Q1 2026 Market Conditions Report

Our Q1 2026 Market Conditions report summarizes current market conditions, industry trends, and mitigation strategies to make more informed business decisions in the quickly changing construction landscape.

In 2025, data center projects became a major focus for the construction industry. As we move into 2026, this trend is expected to continue, bringing further dynamics and opportunities to the market. The Association of General Contractors’ outlook survey indicates that both data centers and the energy sector will maintain strong growth, driven by sustained demand and evolving industry needs.

There is moderate optimism for the healthcare and manufacturing markets, which are expected to see steady activity and potential expansion. In contrast, sectors such as higher education and commercial office are projected to decline in 2026, reflecting shifting priorities and changing market conditions.

The U.S. construction industry has seen rapid growth in data center projects, driven by the growth of hyperscale facilities and the increasing influence of artificial intelligence. Deloitte estimates that by 2035, power demand from AI-driven data centers could increase more than thirtyfold. As a result, Owners are shifting from traditional cost-focused strategies to prioritizing speed to market, as faster delivery directly correlates with greater revenue and competitive advantage.

AI is also reshaping how results are delivered across the industry. Its impact extends beyond mission-critical projects, and other sectors should consider adopting many of the approaches emerging from data center construction. As these approaches gain traction, they will fundamentally change how projects are planned, procured, and executed across the broader construction market. The following are some key drivers that data center building could impact other key markets.

The data center sector has effectively become the construction industry’s proving ground for speed, integration, and disciplined execution. The relentless demand for capacity, which is driven by hyperscale growth and AI has forced owners, designers, contractors, manufacturers, and financiers to abandon sequential, risk-averse delivery models in favor of deeply collaborative approaches. Early strategic partnerships, proactive supply chain engagement, prefabrication as a default strategy, and BIM-led execution are no longer “best practices” in data center work. They are prerequisites for success. Speed to market has emerged as the dominant competitive advantage, redefining how value is created and measured across the project lifecycle.

Other sectors like healthcare, commercial, life sciences, and even select institutional markets stand to benefit significantly by adopting these same principles. While their drivers may differ, the lessons are universal: engage critical partners earlier, design with procurement and constructability in mind, leverage prefabrication and digital delivery to reduce uncertainty, and align contracts and financial structures to support speed and shared risk.

Data center work demonstrates that when teams commit to trust, transparency, and execution velocity, outcomes improve not just in schedule, but in quality, predictability, and long-term performance. As market pressures intensify across all sectors, the data center playbook offers a clear roadmap for how the broader construction industry can evolve and win in 2026 and beyond.

Heading into 2026, the construction economy feels more like ever-changing weather than a clear, reliable outlook. U.S. growth is expected to remain solid relative to other regions, but uneven globally, with tariffs, trade realignments, and inflation trends creating mixed signals for owners and builders. Inflation eased slightly late in 2025, and interest rates are holding steady, offering some stability, but tariffs and geopolitical uncertainty continue to influence material pricing and buying behavior more through timing and volatility than overall inflation. Supply chains are generally functional, yet increasingly fragmented by country of origin, making it critical to plan by trade and source rather than assuming uniform conditions.

Within construction, demand is inconsistent. Data centers and power infrastructure remain strong, while other segments are down year-over-year, creating a paradox of overall slowdown, alongside shortages in specific materials and skilled trades, especially electrical labor. Labor constraints, aging workforce dynamics, immigration policy, and rising material costs—particularly steel, aluminum and copper, and critical minerals—add pressure. Logistics volumes are soft for now, but vulnerable to rapid tightening from policy or demand shifts. The core takeaway is that success for supply chains in 2026 will hinge less on predicting outcomes and more on managing uncertainty through early engagement, strategic sourcing, integrated planning, and resilience-focused delivery models that protect cost, schedule, and supply continuity.

For 2026 planning, the economic environment functions more like a set of shifting weather systems than a predictable, single forecast. Several forces are moving at the same time, sometimes reinforcing each other and sometimes pulling in different directions. For planning purposes, the goal is not to identify a single “right” forecast, but to understand what is supporting growth, what is putting pressure on it, and which signals are most likely to affect construction and supply chain decisions over the next 6 to 18 months. In other words, how’s the economy, what’s pricing going to do, what’s up with inflation, and can we rely on our supply chains?

Goldman Sachs projects an optimistic outlook for the U.S. economy in 2026 at 2.6% growth in GDP for the U.S., citing drivers like tax cuts, improved financial conditions, and reduced tariff drag. Their forecast is more optimistic than others, like the Congressional Budget Office, which is projecting slower growth at 2.2%. But in both cases, these numbers are higher than their internal 2025 estimated year-end finish.^1,2

At the global level, even though growth is expected to remain roughly stable, it is still uneven depending on the country. Even with all the tariffs affecting China’s goods, its manufacturing sector is expected to post robust growth, while much of the country’s domestic economy remains weak. The EU is projected to be flat overall, with gains in Germany, Spain, and other parts of Southern Europe offset by weakness elsewhere. The broad view is that global growth holds steady with the U.S. outperforming most other countries.³ This matters because it could influence expectations around capital spending and the willingness of owners to move projects forward.

But under the pressure of U.S. tariffs, global talks are driving changes to world trade, shifting partners away from the U.S. In January 2026, after 25 years of stalled negotiations, the EU approved a free trade agreement with Brazil, Argentina, Paraguay, and Uruguay. If ratified, it would create one of the world’s largest free trade zones by population.⁴ North of the border, Canada has announced they plan to grow non-U.S. trade by 50% over the next 10 years,⁵ and the recent comments by the U.S. Administration challenging the relevance and need of the trade agreement between the U.S., Canada, and Mexico⁶ could further increase costs if this agreement is allowed to expire (The USMCA). These shifts could affect the U.S., not just economically, but also in terms of influence on how worldwide policies and practices are designed, structured, and administered, creating other unintended hurdles for the U.S.

Layered on top of the growth outlook, inflation remains one of the most important day-to-day drivers for construction because it shapes affordability and predictability of costs, and potentially, project viability. Initially, after some post-tariff increases, the inflation data provided shows a recent drop, from 3.0% in September 2025 to 2.4% in January,⁷ with AGC reporting December PPI inputs to new nonresidential construction increasing 3.3% year-over-year.⁸ Although inflation remains above the Fed’s 2% target, should this trend continue, it could help to calm fears that tariffs will automatically drive broad price increases. Studies show that we should see most of the effect of current tariffs in our pricing by the end of the first half of 2026.⁹

These intricacies have The Fed proceeding with caution regarding easing the lending rate. The last rate cut was 0.25% on December 11, 2025, with no changes since.¹⁰ The Fed is neither accelerating cuts nor tightening further based on the current environment, but if inflation continues to level off or fall, we anticipate continued cuts in rates. And while rate cuts would be welcome, “stable but uneven” growth produces mixed effects, even if inflation and the lending rates improve.

Although world trade alliances are shifting, demand for many products is strong, so some countries may stay busy, while others may have excess manufacturing or shipping capacity. This imbalance can show up as cost increases or delays for products from certain countries, while other countries may have improved pricing and lead times for those same products. And, since it can be complicated to shift supply chains, it could take a while to adapt.

For construction, the implication is relatively straightforward, even if solving the issue is complex: plan for variability by trade category and country of origin rather than assuming a single effect applies everywhere. It’s a cautious optimism paired with risk management—supply chains need to be managed with the assumption that volatility can return suddenly.

Construction activity in this cycle does not behave like a single market, even though it often gets discussed that way. Instead, it looks like a collection of markets that share some trades and materials but respond to very different demand drivers. The data makes that clear: some segments are down, one is strongly up, and leading indicators send mixed signals depending on where you look.

That uneven backdrop shows clearly in the spending data. Manufacturing construction is down 1% from July 2025 and down 8.5% year-over-year (August 2024 to August 2025). Commercial construction is flat month-over-month but down 8.9% year-over-year. Data centers stand apart, with spending up 26% year-over-year over the same period.¹¹

This divergence has real implications. An overall slowdown can coexist with shortages in specific equipment and trades. Data center projects are power- and electrical-intensive, concentrating demand on switchgear, generators, cabling, UPS systems, controls, and commissioning expertise. Even if other commercial segments soften, strong data center demand can keep key inputs constrained for these products and specialty labor.

Beyond spending alone, design activity adds another layer of nuance. The Architectural Billings Index hovered below 50 for most of 2025, signaling contraction. Inquiries increased, but billings declined between October and November. That combination points to interest that is not yet translating to active projects, with owners exploring feasibility, early budgets, and concepts.¹² For contractors, this environment often means heavier preconstruction effort and fewer awards. It can also drive tighter budgets, which can drive more risk transfer when projects do move forward.

Industry outlook survey results reinforce that picture. Firms expect demand in 2026 to continue to favor data centers and power projects, while reporting elevated economic and policy uncertainty. Tariffs, immigration enforcement, and difficulty finding qualified workers rank as top concerns, alongside material costs and recession risk.¹³

The takeaway is a market that is not universally short on demand but widely affected by uncertainty. Even in growth sectors, that uncertainty changes buying behavior. Owners may accelerate long-lead procurement or delay awards while waiting for policy clarity, while contractors may tighten terms, increase contingencies, or favor certain projects over others.

Labor remains central to the discussion. The civilian unemployment rate stood at 4.4% for December, slightly lower than November, but generally increasing since hitting a 5-year low in the spring of 2023. However, in construction, this does not signal a slack labor market, especially for specialized skilled trades, like electricians needed for data center construction.¹⁴

At the same time, alternative forecasts outline a riskier path. Economist David Rosenberg expects unemployment to rise toward 5% and potentially 6% by year-end, paired with deeper rate cuts than official forecasts anticipate. His view ties labor market contraction to recession risk and notes that rate cuts do not automatically restore employment.¹⁵

But even if Rosenberg’s unemployment projections are correct, if unemployment rises, labor relief is unlikely to appear evenly for construction, and administration policy uncertainty and immigration enforcement are additional variables that complicate the issue.

In our 2025 Q3 DPR Market Conditions Report, we noted that foreign-born workers make up a significant share of construction craft labor, exceeding half of the workforce in many trades. If those labor channels tighten, impacts will vary by region and trade, showing up as wage pressure, schedule risk, and subcontractor availability challenges into 2026 and beyond.¹⁶

Longer-term workforce dynamics may amplify this risk. In 2024, the U.S. recorded about 3.63 million births, while the birth rate remained near 1.6, well below replacement levels of 2.1. Construction is especially exposed because it has an aging skilled labor base. Federal Reserve research shows that without immigration, prime-age labor force growth would slow further and eventually turn negative,¹⁷ which could lower GDP and lead to further funding pressures for programs like Social Security and Medicare.

Geopolitics plays a direct role in the supply chain. Even though we think of construction as ‘local’ craft-built projects, most materials contain raw materials, chemicals, components, or other products that come from other countries, even when final products are domestically assembled. U.S. policy on tariffs and other global factors can move pricing, availability, and supplier behavior, with compounding effects from domestic events like strikes, logistical backups, accidents, and weather.

From a cost standpoint, the Producer Price Index for non-residential construction materials rose 0.4% in November and 3.6% over the prior 12 months, the largest increase since January 2023. Materials are pushing costs upward even as some supply chain indicators improve, like GEP’s Supply Chain Volatility Index, which shows easing of the supply chain.^18,19,20 And our recent supplier interviews tell us that lead times are not increasing, even as prices rise.²¹ One example, we have recently been advised of pending increases in paint and coatings, due to higher raw material demand, while lead times should remain stable.

The most significant impacts over the last year have been in steel-related categories, including cold-formed metal framing, hot-rolled coil, structural steel, and metal suspension systems. These increases are closely tied to tariffs.²²

Copper has also had a significant surge in pricing due to tariffs. Prices reached record highs above $13,000 per ton on the London Metal Exchange, up roughly 20% since mid-November. Drivers include new U.S. tariffs introduced in August 2025, which triggered a rush to import copper to the U.S., along with supply disruptions from a strike in Chile, a fatal accident at the world’s second largest copper mine in Indonesia, and flooding in a Congolese mine.²³

For construction, copper’s role in wiring, bus duct, transformers, and power equipment makes this especially relevant as demand shifts toward data centers and power projects.²⁴ Rapid copper escalation often shortens quote validity windows and increases escalation risk across multiple tiers of the supply chain.

Copper is not alone. Other metals send similar signals. Aluminum trended upward through 2025, still below its mid-2022 peak, but moving higher.²⁵ Precious metals reached all-time highs, driven by expected rate cuts, global uncertainty, and increased physical buying by India and China,²⁶ impacting certain products like electronic and mechanical systems or components that require these materials. China’s export restrictions now include silver,²⁷ alongside tungsten and antimony. And now precious metals are bleeding into critical minerals policy, with silver added to the U.S. critical minerals list in 2025 due to its role in electrification, clean energy, and data centers.²⁸

In past DPR Market Conditions Reports, we shared several strategic U.S. moves to improve supply of critical materials. Those efforts continue, as evidenced by recent news in which Ionic Rare Earths Limited signed a memorandum of understanding with U.S. Strategic Metals to develop a vertically integrated rare earth production site in Missouri, targeting materials such as neodymium, praseodymium, dysprosium, and terbium.²⁹ These initiatives take time but signal a shift away from single-country dependence. The U.S. is also delaying assessing new tariffs for imported critical minerals in favor of international agreements to secure competitive supply.³⁰

Shipping and trade risks add another layer of nuance. Tensions in the Taiwan Strait increased after China conducted war games and missile tests in late December, underscoring a potential risk to a critical global shipping lane and global semiconductor hub.³¹ China’s plan to introduce steel export licensing beginning January 2026 could further alter global supply flows and pricing even without outright shortages.³²

In North America, the scheduled July 2026 USMCA (the United States-Mexico-Canada Agreement for trade) review introduces another inflection point, with outcomes ranging from renewal to renegotiation or termination, each carrying different pricing implications.^33,34

As noted earlier, the U.S. Administration is not signaling that it sees value in this agreement. Based on spend, for the first half of 2025, roughly 76% of U.S. imports from Mexico and 78% of U.S. imports from Canada entered duty-free under the USMCA. Non-renewal of USMCA would end those protections, and duties would increase 35% for Canada and 25% for Mexico.³⁵

Additionally, Mexico imposed tariffs on their imports for countries where no trade agreements are in place,³⁶ potentially raising U.S. costs for goods manufactured there (even those protected under the USMCA), as higher prices for materials imported to Mexico will raise production costs containing those materials, which would then translate to higher prices.

Tariffs show up not just as a line-item cost, but as a force that can reshape buying behavior and timing by shifting where and when manufacturers buy materials. Beyond raising landed costs, tariff uncertainty changes ordering patterns and can create short-term instability in freight and availability.

A recent example is the extension of tariffs on upholstered furniture, kitchen cabinets, and vanities. A White House fact sheet from December delayed further increases for one year while keeping the existing 25% tariff in place.³⁷ This has likely affected manufacturers’ decision of manufacture location, driving significant work by their supply chain teams, or may have affected projects that purchased material early to avoid these additional duties, affecting cash flow and inventory carry costs for interior-heavy projects.

Semiconductor tariffs provide a longer-horizon signal. Additional tariffs beginning in June 2027 will stack on an existing 50% levy following a Section 301 investigation into China’s semiconductor policies.³⁸ Even with a later start date, these actions influence supplier expectations and owner decisions today, particularly for technology-driven facilities like data centers.

Tariff uncertainty has been compounded by spontaneous announcements, including threatened measures tied to Iran and Greenland. The Administration announced a 25% tariff on countries doing business with Iran, potentially pushing China’s total levies above 70%, and an additional 10% tariff on several European countries over opposition to U.S. possession of Greenland, with a planned increase to 25% in mid-2026. Neither measure ultimately took effect, but they still sent shocks through global markets and had geopolitical effects.^39,40,41

However, some items have changed: in the last few weeks, the U.S. established new tariff authorities allowing it to impose additional duties on imports from countries that directly or indirectly provide oil to Cuba or purchase goods or services from Iran, and the U.S. reached a trade framework with India that removed the additional 25% tariff on Indian imports in recognition of India’s commitment to cease purchasing Russian oil and reduced the reciprocal tariff rate from 25% to 18%.⁴²

Legal uncertainty adds another variable. The Supreme Court case from November 5^th, which challenges the “Liberation Day” tariffs issued under IEEPA, is still pending, with a decision expected by June 2026. These sweeping tariffs include all countries and currently remain in effect. If The Court overturns them, it opens up many questions regarding potential refunds. These tariffs have generated an estimated $130 billion, a small share of the overall U.S. economy but meaningful at the category level,⁴³ and will likely require a great deal of effort if parties are able to obtain refunds for the related tariff paid under IEEPA.

For project delivery, the key issue is changes to behavior relative to timing of orders. Where importers accelerate or delay orders based on expectations of policy outcomes, we can experience temporary surges in shipping demand and supplier production,⁴⁴ driving delays or increases. So even if tariffs do not drive broad inflation, they can create sharp, short-lived disruptions.

Logistics is where costs, labor, geopolitics, and policy uncertainty converge, revealing risks that stay hidden when volumes are low and conditions look calm. The baseline heading into 2026 looks relatively soft, but triggers could change conditions quickly.

Oil prices are competitive, in the $55 to $65 per barrel range.⁴⁵ The recent assertion by the U.S. over Venezuela oil had initially pushed oil indexes down further, but they have trended up since, although not enough to significantly affect pump prices. In 2025 the average price for oil was down 16% from 2024, and prices are anticipated to drop further in 2026 by 22%.⁴⁶

By Land: At a ground-level view, trucking data shows tender rejection rates, a metric that signals trucking constraints, rising in October 2025 but remaining below the five-year average. Outbound tender volume fell 4.4% month-over-month, with October 2025 volumes down 17.3% year-over-year and 26.3% below the five-year average. Spot rates increased modestly, and fuel prices fluctuated before easing late in the year.⁴⁷

The baseline interpretation is that shippers have leverage and loads are being covered. However, tariff timing or regional demand shifts can tighten capacity quickly. Small triggers can change market behavior.

But regulatory changes introduce risk. Stricter rules for non-domiciled commercial driver’s license holders include new identification requirements and pauses on certain H-2B visas. This could reduce the driver pool. Even in a soft market, labor constraints like this could push rates higher over time, with spot rates already expected to rise modestly later in 2026.⁴⁸

By Sea: Looking across modes, CH Robinson’s outlook expects stable freight volumes and pricing through the first half of 2026. Ocean freight capacity is expected to outpace demand, putting downward pressure on rates, while Middle East and Suez Canal instability continues to affect routing. And northbound flows from Mexico are expected to increase as trade shifts away from China.⁴⁹

Infrastructure constraints will add localized disruption, while overall U.S. ports are operating well below congestion thresholds.⁵⁰ The Vincent Thomas Bridge redecking project will affect the Port of Los Angeles and Long Beach corridor, with directional closures expected from November 2026 through March 2028. Shippers may need to reroute freight during closure windows,⁵¹ potentially affecting shipping costs and time frames.

Trade flow data reinforces structural change. U.S. ocean container imports fell 14% year-over-year, imports from China dropped 28%, and exports to China fell 38% in 2025. Lean inventories and tariff uncertainty ahead of Lunar New Year are worth watching, as they may create a surge of demand and increase prices.⁵² Lower volume in one mode does not eliminate congestion risk in other modes if volume spikes.

Looking ahead, the materials point to a delivery environment with fewer straight lines, where performance depends less on perfect forecasts and more on resilience under stress. Technology adoption, cybersecurity risk, energy constraints, and geopolitical fragmentation appear as structural pressures rather than temporary noise.

AI adoption stands out as a major shift. Seventy-three percent of firms expect AI to power supply chains by 2030, but capability gaps remain. In the last five years, ransomware attacks have risen by 13%, owing to the increased access created by cloud-based planning tools and automated systems. Labor shortages, natural disasters, and geopolitical tension persist as ongoing pressures.^53,54

The Forbes 2030 Outlook outlines scenarios centered on regionalization, a talent cliff, escalating cyber risk, and climate resilience. The common thread is a shift away from pure cost optimization toward resilience as a primary objective.⁵⁵ This sentiment is echoed by GEP’s Outlook Report 2026.⁵⁶

A practical response focuses on stress testing. The approach includes defining objectives, identifying key risk drivers, running scenarios, and developing pre-approved mitigation playbooks. Teams that do this work up front tend to move faster and incur lower costs when disruptions hit.⁵⁷

Energy constraints tied to data center growth add another long-term pressure. Data centers are projected to consume 3% of global electricity by 2030, driving the need for additional power generation and grid upgrades, adding to the demand for electrical and construction materials. Energy pricing is under strain, which could be further stressed by the supply shortage of Uranium used as nuclear power fuel, even as Meta is working with Constellation Energy to recommission Three Mile Island nuclear plant in Pennsylvania to help with power generation for AI.⁵⁸

Gas turbine orders now exceed manufacturing capacity, with delivery delays stretching into 2028–2030 for GE Vernova and Mitsubishi.⁵⁹ These equipment constraints directly affect project phasing and commissioning for related work.

And risk reporting reinforces how disruptions can stack. Cyberattacks targeting logistics systems rose 61% in 2025. Aging infrastructure, extreme weather, and geopolitical fragmentation increase the likelihood of compound events. McKinsey estimates $106 trillion in global infrastructure investment is needed for resilience by 2040.⁶⁰ That’s almost 2024’s entire world GDP.⁶¹

Speed. The cheetah is the fastest land animal at around 70 mph, but the fastest animal on Earth is the Peregrine Falcon. A falcon’s stoop, a targeted hunting dive, can reach speeds up to 3x the cheetah because during her fall, she is aided by gravity and aerodynamics. So, when construction is accelerated and schedules expedited, what is our multiplier? At Skybox Datacenters’ Hutto Data Center Campus, one answer was steel.

This “stoop,” targeted the sourcing and procurement of structural steel (fitup/fitout) such as wide flange, HSS, and angle prior to selecting the fabricator with an eye on faster arrival of steel to the project site. Metal commodities SME, Daniel Neisingh, described that, “Through an open book intermediary to the mill, we priced the steel package with a steel mill (Nucor) and integrated fabrication schedules with mill rolling schedules. This allowed us to determine if project timelines would be met. With an accelerated project schedule, we found that sourcing 50% of the material through a distributor would allow half of the material to be delivered 2-4 weeks earlier than the manufacturer due to pushed out rolling schedules.”

By leveraging our vertically integrated Family of Companies (FoCs), we mitigate cost increases through DPR’s in-house material provider, OES, which manages material procurement, optimizes steel cut lengths to reduce waste, and delivers competitive pricing on an accelerated schedule. Capitalizing on the ever-changing steel market, Neisingh explained that “DPR is positioned for more control of the critical path during Preconstruction to get out of the ground earlier than Industry benchmarks.” On this project, the owner provided the material cut list, but our in-house structural engineers and detailers at GPLA can manage detailing scope and provide steel cut lists as well.

Central region’s Advanced Tech Core Market leader, Ryan Krogstad, expounded,

“[this project allowed us] the opportunity to lock in mill dates much sooner than we would have been able to through the standard drawings, bidding, buyout subcontracting process- which is what was required for our expedited schedule. In this particular case, the equipment lead time was shorter than normal, and we needed the [steel] structure to set equipment vs. storing on or offsite. Not to mention that it allowed us to be further along with MEP systems as we wait for the final electrical piece of equipment to show up.”

Having worked directly with the project team, Neisingh said, “it was a mutual teaching and learning exercise. Although the project team had not done this before, they were team players, open minded, and patient to work together through each step of the process.”

From 13th century scholar, Rumi, “Be motivated like the falcon, hunt gloriously.” If the pursuit for our industry is the speed, quality, precision and freedom that the falcon dive embodies, metal scopes offer an open horizon for collaboration between Preconstruction and the FoCs that multiply control over mill orders, cost, and schedule on behalf of clients and project teams.

Photos: Danny Sandler