Canadian construction forecast

Less severe losses than U.S. in 2009 and 2010
Katy Devlin
December 9, 2008
COMMERCIAL : FORECASTS

Canada is certainly not immune to the recession that began in the United States and spread throughout the world. However, the country is expected to face less severe losses during the next two years than its American neighbor, said Alex Carrick, chief economist for Reed Construction Data Canada during an Oct. 16 Webcast.

“We have a strong economic base in Canada,” Carrick said. “We have huge assets, including our resource wealth. We are self-sufficient in energy, our labor market is strong, our Japanese auto sector is strong. We still have credit available. House prices have moderated, but there’s no panic. The office market still has low vacancy rates, and we have a strong government sector.” 

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According to forecasters at Global Insight, Canada will lose 100,000 jobs during the first quarter of 2009.

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Canada's overall GDP is projected to increase 0.5 percent in 2008, and forecasted to increase 1 percent in 2009 and 3 percent in 2010, Carrick said. The unemployment rate will stay fairly steady, at 6.2 percent in 2008, and 6.5 percent and 6.3 percent in 2009 and 2010, respectively.

While total housing starts in the United States plunged 30.2 percent in 2008, according to the National Association of Home Builders, Canadian housing starts have stayed relatively strong, Carrick said. Between 2002 and 2007, housing starts averaged 223,000 per year. Projected housing starts in 2008 were slightly below the average at 213,000. 2009 and 2010 forecasts for housing are 190,000 and 200,000, respectively.

Canada Mortgage and  Housing Corp. made slightly lower predictions during its 2009 forecast, estimating that housing starts will fall to 178,000 units during the year.

The most populous provinces, Alberta, British Columbia, Ontario and Quebec, will all see notable drops in housing starts compared to the last two years, according to CMHC. Alberta’s starts are forecast to slip to 24,000 in 2009, down 50.3 percent from 2007 and 19.3 percent from 2008. British Columbia's starts are expected to reach 29,200, down 25.5 percent and 18.4 percent from 2007 and 2008, respectively. Ontario’s starts should reach 62,000, down 9 percent from 2007 and 16.7 percent from 2008. And Quebec's are predicted to fall to 42,000, down 13.5 percent from 2007 and 12.4 percent from 2008.

Of the remaining provinces, Saskatchewan is expected to see the most major declines, falling to 4,900 starts, down 18.4 percent from 2007 and 24.6 percent from 2008.

Overall nonresidential building starts saw large declines from 2007 to 2008, falling from 91 million square feet to a projected 76 million square feet in 2008. Carrick forecasted that starts will fall to a lesser extent in 2009 and 2010, dropping to 72.5 million square feet and 70.5 million square feet, respectively.

By segment, commercial construction will face larger drops than institutional construction, Carrick said. Commercial construction starts, including office, retail and hotel construction, are expected to fall throughout 2009 and 2010. Starts peaked in 2007 at 57.0 million square feet, and are expected to fall to 45.5 million square feet in 2008, 40 million square feet in 2009 and 39 million square feet in 2010.

The forecast for institutional construction during 2009 and 2010 is more positive.

Construction starts in the sector were projected to reach 23.5 million square feet in 2008, and are expected to increase to 25.5 million square feet in 2009, followed by a slight drop to 24 million square feet in 2010.

Carrick attributed the increase in institutional construction in part to rising demand for new health care facilities, driven by the needs of the aging baby boomer generation. In addition, the growing population of college-age individuals has led to rising demand for higher-education facilities.

“As the recession [continues], governments will make an effort to try and proceed with some of these institutional projects to keep an even keel with the economy,” Carrick said.

Hotel openings are also down. According to Lodging Econometrics, Portsmouth, N.H., the construction pipeline for hotels peaked in the first quarter of 2008. By the third quarter 2008, the pipeline stood at 231 projects, 29,517 rooms, the lowest level in seven quarters, according to LE’s Canada: Q3 Lodging Report.

Scheduled starts for the next 12 months are down 11 percent quarter over quarter, and planning is down 15 percent. “Both are reflective of projects stalled in the Pipeline due to a slowing economy and a difficult financial environment,” according to the Q3 report.

For 2009, LE forecasts 70 new hotels with 8,746 rooms, and in 2010, 73 hotels with 8,629 rooms.  

Katy Devlin is editor for Glass Magazine. E-mail Katy at kdevlin@glass.org.