When it comes to the construction industry, much of the attention is focused on residential housing and how that part of the sector is slowing in Canada. What gets lost in all the chatter is that, overall, the industry is actually doing well thanks to strong gains in the non-residential construction space.
Since January 2010, the non-residential construction industry’s leading indicator of profitability is up nearly 10 percent and it’s been climbing steadily higher since May of last year. Statistics Canada reports that spending should continue to grow by 4.1 percent in 2015, 5.1 percent in 2016 and 6.1 percent in 2017.
Not surprisingly, much of the growth will come from Alberta. Companies there spend three times more on engineering construction than in B.C., the next closest province in spending. Investment in non-residential building construction grew by 8.5 percent in the province between the first quarter of 2013 and the first quarter of this year.
Over the next five years, a lot of growth will come from oil sands activity and the build out of liquefied natural gas (LNG) facilities, which will help move natural gas from Canadian shores to Asia, says Maxim Sytchev, managing director and head of research at Dundee Capital Markets. He points out that three LNG projects, currently in the works in B.C., could generate as much as $200 billion in construction spending over the next three years.
There’s a lot of activity happening elsewhere in Canada too. Big hydro projects in Manitoba, infrastructure, road and bridge upgrades in Quebec, and refurbishments of some nuclear power plants in the east will keep construction companies across the country busy. “It looks like we will be witnessing a reacceleration of activity, especially on the larger industrial projects,” says Sytchev.
In order to keep up with this increasing demand, companies will have to load up on more equipment, says Rich Jefferson, a spokesperson with the Association of Equipment Manufacturers. He expects to see companies purchase more full-size and compact loaders, concrete mixers, cranes, materials processors and excavators.
Fortunately, with low interest rates, strong company balance sheets and a healthy work backlog, borrowing money to upgrade equipment shouldn’t put much stress on these businesses, says Sytchev.
Overall, the future looks good for Canada’s non-residential construction industry. Sytchev expects total revenues and the number of projects to increase by about 30 percent over the next five years.
While most Canadian companies will get a piece of that growth, some operations could also catch the eye of U.S. and European businesses that are looking to expand. “You have a lot of international players that have been here for a while, but that doesn’t mean they have their full platforms built out,” he says. “So we should see more mergers and acquisitions over the next cycle.”
This content was produced by The Globe and Mail's advertising department, in consultation with GE Capital. The Globe's editorial department was not involved in its creation.