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Engineering work will lead Canadian construction categories out to 2014

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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

Between now and 2014, on a constant dollar basis, residential construction spending in Canada is set to grow at about a 2.0% average annual rate; non-residential building by +3.0%; and civil/heavy engineering work by +4.0% to +4.5%.

According to Statistics Canada, capital spending on new construction across the nation this year, 2011, will approach one quarter of a billion dollars. That’s the number derived from a survey of 28,000 owners conducted between late 2010 and early 2011. It appears in the publication, Public and Private Investment in Canada, Intentions (catalogue number 61-205-X). CanaData has projected the construction spending numbers out to 2014. They are categorized according to five types of structure – residential, commercial, industrial, institutional and engineering – and by regions and provinces. The total will climb to $301.4 billion by 2014 in current dollars (i.e., with no adjustment made for price increases). The numbers are also available in constant dollars (i.e., deflated by a price index with the year 2002 set equal to 100.0). Between now and 2014, on a constant dollar basis, residential construction spending is set to grow at about a 2.0% average annual rate; non-residential building by +3.0% per year; and civil/heavy engineering work by +4.0% to +4.5% annually, on average. Residential’s share of total construction spending will drop from 40.3% in 2011 to 39.8% in 2014. Non-residential building’s proportion of the total will decline only slightly, from 19.6% to 19.2%. Engineering’s share will rise from 40.1% to 41.0%. Within non-residential building construction, commercial work will hover around 55%; institutional, 33%; and industrial, 12%. But it’s more interesting to consider the sub-categories of non-residential building work within the total. Commercial is approximately 11% of total construction. Institutional lies between 6.0% and 6.5%. Industrial work has dropped to a scant 2.0% to 2.5%. The reasons for industrial falling to such a miniscule role have been thoroughly documented by the media – the outsourcing of work to countries where labour is cheaper; the output gains achieved by robotics and other forms of automation as opposed to requiring new plant; better quality and longer-lasting products that reduce overall demand (e.g., motor vehicles); and the switch to service-based economies in industrialized nations as opposed to manufacturing. Industrial construction is set for a bit of a comeback, however. In Canada, manufacturers have become lean and mean, and often more prosperous, to deal with the side effects of the Canadian dollar’s appreciation to parity and beyond versus its 65-cent low point in the early 2000s. Also, a couple of mega aluminum smelter expansions will bump up the dollar spending substantially. But it’s the engineering category where the most significant gains in construction will occur. This is the commodity price effect initiated by breakout nations. It means more iron ore, potash, precious metal and base metal mining and electric power plant construction. Also adding to the mix will be several new mega electric power plants, most notably at Muskrat Falls in Labrador. It also means a return of at least semi-boom times in Alberta, although producers would like to see Oil Sands expansion projects staged in a more orderly fashion than in the mid-2000s to reduce cost overruns from material and labor shortages. Alberta has been the province in Canada recording the fastest gains in employment over the past six months. Finally, the end of public sector spending designed specifically to provide construction stimulus will reduce some institutional job-site activity, but not altogether. For example, B.C. is planning an expansion of Surrey General Hospital at a cost of $500 million. And Alberta will be proceeding with a new regional hospital in Grande Prairie. The impact of October 2011’s end to Ottawa’s stimulus spending on engineering work may not be that severe. In the latest round of federal, provincial and municipal budgets for fiscal year 2011-2012, quite a number of bridge repair, highway (e.g., Alberta’s Fort McMurray region) and transit projects survived. In the Toronto region alone, there will be Highway 7 widening (for dedicated bus lanes), Highway 407 paving east to Oshawa , the rapid transit line from Union Station to Pearson Airport, the Spadina subway extension and a possible Sheppard subway line commitment. For a further write-up on CanaData’s put-in-place investment forecasts and links to the tables, please click here. 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.

To view the complete Canadian put-in-place construction forecasts, click here. To view the Canadian put-in place construction forecasts by sector, click on the respective heading below: All new construction by region; New residential building construction by region; New non-residential building (ICI) construction by region; New commercial building construction by region; New industrial building construction by region; New institutional building construction by region; New engineering construction by region.

by Alex Carrick

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