The construction industry’s economic outlook is becoming increasingly uncertain in 2026, as strong growth driven by data center development continues to mask broader weakness across most other sectors.
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While recent data shows gains in backlog and project starts, economists say those improvements are largely concentrated in one area — artificial intelligence infrastructure — leaving much of the industry facing slowing demand and rising costs.
“This is a sign of a slowdown,” said Adam Raimond, program manager for cost indices at Gordian. “The fact that most of the growth is coming off of only data center construction is a sign that the industry is in a fragile position.”
Projects tied to AI and hyperscale data centers remain the primary engine of construction activity. Firms working in this segment are benefiting from longer backlogs and stronger financial visibility compared to contractors focused on traditional commercial work.
According to Moody’s, contractors engaged in data center construction have roughly four more months of backlog than their peers. That extended pipeline allows firms to better manage rising costs, even as inflationary pressures persist.
“Broadly, data center development, in all of its phases, is the main driver behind any observed overall improvements in construction metrics, whether looking at planning, groundbreaking or backlogs,” said Ermengarde Jabir, director of economic research at Moody’s. “Those contractors have more existing contracts for work and are better able to plan around construction cost considerations over a longer horizon.”
The scale of investment in AI infrastructure remains significant. “Last year, hyperscalers in the aggregate spent around $450 billion on AI infrastructure, and the latest projections suggest that number could reach as much as $700 billion to $725 billion this year,” said Anirban Basu, chief economist at the Associated Builders and Contractors. “I know a lot of you out there with data center work are concerned that this boom is going to end, and it probably will end at some point. But not now.”
However, rising costs remain a concern. Construction input prices increased at a 12.6% annualized rate during the first two months of 2026, approaching levels seen at their 2022 peak. Material and transportation costs are expected to continue climbing, further pressuring project budgets.
“Increases in raw material costs and transportation costs will likely continue to drive cost inflation for construction projects,” said Juan Arias, national director of U.S. industrial analytics at CoStar. “Data center construction costs are also likely to continue rising as electrical components become harder to find.”
Outside of data centers, the outlook is considerably weaker. Commercial sectors such as office, retail and multifamily housing are experiencing declining demand, with developers pulling back amid softer rent growth and economic uncertainty.
“We continue to see a moderation in construction starts across all major property types as of the latest quarter,” Arias said. “This is driven by a pullback in developer interest as demand and rent gains have waned, particularly for multifamily and logistics properties.”
Industrial construction has also slowed, particularly in logistics, while specialized segments tied to data centers continue to expand.
As a result, overall construction pipelines have contracted. Total square footage under construction has dropped back to levels last seen in 2016, following a surge between 2022 and 2024, according to CoStar data.
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Jabir noted that future growth will likely remain uneven and geographically dependent. “Whether examining nonresidential construction or multifamily construction, the outlook is quite muted at the moment and very geographically dependent,” she said. “Only modest new completions are expected for office and retail, primarily centered on employment and population hubs with growth prospects or established employment centers.”
Economists also point to ongoing uncertainty around trade policy and labor costs as additional headwinds for the industry.
Looking ahead, the sector may transition into a period of stabilization rather than expansion. “Across all sectors, 2026 will herald more of a stabilization in construction, and normalizing conditions will help mitigate some of the pressures contractors have faced from elevated labor and materials costs,” Jabir said. “While steady growth of data center usage is expected over both the short and long terms, the boom period of exponential growth to data center expansion is neither sustainable nor long-lived.”
Originally reported by Sebastian Obando, Senior Reporter in Construction Dive.
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