Robust Growth in Building Construction Expected to Continue

4 Min Read

Top Drivers Include Rapid Urbanization, Technology, and Government Funding 

The building construction sector is witnessing substantial growth, with the North American market projected to reach almost $3.585 trillion this year and forecasted to grow at a compound annual growth rate (CAGR) of more than 3% until 2028¹.

Recent M&A activity highlights significant investments in this market, such as Home Depot’s $18.25 billion acquisition of building materials supplier SRS Distribution², as well as Great Day Improvements’ acquisition of two home improvement brands, Leafguard and Englert³.

This growth is due to the continuous increase in urban populations, technology innovations, a focus on sustainability⁴, and government investment⁵. 

There’s a significant trend in the residential remodeling space specifically, which is forecasted to grow at a CAGR of 6.5%, reaching $717.6 billion by 2032. This is driven by rising mortgage rates and real estate expenses, which are leading people to stay in their current homes for longer, as well as an increase in disposable income, which is driving the trend toward residential remodeling⁶. 

Investor Insights 

Sectors Driving Market Growth 

Opportunities for Investors in Renovation, New Residential Projects, and Commercial Construction 

• Promising Future in Repair and Remodel (R&R): A current focus on home renovation projects is driven by the high prices and high interest costs associated with buying or building a home. Highlighting the importance of the R&R segment in driving overall market growth are ongoing acquisitions, such as Cornerstone Building Brands, a leading manufacturer of exterior building products, acquiring Harvey Building Products, a window and door manufacturer⁷.

• Potential Boost in New Residential Construction Projects: While R&R is currently climbing, new residential construction is expected to grow in the long run, due to affordable housing shortages, rising home ownership demand among younger generations, and expected interest rate cuts⁸. The current market is estimated at $590 billion and is projected to grow at a CAGR of over 3% until 2029⁹. High-interest rates continue to have a negative impact, although not enough to stop growth. Government initiatives, coupled with a growing demand for affordable housing, help offset market downturns. Other key trends for the residential market include integrating smart home tech, aging-in-place design features, and modular and prefab construction¹⁰. 

• Modest Expansion in Commercial Construction: Commercial building construction in the United States has grown at a CAGR of 0.2% over the past five years and is expected to reach $293 billion this year, however, revenue is also estimated to fall 2.1% this year. COVID-19, rising interest rates, and supply chain issues have caused this sector to slow. Particularly, fast-food outlets, shopping malls, office buildings, and new lodging have declined due to changing consumer preferences, work-from-home increases, and high construction costs. With that said, market size is forecasted to increase over the next five years due to greater disposable income and corporate profit. No single company dominates, and the most prominent contractors claim small market shares¹¹.

Industry Landscape and Challenges 

Competitive Dynamics, Risks, Government Involvement, and Tech Innovations Shaping Market Future 

• Competitive Landscape: Driven by strong backlogs, resilient construction spending, and government funding, 260 M&A transactions were announced or closed year-to-date from late 2023 into 2024, at a 65.6% increase year-over-year¹². The United States residential construction market in particular is fragmented and highly competitive. Major local and international players make up the majority, although there are opportunities for small and medium companies. Major players include D.R. Horton, Lennar Corp., PulteGroup, Greystar Worldwide, and Alliance Residential¹³. 

• Risks and Challenges: While the building construction market future is bright, there are risks that can’t be ignored. High interest rates and supply chain challenges have negatively affected the commercial construction industry, although increasing construction in the warehouse, retail, and food sectors helps offset some of these challenges¹⁴. An ongoing skilled labor shortage and rising hourly costs are additional factors that continue to have an impact on market growth¹⁵.  

• Government Initiatives: The government is prioritizing infrastructure development as a key driver of economic growth. Through initiatives and substantial funding, the United States government is especially focused on promoting sustainable construction to reduce environmental impacts. Projects like the Federal Buy Clean Initiative are encouraging greater use of lower-carbon materials such as asphalt, concrete, and steel¹⁶.

• Technological Advancements: Smart cities, mobile platforms, robotics, and AI are fueling construction market growth. An increasing number of construction companies are utilizing Building Information Modeling (BIM) and prefab and modular construction, as well as emphasizing green building practices. In April 2024, living space designer Bouygues Immobilier became the first promoter to develop all projects using 100% BIM technology. In March 2024, global construction leader PCL Construction announced a strategic partnership with Document Crunch, an AI contract intelligence platform¹⁷.  

Building Successful Investments 

The building construction sector is on a robust growth trajectory, driven by urbanization, technological advancements, and government initiatives. For private equity firms, the sector offers significant investment opportunities.  

Empowering private equity clients to make informed decisions, we connect you with experienced advisors who deliver thorough analysis and strategic insights. Contact us today. 

Resources:

¹North America Construction Market Size, Share, Trends and Analysis by Sector, Country and Segment Forecast to 2028.
²Home Depot Bulks up Pro-Business with $18.25 Bln Deal for Building Products Supplier SRS
³Great Day Improvements Acquires Leafguard, Englert Home Improvement Brands
⁴Top Risks, Causes of Loss and Growth Drivers for the Construction Sector in 2023
⁵The Meteoric Rise in US Construction Activity
⁶Home Improvement Services Market Size
⁷Cornerstone Building Brands to Acquire Harvey Building Products and Increase Its Exposure to Repair-and-Remodel (R&R)-Focused Channels
⁸Construction Market Remains Cautiously Optimistic Amid Macroeconomic Volatility
⁹US Residential Construction Market Size – Industry Report on Share, Growth Trends & Forecasts Analysis (2024 – 2029)
¹⁰Ibid.
¹¹Commercial Building Construction in the US – Market Size, Industry Analysis, Trends and Forecasts (2024-2029)
¹²Construction Market Remains Cautiously Optimistic Amid Macroeconomic Volatility
¹³US Residential Construction Market Size – Industry Report on Share, Growth Trends & Forecasts Analysis (2024 – 2029)
¹⁴Commercial Building Construction in the US – Market Size, Industry Analysis, Trends and Forecasts (2024-2029)
¹⁵United States Construction Market Trends
¹⁶The Meteoric Rise in US Construction Activity
¹⁷Global Construction Market Size, Share, Outlook, Forecast