Canadian construction activity is slated to take a step back in 2006 after two years of good growth, according to a new forecast by McGraw-Hill Construction Research & Analytics. The firm predicts that total construction will decline 2% in 2006, to $56.6 billion, after growing 9% in 2004 and 3% this year.

The main drag on activity is coming from the residential market. Since 2000 the value of permits filed for residential structures have grown an astonishing 81%. Both single-family and multifamily permits have benefited from low mortgage rates and a healthy economy. However, the party is almost over.

Mortgage rates are on their way back up and as a result, the value of single-family permits will fall 2% this year and an additional 6% in 2006, to $23 billion, MHC Research & Analytics predicts. Like ENR, it is a unit of the McGraw-Hill Cos.

Related Links:
  • A Rebound in Nonresidential Building Markets Keeps Growth Going
  • Commerce Predicts Housing Will Hold On
  • FMI�s Forecast Leads the Bulls
  • NAHB Predicts That Higher Interest Rates Will Cool Off Housing
  • PCA Says Inflation Will Be a Problem
  • Shortage of Big Machinery Continues Amid Explosive Buying Spree
  • Forecast 2006
  • The complete Forecast 2006 cover story with all data and analysis is free to ENR subscribers but can also be purchased for only $17.95. click here for more information.
  • Multifamily permits are benefiting from higher home prices that have made owning a condo an attractive alternative in many of the larger metropolitan areas. As home prices continue to grow, and mortgage rates rise, the rental market will gain strength, further buoying multifamily activity. As a result, MHC Research & Analytics predicts the multifamily housing market will grow 4% in 2005 and 2006, reaching $13 billion.

    The slowdown in residential construction is more than being made up for on the nonresidential side. Gains across nonresidential markets through the first half of 2005 have been impressive. As a result, total nonresidential work is expected to increase 10% this year, to $20.7 billion, before flattening out in 2006.

    Despite expectations of a weakened housing market next year, retail activity will remain robust as many U.S. chains "discover" Canada. For example, building supply chain Lowes plans to expand its presence in Canada and may add up to 100 stores nationally, including 10 stores in the Toronto area. Retail work will grow 3% this year and a further 4% in 2006, reaching $3.2 billion.

    Office vacancy rates in Canada have fallen 1.6% over the past year, to 11.7%, and should continue to fall below 11% in 2006. This rapid decline alone explains the 28% growth expected for this year’s office building market. Despite a 10% decline in 2006, office construction will remain well above historical averages due to the underlying strength in the Canadian economy.

    One recent weakness in the Canadian economy has been the strong Canadian dollar. Despite this, manufacturing investment in Canada continues to impress. Recent announcements of a new Toyota plant in Woodstock, and the conversion of a brewery to an ethanol plant in Barrie are just the latest in a string of activity. Industrial work will jump 16% this year, to $2.2 billion, and will remain above the $2-billion mark in 2006.

    The education market is expected to increase slightly this year, to $2.3 billion, with growth picking up in 2006. As the echo-boom generation makes its way through the school system, the elementary school population will decline while secondary and post-secondary school populations continue to rise.

    Demographics also are playing an important role in healthcare construction. By 2011 the population aged over 65 years old will have grown by more than 15% from today’s levels. The 21% increase in health-care construction this year is a sign that preparations have begun in earnest.