Construction costs rise in 2026: JLL report identifies strategic procurement opportunities

CHICAGO, July 7, 2026 - Trade policy pressures and geopolitical disruptions are driving construction costs above earlier forecasts, with further acceleration likely in the second half of 2026. The impact varies widely, as companies building in markets with heavy data center activity face the biggest cost jumps and scheduling challenges. These are often in the same high-performing markets driving their real estate demand. According to JLL's 2026 Construction Perspective: U.S. Mid-year Update, recognizing these overlaps and acting before contractor capacity fills up is what separates manageable projects from constrained ones.

The demand split reflects contractors' varying exposure to high-growth sectors. Contractors with data center exposure carry significantly higher average backlogs of 12.2 months versus 8.3 months for those without, while non-data-center commercial construction spending growth for office, industrial or mixed-use runs below 1% in real terms. This creates a window for strategic procurement that will narrow as broader commercial demand recovers.

"The in-demand markets are those where labor's been tight and isn't expected to keep pace with growing pipelines," said Louis Molinini, Head of Project and Development Services, Americas, JLL. "If your project is competing for the same crews and subcontractors as data center work, you're going to feel it in cost and schedule now and for the foreseeable timeline. The organizations that figure that out now, instead of when their bids come back high, are the ones that stay in control of project delivery. "

However, the industry faces headwinds. Final-cost indices are running roughly 5% year-over-year with further acceleration expected in the second half of 2026. Two distinct cost channels are reshaping project economics: Trade policy impacts now extend beyond initial tariff exposure, with the June 8 Section 232 expansion covering metal furniture and workstations at 50% rates, while elevated global energy prices from ongoing conflict in Iran have increased embedded costs in energy-intensive construction materials.

Labor constraints are compounding the pressure. Construction employment growth is tracking at just 0.6% in 2026, well below the historical average of 2.7%. Geographic mismatches intensify pressure, with 61% of U.S. metro markets currently supply-constrained, a figure anticipated to rise to 72% by 2027. Because construction workers cannot easily relocate to fill labor gaps in other regions, these shortages are structural rather than temporary.

"The labor environment that owners bidding 2027 and 2028 projects will face is already visible in today's supply-constrained markets," said Andrew Volz, Research Manager, Project and Development Services, JLL. "These constraints are structural, not cyclical and driven by persistent shortages in the trades. Data center, power infrastructure and commercial construction project are all competing for these simultaneously and likely accelerating in the midterm where employment trends are near to fixed."

The anticipated offsets from JLL's November outlook have reversed. The June FOMC meeting shifted the median rate projection to 3.8% by year-end, with 9 of 18 participants now expecting a rate hike rather than a cut. A renegotiated USMCA removes country-level surcharges on qualifying goods but does not reach Section 232 metals tariffs. Steel, aluminum, and copper imported for construction use remain at 50%, leaving the primary cost exposure unaddressed."

Contractors are pricing an elevated cost baseline into bids rather than absorbing it. Fewer than one in five contractors expect profit margins to compress over the next six months, which is a level of confidence not seen since early 2025. As this translates into bid prices, the procurement window for non-data-center work will narrow.

"This isn't a temporary disruption to be waited out," Molinini added. "The cost pressures on materials and labor have staying power, and the policy environment is still moving. Anyone planning projects in the next three to five years won't benefit from waiting, whether it's a quarter or a year. They're better off negotiating the costs and risk-sharing at the table now instead of betting the rules settle down in their favor."

JLL Project and Development Services is a leader in the advisory, design, management and delivery of commercial real estate projects for the world's most prominent corporations, educational institutions, public jurisdictions, healthcare organizations, industrial facilities, retailers, hotels, sports facilities and real estate owners. JLL's project management team comprises 9,300 project managers across 80 countries with $87.4 billion in projects managed annually. JLL's design teams consist of 1,200 design professionals from over 50 countries, across more than 50 studios and three Centers of Excellence to service clients with end-to-end design solutions. Visit jll.com/deliver-projects to learn more.

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