JLL Says Construction Costs Will Rise 3% to 6% a Year

JLL’s Global Construction Costs Index for 2026 projects that worldwide construction costs will climb 3.1% to 4.2% in 2027, following a 3.5% to 4.7% rise this year.

JLL’s report, published Oct. 15, says a yearly increase between 3% and 6% has become the number to plan around, against a 2%-3% norm before 2020.

A Higher Baseline

Before 2020, JLL says, developers could count on predictable materials pricing, interest rates under 2%, steady labor supply and models that assumed straight-line cost growth over five to 10 years. That setup is gone. JLL says feasibility models now need continuous evaluation, developer margins may be compressed and value growth increasingly depends on the sector.

Across the last five years, costs rose 25% to 30% on average worldwide and up to 40% in some markets, JLL found. The firm expects material prices to move 20% to 40% up or down across the coming three to five years, with interest rates sitting between 3% and 5%.

Regional Outlook

JLL expects North American costs to rise 3.2% to 4.2% in 2027, driven by materials, U.S. trade policy and labor shortages. Asia Pacific is forecast at 3.8% to 4.7%, the Middle East at 3.4% to 5.4% and Europe at 2.2% to 3.5%.

Middle East cost growth is cooling from an estimated 5.7% to 7.7% in 2026, per JLL, though the conflict still disrupts supply chains.

Tender Prices Outrun Inflation

Tender prices have outpaced consumer inflation in most markets over five years, JLL reported. Germany, Australia and Singapore show the biggest divergences, while Britain, Spain, Canada, France and China track closer to general inflation.

JLL reads that gap as proof that energy swings, geopolitics and trade disruption hit construction harder than the broader economy.

Labor Is the Constraint

Pay for construction workers is up between 8% and 35% across markets since 2020, and 1% to 6% a year on average lately, per JLL. The firm expects similar yearly gains to continue through 2027, making labor the clearest upward pressure on costs.

In JLL’s 2026 survey of its Projects and Development Services markets, 64% reported skilled labor shortages, versus 48% for unskilled workers. Electrician and carpenter shortages affect 64% of markets each, and plumber and HVAC technician shortages affect 58%, JLL found.

Data centers and advanced manufacturing compete for the same mechanical and electrical technicians, so JLL expects wage premiums to persist.

Costs by Sector

JLL puts global averages at $2,600 to $3,410 per square meter for shell-and-core offices and $2,280 to $3,710 for high-rise residential. Industrial and logistics space is far cheaper, at $980 to $1,520.

JLL says industrial and data center projects absorb escalation better because values are rising. Technology and AI assets add strain by drawing specialist labor and stretching lead times for cooling and HVAC equipment.

Why It Matters

Higher costs have not stopped capital deployment, JLL found, but they have changed underwriting. The firm sees owners favoring premium assets, full lifecycle returns and renovation programs that weigh escalation against the price of new construction. That pattern matches how construction costs push projects to the sidelines, as CRE Daily has reported.

For occupiers, JLL recommends bringing cost consultants in at the business case stage and locking pricing early, through fixed-price contracts or direct buying, on volatile packages such as structure and MEP, which drive most of a project’s cost. For investors, it advises re-testing pre-2024 projects against 2026 benchmarks and pooling demand across a portfolio to win volume pricing.

What’s Next

JLL tells occupiers to accelerate priority projects ahead of the forecast 2027 increases. In its view, managing costs in 2027 will mean building the ability to operate within volatility rather than waiting for it to pass.