Economic growth on the horizon: Construction industry projected for prosperity in 2025
Construction and Property Development Sector to Undergo Transformation in 2024 and Beyond
The construction and property development sector is gearing up for significant changes in the coming years, as a combination of economic, technological, demographic, and market demand factors come into play.
Improved Lending Terms for Developers
Lending terms for developers with promising projects have seen a notable improvement compared to just three months ago, a trend that is expected to continue as mortgage costs decrease and consumer interest is sparked.
Shift from Single-Family to Multifamily Housing
Single-family residential construction growth is expected to be muted or slightly declining, with forecasts for 2025 showing decreases ranging from -2% to -12% compared to prior years. In contrast, multifamily housing is outperforming expectations, with multifamily starts jumping 52% year-over-year in June 2025. This surge is driven by strong rental demand and increased investment in urban infill and mixed-use developments.
Increase in Remodeling Activity
Remodeling is expected to pick up gradually, fueled by homeowners opting to "stay and improve" homes due to currently low mortgage rates. The aging housing stock supports demand for maintenance and lifestyle upgrades, including discretionary renovations like kitchen updates, outdoor spaces, and energy efficiency improvements.
Adoption of Advanced Technologies and Smart Cities
The rise of smart cities integrated with IoT, 5G, AI, and other advanced technologies will significantly influence construction. The global smart city market could grow to above $3 trillion by 2030 with a CAGR of nearly 29.4%. Construction companies increasingly adopt IoT technologies, with 60% reporting efficiency gains of about 70%.
Geographical Market Concentration and Hotspots
Certain U.S. markets such as Dallas–Fort Worth (DFW) are projected to remain top building development hubs due to affordable land, low energy costs, business-friendly policies, and diverse pipelines including data centers, manufacturing facilities, mixed-use, and housing developments. Other fast-growing states include Idaho, North and South Carolina, Utah, and Arizona, reflecting regional demand and favorable conditions.
Supply Shortages and Construction Costs Impacting Commercial Real Estate
Across North America and Europe, supply shortages are expected to worsen in most commercial real estate sectors in 2025, driven by economic and trade uncertainty, increased construction costs, inflation risks, and higher debt costs. These factors slow development decisions and reduce supply pipeline volumes, increasing scarcity in in-demand property types. However, data centers continue to see robust demand and investment despite these challenges.
Predictions for the Future
Alasdair McPherson, Head of Partnerships at Rangewell, expects the overall market size to contract in 2024 due to downward trends in lending and new dwelling starts. However, he anticipates a significant uplift into 2025 as trends improve, with the market starting to build momentum. Economists are forecasting another interest rate reduction in November, which could renew interest in the commercial sector.
The government has vowed to loosen housing supply and reclassify some green belt land into 'grey belt', which could help increase the number of new dwellings. In the 2023-24 period, there were 162,350 new dwellings, a decrease of -19.8% from the year before. Experts have estimated that the reduction in lending appetite will continue to drop by 5.2% in 2024.
In summary, the sector’s future is shaped by a complex interplay of evolving housing preferences, investment in rental and urban infill projects, emergence of smart infrastructure, regional market strengths, and economic headwinds affecting cost and supply chains.
- As part of the transformation in the construction and property development sector, increased investing in real-estate and finance is anticipated, given the improved lending terms for developers and the government's initiatives to loosen housing supply.
- The housing industry is experiencing a shift from single-family to multifamily housing, with the surge in multifamily starts and the adoption of advanced technologies in urban infill and mixed-use developments, reflecting changing demographics and market demands.
