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Initiation ceremonies are increasingly tied to a type of construction.
while latest economic data on construction showed a higher number of delays and starts, the main driver of this growth has been data center projects. These projects continued despite higher input prices.
But planning activity fell mostly for other construction and hiring among construction firms also slowed to start the year.
From these results, a consensus has emerged: take out AI construction, and the economic outlook for construction looks weaker. This is the opinion of economists who summarize the outlook for the sector with a quarter of 2026 behind it.
“This is a sign of a slowdown,” said Adam Raimond, director of the cost index program at Gordian, a Greenville, South Carolina-based construction data provider. “The fact that most of the growth is coming from data center construction alone is a sign that the industry is in a fragile position.”
In fact, contractors with data center work have approx four more months late than other companies, according to Moody’s. This is a big help for these companies, given that the producer price index is high and has an upward trend, said Ermengarde Jabir, director of economic research at Moody’s. Strong reserves allow companies to plan for cost increases, even as they continue to rise.
“I know many of you who work in the data center are worried that this boom will end and it probably will at some point. But not now.”
Anirban Basu
chief economist at Associated Builders and Contractors
“In general, data center development, in all its phases, is the main driver behind any overall improvement seen in construction metrics, whether it’s in planning, innovation or backlogs,” Jabir said. “These contractors have more existing labor contracts and can better plan construction cost considerations over a longer horizon.”
Construction input prices jumped to one Annualized rate of 12.6%. during the first two months of 2026. These levels are now not far from theirs Peak June 2022. Rising materials costs aren’t likely to abate anytime soon, either, said Juan Arias, CoStar’s national director of U.S. industrial analytics.
“Rising raw material costs and transportation costs will likely continue to drive cost inflation for construction projects,” Arias told Construction Dive. “Data center construction costs are also likely to continue to rise as electrical components become harder to find.”
The fact that the data center boom is having an outsized impact on the industry as a whole is not necessarily news. But what may surprise, according to economists, is this investments around AI still have much more track.
“Last year, hyperscalers spent about $450 billion on AI infrastructure, and the latest projections suggest that number could reach $700 billion to $725 billion this year,” said Anirban Basu, chief economist at Associated Builders and Contractors, during a webinar on construction economic data on Wednesday. “I know many of you who work in the data center are worried that this boom will end and it probably will at some point. But not now.”
Work outside of the data center projects
For contractors focused on traditional commercial construction, such as offices and retail, demand has cooled or failed to recover to previous levels, creating a dynamic of haves and have-nots in the business. And other sectors are feeling pain, too, Arias said.
“We continue to see a moderation in construction starts across all major property types from last quarter,” Arias told Construction Dive. “This is due to a pullback in developer interest as demand and rental earnings have declined, particularly for multifamily and logistics properties.”
Industrial construction, for example, has suffered a significant slowdown.
“Specifically, in terms of industrial properties, we continue to see a moderation in logistics construction activity, while the specialty sector has seen an increase,” Arias said. “The specialty sector includes data centers, and most of the new construction here is driven by that subtype.”
This dynamic has lowered the set of construction pipelines. Total square footage under construction across major property types has returned to levels last seen in 2016. The decline comes after an increase between 2022 and 2024, according to CoStar data.
Jabir agreed that the outlook for construction, outside of the data center frenzy, is much more subdued.
“Whether you look at non-residential construction or multi-family construction, the outlook is pretty muted at this point and very geographically dependent,” Jabir said. “Only modest new completions are expected for offices and retail, mainly focused on employment and population centers with growth prospects or established employment centers.”
Problems around trade policy they also continue to weigh on both workplaces and planning tables. Overall, it adds to an industry with a flatter trajectory across most segments. At the same time, the ride some contractors are enjoying on the one-trick pony of construction (data centers) is unlikely to last forever.
“Across all sectors, 2026 will herald greater stabilization in construction, and the normalization of conditions will help mitigate some of the pressures contractors have been facing due to high labor and material costs,” Jabir said. “While steady growth in data center usage is expected in both the short and long term, the boom period of exponential growth in data center expansion is neither sustainable nor long lasting.”
