A new report published by global programme manager Turner & Townsend reveals that the growth of AI infrastructure, including soaring demand for data centres, is squeezing global construction market capacity, including across the European Union, adding to skilled labour shortages. This will drive rapid job creation and the introduction of innovative new construction approaches over the coming years.
The growth in demand for data centres is creating a two-speed construction market, where geopolitical tensions and economic challenges, mixed with workforce and supply chain constraints, are limiting investor confidence in traditional sectors such as residential and commercial development.
Now in its 17th year, Turner & Townsend’s Global Construction Market Intelligence report represents the definitive analysis of the global construction industry, with data gathered from 112 markets across 44 countries. Switzerland’s Geneva is the most expensive place to build in the European Union at $6,985 per sqm, placing it third in the global list, followed closely by Zurich. Munich remains Germany’s most expensive market at $4,251 per sqm, with inflation expected to continue rising substantially throughout 2026 and 2027.
The Spanish city of Madrid is also expected to start heating up, having already experienced surging demand for digital connectivity infrastructure, pushing its average build cost to $3,001 per sqm, and is expected to experience continued inflation of 5% and 6% across 2026 and 2027, respectively.
Key findings from the report include:
- Data centres remain the most in-demand construction sector in the European Union, with office fit-out second and industrial and logistics third
- Defence sits in eighth place behind sectors including residential, transport and renewables in the EU as a whole
- Geneva in Switzerland is the most expensive place to build in the EU at $6,985 per sq m, placing it third in the global ranking, followed by Zurich in Switzerland at $6917 per sq m
- Munich remains Germany’s most expensive market at $4,251 per sqm
- Berlin, Frankfurt, Hamburg and Munich in Germany, and Madrid in Spain are all set to see inflation of 5.0% in 2026. Madrid is set to rise a further 6% in 2027 as Hamburg and Frankfurt fall to 3.5% and 3% respectively as material costs broadly stabilise.
- Construction cost inflation in the European Union as a whole is expected to rise steadily to 3.2% in 2026 and 2.8% in 2027
- Global construction cost inflation is expected to rise modestly from 4.2% in 2025 to 4.5% in 2026, before remaining broadly flat in 2027, despite the short-term impact of the conflict in the Middle East. A more stable cost backdrop should serve to encourage activity levels to rise.
The inexorable growth of AI has ensured data centres are now the most in-demand construction sector in the European Union, with established data centre hubs including Berlin, Dublin, Geneva and Zurich all reporting increasing contractor competition. Demand for industrial and logistics has increased significantly over the past year, rising from seventh place in 2025 to third in this year’s sector rankings. Conversely, defence, health and power remain subdued in comparison, ranking in eighth, ninth and tenth place in the report’s EU sector performance index.
Data centres are now the most constrained sector globally when it comes to contractor capacity, with over 70% of the 112 markets analysed reporting tightening or overstretched capacity. This is raising the likelihood of a severe shortfall in the skilled labour required to build data centres, and further fuels calls for increased training and more concentrated efforts to recruit the workforce needed to keep up with demand. Skills deficits are particularly acute in the specialist mechanical, electrical and plumbing trades, with around 87% of European Union respondents from the industry citing shortages of qualified mechanical, electrical, and plumbing workers, which are essential in tech-centred projects.
Despite the volatility created by recent geopolitical events, construction input costs have stabilised over the past year, as the increased supply chain resilience built up in the sector since the COVID-19 pandemic has limited the impacts from recent global volatility. Construction cost drivers are becoming more localised, sector-specific, and structurally embedded, rather than driven by international shocks. As a result, labour availability is now the primary driver for cost escalation across the global construction market, and around 71% of markets report labour shortages. In the European Union, 93% of markets are experiencing labour shortages, compared to 75% in the UK and 79% in North America.
Martin Londra, Head of Real Estate and Major Programmes for Europe, Turner & Townsend, said: “The global construction market is shifting and new dynamics are reshaping the key drivers of cost performance. Demand is increasingly uneven and concentrated on AI-driven sectors like data centres, while broader labour constraints, supply chain volatility and geopolitical risk are becoming more pronounced.
“In the EU, there is a very real risk that growth in the pool of skilled labour needed to build data centres won’t keep up with demand. In construction, AI has the potential to be a force for good in terms of job creation, but only if the right resources are put in place to support it. Additionally, the impact on energy prices of the conflict in the Middle East will be indirect and uneven, varying by geography and sector depending on supply chain structure and energy dependence.
“Geneva and Zurich in Switzerland remain the two most expensive construction markets in the EU, driven by strong competition off the back of their well-established data centre ecosystems, but we expect cities such as Munich in Germany and Madrid in Spain to rise in the rankings in the coming year as demand and inflation continue to increase.
“Clients with global portfolios must use this opportunity to review international programmes to ensure the right projects are prioritised depending on local conditions. It is not only a question of the relative cost, but also factors such as interest rates, labour availability and digital maturity in the supply chain.”
