JLL: Construction costs rising — here’s why
Trade policy pressures and geopolitical disruptions are driving construction costs up above earlier forecasts, with further acceleration likely in the second half of 2026. And the data center boom isn't helping matters.
Construction cost escalation is accelerating, but the impact varies widely for data center and non-data-center projects, with supply constraints as a major driver, according to JLL’s “2026 Construction Perspective: US Mid-year Update.” The report noted that the boom in data center construction os consuming labor and materials, leaving a rapidly closing window for other projects to secure manageable costs and schedules.
Companies building in markets with heavy data center activity face the biggest cost jumps and scheduling challenges, warned 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,” said Louis Molinini, head of project and development services, Americas, JLL. "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. “
At the same time, 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: New and existing tariffs are impacting project costs directly. For example, steel, aluminumand even imported metal furniture now face tariff rates of up to 50%. And elevated global energy prices from ongoing conflict in Iran have increased embedded costs in energy-intensive construction materials.
Labor
Labor constraints are compounding the pressure. Construction employment growth is tracking at only 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.”
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 provides advisory, design, management and delivery services to commercial real estate projects
