June 19, 2008

Thumbnail sketches of CanaData’s forecasts for Canada's five construction sectors

Alex Carrick, Chief Economist, Reed Construction Data

There are three major type-of-structure construction categories: residential, non-residential building and engineering. In addition, non-residential building is comprised of industrial, commercial and institutional work. The first letters of these three categories make up the term ICI construction. The following quickly summarizes CanaData’s latest forecasts in all five of these markets.

Residential

Total housing starts in Canada averaged 223,000 units per year from 2002 through 2007. Last year’s level was 228,000 units, which was just slightly higher than the 2006 figure of 227,000 units. The peak in this latest cycle occurred in 2004 at 233,000 units.

CanaData is forecasting that housing starts in 2008 will drop to 210,000 units, then experience a further decline in 2009 to 195,000 units. By 2010, positive momentum will begin to gather again with an increase in starts to 205,000 units nationwide.

In non-residential building markets, CanaData is forecasting that the total square footage of starts in 2008 will be 76.0 million. This will compare with last year’s cyclical peak level of 89.1 million square feet. The overall ICI decline will continue in 2009 with a further drop to 72.5 million square feet. In 2010, a better-performing economy will see total ICI starts rise again to 75.0 million square feet.

Commercial

Total ICI starts will break down as follows. Commercial starts this year are expected to be 47.0 million square feet, after reaching 55.6 million last year. In 2009, they will be 41.0 million and in 2010 they will increase marginally to 42.0 million.

Institutional

Institutional starts will moderate slightly from 26.7 million square feet in 2007 to 25.0 million in 2008. In 2009 and 2010, they will trend slightly upward to 26.5 million and 27.0 million respectively.

Industrial

Industrial starts will be quite weak at 4.0 million square feet in 2008. They were 6.8 million in 2007 and 8.4 million in 2006. By next year, manufacturers will have adjusted a little better to the higher-valued Canadian dollar and industrial starts will gradually climb to 5.0 million in 2009 and 6.0 million in 2010.

Engineering

Engineering construction can only be measured in dollar-volume terms. For example, it does not make sense to refer to the square footage of roadwork or electric power transmission lines. CanaData is currently forecasting that the total dollar volume of engineering construction in Canada in 2008 will be $85.5 billion, after reaching $80.0 billion in 2007. These are current, as opposed to “constant” (i.e., inflation-adjusted) dollars. Total engineering spending will then rise to $91.8 billion in 2009 and $99.0 billion in 2010.

The year over previous percentage changes for total engineering spending are as follows: 3.3% in 2007; 6.8% in 2008; 7.4% in 2009; and 7.8% in 2010. Factoring in estimated prices changes, the constant-dollar percentages for engineering construction are: -0.9% in 2007; 1.5% in 2008; 2.8% in 2009; and 3.9% in 2010.

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