According to Alex Carrick, chief economist, CanaData, at Reed Construction Data, spending on new construction in Canada will rise to $301.4 billion by 2014. The level this year, based on Statistics Canada’s survey of owner’s investment intentions, is expected to be $240.6 billion.
If a $300 billion construction market is achieved in 2014, it will almost double in dollar value over 10 years, since 2004’s level was $154 billion. In addition, CanaData’s projection of investment spending over the next three years is relatively conservative. It’s made up of cost increases that rise faster than volume increases.
The 2011 base year numbers are derived from Statistics Canada’s survey of 28,000 owners. Based on historical patterns, CanaData applied factors to the survey responses to categorize construction spending according to residential, non-residential building and engineering work. Non-residential building is further segregated into commercial, industrial and institutional.
During the seven-year period, 2004 to 2010, total new “real” (i.e., adjusted for price inflation) construction in Canada recorded an annual average growth rate of 3.1 percent. For the four years, 2011 through 2014, CanaData is forecasting an annual average change of 2.6 percent. Dropping 2011 from the calculation – since it displays particular weakness in institutional work – yields an annual average change of 3.5 percent.
In the forecast, the annual average change in constant-dollar residential spending from 2011 through 2014 will be about the same as it was from 2004 to 2010: 2.0 percent. Spending on non-residential building from 2004 to 2010 averaged a little more than 3 percent per year. It will realize a similar rate of increase from 2012 through 2014.
Engineering work will continue to be the standout category. Real spending on engineering construction from 2004 to 2010 averaged 4.7 percent per year. Given manpower and material limitations, that was probably maximum capacity growth for the sector. CanaData is projecting the 2011 through 2014 average annual gain to be 4.3 percent. Civil/heavy engineering work has been and will continue to be so strong due to a need to build new infrastructure and renew aging infrastructure, plus an overflowing plate of projects in the natural resource and utilities areas.
Current political unrest in the Middle East and North African nations is adding a significant risk premium to the price of oil, Carrick said. No one can say with certainty how long the turmoil will last nor how wide-sweeping its effects will be. The “doubt” factor is likely to keep oil prices at their new elevated level or higher for a long time.
Applying a measure of caution, residential and non-residential construction costs can be expected to increase in Canada by at least 3 to 5 percent annually over the next several years.