After more than three years of growth, profits in Canada's non-residential construction industry are expected to peak at $2 billion in 2007, according to the Conference Board's Canadian Industrial Outlook: Canada's Non-Residential Construction Industry - Summer 2007.
"Construction of office buildings, especially in Alberta and Ontario, is the main reason for the record financial performance in recent years," said Valerie Poulin, Economist. "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."
Solid economic growth is pushing office vacancy rates down and spurring construction activity, leading to record price increases last year and this year. Both revenues and costs rose by more than 20 per cent in 2006, and are forecast to increase by more than 10 per cent this year. In 2007, revenues will again rise faster than costs, as they have for the past two years.
Growth in demand for new construction is forecast to ease slightly in the next two years. Meanwhile, labour and material costs will increase faster than revenues beginning in 2008. Profit levels are expected to fall every year through 2011, but they will still be considered high by historical standards. As it is too early to assess the impact of the sub-prime mortgage crisis on the overall economy, the current uncertainty is not included in the outlook for Canada's non-residential construction industry.
The outlook examines commercial, institutional and industrial construction segments. It is the first release of the Conference Board's new Canadian Industrial Outlook: Canada's Non-Residential Construction Industry. Published twice a year, the content for this report was previously included in the Board's broader construction industry report.