Trade policy pressures and geopolitical disruptions are driving construction costs above earlier forecasts, with further acceleration likely in the second half of 2026. The impact varies widely, as companies building in markets with heavy data center activity face the biggest cost jumps and scheduling challenges. These are often in the same high-performing markets driving their real estate demand. According to JLL’s 2026 Construction Perspective: U.S. Mid-year Update, recognizing these overlaps and acting before contractor capacity fills up is what separates manageable projects from constrained ones.
Key highlights
- Final-cost indices including margins are already running roughly 5% year-over-year; the November report’s upper bound (~8%) has a meaningful probability of being reached in the second half of 2026.
- Tariff pass-through and geopolitically embedded energy costs are two independent cost channels moving simultaneously — neither is receding, and neither responds to the same policy conditions.
- Section 232 tariffs on steel, aluminum, and copper carry a permanent 50% rate with no statutory ceiling or expiration. The pending Section 301 excess-capacity determination could stack additional duties on top.
- Labor constraints are structural and geographically locked: 61% of U.S. metro markets are currently supply-constrained; that share rises to 72% by 2027.
- Both relief mechanisms from the November outlook are gone: the June FOMC signal moved to a potential hike (3.8% median year-end projection, up from 3.4%), and USMCA renegotiation does not reach Section 232 goods.
- Demand has bifurcated between data-center-adjacent work and everything else, creating a procurement window for owners whose programs don’t compete for the same contractor capacity.
“The in-demand markets are those where labor’s been tight and isn’t expected to keep pace with growing pipelines,” said Louis Molinini, head of Project and Development Services, Americas, 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. 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.”
Read the full report here.
