The U.S. commercial real estate development market is expected to remain in a slump this year, with only data center-related businesses booming, the Wall Street Journal (WSJ) reported.
Citing U.S. construction consulting firm FMI, the newspaper said it expects construction investment in traditional commercial real estate such as offices, hotels, and logistics warehouses to shrink from a year earlier this year. The prolonged high interest rate environment has increased financing costs, and the burden of material prices and labor costs has not eased.
According to FMI estimates, the size of nonresidential building construction in the United States in 2026 is expected to be $844.4 billion, up 0.14% from the previous year. Considering inflation, the dominant view in the industry is that it is effectively a decline.
Earlier, the U.S. commercial real estate market froze rapidly as key investors such as pension funds and insurers pulled back. According to real estate research firm Green Street, the value of U.S. commercial real estate fell an average of 17% compared with 2022. Offices and apartments fell 36% and 19%, respectively, and remain stuck in a correction phase.
However, despite the overall market downturn, data center development is expected to show clear growth. According to FMI, investment in data center construction is expected to increase 23% from the previous year this year, and data centers' share of total nonresidential building development has more than tripled over the past three years.
In fact, global big tech firms such as Amazon, Google, and Oracle are aggressively expanding investment in data centers to handle surging AI computing demand. Credit rating agency Moody's has estimated that investment related to data centers will reach at least $3 trillion (about 4,410 trillion won) by 2030.
From a builder's perspective, data center development is markedly different from general commercial real estate, where revenue depends on presales and leasing performance. Vacancy risk is low and order stability is high, but building out power, cooling, and backup systems is essential, making construction highly complex and the expense burden heavy.
Andy Halik, head of Chicago-based builder Skender, said, "It's common for data centers to exceed $1 billion per project and require thousands of workers at the same time," adding, "That's a different order of magnitude from existing large commercial real estate, which runs in the hundreds of millions of dollars and employs hundreds of people."
A labor shortage is also cited as a risk factor. Given the tight schedules typical of data center projects, delays are inevitable if there are not enough skilled workers. Michael Gerkis, a senior researcher at builder ConstructConnect, emphasized, "Even if you deploy all available workers at top-tier wages, it will be impossible to accelerate the construction schedule."
In practice, the construction industry is taking a serious hit from immigration expulsion policies under the Donald Trump administration. In a survey by the Associated General Contractors of America (AGC) of about 900 builders, one in three said they had been affected by immigration crackdowns in the past six months. The larger the builder with annual sales of $500 million or more, the more acute the labor shortage felt.
Tariffs also remain an expense pressure factor. In the AGC survey, 40% of responding corporations said they raised bids in response to tariffs, while only 11% said they absorbed the expense increases from tariffs themselves. Steve Stouthamer, an executive at Skanska USA Building, said, "The shock from tariff hikes is particularly large for materials that are hard to source domestically, such as aluminum, steel, copper, and lumber."