Navigating the Bifurcated Construction Market: Where to Invest Amid U.S. Headwinds and Global Growth

The U.S. construction sector is at a crossroads. Prolonged interest rate uncertainty, trade policy volatility, and softening domestic demand have created a bifurcated market—one where firms with exposure to U.S. residential and regional commercial projects face headwinds, while those with global reach and institutional specialization are poised to thrive. Meanwhile, international opportunities in Canada, the Middle East, and Central America are emerging as critical growth avenues. Here’s why investors should pivot toward firms leveraging these trends—and how to spot the winners.

The U.S. Headwinds: A Market in Flux

The Federal Reserve’s May 2025 decision to hold rates at 4.25%-4.5% underscores a cautious stance toward easing, even as GDP contracted by 0.3% in Q1 2025. High borrowing costs continue to weigh on U.S. construction, with mortgage rates remaining stubbornly elevated compared to central bank rates. For architectural firms and builders tied to U.S. residential markets—where 34.3% of the global sector’s value lies—this spells prolonged pain.

Compounding the issue is the Trump administration’s evolving trade policies, which risk raising material costs (steel, lumber) and delaying projects. The Architecture Billings Index (ABI), a key gauge of demand, has trended downward for six straight months, hitting a 2025 low of 48.5 in April—a clear warning sign for firms reliant on domestic commercial and residential work.

The Bifurcation: Winners and Losers in a Split Market

The U.S. market is now sharply divided:
1. Losers: Firms with heavy exposure to U.S. residential construction or small-to-midsize commercial projects. These segments face dual pressures—slower mortgage-driven demand and margin squeezes from rising material costs.
2. Winners: Companies with global diversification, institutional/commercial specialization, or ties to sectors like infrastructure and energy. These players can offset U.S. weakness with growth abroad and in high-margin, policy-backed projects.

The International Playbook: Where Growth Is Still Alive

While the U.S. grapples with uncertainty, international markets are lighting up. Three regions stand out as critical growth hubs:

1. Canada: Moderate Growth, Steady Demand

Canada’s construction sector is resilient, driven by government spending on infrastructure and commercial projects. The Énergie Saguenay LNG complex ($9B) and REM light rail network ($6.5B) exemplify this trend. With interest rates expected to fall later in 2025, Canadian firms like Brookfield Infrastructure Partners (BIP)—which owns transit and energy assets—are well-positioned to capitalize on transit-oriented development (TOD) and renewable energy projects.

2. The Middle East: Mega-Projects Powering Growth

The Middle East’s Vision 2030 initiatives (Saudi Arabia) and infrastructure pushes (UAE’s Expo 2020 legacy projects) are fueling demand. The $175B annual investment pipeline in Saudi Arabia alone includes megaprojects like Neom’s smart city and Red Sea Resorts. Firms like Sika (SIK)—which acquired the MBCC Group to bolster construction chemical offerings—are gaining traction in this region, where high oil prices and sovereign wealth funds back aggressive spending.

3. Central America: Divergence Amid Opportunity

While Mexico and Colombia are outperforming due to strong fundamentals and tourism-driven hospitality projects, Argentina and Venezuela lag. Mexico’s $15.7B GO Expansion rail project and Colombia’s Konza Technopolis highlight opportunities in transportation and tech-driven urbanization. Investors should favor firms like Holcim (HOLN.SW), which expanded into Central America via its PASA® acquisition, to tap into affordable housing and infrastructure needs.

Investment Themes to Follow

1. Geographic Diversification: Prioritize firms with <50% revenue exposure to the U.S.. Example: SARE Properties (SARE), which derives 60% of earnings from European and Middle Eastern real estate.
2. Institutional/Commercial Focus: Firms like AECOM (ACM), which designs hospitals, universities, and transit systems, benefit from steady institutional demand.
3. Energy Transition Plays: Companies involved in renewables and LNG, such as Bechtel, are critical to Canada’s and the Middle East’s infrastructure booms.

Act Now: The Clock Is Ticking

The U.S. construction sector’s bifurcation isn’t a temporary hiccup—it’s a structural shift. Firms lacking global reach or exposure to high-margin institutional projects risk being sidelined. Meanwhile, the Middle East and Canada offer double-digit growth opportunities, while Central America’s regional winners are primed for recovery.

Investors should act decisively:
- Sell: U.S. residential-focused firms with thin margins.
- Buy: Global players with Middle East/Canadian exposure and institutional expertise.

The construction sector’s next phase of growth isn’t in America—it’s where governments are spending, borders are opening, and interest rates are falling. The time to pivot is now.