CRE Construction Costs Rise Amid Inflation in Materials
Commercial real estate construction costs have increased significantly due to rising material prices, with nonresidential inputs up 1.3% month-over-month and 8.9% year-over-year as of August 2026—the fastest annual increase since November 2022. Key drivers include surging copper (+4.2%), steel (+1.7%), diesel fuel costs (up to $6 per gallon), and repair expenses, which are impacting new developments, renovations, tenant improvements, and ongoing property operations. Higher construction and operating costs pose a challenge for real estate owners already dealing with expensive financing and refinancing risks. Nonresidential repair and maintenance costs rose 1.5% in August and 9.6% annually—also the fastest since late 2022—which could lead to deferred maintenance, reduced net operating margins, and tighter cash flow. First American economist Xander Snyder emphasized that investors must now treat construction and operational expenses as dynamic rather than static inputs when underwriting deals or planning developments. Active expense management is becoming a key source of value amid inflationary pressures.
Tickers: $FAF
Topics: commercial real estate construction costs inflation materials pricing