Construction Costs Jump 6.2% As Energy Prices Pressure Development Budgets

Developers are facing another round of cost increases as inflation and energy markets push material prices higher.

Nina Dale
May 15, 2026

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Good morning. Construction costs are rising at their fastest pace in years, driven by surging energy prices and renewed commodity inflation. Developers are now contending with higher expenses across nearly every stage of the building process.

CRE Trivia 🧠

What nickname did legendary real estate investor Sam Zell proudly embrace for buying distressed properties during market downturns?

(Answer at the bottom of the newsletter)

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Market Snapshot

S&P 500

GSPC

7,501.24

Pct Chg:
+0.77%

FTSE NAREIT

FNER

837.31

Pct Chg:
-0.34%

10Y Treasury

TNX

4.481%

Pct Chg:
+0.002

SOFR

30-DAY AVERAGE

3.64%

Pct Chg:
-0.00

*Data as of 5/14/2026 market close.

Building Inflation

Construction Costs Jump 6.2% As Energy Prices Pressure Development Budgets

Construction input costs are rising at the fastest pace in years, putting fresh pressure on development budgets across the U.S.

By the numbers: Construction input prices climbed 6.2% between January and April 2026, according to Associated Builders and Contractors’ analysis of BLS data. That four-month increase outpaced the cumulative 4.8% rise recorded over the previous three years combined.

Fueling the inflation wave: Energy commodities drove much of April’s increase as inflation, tariffs, and tensions tied to the Iran conflict pushed costs higher across transportation, manufacturing, and construction supply chains.

Crude petroleum jumped 11.3% month-over-month and is now up 61.8% year-over-year.
Unprocessed energy materials rose 9.2% in April and are up 48.9% annually.
Natural gas prices increased 4.9% month-over-month and 27.3% year-over-year.

Continue climbing: Overall construction materials costs were 7% higher than a year ago, while nonresidential construction materials rose 7.4% annually. Beyond energy, several core building materials also posted notable increases in April.

Softwood lumber rose 5.5% month-over-month.
Hot rolled steel bars increased 4.1%.
Steel mill products and industrial controls equipment both climbed 3.8%.

Facing added pressure: Between March and April alone, overall construction input prices increased 1.7%, with nonresidential input costs slightly higher at 1.8%. ABC Chief Economist Anirban Basu noted that the pace of increases this year has been unusually sharp, signaling a growing strain for developers already navigating tighter financing conditions and uncertain economic forecasts.

Inflation pressure builds: The construction sector’s price increases mirror broader inflation trends across the economy. Wholesale inflation rose 1.4% in April from the prior month, significantly above economists’ expectations and double March’s increase, according to the WSJ.

➥ THE TAKEAWAY

Underwriting gets tougher: Developers hoping for cost stabilization are getting the opposite. With energy and commodity prices climbing again, construction underwriting is becoming tougher, especially for projects with thin margins, long timelines, or fixed-price contracts.

INVESTOR SENTIMENT

Where Is CRE Sentiment Heading Next?

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✍️ Editor’s Picks

Tax savings: Maximize depreciation with the nation’s leading cost segregation firm, 25% less than competitors. Cost Segregation Guys completed 10,000 studies and $1B in depreciation last year. Get a free analysis today! (sponsored)
Sky compute: Google and SpaceX are negotiating rocket launches for orbital AI data centers as tech giants accelerate efforts to build space-based computing infrastructure despite major launch constraints.
Data breach: Cushman & Wakefield is facing a class action after a cyberattack allegedly exposed client personal and financial data, following confirmation of a recent security incident.
Job rebound: U.S. metro job growth improved in March 2026, led by Texas and Western markets while Northeast cities continued to lose jobs.

🏘️ MULTIFAMILY

BTR reprieve: House removed proposed restrictions on build-to-rent, allowing institutional investors to continue acquiring single-family rentals ahead of a key vote.
Rent split: Sun Belt oversupply is pushing rents lower and increasing concessions, while coastal and Northeast markets see rising rents and growing affordability pressure for renters.
Mobility freeze: U.S. households are moving less than ever as affordability pressures, mortgage lock-in, remote work, and aging in place push renters and homeowners to stay put.
Student capital: Core Spaces raised a $1.64B student housing fund, marking one of the largest capital raises ever in the sector as investor demand remains strong.
Mixed exit: Kilroy Realty sold $202M of Hollywood apartments as part of a shift away from mixed-use development, highlighting uneven performance in live-work-play strategies across markets.

🏭 Industrial

Micro warehouses: WareSpace acquired a $15.8M Santa Fe Springs industrial property to expand its small-bay warehouse platform, converting the vacant site into flexible units amid tight LA supply.
Wichita boost: Boeing is investing $1B in its Kansas facilities to upgrade factories, expand training, and support a production ramp-up of 737 Max aircraft following its Spirit AeroSystems integration.
DHS probe: A DHS inspector general is reviewing the $38B warehouse detention program, focusing on procurement and compliance issues tied to facility conversions.
Generation sale: Outrigger Industrial sold a 1M SF warehouse in Houston’s Generation Park and fully leased another building, highlighting strong demand for well-located industrial assets.

🏬 RETAIL

AI retail: Colliers reports that AI is transforming retail real estate by turning stores into logistics and data hubs while reshaping design, operations, and investment priorities across the sector.
Value shift: Retail is shifting toward essentials and value formats as higher costs and tariffs squeeze discretionary spending and push retailers into smaller, flexible footprints.
Retail strength: U.S. retail sales rose for a third straight month in April, up 0.5% month-over-month and 4.9% year-over-year despite higher inflation and weaker consumer sentiment.

🏢 OFFICE

Heartland workspaces: Indie coworking is expanding across U.S. cities, led by Midwest hubs where local operators dominate and remote work drives demand for flexible office space.
Fit-out costs: Office fit-out costs in the U.S. and Canada average $295/SF in 2026, rising due to AI-driven tech demands, labor shortages, and tariffs that are widening regional price gaps.
Cohen default: Charles Cohen defaulted on a $150M loan tied to Manhattan’s D&D Building as falling occupancy and rising costs strain the property and his broader portfolio.
HQ move: Illumio is relocating its HQ to Santa Clara, signing a 120K SF lease at Campus at Scott as it expands its footprint.

🏨 HOSPITALITY

Hotel selloff: Ashford Hospitality Trust is selling six hotels for about $155M as part of an ongoing strategy to reduce leverage and improve liquidity through continued asset divestitures.
Foreclosure ruling: A judge ordered a $204M foreclosure auction for Miami Beach’s Goodtime Hotel after a default dispute and ongoing financial and legal pressure on the property.

📈 CHART OF THE DAY

According to Gallup, real estate was again ranked the top long-term investment, holding the No. 1 spot every year since 2014.

CRE Trivia (Answer)🧠

“The Grave Dancer.” Zell coined the term himself in a 1975 essay describing his strategy of acquiring assets from overleveraged owners during periods of distress.