Construction Contractor Perspectives In the Age of Tariff Threats

Following up on our General Contractor Survey it's a tale of apprehensive optimism. 

To begin on a positive note, 54% of our 13 surveyed general contractors anticipate that in 2025 they will have more work than in 2024. Only one of the 13 said they would have less work. I read a couple of insights into this statistic. First, for contractors, 2024 was a slower year than anticipated by those of us on the outside. There is excitement about the change in the political winds that create an underlying enthusiasm without evidence of a major tailwind like declining interest rates.  

Source:  DXD Capital, Contractor Survey February 2025

Only two of the 13 contractors responded yes when asked if they anticipate labor issues tied to deportations. Our contractors surveyed are all over the United States which gives us a diverse response. It could be that deportations impact some areas of the US more than others. Unfortunately, our sample size is not large enough to draw that conclusion. Our surveyed contractors would be classified as commercial contractors, which means they are doing substantial projects in a broad range of asset classes, self storage, retail, industrial and multifamily. None of them would qualify as residential contractors building single-family homes. I suspect that if you asked the residential contractors if deportations would affect them, that percentage would be much higher.

Source:  DXD Capital, Contractor Survey February 2025

One of the most insightful takeaways from the survey is what contractors think will happen with construction costs. Most contractors thought a 5%-10% increase in total cost was highly possible in 2025 due to tariff threats or actions. Looking at the data we collected, which indicated almost 70% of our materials come from the US, gives a false sense of security that the tariffs will have less impact. However, contractor feedback was that US-based steel manufacturers would be opportunistic and use the tariffs to raise prices regardless. Sure enough, we got the call yesterday that steel prices were anticipated to increase at least 10% over the next 3 months. However, a 10% deposit of the total steel contract amount would pre-purchase materials and lock in prices today. This is a no-brainer for projects where the contractor is identified and moving immediately forward. In our case, we were able to lock in the next three steel orders, but the liability exists beyond those projects.

This bad news about steel price increases is somewhat offset by the softening in total construction costs we saw in the second half of 2024. There is no question that construction bids were getting more competitive, given the dramatic slowdown in construction throughout 2024. Just when developers thought the tailwinds were in our favor, it looks like they’re shifting again.