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Summer Review of Non-residential Building Construction Outlook in Canada

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Alex Carrick

Positions:
Alex Carrick is Chief Economist for CanaData, Reed Construction Data’s Canadian economic forecasting and statistical service.

Economists

Privately-funded non-residential building construction in Canada is in a deep trough at this time. The only exception is institutional work, where governments are going ahead with school projects and health care/hospital work. Office buildings, retail projects and industrial plants all have their own reasons for a lack of construction job-site action at the moment.

Privately-funded non-residential building construction in Canada is in a deep trough at this time. The only exception is institutional work, where governments are going ahead with school projects and health care/hospital work. The latter is due to the aging population. The former is mainly at the level of higher education. That is where the children of the baby boomers are still adding to the student population. Another factor is the need for continuing education. Adult workers, whether thrown out of their jobs or facing the prospect of falling behind due to the pace of technological change, are going back for re-schooling.

Office-based employment has been declining and this has been raising vacancy rates in downtown skyscrapers. The one bit of good news is that, except in Toronto and Calgary, there was little overbuilding of office space in the recent good times. The recession has caused shoppers to reduce the number of their trips to the mall and this has limited investment in retail projects. Low product demand, a rising Canadian dollar and exceptionally weak capacity utilization rates are putting manufacturing investment on the back burner. In fact, the manufacturing sectors in Canada and the United States have been losing jobs at alarming rates to low-labour-cost producers in emerging nations.

It is not clear that China will continue to be the country of choice for outsourcing manufacturing jobs. Wages in China, while still low relative to rich nations, have been on an upward path. Also, there is the matter of shipping costs. As world economic activity builds again, and especially as oil prices rear up, the cost of ocean shipping will move quickly higher. This has already become apparent in the Baltic Dry Index, a measure of moving cargo over world seagoing shipping lanes. It is compiled in London, England.

Nevertheless, there are plenty of other countries that will be able to provide cheap labour. As commodity prices increase − and copper and nickel have already shown a tendency in that direction − this will be positive for investment in Canada’s raw materials sector. Aluminum and precious metals, as well as potash and uranium, will all receive a boost from world economic recovery. This will take a year or so to really get underway.

The Square Footage Forecasts

The most recent peak for non-residential building starts in Canada occurred in 2007 at 92.1 million square feet. They fell to 75.0 million in 2008 and are expected to be only 47.5 million in 2009. 2010 will also be relatively quiet at 57.5 million, before moderate strength returns in 2011 at 70.0 million. This shows the wide swings that can occur.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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