Indicators show the construction market softening across the second quarter. Architectural billings remained contractionary at 47.3, construction starts declined nearly -20% in June, and overall U.S. construction spending is now forecast to decrease 1.3% in 2026. Current activity remains comparatively healthy, however, with contractor backlog holding at 8.8 months, supported in part by continued data center construction.

At the same time, construction pricing remains competitive as contractors and subcontractors continue to pursue available work. But the favorable procurement environment may begin to narrow. ENR's Building Cost Index increased +1.8% quarter over quarter, while material costs rose +3.7% during the quarter and are up +7.4% year over year. Cost pressure remains concentrated in tariff-exposed materials such as aluminum, steel and lumber, while labor costs were largely unchanged.

Taken together, weaker design activity, declining starts, and persistent cost uncertainty reinforce our broader view that new supply is likely to become increasingly constrained. We believe these conditions will continue to create attractive opportunities for capable investors with the capital and execution expertise to navigate a more challenging development environment.

The report also examines:

• Regional trends in design billings and backlog

• Continued data center growth and the pullback in manufacturing and residential construction

• Tariffs, energy volatility and elevated supply-chain pressures

Read the full report here: