May 25, 2006

ICI Sectors

Record growth experienced in non-residential

Investment in commercial and industrial experience record highs

FAZEENA SAMAD

staff writer

TORONTO

Western Canada is leading the way in investments for construction in the non-residential sector.

Non-residential investment hit a record high in 2005 for the fifth year in a row, and the West can take much of the credit, says a recent study by Statistics Canada.

Investments in commercial, industrial and institutional projects hit $31.5 billion last year, up 8.7 per cent from 2004. This was the strongest gain since 2002.

John Clinkard, an economist with Reed Construction Data and CanadaData, says the growth is the result of a series of favourable factors.

“What we have seen in the past few years is a steady improvement in the fundamental drivers of non-residential construction,” Clinkard says. “Investor confidence, strong corporate profits and a low interest rate environment combined with a strong capacity for utilization have seen an overall swell in non-residential investment and construction.”

Clinkard also noted the “biggest story” is commodity prices.

“We have seen record prices in general, and in oil prices specifically, and that has triggered massive investments in Western Canada, which has led to incredible growth in non-residential construction,” he added.

Western Canada spearheaded the growth in industrial investment as well.

Alberta and British Columbia alone accounted for one-fifth of all investment in the nation’s manufacturing plants in 2005.

They also generated one-half the total gain last year in all investment in buildings associated with maintenance, such as repair shops.

Last year’s record $31.5 billion in non-residential investment nearly matched the Alberta government’s total revenue, and comprised nearly 2.3 per cent of Canada’s gross domestic product.

While investment rose in the commercial and industrial components, it declined in the institutional component.

However, Clinkard says investments in institutional infrastructure may soon turn around.

“At the moment, it looks like institutional growth is lagging, but expect it to strengthen as we move into 2007 because need will drive upgrades in this sector.

Industrial projects, such as factories, recorded the largest gain of 20.3 per cent, reaching a record $5.6 billion compared to spending on institutional buildings, such as hospitals, museums and schools, which slipped 4.7 per cent to $8.3 billion.

Investments in office towers also saw a gain accounting for $1.4 billion, more than one-half of the total increase in non-residential construction last year.

Vancouver and Calgary accounted for nearly one-quarter of the jump in office towers investments.

Investments in Calgary for office tower construction soared 58.1 per cent to $497 million, largely the result of demand for office space by businesses in the energy sector, says Statistics Canada.

“It is a chain of events. We see the actual construction, and the digging of holes, but as more people are attracted to the area, there will be a need for more services which contributes to non-residential investments and infrastructure spending,” Clinkard told Daily Commercial News.

Ontario was the leader in warehouse construction, where it jumped 14.6 per cent to $2 billion.

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