2025 Market Update: Growth, Costs & What’s Ahead for 2026
As we close out 2025, commercial construction in the Southeast—especially in North Carolina—continues to outperform national averages, driven by population growth, economic development, and sustained demand in key sectors. But builders and developers are also facing real pressure from high interest rates, supply chain volatility, and material cost inflation.
Here’s a brief look at the trends shaping the second half of 2025—and what’s on the horizon for 2026.
Current Market Conditions: Late 2025
Headwinds:
– Interest Rates: Construction loan rates remain high (around 7–9% in late 2025)[1], largely a result of Federal Reserve tightening. A small 0.25% rate cut in September offered only slight relief[2]. These elevated borrowing costs are causing some projects to be re-phased or delayed due to financing constraints[3].
– Material Costs: Tariffs and global supply issues continue to push material prices upward. Steel, in particular, faces a 50% import tariff, contributing to double-digit price increases year-over-year[4]. Copper and other electrical/PME components have also surged amid strong global demand and new import tariffs. Project budgets remain under pressure as contractors contend with these higher input costs.
– Labor Shortages: Persistent workforce gaps are raising wages and limiting capacity as contractors compete for a limited pool of skilled workers.
Tailwinds:
– Population Growth: Wilmington, Raleigh, and Charlotte remain among the fastest-growing U.S. metros, fueling demand across residential and commercial projects.
– Industrial Development: Significant new facilities (for example, major projects by Amazon and Frontier Scientific Solutions) highlight strong momentum in the industrial sector.
– Retail Resurgence: National retailers are expanding in high-performing centers like Mayfaire, signaling confidence in local consumer markets and driving new retail construction.
Wilmington, NC: Local Trends & Highlights
- Job Creation: Unemployment remains very low (around 3.1%), with steady hiring in logistics, tech, and research sectors.
- Industrial Pipeline: Construction is underway on the 3.3 million SF Wilmington Trade Center (a McKinley Building project) and a new 500,000 SF warehouse at ILM Airport. These large-scale developments underscore the region’s robust industrial growth and are a point of pride for the local building community.
- Retail & Office: Strong leasing continues, including new build-to-suit office projects and ongoing downtown revitalization efforts. Demand for quality space in the area remains high.
- Construction Activity: Overall building volumes remain elevated despite cost and labor pressures. Developers are pushing forward on projects to meet incoming demand, leveraging creative phasing and value engineering to navigate challenges.
Material & Pricing Trends
- Steel: Prices rose roughly 13% year-over-year by mid-2025[4], as the market reacted to tariff hikes. Certain specialized steel products (for example, structural steel for bridges) saw even sharper increases on the order of ~22%. The much-cited “+50%” figure actually refers to the tariff rate on imported steel, not an outright price jump. Tariffs and tightening supply have kept steel costs elevated, even as domestic mills are running below full capacity (~75%)[5].
- Copper & PME: Copper wiring, piping, and other plumbing/mechanical/electrical components climbed 12–15% in price year-over-year[6]. A new 50% tariff on copper imports announced in mid-2025, combined with booming global demand (from EVs, data centers, etc.), has further tightened supply[7]. Contractors are seeing notably higher costs for electrical and mechanical systems as a result.
- Lumber: Lumber prices spiked about 12% above 2024 levels by mid-2025[8], but then plummeted in late 2025. Oversupply—after speculative stockpiling ahead of anticipated tariffs—plus a cooling housing market led to a sharp ~24% drop from August highs to early fall[9]. This downturn offers a brief reprieve for wood-heavy projects, though volatility remains and prices could swing again with changes in housing demand or trade policy.
- Concrete: Ready-mix concrete costs stayed essentially flat through 2025, with no significant price inflation. However, they’re tariff-sensitive – about 20% of U.S. cement is imported[10], so proposed 25% tariffs on Canadian and Mexican cement could trigger regional price spikes if implemented[11]. Thus far, ample domestic cement supply has cushioned the impact and kept concrete prices stable.
- Roofing: Asphalt shingle and metal roofing materials saw 6–10% price increases in 2025, driven by rising petroleum input costs and manufacturer price hikes[12]. Tariffs on steel and aluminum have further added to metal roofing expenses, and many suppliers announced mid-year increases. Contractors have had to budget for these higher roofing costs or seek substitutions where possible.
Outlook for 2026: Slow Relief, Strong Demand
- Rate Relief Ahead: The Federal Reserve’s stance is expected to ease moving into 2026. After the September 2025 rate cut, forecasters anticipate additional (if gradual) interest rate reductions by early 2026[2]. Even a modest decline in rates will begin to lower financing costs and could improve developer confidence, helping more projects pencil out.
- New Starts Rebound: Projects that were delayed or paused during 2025’s high-cost environment are likely to re-enter the pipeline as conditions improve. Many developers are poised to revive plans once they see signs of material price stabilization and more favorable lending rates, leading to a potential rebound in new project starts in mid-2026.
- Construction Growth: Industry forecasts call for roughly a 4–5% increase in U.S. construction output in 2026, with the Southeast region expected to lead the way. Pent-up demand in commercial and infrastructure development should keep crews busy, and North Carolina is positioned for above-average growth thanks to its strong economy and inbound migration.
- Public Investment: Major federal and state infrastructure funding (for highways, bridges, ports, etc.) will continue flowing into North Carolina. These investments will support a range of civic projects – from road expansions to new schools – and help sustain construction activity even if private development moderates. Public-sector projects will also create multiplier effects, benefiting local contractors and communities.
Final Takeaway
Now more than ever, early engagement matters. Owners and developers who begin design and preconstruction in 2025 will be best positioned to hit the ground running when rates drop and competition heats up in 2026. By locking in contracts and prices early, savvy stakeholders can mitigate some risks and be ready to capitalize on the next wave of opportunities.
At McKinley Building, we’re proud to serve as a trusted partner in this dynamic market—bringing forward-looking solutions, local knowledge, and hands-on expertise to every project. We remain committed to helping our clients navigate the evolving landscape and succeed in the year ahead.
Resources
[1] MBC_Market_Update_Second_Half_2025_and_2026_Outlook.docx
file://file_00000000c164722f96c2d310a989de92
[2] [4] [5] [7] [9] Construction Material Outlook October 2025 – MCP GROUP
https://themcpgroup.com/construction-material-outlook-october-2025/
[3] [6] Rising Materials Costs Test Construction’s Breaking Point – Construction Dive – FocusOn Mining, Aggregates & Constuction
[8] [10] Potential Tariff Impacts on Material Prices > American Society of Concrete Contractors
[11] U.S. Cement Industry Statement on Trump Administration’s Proposed Tariffs – American Cement Association
[12] Roofing Costs in 2025 – RWB Roofing & Construction Inc
https://www.rwbroof.com/blogs/roofing-costs-in-2025/
