B.C. sits as Canada’s exception with projects still slated to start
Derrick Penner
Sun
The best years are coming to an end for Canada‘s commercial construction industry, according to a Conference Board of Canada forecast.
Profits in the construction sector will peak at $2 billion this year giving builders a profit margin of 4.3 per cent, the national economic think tank predicts.
High corporate profitability over the past three years has helped drive investment in commercial construction and employment growth in the commercial sector has helped shrink office vacancy rates in most major cities.
However, the Conference Board estimates employment growth will slow between 2007 and 2011, reducing the demand for new commercial buildings. There will still be growth in the sector, but it won’t be as high and will not outpace the inflation of construction costs.
Profit margins, therefore, will shrink to 2.3 per cent by 2011, the forecast suggests, although that will still leave firms with $1.3 billion in net income.
“Construction of office buildings, especially in Alberta and Ontario, is the main reason for the record financial performance in recent years,” Valerie Poulin, economist and author of the Conference Board’s report, said in a news release.
“However, rising material and labour costs are starting to trim builders’ profit margins. Since labour accounts for a third of all costs, the tight labour market is of particular concern for the industry.”
B.C. is expected to buck the trend with a series of major projects still to be built.
Manley McLachlan, president of the B.C. Construction Association, said he expects B.C. to outpace the national forecast.
McLachlan, in an interview, said the industry does expect “a little bit of a dip” in activity about 18 months from now, but there are enough projects in planning to pick up that slack past 2011.
“Indications there are that, going out to 2014 with $124 billion in work that’s about to come on stream, the demand for construction services [in B.C.] is not about to decline.”
So, provincially speaking, a decline in profit margins “is not something on our radar screens,” he said.
© The Vancouver Sun 2007