Contractors are cautiously optimistic after the Federal Reserve delivered its third interest-rate cut of 2025, lowering its benchmark rate by another 25 basis points. The move reinforces a gradual easing trend that developers hope will reduce borrowing costs as 2026 approaches. Industry leaders say the cut boosts confidence and supports projects already in planning, but it is not large enough to immediately spur a wave of new nonresidential construction starts. While planning activity dipped slightly in November, it remains significantly higher than last year, suggesting continued momentum even as financing conditions stay tight. Lenders, particularly in oversupplied sectors like office and R&D, are still demanding strong pre-leasing or proven demand before committing capital.
Capital markets executives echoed that short-term rate cuts alone are unlikely to drive a major rebound in construction, noting that long-term rates, especially the 10-year Treasury yield, play a much larger role in project feasibility. Recent increases in construction starts were largely driven by high-value mega projects, especially data centers, rather than broad-based growth. Some sectors, including data centers, healthcare, life sciences and medical technology, remain active regardless of rate movements due to strong demand and solid financing structures. However, even if borrowing costs continue to ease, a persistent shortage of skilled labor is expected to remain a major constraint, with far more projects envisioned than workers available to build them.
