September 21, 2007

CanaData Construction Industry Forecasts Conference

Canada will weather the U.S. economic storm just fine, thank you

Denise Holtby

Reed Construction Data – Canada

The mood was upbeat and positive at the CanaData Construction Industry Forecasts Conference, held September 20 in Toronto. Although the words “subprime,” “credit crunch” and “dollar parity” were frequently mentioned — and top of mind for many — experts seemed to agree that Canada is in a good position to weather the potentially devastating storm stirring up trouble to the south.

Speaking to Canada’s construction industry leaders, Warren Jestin, Senior Vice-President and Chief Economist, Scotiabank, led off the morning sessions by stating that the “main street impact of the sub-prime crisis has a very long tail, and you’ll be hearing about it for a while.”

In light of the sub-prime meltdown, credit crunch and threatening recession in the U.S., Jestin predicts two more quarter-point decreases in the Federal Funds Rate in the coming months, hard on the heels of the September 18th half-point reduction. However, Jestin said that he doesn’t see the Bank of Canada following the Fed’s lead.

In fact, Jestin predicts that Canada is headed on a very different path from the U.S. He credits three factors for this: our resource-rich economy, those hefty government surpluses and the large numbers of householders in good financial shape. All of these factors make Canada attractive to global investors and greater investment means more construction opportunities.

Residential Construction

With the Web full of news stories about homebuilders auctioning off large blocks of new homes, it comes as no surprise to hear whispered fears that the tail end of the financial hurricane might sweep into the Canadian market.

But economists and experts at the CanaData conference are optimistic that Canadian residential construction will remain above 200,000 units for the next three years, at least. In fact, economist Will Dunning, of Will Dunning Inc., says that the amount of recent Canadian employment growth makes him “confident about the residential housing market.”

Dunning did have one warning for those working and living in British Columbia, saying that the province is only “for the brave, since it is hard to make a call on what will happen there in terms of affordability and home ownership.”

Non-residential Construction

In the U.S., the non-residential construction market has not been affected by the sub-prime crisis. In fact, according to Reed Construction Data economist Jim Haughey, “the non-residential construction market has, so far, felt little negative impact from the spillover of the subprime mortgage mess into the rest of the economy.”

In his article entitled Near Record High Non-Residential Construction Starts in July, Haughey forecasts that starts will stay high but are unlikely to rise much above the current level.

In Canada, the industrial, commercial and institutional (ICI) sector is doing well. Although the non-residential sector hasn’t seen the gains posted in the U.S., CanaData chief economist Alex Carrick says that total non-residential starts have had a “very strong year” and will begin to pick up even more momentum in 2008.

Carrick explained that the coffers of the federal government — and most provincial governments, too — are full. “Governments have a lot of money right now,” says Carrick, “so expect to see more institutional and heavy engineering projects announced, with starts in 2008 and 2009.”

As for commercial construction, Carrick pointed out that there are three markets in Canada that are particularly positive for new commercial construction: the Greater Toronto Area, Vancouver and Calgary.

In the office-building sector, Paul Morse, Sr. Vice-President, General Manager and National Practice Director for Cushman & Wakefield Lepage, had good news for conference delegates. “We’re in the early stages of an office development boom,” said Morse, “and vacancy rates are as low as they’ve been in 22 years.” In fact, says Morse, the sub-prime crisis, credit crunch and the subsequent rate cut have made the environment better for real estate investment trusts (REITs) and other large borrowers.

Canadian-United States Dollar Parity

Throughout the conference, the experts displayed myriad graphs and tables to illustrate their points and, to even the most casual observers, it was clear that the outlook for the next three years is positive.

In a feat of fortuitous timing, RCD Canada’s managing director Mark Casaletto announced to the assembly at lunch that the Canadian dollar had just reached parity with the U.S. dollar. With so many representatives of Canada’s leading building products manufacturers in the room, it is probably safe to say that the news was met with guarded enthusiasm by some and stony silence by others.

Next Year’s Conference

The 2007 CanaData Construction Industry Forecasts Conference was filled with insights and intelligence designed to help construction industry leaders plan for the future. For more information on next year’s conference, to be held September 28, 2008, go to CanaData.com.

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