Tariffs Set a New Cost Baseline for Canadian Construction

Canada’s construction sector is facing a structural shift. New tariffs on U.S. steel and aluminum, along with surtaxes on non-free trade agreement imports, have sharply raised material costs. This is not a temporary spike, but a new baseline that is already reshaping how projects are planned and financed.

Why does this matter now? With Canada’s 25% counter tariffs and escalating trade tensions, developers and investors are being forced to move from fixed-cost assumptions to scenario-based budgeting. Leasing activity has remained strong, but construction starts are slowing, and the cost of building is no longer a single, predictable number.

This article unpacks the numbers behind these changes, the policy context, and what it means for anyone planning or underwriting new Canadian projects.

Cushman & Wakefield estimates that current tariff rates (as of May 21, 2026) will result in an increase to construction materials costs by 9.2%, with total project costs estimated to rise by 0.92% on average. The firm emphasizes that this is not a passing disruption: “The Canadian construction sector is operating in a structurally higher cost environment, with limited near-term relief on the horizon. With Canada's 25% counter tariffs on U.S. steel and aluminum, alongside surtaxes on non-free trade agreement steel imports exceeding quota thresholds, current conditions reflect more than a temporary disruption. This represents a new cost baseline.”

The impact is already visible on job sites and in budgets. According to rlb.com, “Tariffs on imported metals have driven sharp increases in steel, aluminum, and copper pricing—the largest annual spikes since the supply chain disruptions of 2022. These increases are prompting owners and contractors to revisit procurement strategies and project budgets.”

The Canadian Construction Association (CCA) has also warned that the trade war and its escalation will “cause significant disruption across Canadian job sites, delaying projects and raising costs. Ultimately, they will hinder Canada's ability to build the infrastructure, housing, and trade corridors our economy needs,” as reported by canada.constructconnect.com.

The result is that the cost line in a development budget has stopped being a single number and become a range. Cushman & Wakefield calls for scenario-based cost assessments while the policy outcome remains unsettled. If a land price only works under a single materials cost assumption, it is not a price—it is a hope.

This new volatility is pushing developers and investors to rethink how they underwrite deals. The need for flexibility and contingency planning is now central to any construction or acquisition strategy. With formal CUSMA negotiations scheduled for summer 2026, the persistence and magnitude of these impacts remain subject to policy outcomes, but for now, the higher cost baseline is the reality.

While construction costs have surged, leasing activity in the industrial sector has remained robust. Cushman & Wakefield reports that leasing activity reached 16.0 million square feet during the second quarter, bringing first-half 2026 volume to 32.0 million square feet—up 29.1% from the same time period last year and signaling renewed occupier demand across the industrial sector.

However, investment and new construction are showing signs of strain. Altus Group notes that industrial volume fell 19% to nearly $669 million, but fundamentals stayed tight with availability at 5.9% and four straight quarters of positive absorption. The Globe and Mail highlights that “fulfilment warehouse construction has eased amid the Canada-U.S. trade war, pushing industrial construction to its lowest level in more than eight years,” according to Jeff Miller of Oxford Properties Group.

This divergence—strong leasing but slowing construction—underscores the immediate impact of tariffs on the supply side. Developers are pausing or re-evaluating projects as cost uncertainty and material price spikes make underwriting riskier. The result is a market where demand remains, but the pipeline of new space is constrained by unpredictable costs.

In this environment, scenario-based cost assessments are not just best practice—they are essential. Cushman & Wakefield urges developers to plan for a range of outcomes as tariff policy and trade negotiations evolve. The lesson is clear: if your project’s economics only work under a single set of material cost assumptions, you are exposed to significant risk.

The Canadian Construction Association’s warning about “significant disruption across Canadian job sites” and delayed projects is already playing out. Owners and contractors are revisiting procurement strategies, seeking alternative suppliers, and building in larger contingencies. The volatility in material costs and the uncertainty around future tariffs mean that flexibility is now a core requirement for any successful project.

With no immediate relief in sight and formal CUSMA negotiations still ahead, the new cost baseline is here to stay for the foreseeable future. Developers, lenders, and investors must adapt their models and expectations—or risk being caught out by a market that no longer tolerates single-point cost estimates.

Key takeaways

• Tariffs have raised Canadian construction material costs by 9.2%, per Cushman & Wakefield
• Total project costs are up 0.92% on average, creating a new cost baseline
• Leasing activity is strong, but construction starts are slowing
• Scenario-based cost planning is now essential for developers
• Policy outcomes remain uncertain, reinforcing the need for flexibility