Understanding the challenges facing industrial construction in Michigan is essential for anyone involved in commercial real estate and development in the state. As we navigate through 2025 and look ahead to 2026, several significant factors are creating headwinds for new projects across the region.
Intensifying Labor Shortage
The construction workforce shortage stands as one of the most pressing challenges, and unfortunately, it’s getting worse. The construction industry continues to face significant labor shortages, a challenge expected to intensify by 2026—with a projected need for 499,000 new workers, up from 439,000 in 2025.
According to Associated Builders and Contractors, the industry required approximately 439,000 additional workers in 2025. That figure is climbing to nearly 499,000 new workers in 2026 just to meet demand.
The financial impact is staggering. A 430,000-worker gap could cost the industry more than $10.8 billion annually in lost productivity, missed deadlines, and budget overruns. Construction wages have increased 4.2% year-over-year as of August 2025, reflecting the intense competition for skilled workers.
Looking at the demographic trends makes the situation even clearer. By 2031, 41% of construction workers are expected to retire, while only 10% of current workers are under 25. This creates a concerning gap that will be difficult to fill.
Industrial Construction Slowdown
The manufacturing sector, which has been a bright spot for construction in recent years, is now facing a downturn. Spending on the construction of manufacturing facilities is expected to decline 2.0% in 2025, with an additional decline of 2.6% in 2026.
For the Midwest specifically, the picture reflects this national trend. The industrial construction sector is forecast to contract in 2025, reaching $18.4 billion by year-end. Activity is projected to settle at $17.0 billion by 2027, signaling a pivot toward efficiency improvements and selective modernization projects over new facility expansion.
This shift indicates that companies are focusing more on upgrading existing facilities rather than building new ones from the ground up.
Michigan Construction Outlook
Michigan’s construction sector presents a mixed picture. For Michigan construction jobs, projections show growth averaging 2,100 jobs per year over 2025-2026 as mortgage rates are slow to decline. However, the sector already stood near its all-time high in 2024, leaving limited room for expansion.
The modest outlook reflects that we’re already operating near peak capacity. While job growth continues, the pace is moderate because there’s simply less room to grow from these elevated levels.
Immigration Policy Concerns
Perhaps the biggest policy concern for the construction industry is how emerging immigration policy might impact the construction labor force. Nationally, there are approximately 12 million construction workers, of which about three million are foreign-born. It is estimated that half of these immigrants are undocumented, meaning about one in eight construction workers nationally is undocumented.
The concern extends beyond deportation to the chilling effect on potential new immigrants who might otherwise fill construction positions in the coming years. This could further tighten an already constrained labor market.
Tariff and Trade Policy Risks
The modest outlook for construction spending is partly based on a few expected headwinds to building activity. These include potential tariffs on imports from selected countries and the enforcement of stricter immigration policies.
These tariffs could increase material costs and create supply chain disruptions. When building materials become more expensive or harder to source, it directly impacts project feasibility and timelines.
Market Realignment After Peak
The Midwest US nonresidential construction market is set to reach a historic apex in 2025, with total starts projected at $145.5 billion. However, regional construction activity is projected to moderate to $126.9 billion in 2026 and then stabilize near $131.5 billion in 2027.
This represents a natural market correction after years of exceptional growth. Markets do not grow indefinitely, and this adjustment reflects a return to more sustainable activity levels.
Ongoing Cost Pressures
Projected gains of just over 2% in 2025 and under 3% in 2026 likely will not even offset increases in material and labor costs. The expectation is that the volume of construction is not expected to increase over the coming two years.
This means that even though spending numbers may look stable or slightly up, the actual amount of work being completed could remain flat or even decrease when adjusted for inflation and rising costs.
Slower EV Manufacturing Expansion
Michigan’s automotive sector continues facing headwinds from slower-than-expected EV adoption. This directly impacts industrial construction demand since the state’s manufacturing base is heavily automotive-focused.
The initial enthusiasm around electric vehicle manufacturing has cooled somewhat, leading to more cautious investment in new manufacturing facilities for this sector.
Bottom Line for 2026: What’s Still Working — But With Constraints
Despite these challenges, there is still demand for industrial development. A 2024 report tracked 217 new industrial-project announcements, of which a significant portion (approximately 95) were new-construction proposals. Others involved expansions, renovations, or relocations.
Some of these planned projects may still proceed—particularly smaller-scale builds, expansions of existing facilities, or projects in less contentious sectors such as distribution warehouses versus heavy manufacturing.
The key takeaway for commercial real estate professionals and developers is that while the market is facing real constraints, opportunities still exist. Success in 2026 will require careful project selection, realistic budget and timeline expectations, and a focus on projects that can navigate the current labor and cost environment.
Understanding these factors allows stakeholders to make informed decisions about where to invest time and resources in Michigan’s industrial construction market over the coming years.
If you’re evaluating whether now is the right time to build, expand, or invest in industrial property, having a clear, data-driven view of the market is crucial.
I help owners, developers, and investors make informed decisions backed by current trends and real Michigan market conditions.
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