When Building Costs Rise, Land That's Ready Gets Rarer

Real Estate Insights. Success Mindset. One Step at a Time.

Issue #52 | May 24, 2025 | One Year of From The Dirt Up

🇺🇸 Before we dig in this week.

Tomorrow is Memorial Day. And before we talk markets, dirt, or dollars, I want to take a moment to honor the men and women who gave everything so we could have the freedom to build, invest, and pursue something worth passing down.

Every piece of land we buy, sell, or develop sits on ground that was paid for by someone else's sacrifice. That's not a metaphor. That's history.

To every veteran, every Gold Star family, every service member past and present: thank you. This issue, this newsletter, this work we do together... none of it happens without you.

God Bless America.

One year. Fifty-two issues. The market threw tariffs, rate uncertainty, data center frenzy, and a construction cost squeeze at us. And the lesson was the same every single week: the dirt that's ready always wins.

🧠 Market Insights

When Building Costs Rise, Land That's Ready Gets Rarer

Construction just got more expensive. Again.

Cushman & Wakefield put hard numbers on it this month: tariffs have pushed CRE construction materials costs up 6% compared to a 2024 baseline, with total project costs rising 3%. At the peak of tariff pressure last summer, materials were tracking toward a 9% increase. JLL estimates an aggregate hit of around 8% at current policy levels, with some materials, masonry, plumbing, and thermal products, running as high as 25% depending on sourcing.

CRE Daily reported this week that construction materials costs jumped 6.2% through April, with energy commodities and steel leading the climb. The producer price index for construction has now risen roughly 40% over five years.

What does that mean for land? Two things, and they point in opposite directions.

First: fewer projects pencil. When a developer's construction budget jumps before they've broken ground, the pro forma either falls apart or the land price has to come down to make room. That creates friction for sellers who haven't adjusted their expectations to today's cost reality.

Second: land that's already ready gets more valuable, not less. Entitled dirt. Sites with power. Parcels where the hard regulatory and infrastructure work is done. When building is expensive, developers don't want to pay for construction cost increases and entitlement risk. They pay a premium to eliminate one of those variables. The ready site wins the deal.

CBRE forecasts CRE investment activity increases 16% in 2026 to $562 billion, nearly matching pre-pandemic averages. Capital is coming back. But it's coming back picky. Colliers calls it a "Capital Markets Reawakening" with a 15 to 20% increase in sales volume projected for the year. J.P. Morgan notes that borrowing costs remain elevated alongside rising materials prices, which means project pipelines could soften in the second half of 2026 if relief doesn't materialize.

Dirt Dawg Take: Rising construction costs don't hurt all land equally. They punish raw, unentitled, unpositioned dirt. And they reward the sites where the work has already been done. If you're sitting on land right now, the question isn't whether the market is hard. It's whether your site is ready when the buyer shows up.

✨ The Alpha Effect

Showing Up Is the Strategy

The investors who struggled this year weren't the ones who lacked information. Information was everywhere. Rates, tariffs, policy shifts, market reports, hot takes. Most people drowned in it.

The ones who made moves were the ones who kept a clear, consistent lens on what actually matters. Not what's trending. Not what's scary. What's fundamental.

That's the real Alpha. Not a hot tip. Not a market prediction. It's the discipline to come back to the same questions every single week: What does my dirt do? Is it positioned? Is it ready? What's the one constraint I can remove?

Markets will keep changing. Headlines will keep screaming. The investor who builds a weekly habit of cutting through the noise and asking the right questions will outperform the one who just reacts.

Fifty-two weeks of that habit is worth more than any single deal insight. That's what this newsletter has always been about.

Clarity isn't found. It's built. One week at a time. Here's to year two.

🚀 One Step at a Time

Action Steps This Week

1. Run Your One-Year Land Audit

Pull up every parcel you own or are tracking. Ask one question for each: has the entitlement status, power profile, or market context changed in the last 12 months? What's more positioned than it was? What's fallen behind? This is the same audit the smart money runs before deploying capital.

2. Stress-Test Your Construction Math

If you have an active deal or a site you're thinking about selling into development, rebuild the pro forma with current materials cost assumptions. Cushman says 6% on materials, 3% on total project costs at current tariff levels. If the deal still pencils for your buyer, you're in good shape. If it doesn't, it’s better to know now than later.

3. Identify the One Constraint You Can Remove

Every piece of land has a constraint that's holding its value down. A zoning question. A power study that hasn't been done. An easement that nobody's addressed. Pick one parcel and identify one constraint you could eliminate in the next 90 days. That removal is where value gets created. Not in the market. In the work.

Small steps compound. One year of that truth is more than enough to keep building on.

Here's to building your success, one step at a time...

from the dirt up.

Kris "Dirt Dawg" McGee 🐾

The Dirt Dawg Den