The Growth of Construction in the SLED Market: A 2025 Forecast

March 25, 2025
John Meibers
John Meibers
VP & GM of Deltek ComputerEase
Construction workers onsite

As we look ahead into 2025 and beyond, the State, Local and Education (SLED) market is poised for significant growth, particularly in the construction industry. This growth is driven by a combination of federal funding, infrastructure investments and a renewed focus on modernization and sustainability.

Infrastructure Investment and Jobs Act (IIJA)

One of the key drivers of growth in the SLED construction market is the Infrastructure Investment and Jobs Act (IIJA), passed in November 2021. This act has added approximately $550 billion to already-planned appropriations, with around two-thirds of the funding transferring to state, local and tribal governments, as well as industry and individuals. The majority of this funding will be distributed over five years (2022-2026) and about half has already been distributed, with $120 billion having no expiration date. This substantial investment is targeted at infrastructure and building projects, including roads and bridges, airports, mass transit, broadband and clean water-oriented projects.

Forecasted Growth Rates

The total SLED Architecture, Engineering and Construction (AEC) spending is forecasted to grow at a compound annual growth rate (CAGR) of 6.0% from 2022 to 2027. This growth is expected to slow down to 2.7% from 2023 to 2027 and further to 1.2% from 2024 to 2027. Despite this deceleration, the overall trend remains positive, with significant investments continuing to flow into the sector.


Summary of all 11 major types of construction in the Census data for the SLED market

Key Construction Segments

  1. Highways and Streets: This segment, the largest within the SLED construction market, is forecasted to grow from $106 billion in 2022 to $146 billion by 2026. The growth rate is expected to slow to less than 1% from 2024 to 2027 as the core of the IIJA stimulus wraps up.
  2. Water/Sewer/Waste: This is the second fastest-growing sector, with a long-term growth rate of nearly 10% per year and an impressive 6% growth from 2024 to 2027. This growth is heavily supported by multiple stimulus packages, including ARPA, IIJA and the Inflation Reduction Act.
  3. Power: Representing publicly owned power utilities, this category is the fastest-growing in the SLED market, with spending doubling from 2022 to 2023. The growth rate is expected to remain strong at 7% per year from 2024 to 2027.
  4. Healthcare: This segment includes public hospitals, medical buildings, clinics and special care facilities. It has shown consistent growth at 7.7% overall, with a projected 5.9% growth from 2024 to 2027.
  5. Public Safety: Benefiting from healthy government budgets and increased attention to rising crime and public safety, this segment has grown robustly at 13% per year but is expected to slow to less than 3% from 2024 to 2027.

Historical Context and Future Outlook

The recent growth in SLED AEC spending is notable, especially when viewed in a historical context. Despite the significant increase in recent years, the long-term trend shows that we are just getting back to what the growth line might have been had the Great Recession never happened. This underlines the importance of continued investment to address the under-investment of the past decade.

The Role of Modernization and Sustainability

Modernization and sustainability are also playing crucial roles in driving the growth of the SLED construction market. Governments at all levels are increasingly prioritizing projects that not only improve infrastructure but also promote environmental sustainability and resilience. This includes investments in green buildings, renewable energy sources and sustainable water management systems. These initiatives are not only beneficial for the environment but also help in reducing long-term operational costs and improving the quality of life for communities.

Challenges and Opportunities

While the outlook for the SLED construction market is largely positive, there are also challenges that need to be addressed. One of the main challenges is the potential for budget shortfalls as federal stimulus funds begin to wane. States and local governments will need to find ways to sustain their investment levels without relying heavily on federal support. Additionally, there is a need for skilled labor to execute these projects, which may require investments in workforce development and training programs.

On the other hand, these challenges also present opportunities for innovation and collaboration. Public-private partnerships can play a significant role in bridging funding gaps and bringing in expertise from the private sector. Moreover, advancements in technology, such as the use of artificial intelligence and data analytics, can enhance project planning and execution, leading to more efficient and effective outcomes.


 

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