Construction Costs Climb as Labor Shortages and Trade Policy Tighten the Market

JLL says rising labor shortages, tariffs and data center demand are pushing construction costs higher, making early procurement more critical than ever.

Nina Dale
July 10, 2026

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Construction Costs Climb as Labor Shortages and Trade Policy Tighten the Market

Good morning. Construction costs are climbing again, and JLL says the pressure isn't likely to ease anytime soon. Tariffs, labor shortages and booming data center development are creating a more expensive and competitive environment for project owners.

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Market Snapshot

S&P 500

GSPC

7,543.64

Pct Chg:
+0.81%

FTSE NAREIT

FNER

852.16

Pct Chg:
+0.16%

10Y Treasury

TNX

4.549%

Pct Chg:
-0.018%

SOFR

30-DAY AVERAGE

3.63%

Pct Chg:
-0.00

*Data as of 07/09/2026 market close.

Project Pressures

Construction Costs Climb as Labor Shortages and Trade Policy Tighten the Market

Construction costs are rising faster than expected, and JLL says owners who lock in contractors early will be best positioned to avoid escalating costs and delays.

By the numbers: JLL's 2026 Construction Perspective: U.S. Midyear Update shows final construction costs are up about 5% YoY, with further increases expected in the second half of 2026. Contractors with data center projects now carry 12.2 months of backlog, versus 8.3 months for those without, underscoring how AI-driven demand is tightening contractor availability.

Data centers reshape competition: Markets with heavy data center development face the greatest pressure on labor, subcontractors and schedules. Meanwhile, spending growth for traditional commercial sectors—including office, industrial and mixed-use—remains below 1% in real terms, leaving a narrowing window for owners to secure favorable pricing.

Trade policy and labor add pressure: Expanded Section 232 tariffs now cover more construction-related products, while tariffs on steel, aluminum and copper remain in place. Meanwhile, higher energy prices and construction employment growth of just 0.6%—well below the historical 2.7% average—are adding to cost pressures.

Structural labor shortages: JLL estimates 61% of U.S. metro markets are supply-constrained today, rising to 72% by 2027. With skilled construction labor difficult to relocate, shortages are expected to remain a long-term challenge.

Procurement window is closing: Contractors are increasingly passing higher costs into bids rather than absorbing them. With fewer than 20% expecting profit margins to shrink, JLL says owners should move quickly to secure contractors and negotiate pricing.

➥ THE TAKEAWAY

Plan early: Construction costs are unlikely to return to pre-2026 levels anytime soon. Owners that secure contractors early may be better positioned to manage budgets and avoid scheduling delays.

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✍️ Editor’s Picks

Critical hires shape companies: CRE Search Partners connects commercial real estate firms with the leaders and key contributors who drive growth, strengthen culture, and execute strategy. (Sponsored)
Rate resolve: Federal Reserve officials signaled persistent inflation may keep interest rates higher for longer, pressuring CRE financing and refinancing.
Distress hunt: Mavik Capital Management is raising a $1B fund to acquire distressed CRE assets and debt, betting on continued market dislocation driven by elevated borrowing costs.
Migration impact: A Federal Reserve Bank of Dallas working paper estimates unauthorized immigration from 2021 to 2024 accounted for 30% of home price growth and 20% of rent increases.

🏘️ MULTIFAMILY

Midwest mirage: Trepp says the Midwest’s multifamily advantage may be overstated, with CMBS data suggesting the Sunbelt could offer stronger opportunities as conditions normalize.
Concession surge: Apartment rent concessions remained historically elevated in June, with landlords offering the deepest average discounts in more than 25 years to attract renters.
Foreclosure window: Rising foreclosure activity is creating discounted buying opportunities for investors, with REO properties selling well below market value as distressed inventory steadily returns.
Investor lawsuit: An Italian investor sued developer Michael Stern seeking $42.5M, alleging he was misled into investing in three high-profile Miami developments and that funds were improperly diverted.

🏭 Industrial

Detention acquisition: The U.S. Department of Homeland Security paid nearly $1.5B to acquire two California immigration detention centers from CoreCivic, expanding federal detention capacity.
Leasing rebound: Maersk signed a 617,000 SF lease outside Boston—the region’s largest industrial lease since 2020—highlighting renewed demand from major logistics occupiers.
Warehouse acquisition: Longpoint Partners acquired a fully leased Miami-Dade industrial portfolio for $38.8M, expanding its logistics holdings in South Florida.

🏬 RETAIL

Mini spending: Budget-conscious consumers are driving demand for smaller, lower-cost products as persistent inflation and weak wage growth discourage bigger purchases.
Village revival: Palisades Village will reopen in August after a $100M restoration, marking a major milestone in the Pacific Palisades’ recovery from the 2025 wildfires.
Store expansion: Wayfair is accelerating its brick-and-mortar expansion with new large-format stores, betting physical showrooms will fuel growth as home furnishings demand recovers.

🏢 OFFICE

Financial frontier: New York’s financial dominance faces growing competition as Dallas and South Florida attract major firms, talent, and investment reshaping the U.S. finance landscape.
Airbnb landmark: Airbnb acquired a historic Manhattan office building for $81.5M, reinforcing its long-term New York presence despite ongoing battles over short-term rental regulations.
Nvidia expansion: Nvidia is opening a 27,600 SF office in downtown Washington, D.C., adding momentum to a wave of technology companies boosting office demand in the capital.
Office revival: San Francisco’s office market is rebounding as AI-driven companies fuel leasing demand, pushing activity toward pre-pandemic levels with stronger demand for flexible, high-quality spaces.

🏨 HOSPITALITY

Hospitality merger: Beechwood Hospitality and MMI Hotel Group combine to create a larger Sun Belt hotel platform with 24+ properties across hotels, resorts, clubs, and restaurants.
Hotel stocks: Hotel stocks climbed for a third straight month in June, with REITs leading gains as strong RevPAR growth boosted investor confidence across the hospitality sector.
Raleigh revival: A former Holiday Inn in downtown Raleigh will reopen as Hotel Indigo in October 2026 after a $36M renovation transforming the 19-story landmark into a boutique destination.

📈 CHART OF THE DAY

A widening K-shaped economy is pushing the top 20% of earners to a record 60% share of U.S. consumer spending, while the bottom 80% fall to a record low of 40%, masking financial strain for most households beneath strong headline consumer data.