Rising Tariffs and Data Center Expansion Projected to Surge 2026 Construction Costs

A new Cushman & Wakefield report warns that rising tariffs and data center expansion will drive construction material costs up by nearly 7 percent in 2026.

By: AXL Media

Published: Apr 14, 2026, 8:16 AM EDT

Source: Bisnow

The Development and Material Price Surge

The core of the current cost escalation lies in the rising price of imported and domestic materials influenced by new trade barriers. Cushman & Wakefield's report suggests that even if labor costs remain static, the ripple effect of tariffs will be felt across all sectors of commercial real estate. In the first two months of 2026 alone, overall construction input prices were already tracking 3.1% higher than the previous year. While energy prices were the primary driver in early Q1, the introduction of more aggressive tariff structures has now become the dominant variable for developers planning new projects in the current fiscal year.

Sector Specific Market Impact

Not all asset classes will experience this cost burden equally, with high-tech and industrial sectors facing the steepest inclines. Data centers are at the forefront of this impact, with costs expected to rise between 3.1% and 3.4% due to their heavy reliance on expensive commodities like copper and specialized electrical components. Retail and industrial developments are projected to see similar increases, while the multifamily and office sectors may see slightly more moderate growth of 3% and 2.8%, respectively. The strategic necessity of data center expansion for the AI revolution means these projects often proceed despite higher costs, effectively setting a higher price floor for materials across the industry.

Strategic Rationale and Competitive Landscape

The cumulative 40% rise in the construction price index since 2021 has forced developers to adopt more defensive strategic positioning. As material costs rise, many firms are being forced to delay or cancel starts, leading to a construction backlog that has hit a four-year low. This contraction in supply could lead to increased competition for existing high-quality assets, as the cost of new "ground-up" development becomes prohibitive for some mid-market players. Large-scale institutional developers with more robust balance sheets may find a competitive advantage in their ability to absorb these tariff-related premiums that smaller competitors cannot.