After a period of extensive volatility, construction cost growth has stabilized and materials lead times are shrinking in many markets across the United States and Canada, as detailed in JLL’s 2024 U.S. Midyear Construction Update and Reforecast. That’s good news for companies that have delayed projects in hopes of lower interest rates and smoother supply chains. However, a closer look at four distinct industries—advanced manufacturing, healthcare, life sciences and data centers—reveals a more complex picture of continuing challenges amidst high demand for construction.

In these four key industries, escalating costs and shortages persist. In the most active markets for advanced manufacturing, healthcare, life sciences and data center construction, contractors are implementing aggressive strategies to retain their workforces—including paying higher wages despite the impact on margins. Additionally, prices for some construction materials are volatile, especially for low-carbon building goods and electrical components sought for projects in the energy-intensive advanced manufacturing and data center sectors.

Influenced by ongoing economic transformation, labor market fluctuations, and evolving design and geographic demands, organizations in the four industries are reshaping their facilities and expanding their footprints. All have highly specialized facility requirements not easily met by existing building stock. Therefore, new construction is often a necessity absent additional incentives. Further, these sectors compete for the same highly specialized trade services, thus increasing competition, labor costs, and potential for delays.

Advances in artificial intelligence and cloud computing have increased the already-high demand for data center services, in turn creating steady pressure for new data centers. Concurrently, operators face a global shortage of data center construction labor. Advances in data center technologies have only exacerbated the challenges, as today’s sophisticated data center operations require specialized mechanical, engineering and plumbing skills.

Facing a high volume of projects, the industry also must contend with over-stretched in-house project management teams—especially among cloud services providers and hyperscale data center operators. Many are turning to outsourced project management to address the volume of work.

“Demand for project management staff is very high among data center operators,” says Matt Landek, Managing Director, Data Center and Telecommunications Industries, JLL. “It’s a national problem in the United States and Canada, if not a global problem.”

In the United States, data center construction activity continues to be concentrated in Northern Virginia and other established markets, but the pressure is spreading elsewhere. In addition to optimizing energy costs, data centers also need access to plentiful water for cooling their operations. Sufficient capacity is not available in every municipality, and the stress placed on utility companies is a natural constraint on data center development. Site selection is a balancing act, as Southwest U.S. markets that offer competitive energy rates and attractive renewable energy opportunities to reduce data center operating costs are also facing water shortages. With grid connection timelines taking up to three years, alternative energy sources that can be activated in less than a year are critical for accelerating new data center activation.

Extended lead times for critical power equipment—including 120 to 200 weeks for high-voltage circuit breakers—is another constraint on data center development. Companies are adopting bulk buying practices to secure long-term cost certainty.

Specialized construction labor is in short supply for healthcare and life sciences, although shortages vary significantly by geography. States like California and Texas are seeing instances of construction companies making efforts to recruit talent from construction projects in other sectors. While material costs have stabilized in the healthcare and life sciences sector, extended lead times for electrical and mechanical equipment continue to pose challenges.

“Because of the shortage of subcontractor labor in places like Texas, companies that need the labor force and have more capital funding than healthcare companies are soliciting subcontractors directly from healthcare job sites,” says Daina Pitzenberger, Senior Vice President, Project & Development Services, JLL.

Labor shortages are also acute within the healthcare industry itself. To help attract and retain talent, some healthcare systems are pushing the envelope of their real estate strategies, investing in new nursing schools and affordable housing developments, and spurring new construction in the near term. For instance, the Burlington-based University of Vermont Health System has constructed approximately 180 housing units and a child-care center for clinicians and other employees.

For life sciences, the introduction of artificial intelligence (AI) adds another layer of complexity and also expands the sector's real estate strategy. AI's potential to revolutionize drug discovery, diagnostics, and personalized medicine is significant, but its full impact remains uncertain. The promise is nevertheless changing life science construction planning and design, as facilities must be adaptable to future technological advancements, potentially including onsite AI labs. AI-driven research requires specialized infrastructure, including power-hungry computational nodes and secure, high-capacity data storage solutions. Consequently, the demand for construction labor and materials tailored to these needs is expected to rise, further intensifying competition and costs against traditional data centers.