Construction market overview
Construction activity rebounds in Q1 2024, although full recovery far off
The Canadian construction industry grew in Q1 2024, for the first time since Q4 2022 (albeit data suggests that the quarterly increase was only 0.1 percent). This leaves the sector 3.0 percent below levels reached during their peak after the release of pent-up demand after COVID-19.
There is hope for further improvement in 2024, following on from 2023’s string of losses, but the construction industry may soon be facing a difficult period. Recent reports referencing corporate real estate transaction volumes suggest a notable reduction in value over during Q1 2024.
While demand levels can be low, certain sectors are showing resilience across the nation. Engineering and other construction activities rebounded by 1.0 percent on the quarter in Q1 2024 after contracting by 4.5 percent in Q4 2023.
Costs associated with major infrastructure projects and programmes are high, particularly on those with niche supply chains which require a high degree of delivery expertise. This can cause delays for those projects in flight and stagger activity metrics over time, and can also cause concern and hesitance for investments at the decision stage.
Non-residential and repair construction work improved slightly, by 0.6 and 0.2 percent on the year, respectively. Non-residential activity continues to be sustained by institutional and government and industrial gains, albeit with less vigor than before, and investment is also less forthcoming. From a repair and maintenance perspective, renovation activity could be supported by additional small-scale domestic investment.
These sectors, however, can be overshadowed by the outcomes of the residential sector, which has a significant impact on the overall performance of the wider industry. Residential workloads accounted for close to two-fifths of Canada’s construction activity in 2021, but that has diminished to 33.0 percent in Q1 2024.
Source: Statistics Canada
In Q1 2024, residential sector growth contracted by 1.1 percent, effectively wiping out gains of 0.8 percent in Q4 2023 - acting as a drag on wider activity levels. Ever-increasing costs of finance and reduced availability of loans, impacted by high interest rates, have prevented developers from breaking ground on new projects. A high volume of units already in development, constraining contractor availability, has also prevented new start being activated.
The BoC’s initial reduction of interest rates, even though modest, could hopefully unlock investment decisions with new housing starts undergoing a positive change already. However, several industry bodies, including the Canadian Real Estate Association and Canada Mortgage and Housing Corporation, suggest that the residential market will remain weak for much of 2024.
Despite some sectors that are weak nationally, isolated pockets of growth can still be found in some sectors provincially. Seasonally adjusted housing starts at annual rates grew by 57.8 percent on the year in Alberta in Q1 2024. Strong interprovincial migration and more affordable living costs in Alberta have seen residential construction perform well.
It is not just Alberta’s residential market that has been in good health. Out of the four major provinces across Canada, Alberta has seen construction investment grow by 34.8 percent from Q4 2019 to Q1 2024 – just before the pandemic to the current date.
Source: Statistics Canada
Recent data suggests that construction investment in Alberta has cooled off, with quarterly growth deteriorating by 2.1 percent. Ontario also fell by 0.5 percent over the same period. Quebec and British Columbia have both seen two-quarters of consecutive gains, following on from a dip in construction investment during the first half of 2023.
Overall, the outlook for the year ahead remains mixed and variable by province. Confidence should improve and a timely boost has been received following the first move on the interest rate front by the BoC. This could lift the markets mood and tee up a prosperous 2025.
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