CanaData's latest square footage forecasts for the ICI categories of construction — industrial, commercial and institutional — have just been released. (These projections are updated every second month.) Versus the previous forecasts issued in January, there has been a serious downward revision of the 2009 commercial figure, a minor downward adjustment of the industrial number and no change to the institutional total.

Institutional to Exceed Commercial
Perhaps the most interesting feature of the revised forecast is that the square footage of institutional construction starts has an opportunity to exceed the commercial figure this year. This has only happened one other time in the history of CanaData's statistics going back to 1970. That event happened not that long ago, in 2002.

Longer-term Trends, Public vs Private
This demonstrates that the private-funded components of non-residential building construction are becoming relatively less important over time. Another longer-term trend has been the dearth of new industrial construction. Industrial square footage is now consistently below 10.0 million square feet on an annual basis, whereas it was over 20.0 million in 2000 and as high as 40.0 million-plus in several years during the 1980s.

Manufacturing activity levels, jobs and new investment have been leaking out of the country for many years and washing ashore in low-cost emerging nations. On occasion, the lower-valued Canadian dollar has offered some relief by way of a boost to export sales. But there is a clear structural shift towards reduced manufacturing activity in the richer nations of the world. Most of Canada's new jobs are found in services.

Why Such Commercial Weakness?
Commercial starts are now forecast at 24.0 million square feet in 2009 versus 43.1 million in 2008. The most recent cyclical peak occurred in 2007 at 58.0 million, when some major office building projects were initiated in Toronto and Calgary. Currently, office-based employment is in decline and commitments to space expansions are being put on the shelf. The downturn in energy markets is having a particular impact across all sectors in Alberta

It is the rapid deterioration in employment levels that is having the dramatic impact on expectations for investment in the commercial category. Beyond office building markets, warehouse work will suffer with the declines in both retail and manufacturing activity. Hotel/motel construction, which now often includes a residential/condo component, is about to experience a steep cyclical decline.

Retail investment will also be curtailed somewhat as consumer incomes become less reliable. However, some "staples"-providing retailers prosper even in the harshest of times. For that reason, a certain base level of retail construction work will proceed nonetheless.

Industrial Adjustment due to World Recession and Auto Sector
The steeper-than-originally-expected decline in the world economy warrants a further small cut in the industrial forecast to only 5.5 million square feet this year. The problems in the auto sector are exacerbating the expected investment hesitation. As with commercial, the more serious drop in the short term indicates more of a turnaround next year.

The institutional figure has been left unchanged. This is the category that will benefit from extra government spending. The public sector push in the area of infrastructure spending will be about one-third institutional and two-thirds engineering/civil.

Total ICI at only 54.0 million square feet
Total ICI square footage is now forecast at 54.0 million. If this comes to pass, then total ICI starts will drop below their previous low point in the past half century of 59.5 million square feet in 1993.