What lies ahead for construction
firms through the rest of this year
By Mark Wooditch
It doesn’t take a crystal ball to foretell what construction industry professionals—and their insurance and risk management partners—might expect over the balance of 2025.
Many positive forces have been gathering steam for at least the last year: big growth in big projects, thanks to federal infrastructure investment and some improvement in single-family residential work as inflation relents and interest rates inch downward.
But signs also portend worrisome developments. A new administration in Washington promises sweeping policy changes. The impact of expected tariffs on costs and supply chains, and of interest rates driven higher as deficits mount (among other issues) are bound to squeeze construction and other business sectors, too.
A host of risks will challenge the construction industry this year and likely beyond. They will put a premium on smart business, risk management and risk transfer strategies. Brokers and agents catering to this market should get out their consultants’ hats to help clients get through the uncertainties. Let’s look at what’s ahead.
The squeeze on profits continues
Nationally, total new construction spending should hit $2.145 trillion in 2025, and $2.340 trillion by 2028. But non-residential construction spending will likely stall, up 2% after this year’s expected 7% gain.
California, where I am most involved, has received more than $36 billion in infrastructure funding under the Bipartisan Infrastructure Law, with nearly $30 billion of that being transportation related. Much of this funding has been earmarked for construction, which also has benefited from growing demand for renewable energy and technology. It’s created more complex, multi-billion-dollar projects.
Continuing inflation, high interest rates, and climate change impacts have kept the pressure on margins. The vise has only tightened with high costs of insuring big projects. Cooling inflation may push interest rates down in 2025, gradually impacting the market for single-family residential construction. We’re seeing signs of this in California. And multi-family, along with warehouse and office construction projects, are likely to decline sharply in the medium term as vacancies and costs climb.
Another looming issue is the systemic risk of $2 trillion in commercial real estate debt maturing over the next two years. Given high vacancy rates, refinancing these loans is likely to cause more defaults. A resulting broad lending pullback could cause severe damage to the construction industry’s bottom line.
The unpredictability of the 2025 business environment means that tightly managed financial controls are critical for construction firms as they compete for a shrinking pool of capital. Bigger, more complex projects make guidance from experienced brokers critical in order to keep balance sheets strong: Alternative insurance options and risk transfer mechanisms, such as parametric insurance and retention strategies, will provide construction firms with an important business advantage.
“A host of risks will challenge the construction industry this year and likely beyond. …
Brokers and agents catering to this market should get out their
consultants’ hats to help these clients get through the uncertainties.”
The worsening drain of the labor shortage
One of the biggest uncertainties facing the construction industry is the ongoing shortage of skilled labor. The shortage of construction workers—expected to reach 450,000 in 2025—is a long-standing problem, aggravated by an aging workforce with an insufficient number of replacements in the wings.
The construction industry and other firms in many areas, including a significant portion of my state, face the prospect of a sizeable share of workers being deported under the aggressive immigration policies of the new administration. Nationally, reports say, some 30% of all construction workers are immigrants; the share rises to 40% in California.
The cost of replacing deported workers would be crippling (to the extent that enough trained replacements could be found at all) to the industry and the state. One study shows a 2021 median hourly wage of $30 for U.S. born workers in California, $24 an hour for immigrant workers and $16 for undocumented workers.
Efforts to counter the shortage continue to gain traction. The number of apprenticeship programs, for example, has jumped 40% in the last 10 years, with over a third sponsored by construction firms and their trades.
Technology also has a role. Between 2020 and 2022 alone, architecture, engineering and construction invested some $50 billion in tech, an 85% increase over the previous three years. Construction management software, robotics and automation, digital communications and 360 imagery, drones and wearable tech are among the advances that enable the industry to supplement its workforce, increasing efficiency and productivity and often making jobs far safer, too.
Enhanced employee benefits can boost recruitment and retention efforts, especially as trends toward personalized offers that are highly individualized take hold. In HUB’s recent Executive Outlook Survey, construction executives said providing adequate and competitive benefits was a challenge. Nearly half said participation and satisfaction with current benefits were low.
A customized strategy can be built through analytics of workforce personas, for benefits programs that respond to what individual workers truly want, need and value. These might include childcare assistance to attract more women to the trades or improved mental health benefits to counter the industry’s high rate of suicides. The result is a culture that promotes culture and engagement, making recruitment and retention easier sells.
Predicting the unpredictable becomes the big test
If economic uncertainties will be a challenge to construction firms in 2025, an arguably bigger area of risk—and one that’s equally hard to prepare for—will be the costs of weather extremes.
Climate change continues to batter many regions. With impacts coming from every direction, project timelines, finances and, more seriously, workers are increasingly exposed to the risk. A number of areas in my state saw record-breaking rainfall caused by two atmospheric rivers that also brought flooding, intense high winds and power outages.
Extreme heat has been the rule, not the exception. In July of last year, we saw our state’s hottest month ever, spiking temperatures to 129 degrees in Death Valley. Extreme heat is a top cause of death for workers laboring outside; adjusting work schedules to protect against sweltering temperatures makes physical construction work take 36% longer.
In addition to weather impacts and uncertainties there are other ongoing and equally unpredictable risks. These include materials costs and potential supply chain disruptions in the face of the new administration’s promised trade tariffs. Also of concern is the impact on construction as trillions of dollars in commercial real estate undergo refinancing.
One way for the industry to protect and build its resiliency is with solutions like modular construction. While it hasn’t yet made tremendous inroads in many areas, it provides an answer to the urgent housing shortage, shortening timelines by 25%. Modular is also more cost effective, requiring fewer workers and involving fewer risk factors.
Modular can also provide an entrée into mega construction projects. These mega projects offer opportunities to improve efficiencies, capacity and share risk through strategic partnerships or mergers. Construction megadeals (valued over $1 billion) began surging globally early in 2024.
As catastrophic events, inflation and supply chain constraints affect insurance costs and availability at required limits, rigorous risk management is critical for resiliency in 2025.
Parametric insurance, which pays policyholders when weather thresholds pass a pre-specified mark, is an alternative to traditional insurance programs that don’t cover losses associated with heatwaves, for example.
Another alternative, project-specific insurance, is customized for the job with coverage and costs shared among owners, general contractors and subcontractors. Project-specific insurance helps insulate and protect the rest of the business if there is an incident or claim on a large project.
Firms that work in lockstep with a best-in-class broker to develop a comprehensive claims management plan will be best positioned to weather the uncertainties of any type of business disruption. Additionally, an effective loss mitigation strategy can help reduce the severity of claims by leveraging coverages, such as Extra Expense, to reduce downtime and minimize loss of profits.
Construction firms readying themselves for the challenges of 2025 will get their houses in order to take advantage of the good, and weather the bad. An experienced broker is key to helping evaluate the adequacy of insurance programs and provide risk management resources that support business goals.
The author
Mark Wooditch is the Los Angeles/Orange County construction practice leader for global insurance brokerage Hub International. He spent 30 years at The Wooditch Company, Insurance Services, Inc., with a focus on commercial contractors. In 2023, the practice was sold to HUB.
