Hensel Phelps Reports Shift Toward Essential Infrastructure in 2026 Construction Market

Highlights

• Hensel Phelps says construction demand is increasingly concentrated in essential infrastructure projects.
• Water, wastewater, power and data center projects continue to advance despite broader market uncertainty.
• Financing costs, labor shortages and material inflation remain challenges for discretionary developments.
• Early planning and risk management are becoming more important for project delivery.

Construction activity in 2026 continues to vary by sector as owners prioritize projects tied to operational necessity while delaying developments with greater scheduling flexibility. According to Hensel Phelps' latest market outlook, investment remains strongest in infrastructure and mission-critical facilities, while privately financed projects face increased scrutiny due to financing conditions and project risk.

Essential Infrastructure Continues to Drive Activity

Hensel Phelps identifies infrastructure projects supporting operational capacity, resilience, regulatory compliance and national security as the primary drivers of current construction demand.

The company points to continued activity in water and wastewater infrastructure, data centers and power projects, where expanding capacity and reliability remain priorities. These sectors continue moving forward despite broader economic and financing challenges affecting other areas of the construction market.

Financing and Labor Pressures Affect Project Decisions

The report notes that higher borrowing costs, construction material price increases and skilled labor shortages are influencing project schedules and investment decisions.

Projects dependent on private financing are experiencing additional review as owners reassess budgets, procurement strategies and construction timing. At the same time, demand for specialty trade contractors remains high in markets supporting data centers, semiconductor manufacturing and advanced industrial facilities.

Planning Becomes a Greater Priority

The market outlook emphasizes that early planning, cost modeling and procurement strategies are becoming increasingly important as owners seek greater certainty before beginning construction.

Preconstruction services, risk assessments and collaboration among owners, designers and contractors can help address schedule, labor and material challenges before construction begins.

Why It Matters

The construction market continues to be driven by sector-specific demand rather than broad-based expansion. For construction owners, developers and contractors, projects tied to critical infrastructure and operational needs remain more resilient, while discretionary developments require stronger financial justification and comprehensive preconstruction planning.

Source: Hensel Phelps.