Construction market overview
Broad based contraction sees construction activity falter
While the wider economy improved above expectations, Canada’s construction industry underachieved. Quarterly growth in Q1 2024 stagnated after being revised down to 0.0 percent and Q2 2024 contracted by 0.4 percent. Construction building permits and investment in construction data, released in September 2024, also look relatively subdued.
Source: Statistics Canada
At a sector level, residential construction activity suffered the most, falling by 1.9 percent on the quarter. However, housing starts (seasonally adjusted at annual rates) improved by 2.0 percent on the quarter in Q2 2024 and residential building permits (current value) grew by 7.4 percent over the same period.
This suggests that while residential construction might be struggling now, workloads should improve as new housing developments break ground and increasing permits bolster pipelines. Recent, and additional, interest rate reductions eventually could supplement growth as borrowing costs reduce and investment appetites increase.
Commercial construction investment fell for the third successive quarter, registering a 0.4 percent reduction on the quarter in Q2 2024. Slow return-to-office footfall and high vacancy rates of 18.6 percent in Q3 2024, according to CBRE, appear to be holding back the office market. However, there are signs that investor appetites and confidence are slowly returning in the commercial sector.
Industrial construction investment also took a surprise hit, decreasing by 1.5 percent on the quarter for the first time since Q3 2021. While the sector continues to trend upwards, this short-term shift may be linked to a natural reduction of expenditure following recent highs. Wider softening in the electric vehicle market may also be adding some downwards pressures to demand.
Workloads elsewhere look to be more resilient. Infrastructure GDP grew by 1.4 percent on the quarter in Q2 2024 and construction investment data suggests that the institutional and government sector grew by 1.6 percent on the quarter. The pace of growth, however, has settled somewhat and is trending downwards in both areas.
While growth here is good, expenditure in softer periods is traditionally targeted within the infrastructure and institutional and government sectors. This reinforces the view that the wider construction market in Canada is struggling.
Data from ConstructConnect’s Q3 2024 construction starts forecast suggests that 2025 may be subdued as well. Total construction starts, recorded in current values, are expected to fall by 0.5 percent on the year.
Source: Construct connect
Encouragingly, commercial and residential starts are set to improve after several years of decreases. In contrast, several megaproject starts in the industrial sector during 2024 have skewed investment values, influencing the reduction seen in 2025.
New starts don’t directly translate to construction investment or sector GDP data, however. Starts are linked to contract values and construction activity from those reported contract values will be spread over the project lifecycle. With ConstuctConnect reporting that new starts improved in 2024, growing by 14.5 percent, this should support activity levels in 2025 as workloads are unlocked by previously committed expenditure.
Nonetheless, prospects for construction in Canada are likely to be subdued in the short-term, with infrastructure, industrial and manufacturing, and institutional and governmental workloads holding up the sector.
