Canada’s construction industry continues to show resilience despite economic challenges, making it essential for real estate professionals to stay informed about current trends. With a downturn in residential construction, but steady growth in non-residential sectors, the market presents both challenges and opportunities.
Canadian Construction Association (CCA) Quarterly Report
The Canadian Construction Association (CCA) released a quarterly report in August, providing a comprehensive analysis of Canada’s construction sector and insights into the challenges faced and successes within the industry, which can help provide a deeper understanding of trends impacting property values and development opportunities.
It’s important to note that there are strong regional differences in construction, however, so it is important to be familiar with your local dynamics.
Residential Downturns
In Q1 2024, Canada’s construction sector saw subdued growth, with overall activity rising by just 0.1%. Notably, residential construction experienced a 1.1% decline, primarily driven by high borrowing costs and cooling demand.
For sellers interested in newly built homes or pre-construction properties, it’s important to manage expectations. The slowdown in residential construction might mean fewer new builds entering the market, which could stabilize or even increase demand for existing homes. Pricing should reflect this, but be cautious not to overestimate market strength. Investors may wish to explore properties that may have reduced competition or consider investing in non-residential construction or mixed-use developments where growth continues.
Non-Residential Construction Growth
Unlike the residential sector, non-residential construction has shown steady growth, expanding by 0.6% in Q1 2024. Industrial and institutional construction are leading this trend, with institutional projects seeing a notable 4.6% increase. These developments are creating new opportunities in commercial real estate, as demand for industrial and institutional spaces rises, which may be of interest to investor clients.
Material Costs and Construction Prices
Material costs in the construction industry have begun to stabilize, with the Building Construction Price Index (BCPI) increasing by only 0.77% in Q1 2024—continuing a deceleration. However, certain materials, such as softwood lumber, have seen price increases of over 2%, affecting residential and commercial project costs.
For buyers interested in new construction or renovations, it’s important to manage expectations around material costs. While overall construction price growth has slowed, increases in specific materials, like lumber, may still affect the final price of new homes or renovations.
Construction SMEs: Resilience and Business Dynamics
Small and medium-sized enterprises (SMEs) dominate Canada’s construction sector, accounting for the majority of active businesses. These firms have shown resilience amid economic pressures, with business exits stabilizing in 2023. Despite challenges like limited financial reserves and labor shortages, SMEs are maintaining stable employment and continuing to grow, particularly in non-residential sectors.
Buyers considering new builds should be aware that many construction firms are small businesses that may face challenges due to labor shortages or supply chain issues. Encourage them to verify project timelines and work with builders who have a proven track record of completing projects on time and within budget. It’s important to conduct thorough due diligence, ensuring that construction companies have the capacity and financial stability to deliver, even if economic circumstances shift.
Looking Forward
Canada’s construction industry highlights the need to ensure a well-informed approach to real estate transactions. While the residential sector faces headwinds, non-residential construction offers promising opportunities. By staying updated on construction trends and material costs, real estate professionals can better advise their clients on the implications for property values, investment timing, and market potential. Providing realistic assessments, managing expectations, and highlighting the resilience of key market sectors helps clients make informed decisions in a shifting economic landscape.
