Altus Group has published its 2023 Canadian Cost Guide for construction projects containing a brief look back at the most turbulent year in the sector in recent memory.
The combination of widespread supply chain disruptions, relentless cost escalation and repeated hikes in interest rates resulted in a trashing of many project cost estimates last year as well as swings in project commitments, but cost guide author David Schoonjans says there is reason for cautious optimism in 2023 as increased immigration targets and a large backlog of projects will likely keep demand strong in most sectors of ICI.
And 2023 looks likely to produce less cost volatility; in 2022 wild cost hikes and fluctuations meant Altus’s 2022 cost guide was out of date soon after it was published, Schoonjans admitted.
But even in uncertain times, the cost guide has proven valuable to a variety of users, he said.
“Definitely the past couple of years were an anomaly,” said Schoonjans, noting most years prices do not increase over three per cent. “The guides, definitely by the last half of the year, were much less useful.”
The guide is a snapshot in time as of the January when it is published. Last year started out frantic, said Schoonjans.
“But it hit kind of an inflection point, a lowering of the slope of cost escalation, by mid-year and certainly the last half of the year, the cost increases were far more muted,” he said.
“I would say it quickly got out of date by the middle of the year, but it didn’t deteriorate more significantly in the last half of the year.”
Evidence that the global supply chain has righted itself comes from the global container index for seaborne freight, Schoonjans said. At one point the cost was over $11,000 per container but it eventually fell to around $2,500 per container.
“So it’s not just that things that were being shipped were cheaper,” he said. “I would say that this was emblematic of a global supply chain that was largely functional again.”
Last year Toronto and Ottawa were the most “interesting, lively or frustrating markets depending on your viewpoint,” in terms of volatility, Schoonjans said, while Halifax was more steady state.
“Toronto’s problem, it’s just been on a tear for a decade now, it’s hard to keep up,” he said. “It’s just got massive volume.”
Lumber had a second cost spike halfway through last year but it is now moderately priced.
“It’s about as cheap as it’s ever been. I think 2023 for wood-frame buildings is probably going to be a much more stable year.”
The guide does not compare year to year costs, nor does it include soft costs, two dozen of which are listed. Altus Group publishes a new subscription product called Construction Cost Analytics that includes soft costs.
In general, the guide says, budgets should be “living documents” that should be updated regularly.
“It’s not just the costs that are evolving,” said Schoonjans. “As you’re doing design, your building is evolving. You’re getting more information about it, you can be more specific.
“And as the design evolves, maybe you made some significant change to your structure or your facade. If you’re not updating your budget regularly, you’re not going to catch what might be fundamental cost issues that are developing.”
The main market for the cost guide is owners of buildings or their consulting team, that is, developers or governments, Schoonjans said. Architects also use it as do students. It’s also consulted by the Canada Revenue Agency for use in some tax disputes, lawyers tell Altus Group.
Data illustrating the variation in regional costs is valuable information for developers casting about for investments in the early stages of planning a project.
“That’s really kind of the valuable part of it,” said Schoonjans. “You don’t have drawings yet. You can’t do detailed measurements. I’m talking a good quality condo in Calgary, you just need to know, what does it mean, a quality condo in Calgary, what’s the cost?
“To answer that question, put in a pro forma and see if you can make it work.”