Developers around the country are continuing to scrap commercial projects as soaring diesel prices and the rising cost of construction materials are breaking the budgets of long-planned undertakings. 

Earlier this month, packaging-making giant Georgia-Pacific abandoned plans it announced in 2024 to turn part of its 51-story headquarters building into apartments, retail and entertainment space, canceling its high-profile Atlanta conversion project over construction costs.

A major redevelopment project in Virginia is also being abandoned after the site’s owner proposed to terminate its approved plan for more than 700 residential units plus retail. In August, a New York developer pivoted from its plans to build a luxury residential high-rise in Philadelphia to instead pursue a 34K SF retail building — nearly four years after it bought the vacant parcels.

Those are just a few of a spate of cancellations that reflect an economic environment defined by tariffs, higher fuel prices and elevated interest rates, which are putting pressure on some developers and slowing pipelines. A continued increase in costs could impact some of the hundreds of billions of dollars in private commercial projects that are underway in the U.S.

”It’s just too much sometimes for them, and they back out of the project,” Daniel Perdomo, CEO of electrical services provider 5 Points Electrical, said in an interview.

“You put a lobster in regular cold water, and then you heat it up, and the lobster doesn’t know it until it gets cooked,” he said. “That’s what’s happening now.”

Prices of construction-related materials skyrocketed 13.3% year-over-year in the U.S., nearly five times the rate last year, according to a Cushman & Wakefield Construction Insights report released earlier this month. A handful of metals led the price surge, with aluminum climbing nearly 41%, copper nearly 40% and nonferrous metals at 38.5%.

Steel and aluminum have faced a 50% import tariff since June 2025.

Materials are increasingly replacing labor as the primary driver of construction cost growth, according to Cushman, as material prices climb and wage growth moderates. Those cost increases will ultimately be borne by the developer, Perdomo said.

“We have to transfer the costs to the clients. It’s a domino effect that is going all the way to the top,” he said. 

The conflict in Iran has pushed the price of diesel — which powers construction site equipment and is critical for transporting materials to and from jobsites — above $6.50 per gallon this past week, an all-time high and up nearly $3 per gallon from two years ago, according to the U.S. Energy Information Administration.

“Diesel affects the transportation of every other input,” Associated Builders and Contractors economist Zack Fritz said. “If diesel prices ever come back to earth — they’re at the highest they’ve ever been — you'd see an immediate fall in materials prices.”

The Trump administration is weighing several options, short of an export ban, to bring down diesel prices, Politico reported on Friday, citing people familiar with the matter.

Total U.S. construction starts in August fell nearly 25% to a seasonally adjusted annual rate of $1.34T, according to data compiled by Dodge Construction Network. Commercial construction starts dropped 37.6%, led by canceled offices and parking garages.

The trend is largely a reversal and normalization from a July surge but still reflects how the commercial sector is grappling with labor shortages and rising material prices, Dodge Director of Economic Research Sarah Martin said in a press release last week.

In Atlanta, Georgia-Pacific had planned to build 400 apartment units on the upper floors of its 50-story skyscraper, along with 125K SF of retail and entertainment space. But Georgia-Pacific Head of Real Estate Suzanne Maynard told Bisnow earlier this month that despite investing “significant time, capital, and resources” into the project, “higher construction costs and broader market headwinds changed the economic viability of the project at this scale.”

In Philadelphia, Gridmark Group founder Ari Weber told the Philadelphia Business Journal that the timing wasn’t right to build a high-rise in Center City because of interest rates and construction costs. And in Arlington, Virginia, an affiliate of developer Snell Properties canceled plans to redevelop the site of a former 1960s-era office building because it believed the cost of the project would exceed the completed value, the Washington Business Journal reported.

Some companies have yet to feel the heat, and some contractors are finding ways to navigate the increases.

Atlanta-based Juneau Construction so far has seen construction prices tick up just a little due to material costs, Chief Operating Officer Greg Cornwell said. But materials like steel and other metals are likely to push construction costs up further this year, he said. 

“We are seeing some of the cost increases on the materials side,” Cornwell said. “What we have seen has been slow to make it all the way through to the projects, so we have been able to plan for it.”

ABC's Fritz said he expects construction costs to improve in 2027, pending a resolution to the U.S.’s conflict with Iran. But Cornwell was more hesitant to make a prediction.

“I don’t have a magic ball to be able to predict that. Nobody can really predict with all of the uncertainty out there,” he said. 

Rubi Esmeralda, founder of construction and design firm Shine Invest, said she expects commercial landlords with thinner sources of capital to continue to shelve construction plans, while the larger developers will fill the gaps.

“I don’t think this will end. Just the players in the game will change,” Esmeralda said.