Data Center Construction Hits $85B Pace as Office Spending Falls

A record month for one building type

U.S. construction spending rose in August, and almost all of the gain came from one category. Total spending increased 0.9% from July to a seasonally adjusted annual rate of about $2.2 trillion, according to the Census Bureau's release on October 1.37 Within that total, data center construction rose another 7.5% in a single month. Associated Builders and Contractors (ABC) puts the category more than 73% above its level a year earlier.34

In dollar terms, private data center construction ran at a record $84.95 billion annual pace in August, compared with $49.05 billion in August 2025.21 ABC calculates that spending in the category has grown at a 149% annualized rate since March. ENR notes that this figure projects five months of growth across a full year. It does not mean spending has risen 149% since March.4

The growth has also sped up. Year-over-year gains moved from 36.3% in May to 55.2% in June, 65.3% in July and above 73% in August. That is the fastest rate since April 2025.25 Viewed differently, the annual rate climbed by nearly $20 billion in three months, from $65.7 billion in May to $85.0 billion in August.9

The office split is now a chasm

For real estate, the most telling detail is in how the Census Bureau groups buildings. Data centers are a subcategory of private office construction. As a result, the strongest asset class in commercial real estate and the most troubled one are reported side by side.2 General office construction fell to $45.8 billion in August, down 9.7% from a year earlier and down 34.8% since January 2023.21 The $39.1 billion gap between data centers and conventional offices is the widest since the series began in January 2014. Data centers now make up roughly 63% of all private office construction.25

The crossover is not new, but it keeps getting bigger. Bloomberg reported that monthly data center spending edged past office spending at the end of 2025, at $3.57 billion against $3.49 billion in December.28 By March, data centers were running at a $50 billion annual pace while office construction fell to $46 billion, its lowest level since 2015.2123 Data centers have beaten general office every month since September 2025.2

This is why headline office numbers now mislead. FMI expects total office construction spending to grow 13.7% in 2026. Beneath that, it sees traditional offices falling about 11% while data center investment keeps rising.29 QBE North America and Control Risks make a similar point: office spending grew 12% in 2025 and 5.9% in the first half of 2026, mainly because data centers now account for more than half the category.22

One point of disagreement concerns the data series itself. Several analyses describe the Census data center series as running back to 2014.26 Other coverage calls it a newly established Census category, with the first clean reading in April 2026.2729 A likely explanation is that the breakout was formalized recently but filled in with historical data. Either way, long-run comparisons should be treated with some caution. Data center figures have also been revised up sharply before. KPMG notes that revised GDP data showed data center construction had been undercounted since 2023 and was 34% higher than earlier estimates as of the second quarter.8

A narrow boom inside a shrinking market

Outside data centers, the picture is weak. Overall construction spending was still 1.7% lower than a year earlier. KPMG counts August as the 13th straight month of year-over-year decline, and the figures are not adjusted for inflation.87 Private nonresidential spending was $773.0 billion, down 1.0% from a year earlier. Without data centers it falls to $688.1 billion, a 5.9% decline.2 Of the $8.0 billion monthly rise in private nonresidential spending, $5.9 billion, or 74%, went to data centers.25

Manufacturing shows how much has shifted. Factory construction is down roughly a fifth from a year earlier. Coverage cites declines of both 19.8% and 19.2%, depending on how the category is measured. Data centers are now about half its size.248 ENR noted that manufacturing rose month over month for the first time since January, a small sign that the decline may be leveling off.4

Forecasters are not optimistic about the rest of the market. FMI expects total construction spending to fall 3.4% in 2026 and sees only four of 19 segments growing.29 QBE and Control Risks say nonresidential spending is on track for its first annual decline since 2010, apart from the pandemic period. Architecture billings for commercial and industrial firms have stayed below the growth threshold since July 2022.22

Costs make the real picture worse. ABC says construction input prices rose 1.2% in August and are 8.9% above a year earlier. KPMG puts the annual increase at 8.7% and points to tariffs, Middle East conflict and diesel prices that rose 78% year over year.48 After inflation, ordinary commercial building is shrinking faster than the nominal figures show.

What the REITs are saying

Third-quarter results from the large data center REITs match the construction data. Digital Realty reported record bookings expected to generate $855 million in annualized rent at full share, and renewal rents rose 11.8% on a cash basis.31 It also reported a $2.5 billion backlog of signed leases that have not yet started, with an average 17-month gap between signing and start.31 That gap helps explain the construction numbers: leases signed now turn into concrete and steel over the following year and a half.

Equinix signed a record $533 million in annualized gross bookings, up 35% from a year earlier, and raised its outlook for the third quarter in a row.3637 It expects to deliver nearly 40% more cabinets in 2026 than first planned.37 CBRE counted a record 7,481 megawatts under construction across eight major North American markets in the first half. More than 80% was already leased and vacancy stood at 1.4%.27

The contrast with office REITs is the main real estate story. As one analysis put it in May, a data center REIT and an office REIT now sit on opposite sides of the building cycle.23 Treating them as one commercial real estate category no longer makes sense.

Lenders follow the leases, more carefully

Commercial real estate lending shows the same divide. Office is under the most pressure as a large wave of loans comes due, while data centers stand out as a strong spot.20 S&P Global estimates lenders committed $121.91 billion in credit to data center properties in 2025. The average loan was $1.2 billion but the median only $40 million, which suggests the biggest banks capture most of the business.15

The market is changing, though. Commercial Observer reports that lenders are becoming more selective and setting exposure limits by sector, sponsor and tenant. Construction lending is moving from bank balance sheets toward private credit.12 Data center CMBS issuance reached $4.9 billion in the first half of 2026 after an $11 billion year in 2025.12 Financing costs have risen as 10-year Treasury yields crossed 5%, a level last seen in 2007.12 ABC's chief economist also expects higher yields and rising costs to pressure borrowing, even as activity stays concentrated in data centers and power.4

Price depends heavily on who the tenant is. JLL reported construction loans for top hyperscaler projects at up to 85% of cost, with spreads in the low 200-basis-point range. Projects with non-investment-grade tenants paid 200 to 300 basis points more.18 For smaller owners, banks still treat data centers as specialized single-purpose properties and lend against them conservatively.11

The reading

The coverage agrees on the main facts. A record and accelerating data center build is masking a commercial construction market that is shrinking in real terms. The office sector is being split in two, with traditional offices declining inside a category the data center boom is lifting.

The gaps in the coverage matter more for interpretation than for direction. Census figures leave out servers and racks, so they understate total AI spending.2 Announced projects far exceed actual construction. One registry counts $735.9 billion in announcements, 14.8 times 2025 Census spending.6 That gap is a pipeline, not a forecast.

The evidence suggests the boom has more room to run. REIT backlogs and pre-leasing point to more building ahead. The bigger risks are power limits, local opposition and capital costs, not tenant demand.2212 For office owners and the lenders behind them, the August data offers little relief. The Census Bureau's September report, due November 2, will show whether the acceleration continued.1