Blog

Canada's construction starts in a transition phase

0 1456 Market Intelligence

Alex Carrick

Positions:
Alex Carrick is Chief Economist for Reed Construction Data. He specializes in economic forecasting and statistical services.

Economists

Into the early part of next year, total output in Canada will continue to be carried forward by public sector investment. The deadline for completing governmental construction projects, with a guarantee of Ottawa’s share of the funding, is March 30th, the federal budget’s close-off date. New starts, however, will tail off until the private sector becomes more fully engaged again. The launching pad for such commitments is likely to be resource sector capacity expansions.

CanaData’s total construction starts through July of this year were +73% in square footage and +70% in dollar volume versus the first seven months of last year. The residential component was very strong, +87% in square footage and +84% in dollars. Non-residential building came in at +48% in square feet and +21% in dollars, while engineering was +116% in dollars. Engineering work (e.g., highways, sewers, watermains, oil and gas projects) is only measured in dollars.

The residential strength corresponded with starts as reported by Canada Mortgage and Housing Corporation (CMHC). The single-family market is expected to weaken considerably in the second half of this year, due to HST introductions in Ontario and B.C., interest rate increases and poorer resale markets. What is driving the multiple-unit market remains a mystery. New major condo projects continue to be initiated, but the inventory of unsold units is more than double what it should be, according to historical averages. A serious correction seems all but inevitable.

In non-residential building work, commercial starts are about even with last year. Private office construction remains flat and will not revive until mid-way through next year. Retail starts have been a little ahead of last year. This is a category with resilience even when overall economic activity is weak. People still have to eat and buy clothes to send their children off to school.

Industrial construction starts have all but disappeared (-61% in square feet and -95% in dollars). Some firms in the auto sector are paying back government loans and planning investments to prove they no longer need support from the public purse. Aluminum firms are also planning investments, once it has been established that the future level of demand is on an upward path.

Institutional work (+119% in square footage and +81% in dollars) has led the non-residential building category. This is government infrastructure and stimulus money in action. The medical buildings category was given a particular boost by the 4.2 million square foot McGill University medical centre groundbreaking in Montreal in May. But there have been several other nearly mega-sized medical and educational projects that have started over the past year and a half.

Engineering work has also benefited from government money. Some private sector funding is returning as well. This has been most apparent in Alberta’s oil patch. Imperial Oil’s $8.0 billion Kearl project was an April start and, most recently, pipeline work has begun in the province.

Into the early part of next year, total output in Canada will continue to be carried forward by public sector investment. The deadline for completing governmental construction projects, with a guarantee of Ottawa’s share of the funding, is March 30th, the federal budget’s close-off date.

New starts, however, will tail off until the private sector becomes more fully engaged again. The launching pad for such commitments is likely to be resource sector capacity expansions. Emerging nations are feeling the effects of the U.S. and European slowdowns, but to only a limited degree so far. Increasingly, their own domestic economies are propelling growth. Spending on infrastructure in those nations, as well as consumer demands for better quality goods and nutritional fare, will drive demand for Canada’s resources well into the future.

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

Leave a comment

Or register to be able to comment.