January 24, 2013

A review of CanaData’s construction starts in 2012

ALEX CARRICK

Chief Economist, CanaData

When entering a new year, it’s natural to look back over the previous 12 months and review what transpired. What we’ll be examining in this article is 2012 construction starts.

It makes particular sense to pay attention to last year’s starts because of the way construction actually unfolds. For many of the largest projects, on-site activity levels will carry over from 2012 into 2013 and maybe beyond. The time-lag between groundbreakings and completions has implications for labour and building product demand.

While there was significant year-over-year movement within some of the type-of-structure sub-categories, CanaData’s total construction starts in 2012 were little changed from 2011. In total square footage — for residential plus non-residential building — the 2012 versus 2011 percentage change was -4.0%.

In total dollars, the percentage change was -13%. Dollar volumes include engineering work. (Civil work such as sewerage projects and fossil fuel pipelines can’t be expressed in square footage.)

The decline for total square footage is likely to become slightly positive as additional projects are backdated into 2012 in early 2013. CanaData’s researchers make continual updates to the data base. For the same reason, the dollar percentage decline will become less negative.

CanaData’s residential square footage figure was flat (0%) year over year, while the dollars were +15%. The singles and doubles component of residential work is based on Canada Mortgage and Housing Corporation (CMHC)’s home starts. Factors are applied for average square footage and dollars per square foot.

The multiples component of CanaData’s residential numbers is built up from individual projects — similar to the rest of RCD’s project database.

Total commercial starts were -8% in square feet and +15% in dollars. The dollar figures are likely to include renovation and alteration work that won’t have a square footage component.

Institutional starts were -26% in square footage and -22% in dollars. The declines weren’t unexpected, given the burst of government-sponsored projects that were brought forward to provide stimulus during the recession.

This doesn’t mean there weren’t any large institutional project start-ups in 2012. See the regional section several paragraphs down.

Industrial starts were +42% in square footage and +929% in dollars. The outsized increase in the dollar percentage change was thanks to one large project — Rio Tinto Alcan’s aluminum smelter upgrade in British Columbia.

Total Canada engineering starts were -36% in 2012 versus 2013. There were several significant large energy project start-ups last year, but they fell short of the year before.

Let’s look at some of the largest and/or most interesting projects to begin in the regions last year.

The Atlantic had only one relatively small project that made it onto the monthly “Top 10” lists in 2012. In 2013, however, there are sure to be some mega project starts in the region. For example, Newfoundland and Labrador has upcoming offshore energy work at Hebron, plus there is the multi-billion dollar Muskrat Falls hydroelectric project in Labrador, on the lower Churchill River.

Of the 120 monthly Top 10 projects in 2012, Quebec accounted for 20 of them, or one-sixth. The largest was an iron ore mine for Acelor-Mittal Inc. near Sept-Rivieres, for $1.4 billion. More iron ore projects are planned in the north of the province. Aluminum plant upgrades and expansions will also be important for the province, once world demand lifts the price of the metal sufficiently.

Ontario accounted for 47 of the year’s largest projects. Many of them were high-rise residential projects. The condo boom underway in Toronto has been the subject of much media attention. It is expected to moderate as 2013 unfolds.

One of the largest projects in Ontario was initiated early in the year, in January 2012. The Humber River Regional Hospital is a $300 million project involving 1.7 million square feet.

The PanAm Games athletes’ village project in Toronto was a May 2012 start at three million square feet and $514 million. And in the final quarter of the year, Highway 407 East work was initiated by Infrastructure Ontario at a projected cost of $1 billion.

Manitoba was among the provinces with a major hospital project start in the year. There was the Women’s Hospital redevelopment project for the Winnipeg Regional Health Authority in November, at 385,000 square feet.

There was a project start in Saskatchewan in August that showcased a major unfolding story, the energy boom that’s underway on account of shale rock reserves. The Bakken hydrocarbon field lies mainly in North Dakota, but also extends into Saskatchewan. Enbridge began a $550 million oil pipeline that will run from Steelman, Saskatchewan to Berthold, North Dakota.

As to be expected, Alberta was mainly about Oil Sands projects. The Jackfish 3 in situ project for Devon NEC Corp. ($1.2 billion), the Foster Creek SAGD project, Phase F, for Cenovus Energy at Cold Lake ($1 billion) and the Narrows Lake in situ SAGD project, Phases 1 to 3, also for Cenovus Energy ($2.4 billion), were among the 20 Top 10 mainly oil- and gas-related project starts in the province last year.

Also in Alberta, the Vantage pipeline, started in September, will carry liquefied ethane from North Dakota through Saskatchewan to Alberta.

The list of B.C.’s 27 projects among 2012’s Top Ten lists was topped by Rio Tinto Alcan’s aluminum smelter modernization for $3.3 billion, begun in March.

Other major projects starting in our most westerly province included condo towers, electric power transmission lines, health care structures and mining work. With respect to the latter, Tech Resources committed $475 million to its Highland Valley copper mine in the Thompson-Nicola Regional District.

Mega resource projects were clearly important to overall starts in 2012. This trend is only likely to intensify in the years ahead.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com

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