01
Do projected construction cost increases impact certain CRE property types more than others?
8.5%-9.6%
The projected percentage increase in construction materials costs for CRE projects in 2025 attributable to tariffs ranges from
WHAT TO WATCH
DID YOU KNOW?
Did you know text Note: Supporting note if needed.
READ MORE
Link 2
Link 1
+
1 Based on in-place tariff rates, static import levels across countries, 75% cost pass-through to users, and typical product mix contributions to overall materials costs according to C&W Project & Development Services. 2 For this analysis, we have assumed no change to the cost of labor or other construction inputs (see question 3). 3 Office Fit-Out represents renovations to existing office structures that typically does not require changes to the primary structural components such as envelope, foundation and windows. Source: Cushman & Wakefield Research (Data as of Sept 30, 2025)
Which building materials are most likely to experience cost increases?
02
What proportion of CRE project costs are related to materials versus labor and other inputs?
03
Which countries are important sources of imported building materials?
04
How likely are suppliers and contractors to pass along cost increases to their clients?
05
Can contractors avoid cost increases by sourcing products domestically?
06
Have tariffs begun to impact construction pipelines?
07
What steps can developers take to underwrite effectively and mitigate cost overruns?
08
1
The projected percentage increase in total costs for CRE projects in 2025 attributable to tariffs ranges from
4.4%-4.8%
across property types.2
Data Centers will be impacted the most due to their heavy use of metals including copper, which is a key input for cooling systems, data transmission and power cables, grounding and safety products, and electrical systems. Large hyperscalar AI data centers can use upwards of 50,000 tons of copper per facility. With the exception of “Office Renovation,”3 the analysis is based on the most common mix of material inputs used in ground-up development. Materials costs will vary across regions and property types depending on supplier market dynamics such as product origin sources and local competitiveness for building products.
Yes, there is some notable differentiation in projected construction costs based on property type.
Analysis
1 China and Russia bring weighted average above baseline due to “stacking” of sanctions and reciprocal tariffs that amount to more than the 50% tariff on these products Source: Cushman & Wakefield Research (Data as of Sept 30, 2025)
Analysis Steel, aluminum, copper and lumber have product-specific tariff rates while other building materials are taxed based on reciprocal tariff rates, which vary by country of origin. Metals used in construction face the steepest cost increase due to a 50% tariff rate on steel, aluminum and some copper products. Product pricing for end users is not solely dependent on tariff rates. Import patterns may shift to lower cost sources, domestic supply may recalibrate, and pricing will respond to changes resulting from global supply/demand dynamics. Real-time trading prices for building materials commodities have been volatile given the policy uncertainty, presenting challenges for importers negotiating contract prices for inbound building materials shipments.
All building materials costs are likely to increase near term due to current trade policy, which will impact construction costs for CRE projects.
1 For this analysis, we have assumed no change to labor and other costs in order to isolate the tariff impact. We also make no assumptions about developers substituting tariffed materials for lower cost alternatives. Source: Cushman & Wakefield Research; Cushman & Wakefield Project and Development Services
Analysis Materials cost fluctuations are critical for CRE construction development but generally account for less than labor costs in terms of total project expenses. Other costs such as permitting and energy use also factor in. On average, materials account for 35-45% of total CRE project expenses, according to nationwide approximations from Cushman & Wakefield’s Project and Development Services experts. Construction labor is also becoming more expensive; wage growth among construction workers increased 4.2% YOY in Q2 2025 versus Q2 2024, which is an acceleration from 2.9% YOY in Q1.1 Labor will be critical to monitor in terms of total CRE project costs as materials costs increases evolve.
* Metals (Copper, Steel, Aluminum), Structure (Lumber, Concrete, Masonry), Envelope and Finish (Glass, Plastics, Textiles) Source: U.S. Census Bureau (BOC), Moody’s Analytics, Cushman & Wakefield Research (Data as of Sept 30, 2025)
Analysis Approximately 40% of all building materials used in CRE construction are imported from foreign sources. The U.S. relies heavily on Canada and Mexico for products like lumber, copper, steel, and gypsum, which historically have been exempt from tariffs under USMCA, until the 2025 tariffs were implemented. The U.S. has lowered its dependence on Chinese imports of building materials; however, U.S. imports of plastic, aluminum and glass products remain high.
The majority of building materials imports come from Canada, Mexico and the European Union (52%).
1 Research from Goldman Sachs, Yale Budget Lab and other credible sources suggest a 75%-90% pass-through of tariff costs to end users. We have assumed a 75% pass-through rate for the purpose of this analysis (subject to change with more data-driven evidence). Source: Goldman Sachs Research, Yale Budget Lab
Analysis Tariffs are paid by the importer of the product when it clears U.S. customs. However, the cost internalization may be felt throughout the entire construction supply chain. Importers may negotiate with foreign suppliers to reduce contract prices to help offset tariffs or seek out alternative lower-cost foreign and domestic sources. If demand substantially shifts toward these suppliers, this could potentially drive up their prices and neutralize the cost advantage. Importers of building materials also have the option to internalize tariffs costs (which erodes profitability, all else equal) or raise prices to their end-users. Some combination of the cost burden is shared across suppliers, importers, contractors and end-users of real estate.
The limited historical incidence of tariffs makes it difficult to definitively conclude which portion of the cost increases falls on contractors (and by extension, occupiers), but economic research points to at least a 75% pass through of costs.1
Source: U.S. Bureau of Labor Statistics, Cushman & Wakefield Research
Analysis Import prices for building materials (excluding metals) have declined 2.8% year-to-date through August. However, import prices exclude the customs duties paid for tariffs and do not reflect the full cost borne by domestic users. By contrast, the producer price index (PPI) for building materials increased by 2.6% year-over-year as of August, suggesting that tariffs are raising prices for materials of both imported and domestically- sourced product. At present, U.S. production capacity is unable to meet domestic demand for most key building materials. For example, with copper, the U.S. produces only about 60% of the capacity consumed each year, meaning that foreign suppliers are critical to supporting construction activity. U.S. manufacturers may invest in new plants and refineries, but these facilities often take up to a decade to come online. Labor constraints and outdated facilities are also potential barriers. Substantial modernization of existing facilities and new investment will be required if the U.S. is to become self-sufficient in terms of sourcing building materials.
At present, U.S. production capacity is unable to meet domestic demand for most key building materials.
Analysis Import prices for building materials have declined 2.5% year-to date through June, However, import prices exclude the customs duties paid for tariffs and do not reflect the full cost borne by domestic users. By contrast, the producer price index (PPI) for building materials increased by 6.3% year-over-year as of July, suggesting that tariffs are raising prices for materials of both imported and domestically sourced product. At present, U.S. production capacity is unable to meet domestic demand for most key building materials. For example, with copper, the U.S. produces only about 60% of the capacity consumed each year, meaning that foreign suppliers are critical to supporting construction activity. U.S. manufacturers may invest in new plants and refineries, but these facilities often take up to a decade to come online. Labor constraints and outdated facilities are also potential barriers. Substantial modernization of existing facilities and new investment will be required if the U.S. is to become self-sufficient in terms of sourcing building materials.
Answer
* % Change is expressed in square footage except data centers which are expressed in % change in MegaWatts Source: Costar, Cushman & Wakefield Research, DC Byte
Analysis As of Q2 2025, the supply pipeline for office space is down 62% from the 5-year average; the industrial pipeline is the lowest since 2017; groundbreaking on multifamily units is the softest since 2012; and retail construction has been subdued for years. High interest rates, cautious (but improving) bank lending, and the recent wave of supply are all contributing to softer construction activity. Further cost increases arising from tariffs will likely exacerbate these development challenges in the near term. Trade policy uncertainty is just as impactful as the tariffs themselves. With trade policy in constant flux, pricing volatility and uncertainty around future cost expectations may hinder new development and slow the CRE construction pipeline. Greater clarity will be needed before market participants can confidently underwrite projects with more predictable materials cost expectations.
Construction pipelines were already thinning due to supply and demand conditions and have become even more constrained in Q2 2025.
