Construction Costs Rise Even as Bidding Volume Slows in 2026

Construction Costs Rise Even as Bidding Volume Slows in 2026

Construction costs are climbing even as bid volume slows, and the reason isn’t a broad market slowdown, it’s a split market, Construction Today reports. Citing JLL’s latest Construction Outlook Report, the publication found that cost indices rose about 5% year over year in 2026, with further acceleration expected in the back half of the year, even as total construction spending softens and developers delay projects.

Background

Construction Today’s reporting on the JLL data frames this as a divergence rather than a contradiction. Overall commercial construction spending has moderated in 2026, financing costs remain high and many developers have paused projects. But owners are still seeing higher bids, longer procurement timelines and greater budget uncertainty, because demand has concentrated in a handful of sectors rather than spreading evenly across the market.

Data centers, energy infrastructure and advanced manufacturing are absorbing a disproportionate share of skilled labor and specialist subcontractor capacity, according to the JLL figures cited in the report. Contractors actively working data center projects reported average backlogs of 12.2 months, compared with 8.3 months for contractors without that exposure. That’s not just a fuller order book, per Construction Today, it reflects where mechanical, electrical, cooling and structural trades are being committed months or years in advance.

Labor is the more structural problem. JLL estimates construction employment growth slowed to 0.6% in 2026, well below the historical average of 2.7%, and projects that nearly three-quarters of US metro markets could face construction labor constraints in 2027. Federal wage data referenced in the report shows steady increases in average hourly earnings, which JLL attributes to sustained competition for qualified workers rather than short-term inflation.

Analysis

The two-speed market described in this report has direct margin implications for subcontractors, and the effects won’t be uniform. Firms with mechanical, electrical, cooling and switchgear capabilities tied to data center and energy work are booked out over a year in some regions, giving them real pricing power. Meanwhile, subcontractors in trades and markets without that exposure, general commercial mechanical, standard electrical, finish carpentry, are competing for a shrinking pool of conventional office, logistics and mixed-use work, often with less leverage on price.

That imbalance means the traditional signal subcontractors use to gauge market health, national construction spending, is losing predictive value. A softening headline number doesn’t mean easier bidding conditions everywhere. In metros with heavy hyperscale data center or manufacturing investment, labor pools and specialist trades stay tight regardless of what’s happening to office or retail construction nationally. Two similarly scoped projects in different regions can price out very differently because they’re drawing from different labor markets entirely.

The persistence of the labor shortage is the bigger story for margin planning. Material price swings can reverse with a tariff change or a supply chain fix. Labor shortages can’t, because training an experienced electrician, mechanical specialist or project supervisor takes years. That means subcontractors who can staff up or retain skilled crews in constrained metros are positioned to hold pricing power well past 2026, while firms without that bench strength risk getting squeezed on both ends: rising material and wage costs on one side, thinner bid margins from more selective competition on the other.

Early contractor involvement, which the report frames as an owner strategy, cuts the other way for subcontractors too. Getting looped in during design development rather than after documentation is finalized gives subcontractors more say in identifying long-lead equipment and locking in pricing before volatility hits, rather than bidding fixed-price against unknowns.

What It Means for Subcontractors

• Mechanical, electrical and cooling subcontractors with data center or energy-sector clients can expect backlog advantages, JLL cites 12.2 months average backlog for data-center-exposed contractors versus 8.3 months for others, and should use that leverage in 2026-2027 pricing negotiations rather than discounting to win volume.
• Firms without hyperscale or manufacturing exposure should target regions where commercial development has slowed rather than competing broadly, since JLL’s data shows overall spending has moderated enough to create openings in office, logistics and mixed-use bidding in less-constrained metros.
• Structural steel, switchgear and mechanical equipment subcontractors should push for earlier material reservations during design development, since the report identifies these as the components most exposed to tariff-driven and supply-chain pricing volatility.
• Labor-constrained trades, especially electrical and mechanical specialists, should plan staffing and retention now: JLL projects nearly three-quarters of US metro markets could face construction labor constraints in 2027, a shortage the firm says can’t be resolved as quickly as material costs.
• Track regional contractor backlog data, not just national construction spending figures, before submitting 2026-2027 bids, since the report notes that similarly scoped projects in different metros can price very differently depending on local labor pool competition.
• Subcontractors should request earlier involvement in design-phase discussions with owners and GCs rather than waiting for finalized documentation, giving more room to lock in pricing on long-lead items before escalation hits.