Construction Costs Hit Fastest Annual Growth Since the Pandemic

Construction costs are rising at their fastest pace since the pandemic, squeezing contractors and challenging new development economics.

Nina Dale
June 16, 2026

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Good morning. The cost of building isn't getting any cheaper. Construction input prices are up nearly 10% from a year ago, creating new challenges for developers already navigating elevated financing costs.

CRE Trivia 🧠

Before mixed-use lifestyle centers became commonplace, which California developer bet big on outdoor retail and created The Grove and the Americana at Brand?

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Market Snapshot

S&P 500

GSPC

7,554.29

Pct Chg:
+1.65%

FTSE NAREIT

FNER

857.20

Pct Chg:
-0.96%

10Y Treasury

TNX

4.475%

Pct Chg:
-0.01

SOFR

30-DAY AVERAGE

3.60%

Pct Chg:
-0.00

*Data as of 06/15/2026 market close.

Pricing Pain

Construction Costs Hit Fastest Annual Growth Since the Pandemic

Rising material prices are squeezing contractors as tariffs, energy costs and high interest rates pile on the pressure.

By the numbers: Construction input prices rose 2.6% in May and 9.6% year over year, marking the fastest annual increase since the pandemic, according to ABC and AGC.

Driving the spike: Energy and commodity markets fueled much of the increase, with ongoing geopolitical tensions adding to cost pressures. Tariff-sensitive materials continued to climb, including:

Iron and steel: Up 1.4% month over month and 7% year over year.
Copper wire and cable: Up 7.3% in May and a striking 24.2% over the past year.

ABC Chief Economist Anirban Basu pointed to higher oil prices tied to the conflict in Iran, alongside persistent tariff impacts on key building materials.

Margin squeeze: Material costs are rising much faster than project pricing, squeezing builders' margins. AGC Chief Economist Ken Simonson said construction input prices are climbing at more than double the 4.2% consumer inflation rate, leaving contractors with limited ability to pass higher costs on to owners.

Uncertain profit outlook: Despite the inflationary backdrop, contractors remain optimistic that margins could improve over the next six months. However, Basu cautioned that continued material inflation combined with elevated borrowing costs could eventually erode profitability and slow development activity.

➥ THE TAKEAWAY

Tougher development math: For multifamily and CRE developers, construction inflation remains a stubborn headwind. Higher steel, copper and fuel costs—coupled with expensive financing—could pressure project budgets, delay starts and make disciplined underwriting even more important as 2026 unfolds.

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✍️ Editor’s Picks

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Power pushback: Fourteen states and more than 100 localities are weighing data center bans as opposition to the industry's growth intensifies.
BTR pipeline: 25% preleased before first delivery at BTR Haus's Strongsville, OH community. Their next Strongsville BTR deal open to accredited investors. 2.79x projected equity multiple at year 10. (sponsored)
Redemption strain: BlackRock’s private credit fund exceeded its 5% quarterly repurchase cap for the first time, signaling rising investor demand for liquidity in nontraded private credit vehicles.
Risk ready: Alabama’s new resilience law aims to reduce disaster-related costs and stabilize insurance markets, offering a model other states may follow as severe weather risks grow.

🏘️ MULTIFAMILY

Risk retreat: OceanFirst is moving to sell $1.4B of rent-stabilized multifamily loans inherited from Flushing Financial.
Permit lag: Only 23% of LA’s ED 1 approved affordable housing units have reached permitting, exposing a major gap between approvals and actual construction.
Loan purge: Brookfield acquired $890M in multifamily loans from Sunflower Bank’s parent as part of a broader effort to reduce inherited balance sheet exposure following a major bank merger.

🏭 Industrial

Rent pressure: U.S. industrial markets show rising vacancy and slower rent momentum as development remains elevated and tenant leverage increases across key logistics hubs.
Supply return: Chicago big-box industrial development is picking up again, but leasing timelines are doubling and rent growth is flattening as vacancy and concessions rise.
Sale leaseback: Brennan Investment Group expanded its Chicago industrial portfolio with a Bolingbrook sale-leaseback deal, adding 55K SF in a prime I-55 corridor infill location.

🏬 RETAIL

Mattress merger: Sleep Number filed for Chapter 11 bankruptcy and agreed to a $415M deal with Sleep Country Canada while reviewing its U.S. store fleet.
Restaurant retreat: On The Border is closing all company-owned U.S. restaurants after a recent acquisition, while franchised and international locations remain open as the brand evaluates its future strategy.
AI execution: Retailers are adopting AI quickly, but most fail to scale it due to weak store-level infrastructure and unreliable edge systems.

🏢 OFFICE

AI revival: Miami investor Bob Zangrillo is reviving a $3B Miami development centered on AI-focused offices, plus residential, hotel and retail space in Little Haiti.
Finance shift: Apollo Global Management is reportedly choosing Austin for a second HQ, expanding beyond New York and signaling a broader shift by major financial firms toward Texas growth markets.
Office bet: Apple bought a Sunnyvale office asset for $162.2M at a discount, underscoring continued demand for premium Bay Area office space despite market weakness.
Remote toll: A study finds remote work is linked to higher isolation and higher rates of depression and anxiety, especially among workers living alone.

🏨 HOSPITALITY

Shareholder clash: Braemar Hotels is accused by its largest investor of self-dealing over management changes and advisory contract termination, with the shareholder threatening legal action and a proxy fight.
Room expansion: MCR plans to add 1,000 hotel rooms near Miami Airport by redeveloping surface parking into two new towers while keeping the existing Hilton operating.

📈 CHART OF THE DAY

Global listed real estate delivered solid gains through early June 2026, with data centers leading property sectors (+31.1% YTD) and North America driving performance (+16.1% YTD), while Europe and Asia lagged.

CRE Trivia (Answer)🧠

Rick Caruso. Caruso's "retail as entertainment" strategy arrived just as enclosed malls were beginning their structural decline, making his developments a blueprint for experiential retail across the US.