CONSTRUCTION MARKET OVERVIEW
Uneven growth mixed with signs of promise
Trade tensions continue to affect investment decisions and construction activity has slowed in recent times. Following data revisions, construction gross value added (GVA) marginally increased by 0.2 percent on the quarter after flatlining in Q1 2025. However, there are bright spots and low points, rather than broad-based sluggishness.
Non-residential activity adversely affected industry growth the most, contracting by 1.5 percent on the quarter after a 0.2 percent increase in Q1 2025. Data on investment in building construction suggests that the trade-sensitive industrial sector has borne the brunt of the initial tariff impact, recording a 5.2 percent drop in Q2 2025.
Source: Statistics Canada
The tariff landscape, however, may improve as the US. Court of Appeals deemed that most of President Donald Trump’s tariffs are unlawful. Should initial tariff effects be transitory, manufacturing growth could receive a boost, although further change could happen as the situation evolves.
Until trade clarity is provided, workloads are likely to be strained, and the commercial sector may be another area that is exposed. Continued uncertainty has dampened growth and access to financing remains a challenge, resulting in three successive quarterly contractions, culminating with a 2.2 percent reduction in Q2 2025. However, renewed investment enthusiasm, and growing return-to-office mandates could filter through into improved performance.
Infrastructure workloads have suffered as well, but less so from trade ambiguity. A continued high-cost environment and growing budget scrutiny have both contributed to two consecutive quarterly reductions (0.8 percent in Q2). The ability of the federal government to enact Bill C-5 will be paramount to levelling up industry fortunes and accelerating growth while also creating broader economic security and prosperity.
Source: Statistics Canada
Institutional and government workloads have been resolute, with committed expenditure on healthcare, education and recreational facilities bolstering activity. Even with recent immigration curbs, and a reduced focus on green initiatives, institutional and government workloads should remain stable and move in lockstep with population growth.
One bright spot has been the residential sector, with a log of four consecutive quarters of growth closing out with a 1.8 percent improvement in Q2 2025. At face value, this indicates health although growth here may not be correlated to immediate strength but earlier pre-sale fulfilments. Presently, funding constraints and high development fees have impacted returns on investment, while uncertainty and oversupply, particularly in Ontario, have stifled market activity and sales prices.
Source: Statistics Canada
Future residential sector growth shouldn’t be discounted either. Interest rates have recalibrated, and construction costs are stabilizing, creating a better environment in which to do business. Housing starts, a precursor to growth based on past investment intentions, have also improved in many provinces. While this doesn’t place a definitive floor under recent housing market weakness, there is certainly optimism that the worst may be over.
A gradual, rather than pronounced, improvement is likely to emerge in 2026 as market conditions stabilize. Yet externalities, such as an escalation in trade disputes and recurring geopolitical pressures, could derail growth. Domestic governance, and the ability to get shovels in the ground quickly from mooted investment, will be a deciding factor moving forward for the country.
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