Canadian construction sector to rebound in 2021

The Canadian construction sector is set to rebound in 2021 after a pandemic-related dip in 2020, according to a recent report from Vancouver-based real estate and infrastructure advisory firm BTY Group.

BTY’s 17th annual Market Intelligence report believes that the construction sector will bounce back in 2021 alongside a rebounding GDP. Canada’s GDP fell an estimated -5.6% to -6.0% in 2020, but is projected to grow by 4.1% to 4.9% in 2021, assuming the pandemic is held largely in check and an effective vaccine is widely distributed. Specific sectors will lag in recovery, such as airports and airlines, hotels and hospitality, and brick-and-mortar retail, however.

“Achieving – and surpassing – pre-2020 construction activity levels still depends on a robust economic recovery supported by a speedy, successful, and sustained vaccine rollout,” said Toby Mallinder, managing director at BTY.

Overall construction starts are projected to rebound from $60 billion in 2020 to $80 billion in 2021, according to BTY. The outlook is positive for all segments – though multifamily residential, industrial, and engineering and roadwork will see the strongest upticks. Office and retail will have flatter recoveries.

Infrastructure and renewables will be the top performing sectors, driven by substantial government stimulus spending and mega projects in BC, Quebec, and Ontario. This is expected to counterbalance the declines in the commercial and leisure sectors. The federal government’s Growth Plan has, for example, committed an extra $10 billion to renewables, broadband, building retrofits, agricultural irrigation, and EV charging stations.

The residential sector saw a sizeable surge in late 2020 owing to pent-up demand from the spring lockdown. However, there is some uncertainty about long-term expansion due to a drop in immigration and foreign direct investment due to the pandemic, the report notes.

Immigration fell to 200,000 people in 2020 from 341,000 in 2019, though the federal government has already compensated by setting targets of more than 400,000 people for both 2021 and 2022 to keep Canada’s real estate bubble from popping.

Housing starts in 2020 were an estimated 172,000-213,000, and are expected to be between 211,000-213,000 in 2021 and between 202,000-208,000 in 2022.

BTY projects moderate cost escalation for construction in Ontario, BC, and Quebec (3% to 5%), and low cost escalation for Alberta (1% to 3%), Manitoba (1% to 3%), Saskatchewan (0% to 2%), and Atlantic Canada (0% to 2%).

A major factor depressing cost escalation is the low overnight interest rate, which is expected to remain at 0.25% until at least 2023. Other factors keeping down cost increases in construction are a low inflation rate, the country’s recession, and more competitive bidding.

Factors putting upward pressure on costs are higher lumber prices, oil price increases, a continuing skilled trade shortage, reduced foreign suppliers, and added costs for Covid-19 safety measures.