The accompanying tables set out CanaData's latest square footage forecasts for ICI construction in Canada, by region, out to 2010. ICI stands for industrial, commercial and institutional. These are the three major non-residential building construction categories.

CanaData's square-footage construction forecasts have been left with only minor adjustments for 2008 and 2009, due to some individual large projects. The 2010 revisions are a little more significant, in a downward direction, with a view to the fact that the world economy needs to sort out some problems.

Individual Large Projects − Prison, Hospitals and Aluminum Smelter
As for large projects, 2008 has already seen a 1.7 million square foot remand centre (i.e., prison) break ground in Edmonton in the institutional category of starts. Looking ahead, two large hospital projects are expected to get underway in Montréal in 2009, for several million square feet each. In industrial starts, a large aluminum project in Québec may well bump up the industrial square footage number in 2008.

However, setting aside the aforementioned individual large projects, the economic outlook has deteriorated somewhat. The world has some growing economic problems that need sorting out and Canada is not immune from the fall-out.

U.S., Canada and China − Everything Points to Higher Interest Rates
In the United States, the weak housing market continues to depress consumer confidence through lower house prices. Plus the high cost of gasoline and spillover problems in the financial sector − the latest being concern about the solvency of Fannie Mae and Freddie Mac − are depressing overall spending levels and tightening credit conditions. Plus the auto sector has been the latest to feel the aftereffects of the run-up in world oil prices.

In Canada, job growth in the service sector is starting to show fatigue, following on the heels of job declines in manufacturing. Residential construction should be preparing for a period of weakness ahead, after six years during which housing starts averaged 223,000 units annually. By way of comparison, Canadian housing starts in 1995 were only half that level.

Even China is starting to show the strain. Its "real" (inflation-adjusted) growth rate may still be hovering around 10%, but inflation has climbed to 8%. This threatens to cause social unrest as the cost of basic consumer goods, including food, becomes prohibitive. The two simplest answers that the government has at its disposal to address this problem are to let the value of the yuan rise and/or to raise interest rates. Either course of action will be accompanied by a slowdown in the economy.

The ICI Square Footage Forecasts
Therefore, the prognosis is that commercial construction starts in Canada will gradually ease from 47.5 million square feet in 2008 to 42.0 in 2009 and 40.0 in 2010. Institutional and industrial starts will fluctuate within fairly narrow bands. Total ICI starts are expected to drop to 77.0 million square feet in 2008, after reaching 90.5 million in 2007. In 2009 and 2010, they will moderate further to 74.0 and 71.0 respectively.

Institutional starts, other than the individual large projects discussed earlier, will remain fairly stable over the forecast period. Alberta will see some relaxation in starts, as population shifts to that province from other parts of the country moderate somewhat. The Atlantic region has better prospects for population increases, due to an improvement in its energy sector. Similarly, Saskatchewan and Manitoba are experiencing mini-economic booms due to their "treasure chests" of raw materials.

As for industrial work, late 2007 through much of this year will be the most difficult time in terms of making adjustments to the new higher-dollar regime. Also, the auto sector has been sideswiped by high gasoline prices this year. By 2009 and beyond, key productivity adjustments will have been made to encourage expansions in some industrial areas. In addition, the forestry sector, which is important to many regional economies, should be getting a boost from a degree of recovery in U.S. housing starts.