Across industries, the last year has been challenging for U.S. companies. Uncertainty around the election, steep inflation, and high interest rates have introduced instability and financial pressures that have taken their toll on the business landscape.
As 2025 nears, things appear to be changing: Interest rate cuts are on the horizon, while the end of the election cycle may introduce greater market stability heading into the new year.
Forecasted market stability doesn’t mean the new year will be without its challenges. A new administration and shifting market pressures mean real estate and construction leaders must act now to take advantage of new opportunities and confront persistent obstacles.
Looking for the right information to prepare yourself for the year ahead? Read on to uncover our predictions for real estate and construction in 2025.
AI use has become widespread in the business community, but not every industry is using it equally. While many real estate firms have started adopting AI, the construction industry is largely still in the exploratory stage.
We expect to see both industries drastically increase their use of AI in the next year, driven by the accessibility of generative AI and the opportunity for substantial cost savings, especially as companies seek to combat inflation. AI can also be used to improve safety, streamline project management, and address labor shortages. Already we’ve seen the benefits a company may achieve by leveraging AI. Now is an ideal time for slower adopters, like the construction industry, to make their move.
While both the construction and real estate industries will increase AI usage in the next year, the paths taken may be different. Construction companies will likely prioritize applying AI to project management areas, such as monitoring budget spend, scheduling tasks, suggesting resource allocations, and flagging unexpected delays. Real estate firms, meanwhile, may see the greatest immediate benefit by using AI to streamline communication. For example, using chatbots to answer renters’ simple questions and route more complex questions to appropriate professionals can lower costs while saving time and effort.
As AI makes it easier to collect and analyze biometric data, more construction companies will likely adopt AI to apply to their own biometrics use cases, such an enhancing security and tracking time. At the same time, we expect to see the introduction of more legislation governing how employers use, manage, store, and protect biometric data.
Biometric Data: Unique physical or behavioral characteristics that can be used to verify a person’s identity, such as fingerprints.
Biometric data has serious privacy implications and employees may have concerns around how their private information is being used, stored, and protected. If a construction company experiences a data breach, for example, employees could have their biometric data stolen, putting them at risk of identity theft.
Legislation like this already exists in some states — most notably Illinois — and more state-level regulations will likely pass before federal regulations are enacted. Construction companies should monitor the evolution of biometric regulation in their state and take proactive measures to secure their employees’ data.
As tech companies ramp up investment in AI tools, they will need increasingly powerful data centers to support them.
Many tech companies are seeking construction bids to build new centers with the required infrastructure to power and maintain AI tools, instead of retrofitting existing buildings that may not have the appropriate features. For example, data centers that power AI tools generally need more advanced cooling systems than data centers that support technology requiring less computing power, such as cloud computing.
New data centers will likely be built in areas with abundant open space and proximity to key resources, such as power transmission infrastructure and access to labor. Northern Virginia; Austin, Texas; Atlanta, Georgia; and Columbus, Ohio are just a few examples of locations tech companies are eyeing for possible data centers.
Tech companies will face a major challenge in supplying the considerable energy needed to power each facility, as some AI tools require energy that may exceed the capacity of nearby power grids. One possible solution tech companies are exploring is nuclear energy, but they face considerable legal challenges they face in obtaining access to compact nuclear reactors.
Ultimately, as AI use becomes more widespread, the infrastructure needed to support these data centers will also need to increase drastically, which may mean even more construction projects in the near future.
Commercial real estate faces ongoing challenges as remote work continues and commercial mortgage- backed securities become due. However, industry trends are helping to address obstacles in new ways.
Adaptive reuse — the repurposing of existing buildings — offers opportunities for new residential spaces by retrofitting abandoned malls, schools, office buildings, and more.
In 2025, we expect to see adaptive reuse accelerate, as fewer workers return to the office and the housing crisis continues. Currently, the U.S. has a shortage of 7.3 million rental homes that are affordable and available to renters with extremely low incomes. Adaptive reuse can play a major role in addressing this crisis, especially in urban areas, which tend to see greater housing scarcity.
7.3 Million
Shortage of affordable and available rental homes
Surrounding businesses, many of which are struggling in the era of remote work, can also benefit from adaptive reuse. Without workers coming into the office every day, many coffee shops, restaurants, convenience stores, and other service providers have taken a hit to their bottom line. By bringing more residents into the community, these businesses could see a boost in sales to offset the impacts of remote work.
In 2025, we expect construction companies to continue taking on large numbers of infrastructure and industrial projects. Infrastructure projects will see increased investment in part due to the increased frequency and severity of natural disasters, which will require the U.S. to both build new and repair existing infrastructure.
America First policies coming out of the new Trump Administration are likely to bolster domestic industrial projects. Such policies could include expanding R&D tax credits or making permanent certain provisions of the Tax Cuts and Jobs Act that are particularly advantageous to manufacturers. Increased demand for data centers will also feed into the need for more industrial projects.
On the other hand, construction companies will likely see fewer projects from smaller retailers and non-Class A commercial real estate firms. Smaller retailers are experiencing financial pressures, such as pullbacks in consumer spending, that are likely to continue until inflation eases. We expect these pressures to push smaller retailers away from large cap-ex projects in the year ahead.
Class A commercial real estate will likely continue to see high demand. Smaller commercial real estate firms, however, have fewer resources and aren’t as well-positioned to continue investing in construction projects. They are also unlikely to beat out their Class A competitors for large project bids.
Prepare your company for success in 2025.