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February 21, 2006

Economic Forecast

Jury out on where 2007 build stats will go

Some GTA sectors to remain strong

Ontario’s construction economy is expected to remain healthy over the next year, buoyed by strong growth in previous years in most sectors. But whether 2007 is the beginning of a downward spiral remains in question.

Experts weighed the possibilities at the Ontario Construction Secretariat’s (OCS) 6th annual Economic Outlook conference held Wednesday in suburban Toronto.

The OCS represents the 25 employee and the 25 employer bargaining agencies of the unionized industrial, commercial, and institutional (ICI) sector of Ontario’s construction industry.

While StatsCan recently revised its forecast data downward for 2007, the OCS remains cautious about such statistics, says Scott Macivor, the secretariat’s chief executive officer.

“We are looking at other sources (of statistics) to get a better idea of how strongly we feel about the revisions. The question is, `Do we agree with them and, if so, how strongly do we agree with them?’” he said.

Still, Macivor said StatsCan’s numbers don’t put an outright damper on construction activity in 2007, noting its outlook is “still positive, but just not as positive as it was.”

Katherine Jacobs, OCS director of research and analysis, told delegates it is not unusual for StatsCan to repeatedly revise its data.

She said construction in the province is expected to “level off” in most sectors but still remain steady over the next two years. Activity in the Greater Toronto Area is predicted to be slightly above average. While residential permits are projected to drop a bit, the slack could be picked up by various ICI sectors.

Furthermore, there is speculation office construction in downtown Toronto could be led by a rebirth of Brookfield Developments’ previously-shelved Bay-Adelaide tower.

Jacobs noted 2005 witnessed a number of firsts. For instance, it was the first time in years that housing construction in the province actually declined, albeit only by marginally. “We’ve been predicting this for several years now and this year, our predictions are accurate.”

Another first in 2005 was that the ICI sector topped $9 billion, hitting a record $9.2 billion in construction permits, Jacobs said.

As usual, construction activity in the Greater Toronto Area led the province although growth slowed overall to about the Ontario average.

Toronto’s manufacturing sector has struggled and housing is tapering off. Nonetheless, in December, residential building permits were about four times higher than usual for the month, which Jacobs attributed largely to changes in Toronto’s development charge bylaw and building permit fees. “I’m anticipating building permits in January to be substantially lower.”

While the ICI sector dropped by about 14 percent last year, it still is “fairly healthy” with $3.9 billion in permits for the year.

Even with a modest downturn forecast for 2006, Toronto’s commercial market still remains at a buoyant $2 billion, led by the city’s cultural additions, including the $195-million redevelopment of the Art Gallery of Ontario, the Royal Ontario Museum’s bold $120-million facelift, and the $105-million new Four Seasons Centre for the Performing Arts.

Aside from Ford Motor’s proposed $1-billion Oakville auto plant redevelopment announcement last year, activity in the GTA’s industrial sector has declined.

Jacobs reminded delegates the value of building permits is lumped into the year they are issued.

A “huge spike” in building activity – particularly in small regions – doesn’t necessarily equate to a sudden surge in construction activity, she said.

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