A new report from the Royal Institution of Chartered Surveyors (RICS) suggests Canadian professionals in the field are positive about prospects for the country’s construction sector in the near term even as the broader economy continues to flirt with recession.
The RICS Q1 2023 Canadian Construction Monitor, a quarterly guide to trends in construction and infrastructure, reports prospects look “generally positive” due in part to infrastructure investment despite continuing macro concerns about costs, labour shortages and hesitation caused by hikes in interest rates.
The report combines hard data with sentiments from the professionals, explained RICS chief economist Simon Rubinsohn. He said the news on inflation is improving, with the Bank of Canada holding off on rate increases as it monitors rising prices, and described the mood among Canadian quantity surveyors (as the profession is called in Canada) as resilient, if falling short of optimistic.
“There’s still issues around profitability, and we’re talking very big picture, but there are still challenges on the finance side,” said Rubinsohn. “And that is something that clearly you can manage for a period of time that can be quite obviously deleterious to your ambitions.
“The feedback we’re getting is still actually quite a solid picture around workloads and in particular infrastructure.”
The report said workload trends remain solid while labour shortages are still being cited as a major problem. The outlook on profits remains cautious as prices continue to rise.
Profits were approached in two ways in the survey, which obtained responses from some 200 Canadian quantity surveyors.
The first asked for views in simple net-balance terms. That indicator suggested more respondents expect profits to increase over the 12-month time horizon than decrease. The latest result of positive-14 per cent compared with a positive-12 per cent in Q4.
The other approach asked respondents to compare projections for tender prices with anticipated increases in costs.
The feedback was tender prices are on average likely to rise by between five and six per cent while construction costs are forecast to rise slightly more than that.
“Although material cost growth does now appear to be slackening, it, alongside skilled labour costs, is still seen as likely to be a key factor holding back a recovery in margins,” the report stated.
Rubinsohn said the survey respondents are seeing the labour market challenge as a continuing factor in their concerns over rising costs.
“This really is a challenge in the sector, around the basic costs going into developments,” he said. “The commodity costs are clearly still an ongoing problem, and that’s reflected in the proportion of people who highlight materials costs as a challenge.
“But alongside that, skilled labour shortages remain still very elevated.”
The report indicates the macro-economic concerns felt by the respondents were felt mostly with respect to the prospects of both the residential sector and the non-residential sector, while infrastructure continues its strength with the support of significant government spending.
“Infrastructure is continuing to drive the wider construction sector,” the report states. “A net balance of plus-34 per cent of contributors are seeing current workloads rising which is broadly in line with the results of recent quarters.
“Moreover, the workload trend is pretty solid across the infrastructure sub-sectors, as was the case previously, but the component with the firmest momentum at a national level is transport.”
The RICS headline Construction Activity Index edged up to plus-23 in Q1, compared with plus-19 in Q3 but down from the high of plus-48 in the first three months of last year.
Rubinsohn said, “There’s a level of resilience about the sector, driven in part by what we’re seeing in terms of the focus on infrastructure. So there is certainly a very solid trend in workloads. And perhaps the other parts of the industry are a little bit more cautious.
“Given the challenges at the moment around interest rates, financing and skills as well as other costs, the resilience around the sector is quite encouraging.”
Rubinsohn said the comments from the professionals are closely studied by economists in that they can reflects trends that deserve further study.
Ontario comments included: Skilled labour shortage and material supply is slow (Bracebridge); aging work force (Etobicoke); there are two multibillion-dollar developments in Windsor that have driven up prices (Kingsville); sometimes validity period from clients almost three months, affecting material prices; less projects (Kitchener); biggest single issue…is permitting delays at the city (London); risks include pandemic fallout, bank sector instability, labour availability (Mississauga).
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