Southern Economy Continues to Offer Opportunity for Trades

2025 Performance Analysis

Full-year 2025 starts are projected to reach $442.3 billion in the South, down from the record $472.1 billion in starts set in 2024. Within this total, nonresidential construction accounts for $293.7 billion, down from last year’s total of nearly $310 billion. The region experienced significant spending growth in the years following COVID and many construction categories reached all-time spending peaks in 2023 or 2024.

Residential spending was one of the first major categories to peak, reaching nearly $200 billion in 2022. New residential spending has since slowed by a third in the multifamily market and by over a quarter in single-family. Most other major verticals reached their peak spending levels more recently, with civil, educational, government, and medical hitting records in 2024. As current and future spending returns towards more sustainable levels, this transition may pose a near-term challenge for many firms in the industry.

Near-term challenges should not discourage firms from their growth ambitions. Instead, they should push firms to sharpen their marketing skills. When opportunities are limited, success requires working smarter: targeting the right opportunities and using marketing and sales resources more efficiently.

Geographic Outlooks Vary Dramatically by State

Construction activity in the years to come is expected to vary significantly across the Southern U.S. as defined by the Census Bureau; this includes 16 states along with the District of Columbia. Texas, which accounts for nearly one-third of all construction activity in the division, is expected to end 2025 at $141 billion, marking a third year of consecutive declines.

Spending in the state is expected to remain relatively unchanged in 2026 before growing by almost 8% in 2027. The second-largest Southern state, Florida, is expected to close 2025 at $71 billion, down almost 5% year-over-year. However, growth is projected to rebound in 2026 and 2027 by 7.3% and 7.1% respectively.

While these two states collectively account for almost half of all Southern construction spending, firms seeking faster growth could look towards several of the smaller Southern states, which are anticipated to grow by strong double-digit rates in 2026. These states include Maryland, at 27%, followed by Kentucky and Georgia, both of which are forecasted to grow by almost 23% next year. Over the next two years, total compounded construction spending growth in each of these states is anticipated to exceed 30%.

In contrast, spending in the District of Columbia is forecasted to slow by over 26% in 2026. Other expected laggards include Mississippi, down 18%, Delaware, down 16%, and North Carolina, down by 9%. These forecasted declines are largely the result of unsustainable levels of surge spending in recent years. Only in the District of Columbia is spending expected to be down significantly from its latest three-year historical average level.

Additional Industry Trends and Dynamics

Megaprojects, defined as projects worth over $1 billion in total value, have significantly changed the nonresidential construction landscape. In 2022, only 10% of nonresidential spending was attributed to megaprojects; however, by the second half of 2025, that figure had more than doubled. At its peak in mid-2025, over a third of monthly nonresidential spending was tied to such projects.

The South has emerged as an important area for these large-scale projects. Recent examples include Meta’s $10 billion data center in Louisiana, and contractors recently broke ground on a $14 billion LNG plant in Texas. The combination of abundant energy, limited regulation, and available land for data centers makes the South a very attractive place for future largescale construction development. It is for these reasons, among others, that a recent ConstructConnect analysis determined that nearly 60% of all near-term data center spending is expected to occur within the Southern United States.

Economic and Policy Environment

Third-quarter projections indicate real GDP growth of 1.6 percent in 2025 and 2.1 percent in 2026, upward revisions from the previous quarter’s forecast of 1.2 percent and 1.6 percent, respectively. Higher real GDP growth is correlated with increased construction investment across both the private and public sectors.

The One Big Beautiful Bill Act (OBBBA), signed earlier this year, contributed notably to this upward revision. State and local tax deductions and tax cuts included in the act will bolster construction demand by encouraging consumer spending and enabling greater government spending.

The OBBBA’s favorable depreciation rules create incentives for construction investment, enabling firms to write off the full cost of qualifying construction investments. The reduced tax burden strengthens firms’ financial position, enabling further capital investment and more competitive bids.

As firms deplete their pre-tariff inventories, there is a significant concern that construction material prices will move significantly higher. The latest available construction materials price index data from August indicates that prices are already 5.2% above levels from one year ago. This is a steep increase from a rate of just 1.2% as recently as March. With broad measures of construction wages continuing to grow at over 4%, there is significant concern that construction prices could broadly move higher and soon.

2026 Forecast

Construction starts in the South are forecasted to grow by 2.8% and 6.8% percent in 2026 and 2027, respectively. A recovery in single-family residential construction in 2026, following consecutive years of decline since 2021, will play an essential role in hitting these targets. Single-family construction is expected to grow by 9.9% in 2026 and has historically accounted for one-quarter of all construction spending.

Southern total nonresidential construction is forecasted to grow a modest 0.6 percent in 2026 after falling by an expected 5% at the end of 2025. Civil construction is expected to see 6.7 percent year-over-year (YoY) growth, while government and medical are projected to grow 19.1 percent and 35.4 percent YoY.

The gains made across civil, government, and medical, paired with continued military starts growth, are projected to be almost entirely offset by a 10.9 percent decline in community starts, a 7.9 percent fall in educational, and a 19.2 percent reduction in Industrial construction starts.

Southern Outlook Summary

A broad look at Southern construction activity suggests an accelerating growth picture over the next two years, albeit starting from a position of weakness. Firms that want to aggressively grow their revenues over the next two years will need to pursue favorable geographic and vertical combinations. In addition to knowing where the greatest revenue opportunities can be expected, firms will need to utilize excellent cost control measures and continue to refine and modify their supply chains as political developments unfold.

This article is part of a two-part feature where Southern PHC asked economists with different perspectives to weigh in on economic conditions. Read the accompanying article by Chris Kuel, ASA chief economist, online here.