Based on the actual starts numbers in the first quarter of this year, CanaData's square footage forecasts have been revised extensively. This report looks at six major sub-categories within commercial and institutional work − office buildings, retail/malls, warehouses, hotels/motels, medical buildings and educational buildings. The first four fall within the commercial category. The final two are major sub-types of institutional.

Commercial work is primarily privately financed. Institutional work is largely dependent on government funding. Commercial work is particularly quiet at this time due to the credit crunch, falling employment and weak consumer spending. Therefore, it is falling on the public sector to pick up the investment spending pace and that is what has been set out in budgets at all three levels of government − federal, provincial and municipal.

Office Buildings

Beginning with office buildings, starts in the first quarter of this year are down more than 50% year over year. It is office-based employment that determines vacancy rates. The major office-oriented employment categories are FIRE services (i.e., finance, insurance and real estate), professional services (legal, accounting, architectural and advertising) and information services. Some of these are holding up, but the overall trend is down.

The peak for office building starts in the latest cycle occurred in 2007. That was when ground was broken on such large projects as The Bow in Calgary and Bay-Adelaide in Toronto. In 2009, just about the only office building prospects are arising in the public sector. In fact, there was a start on the Federal Building in Edmonton in March of this year. However, that project is all alterations and there is no new square footage.

Downtown Calgary has gone from having the lowest office vacancy rate in the country to having the highest (7.1% in first-quarter 2009). This is the result of two factors: new space brought on stream and corporate retreats in the energy sector. The latter has been due to the drop in the world price of oil from $145 USD per barrel last July to $50 now.

But Calgary is not the only centre where the vacancy rate is trending upward. This is a consequence of the current recessionary environment. It is a cyclical phenomenon that is occurring in almost every major city in Canada and it will continue throughout this year and into the early part of 2010. Look for office building starts to be only about one-third of what they were two years ago. The forecast numbers are set out in the graph below. (story continued below)

Canada Office Building* Starts
(based on square footage)

*Combines the categories "Private Office Buildings" and "Government Office Buildings."

Data source: CanaData Construction Starts Statistics.
Forecasts and chart: Reed Construction Data — CanaData.

Retail Sector

The retail sector is struggling along with the decline in employment prospects. As jobs are cut and consumers' confidence vanishes, retail spending slides. Year-over-year spending at stores was -5.0% in the latest month on a three-month smoothed basis. As recently as last summer, it was +5.0%.

Again, this is a private-sector cyclical phenomenon that will cause new retail construction to drop dramatically this year. As the second graph below sets out, Canada-wide retail square footage starts are expected to be 7.1 million this year versus 10.8 million last year and 18.6 million in 2007. And again, this is nearly a two-thirds drop. (story continued below)

Canada Retail and Mall* Starts
(based on square footage)

*Combines the categories "Retail, Wholesale Services" and "Shopping Centres, Plazas."

Data source: CanaData Construction Starts Statistics.
Forecasts and chart: Reed Construction Data — CanaData.

Warehouse Construction

Warehouse construction flows out of activity levels in three other areas: (1) retail trade; (2) manufacturing; and (3) border crossings and trans-shipment hubs for trucks, boats and planes. Sales directly from warehouses are down due to the same factors that have impacted on retail. Warehousing of goods that will go into residences is becoming less necessary as housing starts decline. Finally, the very nature of recessions is that they reduce storage demands for space. (story continued below)

Canada Warehouse Building Starts
(based on square footage)

Data source: CanaData Construction Starts Statistics.
Forecasts and chart: Reed Construction Data — CanaData.

Hotels and Motels

The final commercial category to consider is hotel and motel starts. Among all owner categories surveyed by Statistics Canada for its Private and Public Investment Report, the accommodation sector indicated the largest decline in its intended spending plans in 2009 versus 2008 (-56%). Normal business and tourism travel is down due to higher unemployment in both Canada and the United States. And the new scare about a possible swine flu pandemic will do further damage to a sector that was shaky to begin with.

Canada Hotel and Motel Starts
(based on square footage)

Data source: CanaData Construction Starts Statistics.
Forecasts and chart: Reed Construction Data — CanaData.

Medical and Educational Buildings

CanaData has not revised the square footage forecasts for the two institutional type-of-structure categories − medical and education buildings. These fall within the bounds of the major spending push on both soft and hard infrastructure that governments across the country will be proceeding with. It is also convenient that, for reasons having to do with health and safety issues and the move to more creative and knowledge-based industries, capital expenditures in these areas are essential anyway.

Canada Medical Building* Starts
(based on square footage)

*Combines the categories "Hospitals" and "Medical/Welfare Buildings (i.e. mainly senior citizens' homes)."

Data source: CanaData Construction Starts Statistics.
Forecasts and chart: Reed Construction Data — CanaData.

Canada Education Building Starts
(based on square footage)

Data source: CanaData Construction Starts Statistics.
Forecasts and chart: Reed Construction Data — CanaData.

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