Italy’s construction industry, the third largest in Europe, is at a pivotal juncture.
While current conditions reflect near-term challenges, particularly in the residential segment, the sector is strategically repositioning itself for sustainable, innovation-driven growth.
As national policy shifts toward digital infrastructure, decarbonisation, and industrial renewal, Italy is laying the groundwork for a resilient construction future.
This article explores how Italy’s construction sector is adapting to short-term pressures while laying the foundations for a greener, more digital, and resilient future.
After a strong post-pandemic rebound, the Italian construction market is expected to contract by 9.2% in 2025. The cooling is largely driven by the withdrawal of generous government incentives for residential renovation and energy efficiency upgrades. However, the core of the industry remains robust, particularly in infrastructure, industrial construction, and the fast-growing digital economy.
From 2027 onward, growth prospects brighten significantly. Renewed investment in energy, data infrastructure, and public works is poised to reshape the sector’s trajectory in alignment with Italy’s climate commitments and the EU’s Green Deal targets.
Milan is fast becoming the nexus of a digital revolution. With €3.83 billion in data centre investments projected by 2029 and a compound annual growth rate (CAGR) nearing 4%, Italy is emerging as a critical hub in Europe’s digital backbone.
What makes Milan stand out? Strategic location, robust connectivity, including a rising number of subsea cables, and government support through cloud-first policies in public administration and healthcare. Leading tech giants like Microsoft, Equinix, Vantage, and Stack Infrastructure are already capitalising on these advantages, establishing a strong presence in Milan and extending to other cities like Rome, Turin, Arezzo, and Padova.
This surge is not just about server racks, it’s about strategic national resilience and global relevance.
Despite booming demand in key sectors, workforce shortages continue to hinder progress. Vacancy rates remain stubbornly high, especially for roles such as civil engineers, electricians, welders, and construction supervisors. Though inflation in wages is starting to cool, the labour cost index is still elevated compared to late 2023 levels.
This mismatch between demand and workforce availability is expected to persist, driven not only by new projects but by the need to replace retiring talent across the industry.
Globally, supply chain pressures are easing, but Italy still faces delays in sourcing critical, long-lead equipment like generators and cooling systems. Recovery in availability for these items isn’t expected until late 2025, especially for Tier 1 suppliers.
Commodity pricing tells a mixed story. While diesel, steel, and lumber are expected to remain stable or even dip, moderate price increases are anticipated for materials like cement, aluminium, and concrete in Q4 2024. This reflects the divergence between a subdued residential sector and rising demand in industrial and infrastructure projects.
Italy’s climate roadmap is driving a fundamental shift in how, and what, the country builds. With targets to cut CO₂ emissions by 55% from 1990 levels and generate 65% of electricity from renewables by 2030, construction is being reoriented toward greener, smarter solutions.
As a result, infrastructure and energy-related construction are forecast to grow by 3% in 2025, offsetting softness in the residential market. Renewable energy, smart grids, and electrification projects are all gaining momentum, supported by public funding and EU directives.
Milan isn’t just Italy’s digital capital, it’s also its life sciences engine. The Lombardy region contributes a remarkable €74.5 billion in turnover from the life sciences sector, employing nearly 350,000 people. Over 250 pharma and biotech companies are headquartered here, working closely with universities and innovation hubs like the MIND Milano Innovation District.
Italy now ranks second in Europe for pharmaceutical production, and continues to grow in biotech and medical devices, thanks to strategic incentives, long-term R&D funding, and a skilled talent base.
The Italian construction market may be in the midst of recalibration, but its fundamentals are shifting in the right direction. With digital infrastructure, clean energy, and life sciences driving demand, the focus is increasingly on smart, sustainable, and strategically located developments.
To capitalise on this moment, industry players must remain agile, adapting to labour shortages, navigating supply chain complexities, and aligning with long-term climate and innovation goals.
For Italy, this is more than just a construction boom. It’s the foundation of a modern economy.
