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Economic

Turner & Townsend report provides glimpse into inflation’s grip on construction

Angela Gismondi
Turner & Townsend report provides glimpse into inflation’s grip on construction

It’s clear across Canada that inflation has taken a hold of the economy and construction is feeling the impacts.

This is one finding among many from global construction consulting firm Turner & Townsend, which recently released the Q1 2022 Spring edition of its Canada Market Intelligence Report.

While the report is in line with many other economic views, highlighting rising interest rates, supply chain disruptions and tight labour markets, coupled with COVID-19 lockdowns in China and the conflict in Ukraine, the regional breakdown dives a bit deeper into the provinces’ more specific concerns.

“Ontario came out of lockdown in January, so people were excited to get back to business and get going again, but then the war in the Ukraine happens, and then China also locked down so they haven’t been at full production for a long time which has really impacted supply chains,” said Barb Hooley, communications manager for Canada with Turner & Townsend.

“We’ve seen the labour market also become tighter during this period of time as companies have come back and are looking to fulfill the pent-up demand.”

Overall, the report found housing starts fell significantly in B.C., Alberta, Quebec and Ontario, however, the number of building permits increased.

Both Quebec and B.C. saw a strong jump in non-residential sector building permits due to several being issued for large developments.

Quebec is facing similar challenges to other markets with a shortage of skilled labour, technical expertise and supply chain challenges.

“In Quebec there is significant government investment in large projects such as the REM (Réseau express métropolitain), Blue Line, Quebec City tramway, third link tunnel to connect Quebec City with Levis, and the upcoming High Frequency Rail project, while the private sector is also investing in life sciences, artificial intelligence and data centre projects,” said a Turner & Townsend spokesperson in an email.

“In contrast, the rate of available office space coming on the market is outpacing new leases as companies are reassessing the need for space with new hybrid and work-from-home policies. Companies are pausing to evaluate new projects at each stage of development. Risk management and cost planning is now crucial to any project.”

Construction cost escalation and severe labour shortages continue to be an issue within the Ontario construction market, explained Jon Gilford, director of cost and commercial management and government sector lead at Turner & Townsend.

 

The combination of higher land cost, inflation and rising interest rates are now prompting some developers to reassess certain projects,

— Turner & Townsend

 

Data from Statistics Canada indicates the cost of construction for both residential and non-residential industries in Ottawa remains three to four per cent higher than Toronto.

“That’s obviously driven by some of the large government projects that are still ongoing right now,” Gilford said.

“Generally, across Ontario, we’re seeing that most of the supply chain capacity is at capacity right now, especially in structures in facade.”

B.C. continues to be a hot market with a lot of ongoing projects, while owners continue to bring new projects to market.

The local market is now facing labour shortages and availability of goods has also become an issue.

“As a result, we are now seeing contracts being awarded to multiple subcontractors to gain access to capacity needed to execute a project and spread risk,” reads an email from Turner & Townsend.

“Demand for cost estimating and management services has increased because developers are now revising their cost and risk models in a fast-moving environment. Some activities are being resequenced and executed earlier in the project life cycle, such as ordering certain products earlier in the project to guarantee availability and cost assurance.

“The combination of higher land cost, inflation and rising interest rates are now prompting some developers to reassess certain projects to ensure they are still viable in a higher cost environment.”

Alberta is the one different province where it’s not really facing the same issues that B.C. and Ontario are with the labour and the high house prices, said Hooley. Availability of product and price escalations are really impacting the market there.

“We’re seeing that it’s a hotter market with more activity in Alberta,” said Hooley.

“The report shows a 41 per cent year over year increase in building permits.”

There is a significant increase in the cost of construction projects and materials and suppliers and trade contractors are only holding pricing for days, if they are committing to prices in the first place, the report states.

Overall, the report states, in order to combat the supply chain challenges, companies are ramping up production in other parts of the world, including Canada.

“They’re looking Canada now to sort of bridge that gap as well, in the iron ore for example…and then just getting our other equipment from North America, like HVAC equipment and mechanical/electrical equipment,” Gilford said.

For more information visit www.turnerandtownsend.com

Follow the author on Twitter @DCN_Angela.

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