Global construction costs continue to rise, due largely to labor supply and demand dynamics, and Chicago is no exception, ranking as one of the top five U.S. cities for price increases according to a recent CBRE report – Why are Construction Costs Rising?
In January 2016, average total construction costs in the U.S. registered a year-over-year increase of 1.8 percent, according to the RSMeans Construction Cost Index (CCI). Chicago outpaced that mark, increasing by 2.5 percent in the same time period. Since January 2011, the national CCI has increased by an annual average of 2.3 percent, resulting in a cumulative 11.8 percent increase during that period. By comparison, Chicago was at 12.5 percent.
“In the last six months, we have seen an even greater jump in cost increases in Chicago,” said Abram Gamboa, director for CBRE’s Project Management team in Chicago. “We have seen overall costs shoot up close to six percent this year and that has been driven by the lack of available labor in the construction industry.”
As the supply of labor remains constrained from the past recession—as many construction professionals left the region to find other work, or simply left the industry altogether—there has been little backfill in terms of new skilled workers, according to Gamboa.
“It’s a real issue,” Gamboa said. “Younger workers are not going into skilled trades at a fast enough rate to replace the labor we lost in the last recession. As a result, contractors and subcontractors know they are in high demand and are securing much higher fees. For some sub contractors, fees have doubled in the last few years.”
Of course, it’s the increased demand from a rather robust construction pipeline in Chicago that is highlighting this labor gap, as several large-scale office projects are currently underway and high-rise residential construction continues at a torrid pace.
“Last month there were 38 construction cranes in Chicago and this month we have 41,” said Gamboa. “As construction projects continue to take off, we could see labor costs increase even more.”
To read the entire report on nationwide construction costs, click here.