The construction rebound, once forecast by many economists for 2011, appears to be on hold in most regions of Canada, but some sectors are looking up.
While Canada had “a good recession” compared to many countries, the economy continues to slow – one sign being a decrease in housing starts. That is no surprise because in a normal economic cycle, starts would have been down in 2009, but the drop in interest rates spurred more buying and increased starts, says Alex Carrick, chief economist, CanaData Reed Business.
Published in The Trowel December/January 2011 |
Multi-family residential units are in the worst shape. Carrick says inventory of unsold multiples is growing – about 150 percent higher than in a healthy economy. That spells a “sharp correction” in the market. Toronto, Vancouver, and Montreal account for 55 percent of all multiple starts. Vancouver starts were up in 2010, but largely because starts were at a low in 2009. In Montreal, starts are up about 20 percent while Toronto is about even with its 2009 count.
Aside from the oversupply, Carrick adds that the introduction of the HST to BC and Ontario, and a two percent increase in the HST in Nova Scotia, are deterrents in the residential construction sector through 2011. Furthermore, while interest rates remain low, they are more likely to go up than down.
The bright spot over 2009 and the first half of 2010 has been infrastructure projects (institutional/engineering) driven by the federal government’s $4 billion Infrastructure Stimulus Fund (ISF). Funding was originally made available for two years for projects that began during the 2009 and 2010 construction seasons. Early in December 2010, the federal government announced a six-month extension for the ISF that was originally scheduled to end in March. It’s now available until October 2011.
Interestingly, about 80 percent of the top 10 projects, published monthly by CanaData over the 2009-2010 period of the ISF, were either institutional or engineering-based.
“The (federal) government made a real effort to get that work out there when the market was at its worst,” points out Carrick. What’s more, construction costs remained steady with few increases in any sector.
What happens after the ISF is a big concern to the Canadian Construction Association. “It was very beneficial to the industry,” says Stephanie Rea, director of communications, CCA. At the end of the third quarter of 2010, the building industry (excluding residential) was only 50,000 jobs down from pre-recession numbers – an indicator of the success of the feds' stimulus fund.
Rea says the CCA suggests the feds look at possibly partnering with the private sector and various other levels of government for future infrastructure stimulus initiatives. “Many of the buildings in this country are 60 years old and they are going to need work. A single level of government can’t always pay for that.”
INSTITUTIONAL
Institutional starts for the year past (hospitals, schools, police stations, courthouses and prisons are examples) are expected to add up to 35 to 40 million square feet nationally – the highest since the 1970s. Still, Carrick points out there will be a gap between when the bulk of the publicly-funded projects end and major private projects start up, with private work not expected to ramp up until 2012.
The hospitality sector (hotel and motels, for example) is expected to start turning around after slow times but some of the large mixed-use condo/hotel projects in cities like Toronto won’t advance off the drawing boards because of the slowing multi-residential sector.
While the construction of new office space is down, the stability of Canada’s banking industry has helped to prevent a steep drop-off in building. Carrick says we can expect cyclical recovery over the next two years.
Industrial starts, on the other hand, are “unbelievably low,” in part because of the shift to manufacturing offshore, Carrick points out. Project starts are increasingly dependent on world commodity prices – the go-ahead of oil and gas projects is determined by the price of a barrel of oil, for instance. But Carrick sees more industrial development for the resource-based industries.
On the bright side, he says construction costs for all sectors remain stable although prices are bound to increase as economies in developing nations heat up again.
ISCA
In the Greater Toronto Area, the economic future looks uncertain in all sectors of the wall and ceiling industry, says Hugh Laird, executive director of the Interior Systems Contractors Association of Ontario (ISCA). Lowrise residential is expected to be down from 2010 – a low point in the industry. A usual strong sector in Toronto – highrise condos – is expected to flatten next year as current projects wrap up and few new projects start up. Laird says the bright spot is the ICI sector, which is expected to hold its own.
AWCA
Alberta wall and ceiling contractors also don’t see 2011 as a year of recovery. A year ago, the building industry expected that the end of 2010 would see an increase in work. “Now, generally the thinking is if we just slide that projection up a year to the end of 2011, everyone will be happy,” says Ryan Boyle, a director on the Alberta Wall & Ceiling Association’s board.
Calgary and Edmonton were largely carried through in 2010 by government work, such as airports, health care, and educational institutions, says Boyle. But those times won’t continue in 2011. The size and scope of public projects is expected to be much smaller this year.
While a number of major private projects are in planning, construction won’t start in 2011, says Boyle. The consensus is that the value of permits will go up this year largely because of small jobs and retrofits. Housing starts are expected to increase over 2010 but no record sales are expected.
“We’ve heard varying reports that 2011 could be a great year but we believe it is going to be about the same as 2010.”
The CCA’s Stephanie Rea says the long term concern is how to deal with skilled labour shortages that, if we continue at our current rate, could leave the country about 400,000 construction workers short in the next eight years. Retiring workers play a big part of that number.
EIFS
The EIFS industry represents one of the wall and ceiling industry’s bright lights. While most other sectors across the country are seeing a significant decline (in many cases double digit decreases) in work, EIFS is holding its own. Statistics for the first three quarters of 2010 show work on par with the same period of
2009 and the last quarter of 2010 is expected to be similar to the same quarter in 2009.
“Even though 2008 was a high watermark for the EIFS industry, being on par with 2009 isn’t a bad thing for us.” says John Garbin, president/CEO of the EIFS Council of Canada. “We see flat (the flat growth rate expected in 2010) as good.”
Projections call for similar EIFS forecasts in 2011 across Canada, he says. Although some vertical markets (such as retail) are expected to soften, this decline will be replaced by strength in other categories such as retrofit.
The strength of the EIFS industry nationally is measured by the industry’s success in Ontario, where approximately 40 percent of all EIFS work is done. That province is expected to see a blossoming market in highrise residential retrofits, which could nullify losses in other segments.
In the Greater Toronto Area alone there are more than 1,000 residential towers – mostly rental buildings constructed from the late 1950s to the 1980s – that could be re-clad with EIFS to meet new energy reduction targets. In 2008, Toronto mayor, David Miller, launched the Tower Renewal Program in effort to update the many aging concrete towers throughout the GTA. The growth of the program will in part be determined by incentives provided to building owners. To date EIFS has been used to re-clad and renovate a number of those towers in Toronto. Depending on the success of the Toronto initiative, similar re-cladding efforts may follow in other cities such as Montreal and Vancouver where residential highrises abound.
Garbin says the highrise tower segment is an example of how EIFS can be used economically and effectively in the retrofit industry. “We are one of the only industry sectors that can work effectively in either new or retrofit construction.”
As for other promising markets, Garbin says work in Alberta’s oil patch will continue to have a trickle down effect that is good for the EIFS industry. Development in the oil patch translates to more housing starts which result in ancillary developments – such as commercial/institutional construction, both potentially strong markets for EIFS.
While 2011 might simply be a year of recovery, the EIFS industry’s future over the next few years looks bright – particularly if the provincial building code bodies adopt standards laid out in the new Model National Energy Code for Buildings. The 2011 national code update calls for a 25 percent increase in energy efficiency while the 2015 energy code is expected to double that number.
“I don’t think people have entirely digested what that will mean for the cladding industry,” says Garbin. If, for example, there is a significant reduction in allowable window openings to meet wall insulation standards in the code, architects will likely turn to cladding such as EIFS to fill the gap. While upgrading HVAC systems can also help building owners reach the code requirements, exterior insulation is the most cost efficient means of attaining energy reduction targets.
The key will be enforcement. If mandatory Energy Code requirements are in place, the EIFS industry will see a big jump in business – especially for retrofits. “Where the rubber meets the road is at the provincial level. I have spoken to provincial authorities who say that this legislation is expected to become mandatory, but we have yet to finalize how that will happen,” says Garbin.
However, the Ontario Building Code is in the process of an update for 2011-2012, which might contain “enforcement instruments” that building inspectors will be called upon to use. That would be good news because Ontario represents a significant percentage of the EIFS market across Canada. “On the macro picture, we will see a substantive growth in market share,” says Garbin.
It’s not all bad news for the construction industry’s economic future. While some sectors may take longer to return to pre-recession times, new opportunities will more than likely present themselves with the extended Infrastructure Stimulus Fund, building code changes, and increasing importance of retrofits.
Article By: Don Procter
This article was originally published in the December / January issue of The Trowel Magazine
