Tariffs and Data Center Demand Driving Construction Cost Increases
Construction project costs are projected to rise by 2.8% to 3.4% in 2026 due to tariff impacts on material prices. Data centers, along with retail and industrial sectors, will experience the highest cost increases, between 3.1% and 3.4%.
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Construction costs are forecasted to increase by 2.8% to 3.4% in 2026, primarily driven by tariffs on materials. Data centers are expected to see cost rises of 3.1% to 3.4%, while multifamily projects will see a 3% increase and office conversions will rise by 2.8%.
As of early 2026, overall construction input prices were 3.1% higher than the previous year. The producer price index for construction rose by 2.8% in 2025, indicating a cumulative 40% increase over the past five years. These rising costs have negatively impacted construction starts and reduced the construction backlog to a four-year low, posing risks to project timelines.
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