Another year is upon us, bringing with it some new, and some repeating challenges and trends in our industry. With over 300 active assignments across the U.S., Europe and the Caribbean, the following overview emanates from SPD’s “front-row seat” on more than $150 billion worth of planned and in-progress development projects in which we play a role.
Capital Markets Outlook
After about three months of “paralysis” early last year when the headlines on tariffs dominated the news, 2025 was extremely active with capital flowing freely into preferred asset classes, such as data centers, branded luxury hotels and residences, adaptive reuse projects, and targeted multifamily developments.
With interest rates stabilizing and record available liquidity, real estate development funding should continue to be in robust supply with significant competition predominantly coming from real estate investment funds, private equity, family offices, and sovereign wealth funds. Money center banks and insurance companies have also remained consistent in their participation. However, the funding that fuels this sector is the debt and equity that rounds out the capital stack over and above senior debt. And it’s plentiful at this time, with new players continually entering the marketplace.
The cautionary tale of course is to find the balance between abundant liquidity and the increasingly present headwinds regarding rent compression and declining condominium sales values across many markets. Yes, disciplined underwriting versus moving forward on a development because “we can raise the money” will be the order of the day in 2026.
Construction Costs and Trends
As SPD predicted last year, all the bluster about tariffs have not significantly impacted construction costs or development schedules more than a few percentage points if at all (depending on project type). This is attributable to the “on again, off again” tariff impositions we have seen, as well as the adaptability of the industry to change course be nimble and efficient when it comes to sourcing materials.
While unpredictability from Washington is certainly a dynamic requiring close monitoring, we do not expect tariffs to adversely affect our industry in 2026.
That said, immigration enforcement has already had adverse effects on several projects across SPD’s portfolio, causing delays due to lack of tradespeople who are simply “afraid to come to work.” With Washington seemingly increasing its resolve to deport a significant number of U.S. residents who are not fully documented, the construction industry as well as other service sectors will be adversely impacted.
Labor shortages (no matter what the cause), result in schedule extensions (due to decreased trade output) as well as cost increases, in that wages must rise in order to retain labor. How Washington intends to “thread the needle” of furthering its immigration agenda while avoiding inflationary pressure on the economy remains to be seen.
Construction demand has been and always will be a regional dynamic, and for the time being, the data center phenomenon further segments the discussion, as demand for data center construction workers is offsetting softness in other sectors in terms of total spend. That said, much of the work in data center construction requires specialized labor, so the unprecedented demand we are seeing in this sector will not be fully mitigated by decreased demand across other project types.
After seeing pricing spikes earlier in this decade in several “growth markets” across the country, the outlook for 2026 is a “flattening” or muted increase in pricing. The outlier of course, is data centers, which will undoubtedly see continued pricing spikes as demand far outpaces supply with respect to materials and labor required to deliver these facilities. Material pricing and lead times for critical components for data centers will continue to present challenges to developers in this sector.
On balance and assuming “no major surprises,” our industry is poised for another active and dynamic year and we wish all of our clients and business associates a healthy and prosperous New Year.
