In this insightful discussion, Jon Desmond, CEO of Cox Engineering, Chris McPhearson, CEO of Central, and Mike Weber, CEO of Gaston Electrical, provide a comprehensive view of the 2025 construction outlook. They delve into emerging trends in healthcare and education, highlighting the impact of labor shortages and competition. The CEOs share strategies for navigating project dynamics, emphasize the importance of innovation, and discuss the role of technology in addressing challenges. Their perspectives offer a glimpse into the evolving landscape of the construction industry.
The current construction market is showing mixed signals, with a slight uptick in corporate investments despite overall sector slowdowns and a shift towards urban residential projects.
An increasingly competitive bidding environment is impacting profit margins for subcontractors, as they face more bidders for public contracts and must navigate tighter competition.
Subcontractors are adapting to a labor market slump by integrating technology and shifting focus to smaller projects while anticipating a potential market rebound in 2026.
Deep dives
Market Activity Insights
Current market activity shows a mixed landscape, with hospitals, universities, and some high-rise residential projects maintaining a level of busyness. Subcontractors are noting a slight uptick in corporate investments in their spaces, despite the overall slowdown in certain sectors they have traditionally operated in. Specifically, there's an increase in potential projects in urban areas, signaling a possible shift in focus towards smaller-scale residential developments, particularly downtown. Meanwhile, long-established sectors such as life sciences have experienced a downturn, prompting subcontractors to seek out new opportunities for growth.
Competitive Bidding Environment
The podcast highlights an increasingly competitive bidding environment, with more bidders participating in public contracts. Contractors report scenarios where they face seven or eight bidders for jobs that used to have only two or three, which contributes to tighter margins. This surge in competition forces many to respond aggressively, leading to lower bid prices and squeezing profit margins for subcontractors. As end users aim for the most qualified and lowest bids, subcontractors must navigate this new reality while striving to maintain their profitability.
Changing Project Sizes
Project sizes have generally decreased, indicating a shift towards smaller jobs as larger projects become less frequent. While some subcontractors still pursue significant projects, many are adjusting their strategies and focusing on medium and small-scale jobs that appear more attainable. The average job size is now down from previous years, and larger projects are often subjected to multiple revisions, leading to uncertainty about their budgets and timelines. This shift suggests a need for subcontractors to adapt to the evolving landscape and prioritize smaller-scale opportunities.
Labor Market Dynamics
The labor market has faced significant challenges, with many subcontractors reporting a reduction in workforce compared to previous years. Currently, some subcontractors are operating at about 75% of their staffing levels from a year ago, highlighting the effects of fewer available projects. There is a distinct distinction between the availability of skilled labor across the various trades, with some experiencing a higher level of unemployment than others. The dynamics in the labor market urge subcontractors to reconsider their approaches to project bidding and resource allocation.
Technological Integration and Future Outlook
Subcontractors are increasingly focused on integrating technology into their operations, particularly through the use of prefabrication and advanced project management tools. This embrace of tech is seen as critical for maintaining efficiency and staying competitive, especially as project timelines become tighter. Additionally, subcontractors are cautiously optimistic about the future, citing potential market shifts that could lead to increased activity in 2026, particularly if interest rates stabilize. Looking ahead, the focus remains on problem-solving and adapting to market changes to capture upcoming opportunities.