Among construction economists the verdict is in on the predicted impacts of the America-Iran conflict on the building sector – and it’s not good.
Richard Branch, chief economist with the American Institute of Architects (AIA), joined ConstructConnect chief economist Michael Guckes and Ken Simonson, chief economist for the Associated General Contractors of America, on May 14 for the ConstructConnect 2026 Spring Webcast.
Summing up current factors buffeting the sector, Branch said the economy is facing headwinds from weak confidence, an eroding labour market, uncertainty around tariff policy and geopolitical risks including the Iran conflict and oil price volatility.
At the same time, it has tailwinds from the One Big Beautiful Bill Act tax break, reduced regulatory burden and potential productivity gains from artificial intelligence.
“Whether this is tariffs, whether this is stricter immigration enforcement or increased geopolitical concern, all of these are weighing on developers,” said Branch.
Asked what is keeping him up at night, the AIA economist responded, “For me, it’s the uncertainty over the Iran conflict and the ultimate impact on oil.
“When you have such a major global shipping channel closed down, whether it’ll open on a day-to-day basis, that’s what’s really keeping me up at night, in terms of that calculus of a go/no-go decision on a building project.”
Branch said there is a clear link between global oil prices and construction material costs. Based on current trends, he said, “I think you could probably bet on a fairly sharp increase in construction material costs over the course of the summer.”
Spotlight on data centres
Another major theme highlighted by the economists was the continuing – and accelerating – dominance of megaprojects, especially data centres.
Guckes said megaprojects as a percentage of all nonresidential spending is at a record high – it’s now at 26.7 per cent, up from the single digits in 2022. Data centre projects entail construction of office, power and water infrastructure.
“The pipeline of work, the demand for those new data centres, is just insatiable,” said Guckes.
Simonson reported within nonresidential, the office sector is now leading the way in terms of gains, mostly due to the rise in data centres. Spending on offices from March 2025 to March this year was $112 billion, up seven per cent year-over-year, with data centres up 34 per cent, other private office down nine per cent, and public office down four per cent.
Simonson said the boom in data centres is expected to have an impact on workforce availability.
“Data centre projects are pulling electricians and other skilled workers from all over the country to sites where those things are going on, whether it’s in Louisiana or West Texas or out in the Great Plains. So it’s going to be a challenge to hang on to an electrician who is willing to travel,” he remarked.
“You’ve got to be competitive on wages.”
Cyclical shifts
Branch said construction has been underperforming since 2024 because of cyclical shifts including high interest rates and slow economic growth; structural shifts such as demographics, mobility and working from home; and political shifts such as tariffs and immigration.
The U.S. economy is surviving but not thriving, he said. The forecast growth for 2026 is 2.1 per cent and for 2027 it’s 2.0 per cent.
Branch said architecture billings have been soft since late 2022. Billings and contracts have remained weak recently, though inquiries are up slightly. Construction spending is expected to remain slow according to the AIA Consensus Construction Forecast Panel from January 2026.
Simonson said economic growth remains unbalanced and vulnerable due to a prolonged Middle East war shock, with inflation risks viewed as higher than recession risks. Single-family construction is expected to pick up gradually if mortgage rates remain stable, while multifamily construction appears close to bottoming out.
Simonson said the strongest growth areas besides data centres will be power projects, airports and specialty health care facilities.
Guckes said in difficult times it’s incumbent upon contractors to look around for sectors that are thriving and bid wisely.
“Which sub-categories you decide to compete in, along with which geographies, those are the two most important things that will decide your company’s future,” he said.
The webcast was hosted by Paul Hart, ConstructConnect’s vice-president for economic content. Also contributing from ConstructConnect were director of content acquisition Kristy O’Brien and Natasha Saladino, senior integrated marketing manager.
