Construction escalation remains on an upward trajectory but is becoming more manageable and less volatile. Factors informing our escalation forecasts are:

• Current activity – slight uptick in Q1 2024, but soft overall.
• Leading indicators – marginal improvement, although 2024 workloads still subdued.
• Materials cost and availability – geopolitical constraints amplify price pressures for certain materials.
• Workforce – slack creeping into the labour market, although growth persists.
• Machinery and equipment – disinflation trends persist to ease the pace of growth.

Following the input cost growth mentioned above, which is more stubborn than previously assumed, our 2024 escalation estimate has increased slightly from 3.0 percent to 3.25 percent. Reduced interest rates could also filter into increased optimism and improved workloads towards the back end of the year.

Additionally, one of the main drivers behind escalation in Canada is the lack of competition, stemming from a reduced pool of available contractors. Procurement options are also not as diverse as other markets, and clients often defer to trusted supply chain members rather than new entrants, leaving contractors in a position of strength when it comes to price-setting. Even with the wider market relaxing, this reduced level of competition underpins escalation growth.

While the 2024 value is lower than 2023’s escalation allowance, prices aren’t falling (deflation), rather the pace of growth is falling (disinflation). This means that bid prices are still growing, but at a slower pace. It is still expensive to build in Canada and overall costs are elevated.

2025 is likely to be higher than 2024, with more rate cuts expected between now and then. There is also a greater chance of those reductions – and the increased affordability and availability of loans with it – filtering through into firmer activity levels. For now, however, we’re holding escalation values at the previously forecasted 3.5 percent.

Escalation is set to grow further moving into 2026. Broad-based impairments in both domestic and global demand should see bid prices increase, with an increase of 4.0 percent forecasted on average. Depending on market conditions at that time, escalation could rise above this forecast.