Data Centers Are Plugging a Big Hole in the U.S. Construction Industry

More apartment buildings might make housing more affordable. Fair enough. The U.S. construction industry, though, is building shelter much faster for robots and other AI-driven technology than for tenants. 

In fact, the disparity is so great that if you were to remove data center and advanced manufacturing construction from overall U.S. figures, the pace of construction in the country would be flat or worse.  

“Last year, we did about $9 billion of data center work. We expect that number will be in excess of $20 billion by 2030,” said Chris McFadden, senior vice president of New York City-based Turner Construction, a major contractor that avoids multifamily work. “We’re working on a couple of multibillion-dollar projects, including in Louisiana where we’re working on a $10 billion-plus project for Meta. That gives you sort of a trajectory of what we’re seeing, going forward.”

But for West Palm Beach, Fla.-based Kast Construction, 2026 has been a year of recovery after two years of rebuilding its revenue following a collapse in multifamily work, its main business. Crippling increases in the cost of construction materials delayed projects and deleted revenue, said Kast CEO Mike Neal. “It reduced our revenues by 30 percent in 2023, and it has taken us two years to rebuild that back,” he said, “and most of that has been luxury condominiums and hospitality work.”

Among other projects, “we’re building a very large Westin in Cocoa Beach with 500 keys,” Neal said. But 80 percent of Kast’s revenue still comes from condo and rental construction, and he expects that dominance to persist. “Those two markets have been the mainstays of big [general contractors] in South Florida for many, many years,” he said.

Multifamily projects also are a mainstay of the general contractors in many other parts of the nation, too. In April, annual spending to build condos and apartments made multifamily the fifth-largest category of private-sector construction, after single-family homes, manufacturing plants, power plants and commercial buildings, according to the U.S. Census Bureau.

Apartments are also a key component of the nation’s housing stock, but the slow pace of multifamily construction has limited renters’ options. The U.S. has a lingering 600,000-unit apartment shortage due to underbuilding in the aftermath of the 2008 Global Financial Crisis, and the nation will need 4.3 million more units by 2035, according to a report by the National Multifamily Housing Council and National Apartment Association.

Slow growth in population and employment in many markets is compounding coast-to-coast obstacles to multifamily construction that include high interest rates, inflated material prices and loftier labor costs.

“There’s just fewer apartments that are getting built today than there were in past years,” said Sam Tenenbaum, head of multifamily research at brokerage Cushman & Wakefield. “South Florida is a great example of a market that’s adding [multifamily] construction to its pipeline. But there are plenty of markets where construction has pulled back enough for it to be affecting contractor revenues.”

Lackluster spending on multifamily construction reflects a shrinking pipeline of future projects. A report by CoStar and Apartments.com shows that U.S. multifamily construction starts totaled just 55,000 units in the first quarter of 2026 — 73 percent below the previous peak in 2022. Nationwide, 475,000 multifamily units were under construction in the first quarter, Tenenbaum said, and “the last time we had that few units under construction was 2016.”

The outbreak of the U.S. war with Iran has put more downward pressure on multifamily starts by pushing long-term interest rates higher, said Jonathan Miller, president and CEO of New York City-based appraisal and consulting firm Miller Samuel.

“That breaks the math of making these rental developments pencil out,” Miller said. “Construction costs are still elevated because of the tariffs. Even though they’ve been ruled unconstitutional, they’re still in place. … Labor is also elevated. Federal immigration policy is devastating the construction workforce. So, the formula for multifamily development is just not there now.”

Although President Donald Trump has urged the Federal Reserve to lower interest rates, the cost of borrowing could head higher instead. “The futures markets already are starting to bet that the Fed is actually going to raise rates in 2027,” Miller said. He doesn’t foresee multifamily development getting any easier to finance anytime soon: “The next several years have the potential to be more of the same, or even more difficult.”

Population expansion and job growth have flattened in the United States, two discouraging harbingers for multifamily development. While total nonfarm employment in the United States increased by 172,000 jobs in May, the unemployment rate was unchanged from the previous month and similar to the same period in 2025, the Bureau of Labor Statistics reported. The nation’s population increased by only 1.8 million, or 0.5 percent, from July 2024 to July 2025, according to the U.S. Census Bureau. 

The slow population growth was due largely to a decline in net international migration to 1.3 million in the 12 months ending in July 2025, less than half of the 2.7 million in the preceding 12 months. It was the nation’s slowest population growth since the initial stages of the COVID-19 pandemic, when the population grew by a historically low 0.2 percent in 2021.

Market-to-market differences tell a more detailed story. In South Florida, for example, multifamily construction contractors are still busy in Miami-Dade County and Palm Beach County, while in Fort Lauderdale and the rest of Broward County, “there’s an oversupply. Absorption takes a while, so rents are starting to flatten or drop,” said Sonny Maken, chief operating officer of the South Florida chapter of the industry trade group Associated Builders and Contractors.

“Rent growth may be slow to return to Sun Belt markets as they absorb excess deliveries of the last few years, while rents could continue to grow in Northeastern and Midwest markets where new units will be in short supply,” according to a report on the U.S. multifamily market by accounting giant PricewaterhouseCoopers. “High-supply markets will eventually get some relief from fewer starts, but many properties are still under construction in certain metro areas — including Orlando, Austin, Miami, Nashville and Phoenix — where 4 to 5 percent will still be added to stock in 2026 and 2027. Deliveries are also dropping in some markets such as New York City and Chicago that have only added 1 to 2 percent to stock in recent years and are seriously undersupplied.”

Equity for multifamily development is in short supply, compared with debt, largely because high interest rates have made multifamily properties hard to sell, leaving their investors unwilling to put money in new projects, said Peter Mekras, president of Aztec Group, a Coral Gables, Fla.-based commercial real estate investment and merchant banking firm.

“The fundamentals of apartments are becoming more challenging. In some markets, there’s falling rents. In some markets, expenses crept up and margins got tighter,” Mekras said. As a result, “equity became very scarce. If developers want to build, we can definitely find them the loan. The challenge is sourcing the equity.”

The Census Bureau reported June 1 that the annual rate of private sector spending on multifamily construction nationwide was $115.8 billion in April, up 1 percent from the same month last year, but down 12.3 percent from April 2024.

Yet, the annual rate of all construction spending in the U.S. private sector totaled $1.64 trillion in April, unchanged from the same month last year, and up 1.7 percent from April 2024, according to the Census Bureau.

One of the bright spots for construction contractors in the latest batch of seasonally adjusted spending data is swift growth in office construction, a Census Bureau category that includes data center construction. The bureau reported at the start of June that the annual rate of office construction spending leapt to $97.4 billion in April, a 9.4 percent increase from the same month last year and 13.3 percent more than in April 2024.

Data centers are nothing new, and have served for decades as vital infrastructure for the global growth of information technology. But demand to build data centers to support artificial intelligence has soared during an “AI arms race” that began about three and a half years ago, according to a report on data centers by S&P Global.

“The launch of ChatGPT in November 2022 sparked a generative AI boom and a race to build infrastructure for GenAI model training and use,” S&P Global reported. “OpenAI, Google, xAI, Microsoft, Amazon, Oracle, Meta, Alibaba and others have committed hundreds of billions of dollars to train large language models in the hopes of gaining first-mover advantage and being recognized as having the ‘best model.’ ”

S&P Global also reported that more than 50 commercial banks are actively lending to owners of data center projects in individual transactions as large as $3.4 billion for multi-campus portfolios. So-called “hyperscalers,” including Meta and Oracle, issued a total of $120 billion in debt last year to fund data center development, “a surge that dwarfs the dot-com era,” S&P Global reported, raising concerns that AI-related capital expenditures may soon exceed the bond market’s capacity to finance them.

Moreover, many of the most desirable locations for data centers have power-related limitations, such as a lack of electricity-generating capacity or obstacles to the installation of new transmission lines. Opposition to data centers in local communities is another constraint. Developers canceled plans to build 25 data centers in 2025, compared to six such cancellations in 2024 and two in 2023, amid “a rapid escalation of coordinated community resistance,” according to a data center report by the Colliers brokerage. “More than 142 advocacy groups across 24 states have mobilized to block or regulate data center development.”

About half of all U.S. construction contractors are working on data centers, said Zack Fritz, an economist for Associated Builders and Contractors. “Forty-two percent of contractors with more than $100 million of annual revenue are currently under contract to do data center projects. The same is true for 7 percent of contractors with less than $100 million of annual revenue.” Fritz also said the cost of buildings that house data centers is 20 to 30 percent of their total cost, excluding the electronic equipment inside.

Though still overshadowed by construction spending on multifamily developments, construction spending on data centers is growing much faster — yet eventually may prove as cyclical as other types of building. 

“I think AI capital expenditures, the spending on data centers, has probably already peaked,” said Miller, the president of Miller Samuel. “Because there’s a lot more local pushback because of concerns about water and the impact on the environment — and the fact they don’t create many jobs.”