🏗️ High Construction Costs Reshaping Global Capital Planning! 📈

[Alper Aktaş]

Global construction costs are permanently settling at a higher base, transforming cross-sector real estate capital planning, development feasibility, and asset viability worldwide, driven by increasing demand for manufacturing facilities, high-performance offices, and data centers.

📊 A New Standard for Cost Escalation​

According to JLL's Global Construction Cost Index 2026 report, global pressures on the sector have established a new annual cost escalation base of 3% to 6%, exceeding the pre-2020 norm of 2% to 3%, as construction costs remain structurally high.

This shift, according to the commercial real estate services and investment management company, creates a new permanent base by focusing on sector value growth and continuous project re-evaluation.

🚀 Data Centers and Industrial Facilities on the Rise​

JLL has identified that data centers, in particular, are driving part of this change. Asset classes showing strong value appreciation, such as industrial facilities and data centers, successfully absorb high construction costs, while the office and retail sectors face a more complex return on investment calculation.

The complex interplay between global supply chains, politics, AI-driven demand, and a wide variety of local factors creates continuous upward pressure on costs, even if the underlying resource costs are not the same month-to-month.

As a result, real estate investors, developers, and users can no longer rely on static cost assumptions or wait out the market through project deferrals.

🌍 Regional Forecasts and Labor Shortages​

The report predicts that global construction tender prices will increase by an additional 3.1% to 4.2% in 2027, following years of economic disruption, material volatility, and geopolitical shocks. 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, particularly in high-demand skilled trades, and the resulting increased wage growth continue to drive up overall construction costs. Globally, construction wages in key markets increased by 8% to 35% between 2020 and 2026, consistently outpacing general consumer price inflation.

🏗️ Cross-Sector Performance Gap​

High construction costs are creating a performance gap between property sectors, as project feasibility depends on how well asset value growth can absorb cost increases.

While commercial developments bear the highest global average costs, industrial and logistics assets remain less expensive.

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

"Construction costs have reset to a higher level, and owners should plan accordingly rather than expect relief," said Cynthia Kantor, CEO of JLL Project and Development Services. "Owners who continue to deliver returns are those who test feasibility against live cost data from day one, reconfirm it at every design and procurement stage, and opt for renovation and repositioning where it beats ground-up construction in terms of cost, speed, and carbon.