Trying to hold steady

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Government spend on construction projects is happening almost everywhere in the country right now, and more is on its way, but the question remains whether pending private and publicly funded projects will happen soon enough to avoid an overall slowdown in Canada’s construction economy in 2024.

“If you look at all of the programs that are under construction, being developed, and are being proposed over the next five to 10 years, the level of investment is beyond anything I’ve seen here in the last 35 years,” said Gerard McCabe, managing director, Canada, at Turner and Townsend during a recent conversation with On-Site.

“I think the proverbial message right now is that people are busy,” said Chris Atchison, president of the B.C. Construction Association (BCCA). “They’re pleased that they there is there’s lots of work, and work for the foreseeable future, but based on what we know about proposed construction and the trends we’ve been seeing for the past couple of years, there is a flattening and concern about a slowdown in 2024.”

Rick Moffat, partner and head of operations at HKA Canada, is also seeing a slowdown developing, but acknowledges that there is activity expected again around the corner, especially in certain pockets of the construction industry.

“As we close out 2023 and look forward to 2024, HKA has seen the construction market remain steady for ongoing projects but has seen fewer new construction project starts as compared to previous years. With several large energy and industrial jobs wrapping up this year, there is a decrease in overall volume heading into 2024,” he explained. “We do see continued strength in infrastructure investment across Canada, with several mega-projects currently in the design or pre-tender stages. We anticipate that 2024 will include further development of future energy and industrial projects.”

Canada’s level of construction activity does have machinery moving, which puts the country’s construction sector in a more robust spot than many other jurisdictions, says David Orlan, country manager for Machinio in Canada.

“Looking at data from Machinio Members across Canada and around the world, we see that Canada has held stronger in the amount of inventory trading across multiple sectors relative to other markets in North America and Europe.”

Of course, sometimes numbers can mask underlying issues.

“The demand for construction remains high. But government investment in construction projects is obscuring the real situation,” stated Atchison, who explained that institutional and government construction are the core growth segments in non-residential construction. “The overall investment in the industrial, commercial and institutional construction sectors has essentially been flat through the first half of this year, and it still remains at about 10 per cent below its pre-pandemic levels.”

Investment in infrastructure is making up for lost time, and helping Canada navigate population growth, however.

“I think there’s a lot of catch-up to do on the infrastructure side to accommodate this rapidly growing population that we’re seeing,” said Rachel Battaglia, an economist with RBC. “Investing in infrastructure was a major theme in a number of the provincial budgets this year.”

That investment is going to be necessary as Canada’s population continues to grow, explained Nolan Frazier, regional director for Canada with Procore.

“There should be a baseline of core infrastructure that is going to have to be built or rebuilt,” he said. “In 2022, the Canadian population grew by 2.7 per cent… According to Canada Mortgage and Housing Corporation (CMHC), 3.5 million additional housing units will be needed to restore affordability by 2030. And all this won’t be possible without core infrastructure like hospitals, roads, and schools. These are the building blocks of the community.”

Rising mortgage rates and heightened inflation have created an unusual combination of a growing population facing a housing shortage, rising home prices and slowing starts figures. Demand exists and is rising, but shovels are not breaking ground quickly.

“There’s obviously lots of demand for residential, but there are clear challenges on the financing side, with rates being where they are,” said Battaglia.

That said, Canada is a country of regions, and not all follow the same path on the same timeline.

“We’re definitely seeing a slowdown in new residential, but I think it depends on the market you’re in,” stated McCabe, explaining that Calgary’s residential demand has developers looking at converting empty commercial space into condominium housing. “That wouldn’t be happening in Toronto right now, because it’s a different market.”

Hoping to spur the residential sector into action, and to add to Canada’s stock of available housing, federal and provincial governments have rolled out tax exemptions on purpose-built rental housing.

“That particular effort is welcome news and will likely stimulate more purpose-built rental projects, but that’ll hardly be the silver bullet for a housing crisis,” stated Battaglia. “The biggest issue is houses don’t get built overnight.”

Just as regional differences exist for projects, demand and backlog enhancement for 2024 will likely vary by segment as well. Office space is still in a lull, but other segments, including retail, are showing some resilience. Data centres, projects related to electric vehicles, and power generation have a lot of wind in their sails, however, and are viewed as growth opportunities.

“We’re going to have to start investing in power network upgrades to support EVs and data centres,” advised McCabe.

“There’s also carbon capture, and the other big thing that’s really heating up, not only in Canada, but globally, is this whole discussion around hydrogen,” said Eric Peissel, global director for transport and infrastructure at WSP.

There are also opportunities within the existing building stock.

“In the office sector, new build is not out there, but with the energy transition, we’re actually seeing a lot of demand for bringing buildings up to up to up to modern standards and being green,” stated Peissel.

Different companies will have different strategies as the 2024 slowdown hits.

“One of the interesting points in our recent stat pack was the value of proposed construction projects in B.C. We are anticipating in the neighborhood of $174 billion,” said BCCA’s Atchison. “That seems like a staggering amount, but for the past five years that proposed construction project inventory has been north of $200 or $220 billion. So, almost $50 billion has removed itself.”

McCabe’s advice is to, “Fill your book early.” Even for contractors who are busy at the moment, he says lining up future work now could prevent heightened competition for projects if a slowdown is pronounced. Also beneficial during a downturn, prolonged or not, is to seek out efficiencies.

“The situation is fluid, and largely outside of companies’ control. It remains important to look for efficiencies and to make sure everyone working on a project has timely access to materials information and other data,” advised Frazier.

“I think productivity enhancements are always a plus,” added Battaglia. “If you can change the way that you build to be more efficient, to me, that is that is the way forward.”