Writer: Andrea Teran
July 2025 — Business confidence across the U.S. South remained firm in the second quarter of 2025. According to caa’s latest Invest: Business Sentiment Survey (I:BSS), 86% of Southern leaders rated their regional economy as “strong” — up two percentage points from last quarter and just two points below the same period last year.
Survey responses reflect consistent growth trends in major Southern metros, where job creation and consumer activity remain key drivers of regional optimism. (Click here for the Northern market survey report.)
“The core fundamentals of the market remain intact, even during what may be considered a slower period,” said a Nashville-based commercial real estate development and property management firm executive. “Historically, Nashville tends to experience shorter downturns — we’re typically slower to decline and among the first to rebound. That trend continues, largely driven by strong job growth.”
Southern companies continue to report robust activity. Ninety-two percent of respondents described their organization’s performance as strong. Demand mirrored this performance, with 94% of respondents indicating strong customer interest in their products or services.
These figures reflect market-level developments. In Dallas, the office market recorded its first positive net absorption in 10 quarters during 1Q25, with 272,890 square feet absorbed and a 2.7 million square foot gain year over year.
Houston is also expected to expand economically, with GDP projected to grow by 2.2% in 2025, according to a report from Empowering American Cities. Revitalization projects in the downtown district include infrastructure and placemaking upgrades.
While performance and demand remained strong, hiring sentiment declined. In the South, 59% of respondents said they plan to hire in the next six months, down 13% from the prior quarter and 10% year over year.
“Fortunately, we’ve consistently been able to attract high-quality architectural and design professionals to our San Antonio office. I think much of that is due to our strong internal cultures,” said an architecture firm executive from San Antonio. “We’re seeing more challenges on the construction side — contractors are having a hard time finding enough skilled laborers, plumbers, electricians, and so on. That shortage is making projects take longer and driving up costs.”
In Houston, some hospitality businesses are adjusting their models in response to shifting consumer behavior and inflationary pressures. Several restaurants have opened daytime café-style operations to diversify revenue, signaling a broader strategy of flexibility over expansion.
Costs are a growing concern, especially tariffs and insurance. Many Texas-based firms anticipate negative impacts from tariffs this year, particularly those in trade-exposed sectors such as energy and manufacturing. According to a recent survey by the Federal Reserve Bank of Dallas, the most common response among firms facing higher tariffs is to pass increased costs on to customers. This strategy was cited by 76% of manufacturing firms and 47% of services firms, reinforcing the expectation of rising inflationary pressures over the next six months.
“Economic factors, including material tariffs and potential labor restrictions, are creating significant volatility in construction costs. We are advising clients to maintain their long-term plans while building in appropriate contingencies for price fluctuations. Contractors are particularly sensitive to these market conditions, requiring us to develop more flexible project timelines, budgets, and approaches to procuring materials,” said an Atlanta-based architect.
Still, public-sector alignment is improving. In Southern markets, 78% of leaders rated their local government’s business support as favorable — an 18-point quarterly increase.
“While uncertainties such as tariff fluctuations may temporarily impact activity, the underlying demand among businesses remains strong. What many clients seek now is greater economic clarity,” said a Houston-based banker.
For more I:BSS reports, click here.
