Potential Disruptions Color Expectations for 2025

At the midpoint of what’s so far been a decade of economic, environmental and political volatility, the headwinds pushing the construction industry aren’t about to relent in 2025. 

Despite positive trends like relenting inflation and interest rates, worrisome portents cloud the horizon: Potential disruptions to an already problematic labor market, fluctuating materials costs, the extremes of weather impacts and the escalating risk of cybercrime as dependence on technology grows.

And it’s the small to midsized construction firms that may struggle the most, with fewer resources and financial reserves than larger firms to manage exposures and losses.  

Continued Pressures on Profitability

There’s good and bad news in anticipated construction spending in the U.S., which is projected to reach $2.145 trillion in 2025 and $2.340 trillion by 2028. According to the American Institute of Architects, nonresidential construction spending is likely to stall, expanding by 2%. 

But lower inflation and interest rates might increase pressure on labor and supply costs, which will drag profitability. And commercial projects are likely to be hit by the fallout from the high interest rate environment: Commercial lenders are pulling back amidst the rising default rate on commercial mortgage backed securities, which hit 6.57% in December.

An unpredictable business environment will require tightened financial controls. Especially as bigger and riskier projects continue going strong, firms will need experienced guidance on alternative insurance options and risk transfer mechanisms, like parametric insurance and retention strategies. 

 

The Labor Shortage: Aggravated?

It’s a problem affecting construction firms of every size: Ninety-four percent of contractors are struggling to fill open positions. 

The shortage may relent somewhat in 2025. But immigration policies of the new administration could aggravate the situation. Business Insider reports that construction’s share of non-U.S. citizen workers is the highest of any industry at 2.45 million out of 11.38 million employees. 

The quest for solutions goes on. Apprenticeship programs continue to gain traction. The 40% growth in registered apprenticeship programs in the last 10 years has seen more in construction than any other industry. Technology — using online or video components — has improved access to firms’ learning programs. And while increasingly used tech tools like drones and robots don’t replace workers, they do enhance productivity, while making construction jobs more attractive in terms of safety and skills acquisition.

Benefits are also important — not in terms of wages or health insurance alone, but policies that address individual circumstances and needs. Childcare benefits, for example, can help attract and retain more women. Mental health benefits are instrumental in fighting high rates of suicide. A program of personalized benefits doesn’t just encourage engagement and productivity: It improves recruitment and retention. 

 

The Resiliency Factor

The uncertainties of the decade have tested the industry’s resiliency. Strengthening it is the challenge.

Worsening climate-related extremes have a cost. Extreme heat is a leading cause of death for workers laboring outdoors. When construction work schedules are adjusted for safety purposes, the physical work takes 36% longer, according to Bisnow by nPlan. It makes solutions like modular construction look a lot more attractive, with its economic advantages and safer working conditions. 

But finding ways to transfer the risks is key, especially given ongoing pressures on insurance costs and availability at required limits. Good broker partners should be ready to suggest alternate insurance solutions. 

Parametric insurance, for example, pays policyholders when weather thresholds pass a pre-specified mark. It’s a good option to traditional insurance coverage that doesn’t cover losses associated with climate events like heatwaves. Another is project-specific insurance that is customized for the job. Coverage and costs are shared among owners, general contractors and subcontractors. It helps insulate and protect the rest of the business if there is an incident or claim on a large project.  

 

The Benefits — & Risks — of the Tech Transformation

It’s hard to argue against the value of construction technology in alleviating many of the biggest issues facing the industry. But too many firms have neither the skills nor the budget to invest. 

Nor are they equipped handle the accompanying security risks. In fact, one recent survey ranked cybersecurity as the industry’s top risk and contractors’ biggest worry — even more than labor shortages and high interest rates. But only 32% of construction firms responding to HUB International’s 2025 Executive Outlook Survey said they have cyber insurance. 

This makes ongoing cybersecurity training to help employees spot problematic cyber scams like phishing essential, including measures to avoid cyber risks like multifactor verification and security protocols. A solid backup strategy is essential. The right broker can help with the right risk management and cyber insurance protections.