mix of challenges and opportunities.  Persistent pressures from labor shortages, rising interest rates and volatility with material costs continue to impact margins as they have in past years.  However, despite these challenges, many anticipate 2026 to be a year of continued demand for data center projects and manufacturing/healthcare facilities driving optimism.  Regardless of your sector focus, the year ahead is anticipated to continue to test one’s ability to adapt and innovate.   

Continued Labor Shortages

Labor shortages remain one of the pressing challenges for the construction industry in 2026 as the demand for skilled labor continues to exceed supply.  As was the case in prior years, aging workforce, reduction in younger workers entering the field coupled with recent immigration impacts have strained an already tight labor market.  As a result, project costs and timelines will likely continue to be impacted throughout 2026.  Thus, training and apprenticeship programs, automation, and focus on pay/benefits are areas which should be reviewed in an effort to make industry opportunities more appealing and attract (and retain) skilled labor for your upcoming project. 

Tariff Impacts

Throughout 2025, the industry experienced increased pricing pressure and volatility on materials such as steel, aluminum, copper and lumber.  This volatility is expected to continue throughout 2026 although some areas have eased from the all time highs experienced during 2025.  Project teams have been receptive to managing the impacts on budgets through early procurement of materials to lock in pricing, alternative material selection, and even contracts which contain risk allocation provisions in the event material pricing volatility is experienced.  As we move into 2026, successful projects will almost certainly need to continue to adapt to volatilities in pricing, plan in advance to address potential risks, and utilize technologies to assist with the procurement of materials in order to address and limit pricing fluctuations.

Data Center Wave

Many anticipate the surge in demand for data center projects experienced throughout 2025 to continue into 2026 driven by the continued need for AI and cloud computing.  Some contractors are seeing backlogs of 8 months or more for such projects further solidifying continued demand in the data center area.  Prioritization with bringing these projects online quickly has caused some contractors to rethink traditional building methodologies looking towards modular builds and other sustainable power delivery solutions.  Regardless of whether your focus involves data center development projects, it is important to understand that the demand for these project may impact demand for ancillary components for non-data center projects such as HVAC or electrical components.  Regardless of your area of focus, potential supply chain constraints and bottlenecks must continue to be reviewed early in any project to address any delays with materials/equipment procurement.   

Innovation

With anticipated pressures on project margins expected to continue through 2026, leveraging technology for a successful project will be of upmost importance.  Companies will almost certainly need to continue to adopt and utilize AI assisted tools to help with productivity issues related to reductions in skilled workforce, managing increasingly complex scheduling requirements and adaptive procurement related to continued material pricing pressures. 

Conclusion

Not unlike recent years past, 2026 is set to be a year of both challenges and transformation for the construction industry.  Project margins and schedules will continue to be tested due to labor shortages, pricing fluctuations and economic conditions.  However, opportunities in certain areas related to data center development and healthcare and manufacturing projects are projected to continue in the near term.  As always, project teams must be flexible, strategic and innovative in order to effectively these navigate market volatilities and to ensure a successful project.  

For more information, or to discuss any of these topics, please contact Pat Johnson, a member of Honigman’s Development and Regulated Real Estate Practice Group.