NYC Named Most Expensive Place to Build as Supply Chains Set to Suffer: Report

The North American construction market has remained relatively strong as trade policies under the Trump administration shift, but supply chains will likely feel the brunt of the uncertainty soon.

Certain U.S. cities are seeing a significant slowdown in construction starts and an increase in material costs as the tariffs evolve. But New York City might be in the most trouble, as it was named the most expensive city to build in globally, averaging $534 per square foot, according to a new report from Turner & Townsend.

San Francisco came in second at $512 per square foot, and Los Angeles followed at $445 per square foot, according to the report, which analyzed 99 global cities’ construction markets.

Those high building costs are largely a result of high labor rates in North America, plus a shortage of skilled workers noted by more than two-thirds of Turner & Townsend’s survey respondents.

In addition, growing investment in data centers throughout North America’s secondary markets, including Austin and Atlanta, is inflating construction costs and pulling resources from other key sectors such as residential, according to the report.

As a result, Turner & Townsend said construction cost inflation is expected to rise to 5 percent in several U.S. markets this year, up from the 4.7 percent seen by the end of 2024.

“For the most part, the construction industry in North America weathered the tariff storm through some prudent planning, and we’re seeing strong demand reflected in our cost inflation data,” Lisa Woodruff, regional real estate lead of North America at Turner & Townsend, said in a statement.

“But despite the market’s resilience, real estate construction in the region is facing an increasingly complex set of challenges,” Woodruff added. “Hot sectors are thriving, but given the skills shortages in key markets, there is a risk that the sectors compete with one another for limited resources.”

Factors including shortages of skilled workers and an expected increase in material costs are set to disrupt U.S. supply chains, with nearly half of Turner & Townsend’s survey respondents saying they expect supply chains to deteriorate over the next 12 months.

And while construction starts are slowing down, construction demand isn’t. In New York City and Chicago, where space is limited, demand is being driven by “a focus on retrofit and refurbishment” as opposed to new developments, according to the report.

“To get a handle on these challenges, clients should be innovating in digital and experimenting with new tailored delivery models, as they find new ways to boost their productivity and profitability,” Woodruff added. “Ultimately, the overall outlook for the region is a bright one, and firms have a lot of opportunity to tap into.”

Isabelle Durso can be reached at idurso@commercialobserver.com.