Just six weeks after an initial surge tied to the war in Iran, commercial real estate construction costs are climbing again, with price increases now accelerating across a wider range of core materials and inputs. What began as a geopolitical disruption has deepened into a full-scale cost squeeze, hitting everything from metals to fuel and complicating an already fragile development pipeline.
According to The Wall Street Journal, prices for several essential construction materials have surged in recent weeks. Copper, a critical component in electrical systems for projects ranging from residential housing to data centers, is hovering near record highs. Aluminum spot prices have reached all-time highs, driven in part by supply chain disruptions tied to the closure of the Strait of Hormuz and the imposition of 50% tariffs on imports.
Fuel costs, which directly affect construction site operations and transportation, have climbed alongside petrochemicals, resins and plastics—materials embedded throughout modern building systems. The breadth of these increases suggests that developers are no longer dealing with isolated cost pressures but a synchronized rise across multiple categories.
"Input prices have now risen more during the first four months of 2026 than over the prior three years," Anirban Basu, chief economist at Associated Builders and Contractors, told the Journal. "These cost pressures will likely weigh on construction activity over the coming months."
Lumber, which had shown signs of stabilizing, is also moving higher again. Softwood lumber spot prices have risen nearly 10% since the start of the year and more than 30% from December lows, reflecting reduced production and imports, according to the Journal. While tariffs on Canadian lumber are expected to ease from 35% to 25% later this year, that relief will likely arrive after the peak building season, limiting its near-term impact.
At the same time, supply-side constraints are tightening in less visible but equally critical areas. The war has reduced supplies of sulfuric acid, a key input in copper processing, further constraining availability. That pressure is compounded by a major Indonesian mine disaster in September 2025 that, according to Reuters, is unlikely to return to full capacity until 2027. With demand for copper rising from both data center expansion and electric vehicle production, the imbalance is becoming more pronounced. A typical U.S. home alone requires more than 400 pounds of copper across wiring, plumbing and fixtures.
For commercial real estate, the renewed surge presents a more complex challenge than earlier waves of inflation. Developers have already spent several years adjusting underwriting assumptions, building contingencies and repricing projects to account for higher costs. The current environment, however, is testing those adjustments by layering geopolitical risk atop structural supply constraints.
There are early signs that projects are still moving forward, but with less margin for error.
"If we see an uptick of a few points on the construction, it's not going to be enough for those deals not to move forward," Paul Giorgio, chief operating officer at Eldridge Acre Partners, told the Journal. "But at some point there'll be a tipping point."
That tipping point is becoming a central concern for the industry. Incremental cost increases can often be absorbed through higher rents, value engineering or revised capital stacks. But when multiple inputs rise simultaneously—and unpredictably—it becomes harder to maintain deal viability, particularly for projects that were already marginal.
In practical terms, this environment is likely to widen the gap between projects that can move forward and those that cannot. Well-capitalized developers, build-to-suit projects and sectors with strong demand drivers, such as data centers and certain industrial assets, may continue to advance despite higher costs. More speculative development or projects with thinner margins could face delays or cancellations if pricing volatility persists.
For now, the market remains in motion. But with costs rising faster than they have in years and supply disruptions showing few signs of easing, the industry is moving closer to the point where resilience gives way to restraint.
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