CBIZ’s Construction Industry Outlook for Late 2025 & 2026

As we settle into the final quarter of the year, contractors across the construction industry are bracing for a perfect storm of challenges that threaten both their bottom line and their ability to deliver on client expectations. While optimism remains for steady demand in the long run, a confluence of persistent labor shortages, volatile material costs, economic uncertainty, shifting trade policies and mounting sustainability pressures are shaping an environment that demands adaptability and resilience.

Labor: The Lingering Challenge

Perhaps the most pressing issue remains the lack of skilled labor — a problem that has stubbornly persisted year after year. Contractors are finding it increasingly difficult to recruit and retain essential tradespeople such as carpenters, electricians, plumbers, ironworkers and other specialized professionals. This shortage, rooted in an aging workforce and diminished interest from younger generations, is further compounded by competition from other industries offering alternative career paths in technology, logistics and manufacturing. In addition, the COVID-19 pandemic forced many older workers into early retirement, exacerbating the skills gap.

To stay competitive, contractors are being forced to raise wages and expand benefits, driving project costs even higher and squeezing profit margins. Many companies are exploring creative solutions, such as flexible schedules, tuition reimbursement and apprenticeship programs, to attract fresh talent. Others are partnering with local trade schools, colleges and workforce development agencies to cultivate interest among students and retrain workers displaced from other sectors.

However, these efforts often require significant investment, and the return is not always immediate. Contractors are contending with the reality that projects may be delayed or scaled back due to understaffing. This trend shows no signs of abating as firms continue to jostle for a shrinking talent pool, and experts predict that the labor crunch could last well into the next decade unless systemic changes are made to training, education and industry outreach.

Materials: Volatility on the Horizon

Material costs, while slightly more stable than the chaotic years of 2021 and 2022, remain a roller coaster. Supply chain disruptions — once the norm — have improved but have not vanished. Shipping delays, labor shortages in transport and production bottlenecks occasionally rear their heads. Instead, contractors are now grappling with new uncertainties: the specter of fresh tariffs and ongoing global economic instability keep the prices of key inputs such as steel, lumber and electrical components on a knife-edge.

Even a minor geopolitical event or a shift in trade policy can send ripples through project budgets, turning accurate bidding into a complex guessing game. For example, new import tariffs on Chinese steel or sanctions disrupting the flow of aluminum from Europe can cause overnight price spikes. Project estimators and procurement teams are learning to expect the unexpected, often building in larger contingencies and negotiating flexible contracts with suppliers to hedge against unforeseen changes.

The challenge is particularly acute for firms working on long-term projects, where material needs may stretch months — or even years — into the future. Contractors are increasingly turning to alternative materials, local sourcing and modular construction techniques to mitigate risk and control costs. Digital procurement platforms and real-time analytics are becoming essential tools for monitoring supply chain disruptions and responding swiftly when issues arise.

Economic Outlook: Walking the Tightrope

Overlaying these supply-side issues is a growing sense of economic unease. While the construction sector has demonstrated remarkable resilience in the face of recent shocks, industry leaders are keeping a watchful eye on indicators that suggest a broader economic slowdown or even a possible recession as 2026 approaches. Inflation remains stubbornly high, prompting central banks to maintain elevated interest rates, which in turn leads to tighter lending standards and costlier project financing.

Should demand for new projects begin to cool — whether due to hesitant private investment, cautious public spending or a dip in consumer confidence — contractors could find themselves facing cancellations, delays and even stiffer competition for fewer opportunities. Real estate developers, commercial clients and government agencies may pause or reconsider investments in new infrastructure, housing and commercial developments. In this environment, maintaining healthy cash flow and seeking a diverse mix of projects has never been more critical.

Some contractors are shifting their focus to renovation, repair and smaller-scale projects, which tend to be less sensitive to macroeconomic shifts. Others are seeking opportunities in high-growth segments such as renewable energy, data centers and health care facilities. Diversification and strategic partnerships with architects, engineers and specialty firms can help mitigate risk and capture new business.

Trade Policy: The Wild Card

If there’s one word that sums up the current trade environment, it’s “uncertainty.” Ongoing discussions around tariffs — especially those affecting imported lumber, steel, cement and other construction essentials — have contractors nervously watching news out of Washington and key global capitals. Policy shifts can happen quickly, often with little warning, and the resulting cost spikes or supply disruptions can put even the best-laid project plans in jeopardy.

For example, trade negotiations with Canada and Mexico over lumber tariffs or steel quotas can suddenly disrupt established supply chains. Contractors must keep abreast of regulatory changes and maintain strong relationships with multiple suppliers across regions to insulate themselves from unexpected shocks. Some firms are developing in-house teams dedicated to monitoring policy changes and lobbying for industry-friendly regulations.

At the same time, global supply chains are under scrutiny, with some policymakers pushing for reshoring and domestic manufacturing to reduce reliance on imports. This could create opportunities for local suppliers but may also drive up costs and limit choices, forcing contractors to rethink procurement strategies.

Sustainability & Technology: Challenge & Opportunity

Simultaneously, the push for more sustainable building practices is no longer optional. Clients and regulators are setting higher standards for energy efficiency, low-carbon materials and green certifications. Building codes are evolving, and new mandates on emissions, waste reduction and resource conservation are being introduced in many jurisdictions. While these demands are spurring positive change, they also require contractors to invest in new training, technology and processes.

Embracing sustainable construction means adopting practices such as modular building, recycled materials, solar energy integration and advanced HVAC systems. In many cases, up-front costs are higher, but long-term savings and marketability make these investments worthwhile. Some contractors are forming alliances with environmental consultants, manufacturers of green building materials, and tech firms to stay ahead of the curve.

The adoption of digital tools — from building information modeling (BIM) and drones to artificial intelligence and automation — offers the promise of greater efficiency and productivity, but implementing these solutions can be daunting, particularly for small and midsized firms with limited resources. Technology can streamline project management, improve safety and facilitate remote collaboration, but it requires investment in infrastructure and continuous employee training.

Progressive contractors are piloting robotic bricklaying, 3D printing for components and data-driven scheduling to tackle labor and material challenges head-on. Digital twin technology enables stakeholders to visualize and optimize projects from concept to completion, reducing costly rework and enhancing client satisfaction.
 

Adapting to a New Era

Heading into 2026, construction companies find themselves balancing old challenges with new priorities. The squeeze is real — labor and materials on one side, economic pressures and sustainability demands on the other. Firms that thrive will be those that double down on workforce development, embrace flexible procurement and risk management strategies, and actively invest in technological innovation.

Industry leaders recommend a proactive approach:

• Workforce development — Expand apprenticeship and mentorship programs, partner with educational institutions and promote diversity in hiring to enlarge the talent pool.
• Smart procurement — Use data analytics to forecast price changes, negotiate flexible contracts and diversify suppliers to mitigate risk.
• Financial agility — Keep a close eye on cash flow, maintain strong banking relationships and consider alternative financing sources for projects.
• Sustainability commitment — Invest in certifications, new materials and green technologies to meet regulatory and client expectations.
• Tech adoption — Implement building information modeling (BIM), mobile project management tools and automation to boost productivity and manage complexity.

The future, while uncertain, will reward those who prepare for change rather than react to crisis. As contractors ready themselves for headwinds, the industry’s legacy of resilience, ingenuity and determination remains its greatest asset.

By embracing innovation and staying agile, the construction sector can not only weather upcoming storms but emerge stronger and more competitive for years to come.