Construction Market Shrinks as 2027 Bid Prices Could Keep Climbing

The U.S. construction sector presents a dichotomy.

On one hand, the construction market is shrinking, with real construction spending on track to fall for a second straight year in 2026, according to JLL’s just-released “U.S. Construction Perspective 2027.”

On the other hand, it’s costing more to build. Tender prices, which indicate what contractors want to be paid to do the work, continue to rise. To that end, JLL forecasts that the tender prices will increase by 3.1% to 4.2% in 2027.

While the increase is slower than in recent years, it remains above the pre-2020 rate of 2%-3%. As such, “costs are rising above historical norms and national pressure is increasingly local in its impacts,” the report said.

However, real estate is a local business.

“A single national escalation assumption is the riskiest number in a 2027 budget,” JLL Research Manager Andrew Volz told Connect CRE.

“Regional escalation may sit close together in aggregate, but conditions vary far more from market to market.”

Fewer Projects, Same Trades

On paper, a smaller market would mean less competition for contractors. The reality is that data centers and civil projects are bucking the construction decline, which means the demand for mechanical, electrical and plumbing (MEP) experts is and will continue to be fierce.

The report said that MEP accounts for 50% to 58% of total data center construction costs, compared with 28% to 32% for commercial buildings.

Furthermore, “77% of North American data center capacity under construction is in frontier markets that had almost no data center capacity a decade ago. They’re importing trades from nearby metros,” Volz noted.

He added that in Central Texas, development has spread from Austin’s core into nearby Caldwell County and along Interstate 35. Meanwhile, in Atlanta, operators continue to target sites outside the metro.

As a result, “expect fewer and higher bids for MEP work, as contractors with deep data center backlogs become more selective about other work,” he said.

The South’s Hidden Story

The South has the lowest forecast range of the four regions despite strong growth, according to the report.

The reason?

“Many of the South’s largest projects are held up by power first, with utility delivery timelines the primary constraint in markets such as Austin-San Antonio,” Voltz said.

“The strain is showing up as longer programs before it shows up in bids.

However, that could be a temporary blip. Voltz pointed out that JLL’s ranges average the whole region, even as work is concentrated in just a few markets.

“With the South’s real non-residential workload forecast to grow 11.5% from 2025 to 2028 against 2.4% for its non-residential construction workforce, we expect the busiest markets to price above the regional range as that work accelerates,” he remarked.

Then, There Are the Materials

It’s no surprise that material costs continue to rise; the report said the increase has outpaced bid prices since mid-2025.

Material prices have risen faster than bid prices since mid-2025, according to the report. Volz said the gap was about five percentage points in the third quarter, driven mostly by metals.

In September, steel mill products were up 27.6%, and copper shapes up 30% year-over-year. Furthermore, “trade policy sets a floor under metals and equipment, while energy costs tied to the Middle East conflict raise the embedded cost of materials produced abroad,” the report said, adding that contractors are treating the uncertainty as a trade risk premium.

As bid prices typically lag input costs by three to six months, early-2027 bids will reflect the cost increases through late 2026. In the 2021-2022 cycle, bid-price growth overtook materials about a year after the gap peaked. This time, Volz said, “contractors with full books will close it first,” while tighter bank lending for construction slows the pace at which increases pass through elsewhere.

What it Means for Owners

For owners, the question is less about higher costs and more about how and why these costs escalate, such as through tender prices, larger contingencies or contract terms.

Energy costs remain volatile, with Volz citing Energy Information Administration data showing diesel was 59.5% higher in November than a year earlier.

At the same time, data centers are coming under heavy municipal and statewide scrutiny, which could “shift where the next wave of work lands,” Volz observed.

This doesn’t mean owners should do nothing, however. “Settle who carries the risk of price rises, lead times and labor shortages before signing, because owners are taking on more of it by default,” Volz said.

Owners and contractors should also determine how price changes in moving packages, such as steel, copper and electrical equipment, are shared, while securing long-lead electrical gear early on.

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