Optimism reigns in Ontario
April 21, 2014 by JIM BARNES
Industrial, commercial and institutional contractors in Ontario have a lot to look forward to—and recent research confirms their enthusiasm. Held in Toronto in March, the Ontario Construction Secretariat’s 14th Annual State of the Industry & Outlook Conference 2014 assembled an expert panel of speakers with positive views and research to share on construction in that province.
The conference began with introductory remarks by Sean Strickland, OCS C.E.O. and Ontario Minister of Labour Yasir Naqvi.
An economic update and outlook by economist Derek Burleton followed. Burleton, vice-president and deputy chief economist of TD Bank Financial Group, delivered a message of “conservative optimism.”
Based on current data, he suggested that the global economy will “gain a step” this year, with strong growth projected for emerging economies. The U.S. dollar will strengthen while the Canadian dollar settles to 85 cents U.S.— described by Burleton as “a reasonable level.” Exports and business investment should pick up, with rates undergoing “an upward grind” at the end of the year.
The Ontario manufacturing sector should be healthier. Machinery and equipment purchases are seeing a surge, showing upside in the industrial construction market, said Burleton. Commodity prices generally should remain stable.
Consumer spending is “tapped,” he noted, adding that “growth in non-residential has peaked.”
The deficit in Ontario will be an issue in institutional construction. There will be restraint in infrastructure spending, even though more infrastructure investment is needed. “We need to be more choosy in what we finance,” Burleton said.
Insights on the commercial sector were provided by Carl Gomez, senior vice president and chief economist of real estate investment advisor Bentall Kennedy.
He cited an ongoing interest in commercial investments on the part of big investors, resulting from weak returns from bonds and equities. Some of that interest is moving offshore, he noted.
Transit bottlenecks and demographics are fuelling interest in downtown condos in Ontario, he said. Most of the building is now in downtown cores, not suburbs.
“Retail follows the rooftops,” he added. Commercial construction will follow residential in “transit-oriented development” that tracks public transit. Mixed-used developments, comprising residential, retail and office space, will grow near the transit “key mobility hubs.”
He also discussed a growing interest in apartment buildings, which provide an income stream rather than a simple profit.
There may be headwinds. Increasing interest rates would have an impact. As well, many commercial building owners are embracing technological innovations to maximize their space utilization, according to Gomez.
Jack Collins, executive vice-president of Rapid Transit Implementation, Metrolinx, outlined the huge scope of “The Big Move,” its development plan.
Among the projects that are part of the plan are:
- Union Station Revitalization
- UP (Union Pearson) Express
- Light rail transit projects, including the Eglinton Crosstown, Sheppard East and Finch West lines
- GTS (Georgetown South) Project (for GO Transit)
- And bus rapid transit projects including the York Region vivaNext Rapidways and the Mississauga Transitway.
The next wave of priority projects, will see some $34 billion allocated to more than 500 kilometres of new transit projects and GO Rail improvements, including subways, LRT, BRT, and roads and highways, among other projects.
A highlight of the conference was research presented by Katherine Jacobs, OCS’s director of Research & Operations, which showcased growing optimism among Ontario’s contractors.
The 2014 Survey of Ontario’s ICI Construction Industry solicited viewpoints on the short-term outlook from 550 non-residential contractors from four sectors across Ontario. It was developed in collaboration with research firm Ipsos Reid.
Here are a few highlights:
- Nearly 40 per cent of the contractors expected to conduct more business in 2014, as opposed to 11 per cent who expect to conduct less.
- The Construction Barometer, a metric based on survey data, also reflected contractor optimism. Measured on a scale of from 0 to 100, a reading above 50 indicates that contractors who expect to conduct more business this year outnumber those expecting to conduct less business. This year’s number was 64, a four-point increase from last year.
- Regionally, GTA contractors are the most optimistic. They are bullish about the ICI and engineering sectors—especially with regard to infrastructure projects—Jacobs noted.
- In eastern Ontario, contractors were more upbeat this time around, with strong expectations for high-rise residential construction.
- The Barometer number declined from last year in central and southwestern Ontario, while still remaining above average.
- Northern contractors were less optimistic than those in other parts of the province. Nevertheless, the Barometer still registered an increase over last year.
- Contractors expect more business, on balance, in each of the major construction sectors, led by the commercial, engineering and high-rise residential sectors. The institutional sector, facing fiscal austerity headwinds after a healthy run, was a less-favoured sector.
- About 33 per cent of contractors expect to increase their staffs—a slight decline from last year, but still above average compared to all past surveys. Only nine per cent of contractors expect to downsize their workforces.
- Almost 73 per cent of contractors expected labour shortages, an increase of 10 percentage points from last year.
- About 80 per cent of contractors expect to operate at a “high” capacity this year.
- Costs, including higher labour costs, were another common concern. The majority of firms plan to pass their increased costs on, though some predict weaker profit margins and a few may cut staff.
- Nearly 60 per cent reported employing an apprentice, the second straight yearly increase. A slightly higher percentage of contractors reported increasing their investment in apprenticeship training.
- Financial health is strengthening, as 70 per cent of respondents reported either “strong” or “very strong” financial positions, up eight points from last year. They cited factors such as good cash flow, growing business, minimal debt, business longevity and healthy profit margins. Large firms were the most likely to report being in a strong financial position
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