Canadian construction expectations are falling with the drop in oil prices, according to the latest Royal Institution of Chartered Surveyors (RICS) Canadian Construction Survey, especially in the energy sector and energy-intensive areas such as the Prairies. Two-thirds of surveyors report the drop in oil prices has already led to cancellation of some projects in the energy, oil and gas sector, and fully 86 per cent expect workloads in that area to be negatively affected this year. And overall, construction is still projected to grow, but at a less robust pace: Respondents expect workloads, employment and profit margins to all keep rising but more slowly than just one quarter earlier, according to the Q4 2014 survey.
Not surprisingly, the oil price drop has significantly affected expectations for future regional construction investment, with Ontario and the Prairies basically switching places in just one quarter: Only 18 per cent now expect the Prairies to experience the most growth over the next few years, versus about 60 per cent in recent previous quarters, while 47 per cent now expect Ontario to outperform expectations, versus a mere 23 per cent in Q3.
“Oil in Canada has a big impact on revenues for government, and if those are reduced, this will affect construction, particularly in regions like Alberta, where we’ve already seen some projects put on hold or cancelled as a result of the drop in oil revenue,” says Dominic Leadsom, director at Turner & Townsend in Toronto. “The uncertainty comes from not knowing how long it will take for prices to rise again to something more normal…,” Leadsom says. “I can imagine treasuries are struggling with that issue right now: When will revenues from oil get back to the levels where they’ve been previously?” he adds.
In other sectors, “in the private residential market, lending conditions are very tight with respect to what is and is not a pre-sale” in the greater Toronto area and Hamilton, says Charlie Ross, a partner with CB Ross Partners in Toronto. “In the private commercial market, there is a fair bit of new development in the suburbs, but this is being slowed due to price increases in soft costs… and in construction pricing due in part to demand increases from the U.S. and in part in certain trades… due to the demand for materials in large infrastructure projects,” Ross says.
As for factors limiting construction activity, fully 70 per cent of respondents report financial constraints pose a challenge, with planning and regulation, competition, weather conditions, and staffing also significant issues. “Anecdotally, the lack of manpower in the professional ranks is necessitating extended work hours from those already in the business or longer deliverable periods for design work,” Ross comments.