What is CanaData’s latest commercial construction forecast? Here’s a quick overview.

With the respect to one of the major sub-components, office building construction, it is past its peak in this cycle in Canada. Office-based employment has dropped to 0.0% year-over-year from highs earlier of about +3.0%. Rent increases have slowed. (Most of the big jumps came in 2006.) Vacancy rates have bottomed out in most centres.

Toronto and Calgary were the only two markets that saw a big increase in starts over the past year or so. CanaData’s square footage forecast for office building starts is 11.6 million in 2008 versus 15.9 in 2007. The next couple of years will see further declines. The good news is that there was no overbuilding in this cycle, which does help to limit the potential downside.

Hotel and motel starts have been okay so far this year, but still muted versus previous cycles. The big problem has been the drop in visitors from the United States, due to the long-term rise in value of the loonie, the high cost of gasoline and airplane fuel and the passport requirements for American citizens returning home.

Retail construction ties in to consumer spending and the jobs outlook. Employment prospects are now in some jeopardy. Also, a great deal of retail activity relates to the home. With housing starts expected to soften in Canada at least through the end of next year, then overall retail spending no longer will be as buoyant as in the recent past.

Warehouse construction closely relates to the retail sector (e.g., distribution centres) and to manufacturing. The latter has been hampered by the rise in value of the loonie since 2003. However, in the last several days, the loonie has adjusted downward again. If this holds, this will help Canadian manufacturers offer lower prices to potential U.S. customers, partially offsetting the overall decline in demand from south of the border as a result of the general slowdown in economic activity.

CanaData’s 2008 forecast for commercial starts is 45.5 million square feet, falling further to 40.0 million in 2009. These levels compare with a figure of 57.0 million in 2007. The previous high for commercial starts was 64.3 million in 1990.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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