Construction Outlook Strong but Labor and Tariffs Create Risk

Industry Growth Positive, but Labor Shortages and Material Costs Pose Challenges

November 13, 2025 – QBE North America released its latest US Commercial Construction Outlook, revealing a fundamentally positive growth trajectory for the construction industry over the next two to three years. However, the report highlights critical risk factors that construction firms and their insurers must address to ensure project success: persistent labor shortages, rising material costs driven by tariffs, and evolving workforce challenges.

Construction Outlook Remains Positive

Despite economic headwinds and policy uncertainties, commercial construction in the United States maintains a strong growth outlook. The positive trajectory is driven by several key factors:

• Industrial construction activity – Continued investment in manufacturing and distribution facilities
• Tax incentives and federal subsidies – Supporting infrastructure and development projects
• Private equity activity – Driving investment in development opportunities
• Foreign investment – International capital continuing to flow into US projects
• Green building initiatives – Sustainability requirements driving construction demand

The outlook for the next two to three years remains "positive," with advanced manufacturing investments expected to sustain demand. However, this period of heightened activity is expected to taper off once federal subsidies, tax credits, and domestic manufacturing funding are fully allocated.

Labor Shortages Remain Critical Challenge

Despite record-high construction employment, the industry faces a significant labor availability crisis. Labor shortages continue to impact construction firms across all regions and project types, creating serious operational and risk management challenges.

The root causes of the labor shortage include:

• Aging workforce – A significant portion of the skilled trades workforce is approaching retirement
• Immigration restrictions – Policy changes limiting workforce expansion through immigration
• Entry-level pipeline challenges – Insufficient flow of new workers entering the trades
• Competition for skilled workers – Competing industries pursuing the same talent pool

According to the QBE report, these labor dynamics create a dangerous gap in available skilled labor—a gap that many construction firms are attempting to fill with less experienced workers.

Risk of Increased Construction Defects

As contractors substitute less experienced workers for unavailable skilled labor, QBE warns that companies will likely see increases in:

• Workplace accidents – Safety incidents and worker injuries
• Property damage – Damage to project sites and adjacent properties
• Construction defects – Quality issues from less experienced labor

Ryan Powers, QBE North America's Senior Vice President and Head of Construction, emphasized the importance of tailored risk management: "Construction companies and their insurers must collaborate to safeguard projects. Ensuring adequate coverage, providing safety and training support for new workers, and monitoring geopolitical and economic developments will be key to mitigating potential losses and protecting both financial stability and project completion."

Material Costs Rising Due to Tariffs

Material cost inflation remains a significant concern for construction project economics. Tariffs are pushing prices on key inputs well above early-year levels, particularly affecting:

• Steel – Essential for structural and reinforcement applications
• Aluminum – Critical for windows, doors, and facade systems
• Copper – Vital for electrical systems and HVAC installations

These elevated material costs are creating ripple effects throughout the industry:

• Project budget overruns
• Delayed procurement and project schedules
• Contract disputes between owners, developers, and contractors
• Supply chain vulnerabilities and extended lead times

Insurance and Risk Management Implications

The QBE report underscores the importance of proactive risk assessment and adequate insurance coverage. Insurers and brokers are advised to work closely with construction clients on:

• Builders' risk coverage – Protecting physical assets under construction
• General liability insurance – Covering bodily injury and property damage claims
• Professional liability coverage – Protecting design professionals and project managers
• Workers' compensation – Especially critical with less experienced labor forces

Inadequate or improperly structured insurance can leave construction firms exposed to significant financial loss when accidents, defects, or delays occur.

What This Means for Contractors

Construction firms should take several proactive steps based on this outlook:

• Invest in worker training and development – Create pathways for less experienced workers to develop skills safely
• Implement rigorous safety programs – Compensate for inexperience with enhanced safety protocols
• Budget conservatively for materials – Build tariff-related price volatility into project estimates
• Review insurance coverage – Ensure policies adequately reflect current risk profile
• Diversify supply chains – Reduce dependency on tariff-vulnerable materials
• Monitor contract terms – Ensure proper risk allocation for labor and material cost changes

Geopolitical and Economic Monitoring

The report emphasizes that geopolitical developments, rising tariffs, and workforce challenges could all affect project timelines, budgets, and overall risk exposure. Construction firms and their insurers should:

• Monitor trade policy developments
• Track material price indices
• Anticipate labor cost escalation
• Maintain flexibility in project scheduling
• Build contingencies into project budgets

Looking Ahead

The QBE US Commercial Construction Outlook presents a paradoxical picture: strong demand and positive growth prospects offset by significant operational challenges. The construction industry appears well-positioned for continued activity and revenue growth over the next 2-3 years. However, success will require disciplined risk management, strategic workforce development, careful material procurement, and adequate insurance coverage.

For contractors and construction professionals, this period of strong demand is also a time to invest in systems, training, and partnerships that will enable sustainable growth despite labor scarcity and cost volatility.

Sources: QBE North America US Commercial Construction Outlook, November 2025; Insurance Business Magazine reporting, November 13, 2025.