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Engineering construction activity to slow down

Economist Alex Carrick of CanaData gave his views of where the construction industry in Canada is heading at t...


Economist Alex Carrick of CanaData gave his views of where the construction industry in Canada is heading at the CanaData/Reed Construction Industry Forecasts Conference held on September 23 in Toronto.
The annual conference was held at the Liberty Grand in Exhibition Place beside Lake Ontario. Carrick is probably the leading specialist on the construction industry, with 25 years experience as chief economist at CanaData.
In his opening remarks, Carrick said that there are two new defining influences in the Canadian economy. One is commodities, but the other is the construction industry. “It seems clear that construction is becoming more important in the economy,” he said, attributing this growth to the number of mega energy projects in the last decade in sectors like the oil sands, offshore oil, and hydro. He said this growth in large engineering projects ties in to the demand for raw materials and commodities.
As we head into 2011, Carrick suggested, the question for the Canadian construction industry is what’s going to happen after the federal stimulus program ends, which has provided so much public sector work this year. He asked whether the private sector will become fully engaged again, suggesting that while a cyclical recovery will be kicking in, it won’t bring huge amounts of work.
In looking at specific markets, Carrick noted that the inventory of condominium and other multiple residential units is too high and “ripe for correction.” He is surprised that the condo developers are building so many units and suggested that a market glut (hence slowdown in construction) might affect the biggest cities: Vancouver, Toronto and Montreal. He noted that many hotel projects have a condominium component, so construction in the hospitality sector could be affected.
Carrick forecasts that office building construction will be weak this year as office vacancy rates are not going to rise. However, he expects a cyclical recovery in 2011-2013. He noted, however, that two huge office buildings in Calgary and Toronto is producing the highest figures for commercial building construction starts this year since 1990.
Over the past year, the institutional building and engineering sectors has been “where the action has been.” To see how effective the Canadian government’s stimulus program has been, Carrick said, you only have to look at the numbers. The past year has seen 41 million square foot in new institutional building construction, which is the highest figure since the 1970s. He believes that the government did right to set the short deadline for projects funded by its Economic Action Plan. He believes they learned from past mistakes when funds intended to boost construction in depressed economic times didn’t arrive until the private sector was already reviving.
Carrick’s forecast for the engineering sector for 2011 is 4.5% growth in current dollar terms. This compares with 12.7% growth this year. For 2012 he forecasts 7.3% growth and for 2013 he forecasts 9.8% growth. Alberta and Ontario currently have most engineering activity, with Alberta at $31.4 billion in engineering construction investment and Ontario at $19 billion. B.C.’s engineering investment is $14.4 billion and Quebec’s is $14.6 billion. [CORRECTION]
Transportation accounts for 18% of the Canadian investment in engineering construction. Water and sewage works account for 6%. Energy projects account for 12%, and marine, mining and other sectors account for 11%. Communications represents 2%, leaving the lion’s share in the oil and gas sector at 51%.
CanaData’s figures for construction investment in constant dollars for all new construction show only a 2.8% growth in 2011, compared to 7.4% growth in 2010. [CORRECTION]