Mortenson Construction predicted a 4% increase in construction costs in 2017. But development has been more expensive than expected this year, and the contractor has adjusted its construction index, forecasting Chicago construction costs will rise an extra half-percentage point.

Rising costs for key materials and equipment, and a tightening of the labor pool, drove construction costs up 1.9% in Q2 over Q1, and 4.9% over Q2 2016. Mortenson Chief Estimator Dennis McGreal said costs for eight building component categories, including steel framing, fire protection, earthwork and plumbing systems, grew between 2.2% and 3.5% in the second quarter. With precast contractors rushing to fill procurement orders, lead times have extended, pricing has risen and some developers are pivoting in reaction to the market activity.

The factor that may be most concerning for developers and contractors is a decline in construction employment. Industry job growth shrunk 2% in Q2, and is expected to tighten even further.