Construction costs are poised to rise at an accelerated pace through the second half of 2026, driven by a confluence of factors including trade policies, labor shortages, and heightened demand for data center construction. This forecast, outlined in JLL's 2026 Construction Perspective: U.S. Mid-year Update, underscores the mounting budgetary pressures and contractor capacity strains that industry stakeholders must navigate.
What Happened
JLL's latest report highlights a significant uptick in construction costs, with final indices currently running about 5% higher than in the previous year. Contractors engaged in data center projects are experiencing particularly high demand, with average backlogs extending to 12.2 months compared to 8.3 months for those not involved in such projects. This increased workload is contributing to inflated costs and protracted timelines across various markets.
Several macroeconomic factors are exacerbating these challenges. Tariffs on key materials such as steel, aluminum, and copper, alongside elevated global energy prices, are inflating project expenses. Additionally, labor shortages continue to be a critical bottleneck, with construction employment growth stagnating at 0.6% in 2026. The report anticipates that supply-constrained labor markets will expand from 61% of U.S. metro areas to 72% by 2027.
What This Means for Your Business
For AECM professionals and government contractors, these trends signal a need for strategic planning and proactive procurement management. Project owners should brace for sustained cost pressures and limited contractor availability, particularly in sectors like data center construction which are experiencing surging demand. The implications for contracts and procurement are profound, with firms needing to factor in potential escalations in materials costs and labor expenses.
Compliance with evolving regulations, such as CMMC and NIST standards, remains crucial as firms navigate these financial pressures. Additionally, the industry's competitive landscape may shift, with companies that can efficiently manage costs and schedules likely to gain a competitive edge. Exploring federal funding opportunities and leveraging government contracts could offer some relief and stability amidst these rising costs.
What US Operators Should Watch
Industry stakeholders should closely monitor upcoming federal deadlines and procurement windows, as well as potential changes in trade policies that could impact cost structures. The expansion of supply-constrained labor markets by 2027 warrants attention, as it could further strain contractor capacity and project timelines. Staying informed about CMMC audit dates and bid opportunities will be essential for maintaining compliance and securing advantageous contracts.
The JLL report serves as a critical resource for industry professionals aiming to navigate these turbulent times effectively, offering insights into the cost dynamics that will shape strategic decisions in the coming years.
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