Western Canada Construction Outlook, 2010–2012

November 6, 2009

Leaders 2009

British Columbia

The major cities of British Columbia have been particularly hard hit by the economic downturn. Some of Canada’s largest house price drops, year over year, and housing start declines have occurred in the province.

Vancouver (-68%), Victoria (-73%), Abbotsford (-82%) and Kelowna (-89%) are among the Canadian cities with the largest year-to-date drops in housing starts versus the first seven months of last year. The province’s unemployment rate (7.8%) has also risen, but still to nothing like the heights seen in some other provinces. The nationwide unemployment rate stands at 8.7%.

The pick-up currently underway in the Asian economies will help the province. The halt to the U.S. homebuilding decline, followed by what is expected to be a slow and measured recovery, will provide relief for B.C.’s important forestry sector. Oil and gas development in the northeast of the province is largely in the experimental stage, with new technologies being employed to extract natural gas from shale rock. It will soon be determined if this is economically viable on a larger scale.

Vancouver’s suburban economy is closely tied to the high-tech sector, which has weathered the latest storms better than during the dot.com collapse of 2001. The Olympic Winter Games scheduled for February 2010 have been on the minds of Vancouver residents for many years. The city’s day in the sun will soon be here and the whole world will be watching. The provincial government treasury will have difficulty sustaining the rapid pace of public-sector spending, especially on bridges, which has been initiated.

Alberta

Alberta has also been one of the provinces to suffer the most over the past year and a half. World oil prices dropped from $145 USD per barrel to $35 between July 2008 and February 2009. This caused mega projects in the province’s oil sands to be put on hold or cancelled. The repercussions throughout the economy were sweeping. Many workers went back to their home provinces. Overheated housing markets in Edmonton and Calgary saw a dramatic decline in prices and starts. At the same time, the construction of new floor space has meant that the office vacancy rate in Calgary has gone from being the lowest in the country to the highest. This will hold back commercial work for the foreseeable future.

Despite the out-migration of some laid-off energy sector workers, Alberta continues to record the fastest population growth rate in Canada. Clearly, many people believe that better times will soon return to the province. On that score, the world price of oil has already doubled from its low earlier this year to around $70 USD per barrel in the late summer. Some previously shelved mega-projects are being dusted off and given another look.

The price of oil is a two-edged sword for Canada. When it goes up, it spurs investment spending in the resource regions of the West. But there is a flip side: the Canadian dollar has become a petro-currency. The loonie moves in tandem with oil prices. Therefore a rise in the price of oil has a detrimental impact on Canada’s ability to compete in manufacturing export sales. World recovery will help to revive Ontario’s economy, but because of the currency effect, maybe not to the same degree as in earlier turnarounds.

Saskatchewan

Over the last several years, Saskatchewan’s strong selling points have come to the fore. The province is resource rich at a time when the whole world needs raw materials, led by China and Southeast Asia. Fossil fuels, uranium, potash, diamonds, wheat and other grains — you name it and Saskatchewan has it, often in abundance.

Workers are returning to the province. For a while, home prices were being driven up quickly. This effect has now abated, however, and new home starts are in decline in Regina and Saskatoon. Nevertheless, Regina (4.1%) and Saskatoon (4.5%) have the two lowest unemployment rates among major cities in the country. Also, their year-over-year job-creation performances are substantially positive (+3.4% and +5.1% respectively).

On occasion, over the past year, Saskatchewan’s PotashCorp has been the largest company on the Toronto Stock Exchange in terms of market capitalization. Demand for fertilizers to raise crop outputs around the world can only grow stronger given that emerging middle classes in developing nations are upscaling their dietary requirements. Potash is now being referred to as “pink” gold. Uranium is also a winner globally as more countries are choosing the non-polluting nuclear option for electric power generation.

Manitoba

The Manitoba economy is quietly getting by with a minimum of fuss in this latest period of economic turmoil. A number of large construction projects — including the Winnipeg airport expansion, a new postal facility, and the Human Rights Museum — are providing a cushion for workers in the region. Large hydroelectric projects on the horizon will make up for the end to river floodway work on the city’s perimeter in the civil engineering category.

Winnipeg lies a quarter of the way down the list of largest urban centres in Canada in terms of year-over-year employment change in August, at +0.3%. Compare this with the fact that two-thirds of the cities in Canada are experiencing year-over-year declines in number of jobs. The city is also doing OK in terms of its unemployment rate. At 5.8%, that is well below the national average of 8.7%. As a result, the office vacancy rate is still relatively tight at 6.8% metro-wide versus Canada’s overall level of 7.6%.

The city is a regional logistics and employment hub. This provides it with a good base of activity levels in both the good times and the bad. Winnipeg’s wide diversity of business interests, from communications through transportation manufacturing, and from biotechnology and agricultural products to insurance, serves it well.

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Excerpted from CanaData’s Annual Construction Forecast, 2010–2012 edition. Visit CanaData's website to order.

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