The construction industry is welcoming a fresh jolt of momentum after the Federal Reserve enacted its third rate cut of 2025, trimming its benchmark rate by another 25 basis points. While the move reinforces a steady easing cycle, contractors say the ripple effect is still too mild to ignite the extensive wave of new nonresidential construction starts that many have been waiting for.
Across the country, project teams reported a lift in confidence, especially for developments already navigating planning and preconstruction hurdles. But with borrowing costs still elevated and lenders maintaining strict underwriting standards, industry leaders say the latest cut helps — but doesn’t meaningfully shift the fundamental math behind launching new work.
Granger Hassmann, regional president of Gulf States at Adolfson & Peterson, summed up the industry’s mixed outlook. “The recent rate cuts by the Fed are good news, but I don’t see this cut moving the needle very much,” he told Construction Dive. “It is clearly a step in the right direction, especially if this trend continues over the next couple of months.”
That viewpoint echoes across many contractors overseeing large portfolios of projects in design or development. The modest decrease may shave down some short-term borrowing costs, but hasn’t yet translated into tangible relief capable of unlocking major new starts.
Scott Lyons, commercial core market leader at DPR Construction, said the cut adds a psychological boost to ongoing planning efforts, even though it is far from enough to kick-start groundbreaking activity. “We think it will be another psychological boost that will continue momentum for those projects in the planning phase,” Lyons said. But he emphasized that “we don’t believe it will trigger getting a shovel in the ground just yet for those projects.”
As Lyons noted, financing constraints remain stubbornly tight. Many commercial segments are still coping with oversupply, particularly in office and R&D facilities. That surplus means lenders are requiring stronger demand signals, signed tenants or more comprehensive viability proofs before approving loans. “Lenders are going to continue to insist on signed tenants or legitimate demand for other project types,” Lyons said, adding that “we have an oversupply challenge in the commercial real estate space until more absorption happens in the office and R&D space. We think lenders are going to hold tight.”
Capital markets experts reinforced that long-term borrowing costs — rather than short-term Fed action — will be the true catalyst for a rebound. Even though Dodge Construction Network recently reported a 21.1% jump in October groundbreakings, driven mostly by megaprojects such as data centers, the broader market remains sluggish.
Dan Levitt, executive vice president of capital markets at Ryan Cos., explained that debt availability isn’t the issue — pricing is. “The debt markets are currently extremely liquid throughout the capital stack,” he said. “A small rate cut marginally reduces the cost of construction, and obviously, owners of real estate on short-term loans save a little on debt service.” Still, without movement in the 10-year Treasury yield — the key benchmark for long-term financing — contractors shouldn’t expect transformative change. “There is very little correlation at this point between a small rate cut by the Fed and the 10-year Treasury,” Levitt said. “In other words, a small rate cut by the Fed is unlikely to substantively stimulate nonresidential construction starts.”
.jpg)
Yet, not all sectors are dependent on short-term rate actions. Data centers, life sciences, and healthcare continue to surge, propped up by strong demand and alternative funding mechanisms. Ryan Cos. leader Jason Gabrick highlighted that momentum. “Some emerging market sectors continue to remain almost rate-proof due to robust demand and effective capitalization strategies,” he said. “We continue to see solid activity in data centers, life sciences, medical technology and healthcare projects, regardless of changes in interest rates.”
Still, even optimistic contractors acknowledge that rate cuts can’t fix one of the industry’s deepest structural challenges: labor. The U.S. Bureau of Labor Statistics shows construction job openings at “extraordinarily low” levels, with hiring dropping sharply — a trend that could hamper output even when lending conditions improve.
Lyons said the workforce issue remains the most pressing barrier. “Across the country, there are more projects that people want to build than there are people to build them,” he noted. “Our industry is taking steps to address that shortage, but we believe it will take a generation to build out the skilled labor workforce to meet demand.”
Still, the groundwork for a more robust 2026 appears to be forming. Associated Builders and Contractors reports that contractor confidence is increasing across sales, profit margins, and staffing expectations. Meanwhile, supply chains have stabilized, and material pricing has become more predictable compared to the extreme volatility of the early pandemic era.
Gabrick pointed out that improved tariff clarity has also helped. “Even amid economic turbulence, construction labor and material pricing, as well as inflation, have remained relatively predictable,” he said. “As time has passed since the enactment of tariffs, our trade partners and vendors have been able to provide more assurance of the impacts. This is contrary to the challenges the industry faced during the pandemic, as pricing was extremely volatile.”
Overall, the latest rate cut reinforces an improving trajectory — but industry veterans stress it will take more aggressive rate reductions, stronger tenant demand, and deeper labor development to unlock a true wave of new nonresidential construction starts.
Originally reported by Sebastian Obando in Construction Dive.
