2022 Forecast: Endless opportunity
The forecast is bright for Canada’s construction sector, but supply chain and labour challenges remain.
While economic recovery from the COVID-19 coronavirus pandemic is underway in Canada, supply chain disruptions and labour shortages have added to challenges felt across most industries, and the construction sector is no exception.
The good news for those in the construction industry is that investment bounced back in the sector for residential and non-residential construction after a slowdown early into the pandemic.
According to the Canadian Construction Outlook: Q4 2021 report from global property consultancy company Jones Land LaSalle (JLL), the value of new building permits hit a peak of over $11 billion in the second quarter of 2021. The report states that the surge was a result of increased investment in the residential sector (all types of housing, due to low interest rates and increased demand for space); the industrial sector (which had 36 million square feet of space under construction, a new record for Canada); and investment in new office buildings (largely projects started up in Toronto, Montreal, Vancouver and Ottawa, prior to the pandemic).
According to an update in GlobalData’s Q3 2021 report, Construction in Canada – Key Trends and Opportunities to 2025, Canada’s construction sector is expected to grow by 6.5 per cent this year. Global- Data had previously forecasted the sector to grow at a rate of 2.5 per cent for 2021. The change in the company’s forecast was due to growth largely attributed to the increased investment in the residential sector, vaccination progress and higher public spending in the areas of infrastructure and clean energy projects.
In 2022, there will still be plenty of work available for the construction sector but some of the challenges from 2021 will carryover. One those biggest challenges will be disruptions within building materials supply chains.
Throughout the pandemic, disruptions within the supply chain have led to building material shortages during a spike in global demand for materials such as lumber, steel, aluminum, copper and various plastics for construction building materials.
According the JLL report, shipping containers coming across the Pacific Ocean have been taking an average of 73 days to get to their final destinations, as opposed to 20 to 30 days pre-pandemic. In addition to delays, shipping costs have been, in many cases, 300- to 400-per-cent higher than what they were before the pandemic took its grip on the world.
Export Development Canada’s chief economist Peter Hall says that the supply chain disruptions being experienced in Canada stem from the unexpected speed of the country’s economic recovery.
“My opinion is we were conditioned to expect an economy that was going to come back slowly and it’s proven us very wrong. This was an economy unlike the pre-global financial crisis period, that was ready to take off as soon as we got the green light,” he says. “By the measures that we use, there was significant pent-up demand coming into the pandemic. That’s the opposite of the way things were prior to the global financial crisis, but that was the last recession we had, and so, that’s the one everybody remembers. They remember falling into the chasm and taking an awful long time to get back out of it. This time around we’re jumping back out of it and it’s taking everybody by surprise.”
The feedback that the EDC is receiving from customers across all industries, including construction, is that growth isn’t the problem. The issue is that there is not enough supply to meet global demands.
“It’s easy to shut an economy down, you just have to announce that its closing. A pandemic is the kind of situation where you can say, ‘Look, for everybody’s good health we need to stop,’ and so, everything stops,” Hall says. “You can announce that the economy is open again, but we’re in a situation here where that has happened but then we’ve had to do either partial or full closures because of the pandemic. When businesses get into a situation where they don’t know if this announced re-opening is the real one, they’re going to be more tentative about coming back on, and that’s the predicament we find ourselves in now – but this is the real thing.”
Hall says we didn’t react quickly enough before the shortages started to show up, so everything from chip shortages in the auto sector to shortages in raw materials are taking place.
“It’s not easy to get a mine back up and running. Although there’s plenty of supply, we’re having trouble getting the machine rolling again, and that’s going to take a little bit of time,” he says.
Although delays and shortages of construction materials arriving on sites have been causing spikes in the costs of materials such as lumber and steel throughout the pandemic, Hall has some positive news.
“The best remedy for high prices is high prices,” he says, adding that eventually the higher prices will attract enough companies to any market that the supply will inevitably balance out the demand. “High prices are the architect of their own undoing.”
JLL expects building material shortages and shipping costs should stabilize in 2022:
Much of the volatility we are seeing is a consequence of supply chain operators transitioning from a low demand context to a high demand context in a short period of time as consumers binge on goods and services after a year of lockdown measures. By 2022 this is expected to largely stabilize, resulting in more normal price variations. The COVID-19 pandemic dealt a curveball to supply chain operators that were working on just-in-time orders, tight timelines and tight margins. Supply chain managers have indicated that they are increasingly open to managing larger stockpiles of inventory if it translates to greater control of their materials – this could build in some costs in the form of larger stockpiles, but it would reduce the pain of bottlenecks. Meanwhile, emboldened regulation in the Chinese economy and construction industry, though a drag on economic growth globally, will temper the pricing spikes we are seeing in commodity markets.
PCL’s Chris Gower, chief operating officer, Buildings, says he expects supply chain disruptions and shipping costs to continue to be a major challenge to navigate in 2022.
“It’s been incredibly volatile. We’ve seen a four-times increase on shipping costs simply in a matter of a week. That sort of volatility is hard to manage, but I think we’re all getting better at managing it. The world is adapting pretty well,” he says, adding that PCL have focused some of its employees on tackling inflationary issues and supply chain issues. “We’re putting several people on tracking and managing price trends on things like steel, copper and lumber. We’re trying to become more educated so we can help our people predict the future… the better we get at managing supply chain and inflation by being smart about our procurement strategies by being as informed as we can be, we’re going to add value [for the clients].”
Despite these challenges, Gower sees plenty of opportunities for the construction sector in 2022.
“I do believe there’s an increased amount of work right now. I would call Canada very busy. We’ve got markets like Quebec, Ontario and B.C. that are very busy, and we’ve got other markets that are getting busier, so the whole industry has an opportunity to be selective,” he says.
Gower says there is plenty of opportunity within the civil side of the construction sector.
“Many of the cities are growing, and with that growth it means a need for civil infrastructure. I don’t think that’s going to change, and I think there’s money being funded in those areas more than in the past few years. I think there’s a need for hospitals. Thankfully, in Canada there’s been some hospitals built in the last 10 years – there’s certainly a need for more, and we’re seeing some very large private-public partnerships being contemplated in various provinces,” he says.
One new trend Gower notes is that there are more megaprojects in the range of $1 billion or more coming available for bid than ever before.
“I think federally and provincially you’re going to continue to see strong investments – some provinces more than others,” he says.
This will add to an already busy market because the private sector is also spending money on projects that were put on hold due to the pandemic, Gower notes.
“Those are coming back online, and with the provincially- and federally-funded projects coming online, those added together make for a very busy marketplace,” he says.
“From an opportunities perspective, infrastructure is going to drive the economy,” adds Aon’s Doug Correa, executive vice-president and national specialities leader for commercial risk solutions. “I think there’s huge opportunity in all segments of the construction sector.”
Correa says there is a huge appetite for projects, and that part of the challenge in 2022 will be clearing various backlogs within the sector.
“Just getting things done is taking more time. It’s taking more time to get permits, get inspections done, get financing done,” he says, adding that governments are very keen on investing in the sector. “I think there’s still billions of dollars in infrastructure funds available. Governments want to get shovel-ready projects into the ground. I expect there will be an increase in spending. I think you’re going to see more government funds available to smaller municipal projects.”
John Gamble, president and CEO of the Association of Consulting Engineering Companies, is also optimistic about the opportunities within the construction sector in 2022.
“I think, looking forward, businesses and business opportunities are going to be fairly robust – everything from deferred maintenance on infrastructure to some ambitious infrastructure programs and low-carbon initiatives,” he says.
The continued challenge of labour shortages within the construction industry will be another major hurdle in tackling the many residential and non-residential projects that are available and underway throughout 2022.
“Getting qualified people on the design side and on the construction side, I think that’s certainly going to be a challenge,” Gamble says.
Gower says governments and industry will need to continue to find new ways to attract young people to the industry and complimented a new initiative by the Province of Nova Scotia to attract people to the sector.
“Nova Scotia eliminated the personal portion of personal income tax for the first $50,000 for any construction trade worker under the age of 30, which I think is a brilliant solution,” he says. “I think both the federal and provincial governments in Canada should adopt a similar philosophy. If they truly want to bring people into the workforce – the people under 30 who care deeply about their first paycheck and trying to make ends meet and pay off their student debts – that’s a significant draw for people to come into the workforce as skilled labour.”
A look at some of the key investments and projects across the country.
Fraser Health Authority has issued the request for qualifications for a new $1.66-billion hospital and cancer centre in Surrey, B.C. The facility will feature 168 in-patient beds, a surgical/perioperative suite with five operating rooms, four procedure rooms, an emergency department with 55 treatment spaces, and virtual care options in all clinical service areas. An integrated cancer centre will include an oncology/ ambulatory care unit with 50 exam rooms, 54 chemotherapy treatment spaces and room for six linear accelerators for radiation therapy.
Construction continues on BC Hydro’s massive $16-billion Site C Clean Energy Project. The project’s expected completion date is currently scheduled for 2025.
B.C.’s Ministry of Transportation and Infrastructure announced that the replacement for the George Massey Tunnel on Highway 99 will consist of an eight-lane immersed tube tunnel at a cost of approximately $4.15 billion. The province is in the process of getting the environment assessments underway. The project is expected to be completed in 2030.
Work on the $837-million Trans-Canada Highway project between Kamloops, B.C. and the Alberta border continues through 2022 with nine projects across the 430-kilometre section of the highway.
A massive project announced this fall is expected to bring thousands of jobs back to the construction sector in Alberta. The Northern Petrochemical Corporation announced that it plans to build a $2.5-billion carbon-neutral ammonia and methanol production facility in the Municipal District of Greenview, a little over 400 kilometres northwest of Edmonton. The construction of this facility is expected to create more than 4,000 jobs during the construction phase, as well as 400 permanent jobs after its completion.
The province’s 2021 Capital Plan will invest approximately $21 billion in the construction of new roads, schools and hospitals over a three-year period. The plan is expected to support 50,000 direct and 40,000 indirect jobs. Of the $21 billion, the province has earmarked $2.4 billion for roads and bridges and $3 billion for capital maintenance and renewal of public infrastructure.
Saskatchewan’s 2021-22 budget has $3.1 billion earmarked for capital investment including hospitals, schools, highways and other needed projects. The government has allocated $553.2 million for transportation capital including the twinning of Highway 3 west of Prince Albert, multiple passing lanes on Highways 2, 3, 5, 7, 12, 14, 16 and 39. Budget 2021-22 includes a record level of investment in rural provincial highways with $180 million allocated to deliver 280 kilometres of upgrades.
The province has also pledged $189.9 million for education capital, including $101 million to support 21 ongoing capital projects, which will build 16 new schools and renovate five additional schools.
The 2021-22 budget has also allocated $70.1 million to rehabilitate water dams and supply channels. The funding for this section includes the Lake Diefenbaker Irrigation Expansion Project which will promote Saskatchewan’s economic growth by expanding its irrigation capacity, diversifying into higher-value crop production, attracting more valueadded processing, and adding to long-term food security.
The province announced a record $2.1-billion investment in strategic infrastructure expected to help drive construction jobs and stimulate economic recovery. As part of the three-year Manitoba Restart Capital Program, $254 million in funding this year is allocated for water/wastewater projects, including a significant contribution to the City of Winnipeg’s North End Water Pollution Control Centre, and on two major projects to improve highway safety.
The Government of Manitoba’s 2021-22 budget includes approximately $630 million for road construction and maintenance, including $107 million through the Manitoba Restart Program. The program will include safety improvements at the intersection of the Trans-Canada Highway and provincial trunk Highway 16 and the south perimeter interchange at St. Mary’s Road. The province has earmarked $415 million for kindergarten to Grade 12 and post-secondary infrastructure, including $260 million on new schools and related capital and $155 million on post-secondary infrastructure.
Within the province’s outlook titled, 2021 Ontario Economic Outlook and Fiscal Review: Build Ontario, the government has committed to expanding and repairing highways and bridges as a means to spur economic growth. The Government of Ontario has invested approximately $2.6 billion in 2021-22 to support the Ontario Highway Program. This initiative features more than 580 expansion and rehabilitation projects. One of the key roadbuilding projects announced is the construction of Highway 413, a new 400-series highway and transit corridor that will run across the Halton, Peel and York regions of Southern Ontario. The building of Highway 413 alone is expected to support up to 3,500 jobs each year of construction and generate up to $350 million in annual real gross domestic product (GDP).
Significant work is also expected to take place on the Scarborough Subway Extension and the Eglinton Crosstown West subway projects with the tunnel boring machines for both projects expected to arrive in Canada in January 2022 with tunnelling getting underway in the spring. In September 2021, Ontario released the request for qualifications (RFQ) for the design and delivery of the stations, rail and systems work for the Scarborough Subway Extension. A shortlist of qualified proponents will be announced in early 2022 following the close of the RFQ. Other large infrastructure projects coming underway (or currently in progress) include Hamilton’s 14-kilometre, LRT project and the Kitchener GO Rail Expansion.
Environmental assessments are underway towards the potential construction of the road to Northern Ontario’s Ring of Fire. The province has committed nearly $1 billion to support the all-season road’s planning and construction.
In November, the Government of Ontario also committed $600 million in funding for capital building programs including new-builds and renovation projects for schools and childcare spaces. The announced plan aims to create 19,700 new student spaces and 1,525 new licensed childcare spaces. Approximately $565 million is allocated to building 26 new schools and fund 20 permanent additions and renovations.
Investments in the Québec Infrastructure Plan 2021-2031 (QIP) have been increased by $4.5 billion to $135.0 billion. To help restart the economy, the province has stated that almost 60 per cent of the investments in the 10-year plan will take place over the next five years. The 2021-2031 QIP forecasts an additional $2.6 billion to go towards road improvements. This includes $203.9 million for road restoration; $122.7 million planned for new non-major projects, including the extension of Autoroute 73 in Saint-Georges and a bypass in Saint-Lin-Laurentides; $934.7 million forecasted for major projects “in planning,” including the redevelopment of Autoroute 55 between Bécancour and Sainte-Eulalie, the widening of Route 117 between Labelle and Rivière-Rouge, the exchange between autoroutes 440 and 15, and an elevated ramp in Laval; and $1,196.0 million set aside in the central envelope for provisioning of other major projects.
In Nova Scotia, $178.2 million has been budgeted in 2021-22 to support large healthcare redevelopment projects including the QEII New Generation Project, new and renovated operating rooms and a new cancer centre and new community outpatient centre. The provincial government has budgeted $95.5 million towards the construction, repair and renewal of hospitals and medical facilities across the province. Work will also continue on the multi-year highway twinning projects for Highway 101, Highway 103, Highway 104 and Highway 107.
In New Brunswick, the province has budgeted $20 million for a multi-year strategy investment to support the development of the small modular nuclear reactors sector. Construction on a new school in Fredericton for 500 students from kindergarten to Grade 5 is expected to get underway in the spring of 2022. The province has allocated $4.2 million for the selection and purchase of the site, as well as planning and design work.
In P.E.I., the province has budgeted $3 million for the development of the PEI Centre for Mental Well-Being.
In Newfoundland and Labrador, construction is underway on a new 102-bed adult mental health and addictions hospital in St. John’s. The $330-million project is expected to create 200 jobs during peak construction and 400 jobs in total. In Corner Brook, construction has begun on a new $722.8-million acute care west coast hospital that will have 164 beds. The province estimates that 1,000 skilled trade jobs will be generated over the course of the hospital’s four-year-long construction period.