CanaData Construction Forecasts Conference

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2014 Conference Recap

September 25, 2014

CanaData Overview

Canada is not what it used to be, said economics experts addressing the 2014 CanaData Conferenceā€¦ but that’s not a bad thing as the country surmounts both cyclical and structural challenges to prepare for competition in a world where emerging economies wield greater influence.

Domestic construction companies are adjusting to a post-stimulus market and continuing to find opportunities to prosper. International demand for Canadian goods and commodities continues to play an important role in demand for construction services. While economists are counting on the underlying strength of the U.S. economy to reassert itself, emerging economies are looking a lot less like fledglings. China, India and other countries in South America and Asia are developing significant clout. The Eurozone, on the other hand, will remain structurally challenged and stagnant for at least a decade.

“Canada is not the Canada I knew when I was growing up,” said Alex Carrick, chief economist, CanaData. “That’s not a value judgment. We have to be aware of how it’s changing and the fact that we’re part of a very competitive world.”

Canada must continue to take advantage of its vast natural resource wealth and ongoing population growth, fueled largely by immigration he noted. Construction spending in mining, oil and gas continues to outstrip non-residential construction. “Over the past 10 years, it’s outpaced the combined total of retail, accommodation and food, schools and hospitals by a margin of three to one at almost a half-trillion dollars,” he said.

As the U.S. continues to strive for energy self-sufficiency, Carrick noted that Canada must continue to drive high-tech mega-projects that will help secure foreign markets for commodities such as natural gas.Ā  However, the country needs to secure international contracts before competitors do.

“These projects will be allowed to proceed depending on the environmental challenges and our ability to raise partnerships with the aboriginal communities they affect,” he said. “Success will follow whoever can marshal their resources fast enough to take advantage of these opportunities.”

While countries such as Canada may have to weather cyclical changes in demand for commodities, hungry developing economies will regain their long-term appetite for them, said Warren Jestin, senior vice-president and chief economist, Scotiabank Group.

“The US is still very important cyclically, but structurally I think much less important,” he said.

Canadian economic trends remain regional. While manufacturing exports, such as Ontario automobiles, remain weak, a strong energy export market in oil and gas in coming years will require the construction of additional pipelines and infrastructure.

“If we had assurances that these things were going to move forward, we would have a better growth forecast,” he said. “The issue is getting into offshore markets, particularly in Asia. Energy will determine our long-term underlying growth.”

Commercial construction will continue to deliver a robust supply of space to the Canadian market over the next five years, said Raymond Wong, executive director, Americas Research Operations, CBRE Research and Consulting.

However, cyclical demand overlays structural changes in how offices are used and where people want to work and live. Canada continues to expand office space offerings, while offices continue a trend to locating downtown. Larger individual offices are also giving way to smaller and shared spaces, while horizontal developments are giving way to vertical.

Retail continues to grow selectively, but the popularity of e-commerce is dampening demand for retail space. Retailers chasing growing downtown populations are building, but with scaled-down versions of traditional outlets.

Canada’s housing market remains unusually steady, said Peter Norman, chief economist with the Altus Group.

“However, slow and steady does not necessarily mean that the market is moving or particularly weak,” he said.

While 2014 saw about 192,000 housing starts, he predicted 195,000 by the end of 2015. Predictions for 2015 vary by major city: down in Vancouver, Calgary, Edmonton, Saskatoon, Regina and Winnipeg; up in Toronto, Ottawa, Montreal and Halifax. Unpredictable oil prices, however, may continue to impact local markets.

Structural changes to the housing market include the type of housing Canadians favour. About 40 per cent of new housing is represented by apartments and condominiums, up from 20 to 25 per cent a decade ago.

Norman’s message for 2015: “More of the same, but expect a little more single family and a little less apartment going forward.”

In Ontario, infrastructure spending will continue to be a government priority, said John McKendrick, executive vice-president of Major Projects, Infrastructure Ontario. Many of those projects will pass through the filters of the province’s Alternative Financing and Procurement model.

“We’ve got some big projects out there, there are more coming and there’s more to do,” he said.

Over the coming decade, the Canadian construction sector will continue to perform solidly, although emerging markets will see the lion’s share of growth, said Graham Robinson, director, Global Construction Perspectives and one of the authors of Global Construction 2025, a study on the global construction and engineering market.

“One third of construction will be in the developed markets, while two thirds will occur in emerging markets,” he said. “Emerging markets will see growth of three to six per cent annually, while developed markets will be limited to one to two per cent.”

The top seven construction economies of 2025, in descending order: China, the U.S., India, Indonesia, Russia, Canada and Mexico. “Canada’s overall position in 2025 is still respectable,” he said.

However, Chinese construction companies seeking international markets for construction services, equipment and materials may soon be competing directly with Canadian players on their home turf.

The North American market will see the highest construction growth among developed regions — almost 40 per cent larger in 2025 than in 2007. However, while U.S. growth will be based largely on housing, Canada’s will be based largely on infrastructure demand.

International investment and higher living standards follow development of such sophisticated infrastructure, added Carrick.

“Canada's got to stake its claim to this new high-tech world,” he said. “We’re doing a pretty good job so far, but there’s more to be done. Everyone knows that’s where the future lies.”