Construction industry revenues expected to decline

The Conference Board of Canada has released its latest report on the current and expected status of the construction industry in Canada.

While residential construction grew moderately in the first half of this year, the results for the non-residential market are not so good.

Written by Maxim Armstrong and released October 13, “Canada’s Non-Residential Construction Industry Report” says the only sector expected to show any signs of expansion is in government and institutional projects, notably school and hospital projects.

The commercial office market is showing “saturation,” says the report, with unused space at 9.5 per cent in the first quarter of this year. This is the highest point it has reached in 10 years.

Thanks to the closure of 133 Target stores, along with other factors, commercial retail construction is also at a stalemate. This sector is “undergoing profound changes — changes that are not good for the construction industry.” Renovations and repurposing of retail space may provide some opportunties for construction, “but the underlying demand remains soft for now.”

The report does see “bright spots” in the manufacturing sector thanks partly to the low Canadian dollar. But even then “that growth is not yet sufficient to drive large gains in construction activity.”

In terms of revenues, the report summarizes: “Following last year’s subpar performance, non-residential construction revenues are expected to do even worse this year, posting an outright decline. This drop will be the first since 2003 and will be the result of weak increases in both volume and prices.”

It continues, “In an effort to rein in expenses, the industry has been cutting jobs and wages since the beginning of last year, which paid off in the form of an improved profit margin. This year, material price inflation will continue to push material costs higher, offsetting the savings on the labour front. Profitability is expected to deteriorate this year and next. Overall profits will remain below last year’s level until 2018.”

The report lists the top 10 companies in 2014 in terms of revenues. At the top was SNC-Lavalin, with $8.2 billion. Other engineering companies on the list were Fluor Canada, Ledcor Group, WSP Global and Hatch.

The accompanying residential construction industry report said there was modest growth in the housing market in the first half of this year, but a moderate correction is expected.

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