Construction Cost Index: 4th Quarter 2025
Nonresidential Construction Costs Continue to Moderate Amid Regional Variability and Supply Chain Dynamics
Key Cost Drivers
- Metal costs remain elevated relative to other materials, with steel, copper, and aluminum pricing driven by strong demand and constrained supply.
- Tariffs remain embedded in pricing, acting as a structural cost factor rather than a temporary disruption.
- Electrical and power-distribution lead times persist, shaping project costs and timelines, especially in data center and advanced manufacturing sectors.
Nonresidential construction conditions remained steady through the fourth quarter, with overall cost escalation continuing to moderate at the national level. While quarter-over-quarter increases softened, year-over-year cost growth remains elevated, reflecting persistent input pressures in select materials and labor categories. Market sentiment continues to be shaped by uneven regional activity, as strong demand tied to data centers and advanced manufacturing contrasts with slower conditions in other sectors, contributing to varied pricing behavior across markets.
From a supply chain perspective, conditions entering 2026 reflect improving resilience rather than full normalization. While transportation costs have stabilized and lead times have improved in many areas, metals pricing, tariffs, and long-lead electrical equipment continue to shape cost inputs.
Broader industry indicators point to a more measured construction outlook heading into 2026. Planning activity remains elevated compared to last year, particularly in data centers, infrastructure, and select institutional sectors, though month-to-month momentum has moderated. At the same time, architectural billings continue to reflect softness across much of the design pipeline, suggesting that while large-scale projects remain active, overall project volume growth may remain constrained in the near term.
Nationally, nonresidential construction costs tracked by the Mortenson Quarterly Cost Index for the fourth quarter of 2025 rose by +1.05% over the past quarter and +7.35% over the previous twelve months. All Mortenson regional offices reported cost increases in the fourth quarter. Seattle (+0.30%) and Portland (+0.32%) recorded more modest quarterly gains amid competitive bidding conditions, while other markets experienced slightly higher increases, including Chicago (+0.78%), Minneapolis (+1.16%), Salt Lake City (+1.16%), Denver (+1.52%), Phoenix (+1.58%), and Milwaukee (+1.96%).
Quarterly Cost Movement
Material and labor cost movements were mixed this quarter. Trade partner work increased modestly by +0.6%, while tracked construction materials rose +1.9%. Year-over-year, labor costs increased +5.6% on average, materials rose +9.1%, and trade partner work increased +6.2%, reflecting ongoing pressure in select categories.
Transportation & Supply Chain Conditions
Transportation conditions continue to support stable construction costs heading into 2026, with low trucking prices, declining warehousing costs, and ocean freight rates expected to trend lower despite occasional short-term fluctuations.
Quarterly cost movement was driven by select material and installation scopes, particularly structural steel and mechanical/electrical systems. Key increases included steel framing erection (+3.8%), plumbing systems (+3.3%), HVAC (+1.9%), and electrical systems (+1.7%).
Regional Market Activity
Regional construction activity was steady but uneven, shaped by competitive bidding in some markets and localized demand drivers in others. Data center and manufacturing markets saw continued labor and material pressure, while other regions experienced increased trade partner competition. Across all regions, labor availability and general supply chain conditions have moderated but continue to selectively impact projects.
Labor Market Outlook
Labor market indicators suggest improving workforce balance. Associated Builders and Contractors estimate the industry will need about 349,000 net new workers in 2026, down from more than 500,000 in recent years, due to more modest construction growth. Most new worker demand will stem from retirements. "The industry needs to attract fewer workers than in recent years," said ABC Chief Economist Anirban Basu. "It is also important to note that nonresidential specialty trade contractors have added 95,000 jobs since August 2024, and the industry will need even more workers than the model predicts should current spending projections prove overly conservative."
Planning Momentum Accelerates
Planning activity gained momentum late in the fourth quarter. The Dodge Momentum Index rose 7.0% in December, driven by commercial and institutional planning strength in sectors such as data centers, healthcare, and warehouses.
Summary: Nonresidential Construction Outlook Entering 2026
The Mortenson Construction Cost Index shows continued moderation in cost escalation in Q4 2025. While some material categories still show elevated year-over-year increases, quarterly escalation has softened and several input pressures have become more predictable.
Supply chains have become more resilient in some sectors, reflecting diversification and risk mitigation efforts, though vulnerabilities remain, while transportation conditions remain supportive, and labor availability has moderated. Competitive bidding persists in many regions, even as large-scale data center and manufacturing projects fuel localized demand elsewhere.
Taken together, these conditions point to a construction environment where thoughtful planning and flexibility are essential to achieving successful outcomes. While uncertainty remains, the overall outlook for nonresidential construction entering 2026 remains steady with selective, market-specific opportunities.
Mortenson tracks and reports on eight metropolitan areas in the U.S. including Chicago, Denver, Milwaukee, Minneapolis, Phoenix, Portland, Salt Lake City, and Seattle. The Mortenson Construction Cost Index is calculated quarterly by pricing representative non-residential construction projects in various metropolitan areas. It is part of a portfolio of industry insights and market studies provided by Mortenson.
For nationwide construction cost index data visit: Mortenson.com/Cost-Index.
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