CanaData’s forecast for total non-residential building construction starts nation-wide in 2009 now stands at 45.5 million square feet. This is about half of what it was two years ago in 2007 at 92.1 million. Last year was the first year of decline in the recession and the square footage of ICI starts (industrial, commercial and institutional) dropped to 75.5 million. The new slightly revised forecasts for 2010 and 2011 are for 56.0 million and 70.0 million square feet respectively.

Commercial building starts in 2009 are now estimated at 22.0 million square feet versus 45.6 million in 2008 and 58.0 million in 2007. They will move back up to 28.0 million in 2010 and 40.5 million in 2011. Rising vacancy rates will inhibit office building construction for several years moving forward. Hotel and motel construction is being held back by the downturn in the economy, fewer U.S. visitors and the increase in value of the loonie versus the greenback. Warehouse work has been suffering along with the drop in foreign trade, but that will turn around as global recovery gathers momentum. Retail construction, which has been in milder decline than the other sub-categories, will be among the first to see a cyclical pickup.

Institutional starts will be 21.5 million square feet in 2009, down from 23.5 million in 2008 and 27.3 million in 2007. In 2010, they are forecast to be 24.0 million and in 2011, 22.5 million. Institutional work is currently the beneficiary of government stimulus efforts at the federal and provincial government levels. However, this is likely bringing forward a certain percentage of work that would otherwise have been staggered over several future years. In addition, the public sector is feeling budgetary pressures as tax and other revenues decline along with personal incomes and rising unemployment rates. By 2011, it will be harder to maintain starts levels.

Industrial starts have become a non-factor in 2009 at 2.0 million square feet. They were 6.4 million in 2008 and 6.8 million in 2007. More stability in the crucial motor vehicle and auto parts sectors, plus more experience at living with the higher valued loonie, will help industrial starts regain some vitality in 2010 at 4.0 million square feet and in 2011 at 7.0 million.

ICI construction price indices

One indication of the state of non-residential building markets can be found in Statistics Canada’s construction price indices. The third quarter year-over-year change for seven major cities across the country was -10.0%. Montreal (+2.0%) was the only centre with an increase, although the decline in Halifax (-0.4%) was minimal. Also in the East, Ottawa (-2.9%) and Toronto (-5.1%) have recorded year over year drops in non-residential building construction costs. Those are nothing compared with the most populous cities in Western Canada – Calgary (-13.6%), Edmonton (-16.1%) and Vancouver (-19.4%). Market conditions are setting the tone.

On a quarter-to-quarter basis, Vancouver (-4.4%) is still the leader among declines and Montreal (+0.7%) is out front with the only increase. The survey results are based on requests for pricing on five building models – factory, office building, warehouse, shopping centre and school.

OECD doubles 2010 growth forecast

Having said all of the foregoing, there are indications that growth may be “returning to speed” faster than many had anticipated. This speculation is based on surging industrial production in China and talk about asset bubbles already developing in Southeast Asia. The Paris-based OECD has just revised upward its forecast for 2010 economic growth. In June, the OECD’s prediction had been for +0.7% growth for its 30 members in 2010, after a -3.5% performance in 2009. It has now revised that figure upward to +1.9%. In 2011, the latest expectation is for +2.5% growth.

The OECD’s 2010 forecast for China has been raised to +10.2%. Pressure is building on the Chinese government to revalue the Yuan upwards. This would help exporters nearly everywhere else. There are headwinds for most economies that will keep growth in check including high unemployment and debt reductions by households, corporations and financial enterprises. Applying pressure in the opposite direction, however, is unprecedented liquidity in the form of almost non-existent interest rates and bloated money supplies. The need for an exit strategy with respect to government spending packages and monetary stimulus is becoming more apparent.

For the tables setting out CanaData’s latest square footage forecasts, please click here.

Alex Carrick