Higher construction costs reshape real estate viability and capital planning globally, JLL reports

• Construction costs remain structurally elevated: Annual construction cost growth of 3% to 6% represents a permanent new baseline following a 25% to 30% surge globally since 2021. With JLL forecasting a further 3.1% to 4.2% increase in global tender prices in 2027, developers and investors must move to continuous evaluation of feasibility models.
• Higher costs are rewriting real estate viability across sectors: Asset classes with strong value appreciation, such as industrial facilities and data centers, are successfully absorbing elevated build costs, while office and retail sectors face a more complex return-on-investment calculation.
• Labor cost pressures are structural, with construction wages rising 8% to 35% across markets from 2020 to 2026. Rising AI-driven demand for manufacturing facilities, high-performance offices and data centers is intensifying competition for these specialist skills.

CHICAGO, Oct. 15, 2026 – Global construction costs are settling into a permanently higher baseline, altering real estate capital planning, development feasibility and asset viability across sectors worldwide. According to JLL’s (NYSE: JLL) Global Construction Costs Index 2026 report, global pressures on the industry have established a new annual cost escalation baseline between 3% to 6%, well above the pre-2020 norm of 2% to 3%.

Complex interactions between global supply chains, politics, AI-driven demand and a wide array of local factors are generating constant upward pressure on costs, even if the underlying source or trigger isn’t exactly the same month-to-month. As a result, real estate investors, developers and occupiers can no longer rely on static cost assumptions or attempt to wait out the market through project deferrals.

“The issue facing real estate developers and investors is operating effectively within a permanently higher cost environment,” said Ben Jackson, Global Head of Development Services, Project and Development Services (PDS) at JLL. “Developers who delay projects waiting for a return to 2019-era costs are paying for that wait twice — once in carrying costs, and again when the project restarts into a market that’s moved further away, not back. The firms protecting returns right now are re-testing project viability every time rates, materials or labor shift, instead of only at financial close. They’re locking long-lead materials early, phasing projects so later stages can be repriced without killing the deal and building contingency into the base plan rather than treating it as a buffer for surprises.”

Following years of economic disruption, material volatility and geopolitical shocks, global construction tender prices are forecast to rise by an additional 3.1% to 4.2% in 2027. Regional forecasts highlight continued upward momentum, led by the Middle East (3.4% to 5.4%), Asia Pacific (3.8% to 4.7%), North America (3.2% to 4.2%) and Europe (2.2% to 3.5%).

Labor shortages, especially in high-demand skilled trades and the consequentially elevated wage growth continue to push overall construction costs higher. Globally, construction wages jumped 8% to 35% across key markets between 2020 and 2026, consistently outpacing general consumer price inflation.

“Labor constraints have created a structural shift rather than a temporary disruption,” said Ruth Hynes, Senior Director, Research at JLL. “Demographic shifts, trade training deficits and intense competition from technical sectors like data centers and advanced manufacturing mean skilled workers and specialized trades command significant pricing power. This gap is widening rather than closing, setting a higher floor for building costs globally.”

Beyond macro-economic drivers, the report emphasizes that elevated construction costs are creating a clear performance divide across property sectors, as project viability is now directly tied to how well asset value growth can absorb cost escalation.

Build typology varies widely in baseline costs across sectors. Commercial developments, including office and retail properties, carry the highest global average costs at $2,600 to $3,410 per square meter due to urban site complexity and demanding tenant specification requirements. High-rise residential construction sits at a comparable range of $2,280 to $3,710 per square meter globally. In contrast, industrial and logistics assets remain markedly less expensive, averaging $980 to $1,520 per square meter globally, although constrained urban sites in markets such as Hong Kong and Singapore push regional averages higher.

Consequently, stronger-performing sectors such as industrial logistics and data centers are absorbing cost increases more effectively because rental growth and capital values have outpaced construction inflation over the past five years. Conversely, sectors experiencing softer value growth face a much tighter viability equation, forcing sponsors to adopt more sophisticated value-creation strategies.

With cost stabilization replacing acute volatility, waiting for construction pricing to drop carries financial risk. Costs continue to increase and global events have proven incredibly disruptive to assumed timelines for even modest price relief actions, like central banks lowering interest rates. Real estate stakeholders attempting to wait prices out have seen costs escalate faster than anything relief effort could offset.

Furthermore, delayed decision-making exposes projects to compounding lead-time risks, as key mechanical, electrical, and plumbing (MEP) systems currently carry lead times exceeding 20 weeks. While potential monetary policy easing and interest rate cuts offer some relief on financing costs, elevated Tender Price Inflation means rate cuts alone cannot fully offset higher overall capital outlays.

Rather than pausing capital deployment, market leaders are focusing capital on premium assets that command greater returns, applying full-lifecycle value models that prioritize long-term operational performance, and expanding portfolio retrofits to avoid the high expense of new ground-up construction.

"Construction costs have reset at a higher level, and owners should plan around that rather than wait for relief,” said Cynthia Kantor, CEO of Project & Development Services at JLL. “The owners who keep delivering returns are the ones who test feasibility against live cost data from day one, re-confirm it at every design and procurement gate and favor retrofit and repositioning where it beats ground-up on cost, speed, and carbon.”

Should developers delay new construction projects in hopes that costs will fall?

No. Research indicates construction cost escalation has established a permanently higher baseline of 3% to 6% annually. Cost pressures will not reverse, especially as demand for construction accelerates from the current trough. Further, as the challenges facing the industry are global and complex there is considerably potential for price increases upstream that affect multiple layers of the economy and add unexpected, compounding increases above the baseline rate.

How does cost escalation affect real estate viability across different sectors?

Viability depends heavily on a sector’s ability to drive value growth. Sectors with strong rental and capital value growth, such as industrial logistics and data centers, can absorb higher build costs effectively. Sectors where value growth has lagged construction inflation face tighter viability hurdles and require more disciplined capital planning.

What is JLL’s forecast for global construction tender price inflation in 2027?

JLL forecasts global construction tender price inflation will rise by an additional 3.1% to 4.2% in 2027. Regional forecasts include the Middle East (3.4% to 5.4%), Asia Pacific (3.8% to 4.7%), North America (3.2% to 4.2%) and Europe (2.2% to 3.5%). Tender price inflation measures the year-over-year change in the prices contractors bid for new build projects, reflecting current market conditions, including labor costs, material prices and competitive pressure. This provides developers with a forward-looking indicator of actual construction costs when awarding contracts.

Will anticipated central bank interest rate cuts offset higher construction costs?

While interest rate reductions help lower borrowing costs, their impact is limited. Because annual Tender Price Inflation remains elevated at 3% to 6%, structural cost growth continues to outpace the savings provided by incremental rate cuts.

How should investors and occupiers adjust their capital planning to this new environment?

Organizations should move away from single point-in-time feasibility assumptions and implement continuous re-underwriting throughout the project lifecycle. Best practices include incorporating cost intelligence early in the feasibility phase, deploying risk-based procurement to lock in volatile trade packages, focusing on premium value-add assets, and expanding strategic renovation programs across existing portfolios.

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