REGIONAL OVERVIEW

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RESILIENCE

Underlying resilience across North American construction markets, despite simmering tariff uncertainty

North American markets dominate the upper half of the global construction cost rankings. While New York City, San Francisco and Los Angeles take the top three places for the region, cities outside of the usual US hotspots are becoming increasingly active hubs for construction activity. In Canada, a new government is looking to stabilise trading relationships globally and our survey reflects concerns in both countries over supply chain disruption.

At a national level, average construction costs in the US stand at US$4,526 per m², while those in Canada come to a lower US$3,225. Construction cost inflation in several US markets is edging up at 5.0 percent and a high volume of large teams working on long-term and large-scale projects is putting pressure on a shrinking labour pool. With specialist skills in high demand, companies should be investing in local training to address skills shortages, which are reported in over two thirds of North American regions.

Breakdown data

Data: Tendering conditions

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Data: Key challenges

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Data: Supply chain

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Data: Labour

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Data: Digital (BIM)

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Top performing sectors

Industrial manufacturing and distribution

Transport and mobility (road, rail, airport and ports)

Data centres

Pushing past tariff nerves

The impact of the US’ tariff interventions on global trade and supply chains is the hot topic across the market and is creating uncertainty for the future. Although the United States-Mexico-Canada Agreement provides some protection across North America, our survey indicated that some projects are being paused.

However, disruption and price fluctuation, as a result of tariffs, has been mitigated near-term through prudent planning by many US and Canadian businesses.

Many businesses have been proactive in their approach to supply chain challenges, having learned lessons from the pandemic disruption. Some clients have alleviated issues by stockpiling inventory, which has helped cushion the recent turbulence, as buying in bulk early reduces risk and provides certainty over lead times, although can come at greater cost. Our data suggests some materials are experiencing severe delays, with wait times for steel and pre-cast concrete often tipping beyond 41 weeks.

INSIGHT "Almost half of the respondents expect the supply chain to deteriorate in the next 12 months."

Long term, there are concerns over the impact of tariffs on the supply chain. These concerns were reflected in our survey, with almost half of the respondents expecting the supply chain to deteriorate in the next 12 months. This worry is increasing the emphasis on robust procurement strategies, reinforcing the need to ensure approaches are tailored to the scope and timetable for each client’s capital investment programme.

Increased diversification in investment

Traditionally hot markets across the region are low on space and skills availability, which is leading some developers to explore new avenues. San Francisco, which reported a skills shortage in our survey, is the second most expensive city to build in globally, at US$5,504 per m², and overall construction costs may increase by 4.0 percent in 2025.

In other established markets, including New York City – the most expensive city for construction globally – and Chicago, where construction costs are rising at 3.5 percent, there’s widespread focus on retrofit and refurbishment, to support the reinvention of 20th century stock to meet growing occupier demands for buildings with sustainable credentials.

These specialist requirements are driving high demand in retrofit and refurbishment is being seen in New York and Chicago, and Canadian markets like Ottawa and Toronto. The focus on adaptive reuse is helping to deliver more housing at a lower cost by unlocking value from unused office space by repurposing to residential.

Meanwhile, there are ongoing opportunities in secondary markets like Atlanta, Denver, Phoenix, Nashville, Indianapolis, Dallas and Austin, which benefit from lower costs, and good connections with other labour hubs. These regions have sought to attract investment from buoyant sectors. Indiana, for example, has seen recent multi-billion investments in life sciences manufacturing, with a major US life sciences player developing a 250-acre campus in Lebanon. Phoenix has been a hotspot for semiconductor manufacturing investments, while Nashville has continued to benefit from developer investments in the city, and its well-established automotive manufacturing sector.

INSIGHT "San Francisco, which reported a skills shortage in our survey, is the second most expensive city to build in globally, at US$5,504 per m², and overall construction costs may increase by 4.0 percent in 2025."

The counter to this demand is a challenge over market capacity. Growth in advanced manufacturing, data centres and life sciences is pulling resources from other key sectors, including residential, and is steadily increasing the cost to build, as supply chain capacity tries to keep pace with demand. Average prices in some of the secondary markets home to these growth sectors are poised to increase. In Austin and Atlanta, for example, construction cost inflation is expected to rise to 5.0 percent in 2025, the highest rate in North America.

With a new administration placing emphasis on delivering ‘nation-building’ infrastructure at scale, the construction of social infrastructure has remained resilient, with sustained public funding for healthcare and education. This comes through in the survey results, in which education is one of the top-performing sectors across Toronto, Edmonton, Calgary and Montreal. Despite supply chain stressors, construction cost escalation rates in 2025 are only edging up modestly at between 2.0 and 2.5 percent due to muted demand.

Building resilience for the future

As policy shifts in the US, clients and construction firms across North America need to be ready to adapt to potential challenges down the line. Construction markets that have a higher proportion of migrant labour, like Phoenix, are keeping a close eye on legislation to monitor the risk of skills shortages becoming more acute.

Changing localised regulation is also requiring firms’ attention to keep pace. In Montreal, Canada, for example, Bill 51 is impacting various areas of the industry, from workforce management to collective agreements. Our sentiment data points to the high impact of difficult contractual and legal conditions in the Montreal market in particular.

There is also an opportunity to alleviate pressures by learning lessons from other markets and adopting new digital solutions to drive efficiency and intelligence on projects. For example, North American companies are twice as likely than European counterparts to consider the implementation of Building Information Modelling (BIM) to be ‘poor’, so there’s more that can be done to benefit from technology.

Ultimately, with wider uncertainty for businesses in the region and worldwide, it’s especially important to continue to work proactively with supply chain partners. This global visibility will enable North American clients, developers and investors to see issues approaching and make informed decisions across their projects and programmes.