Lowering the boom

Industry's new question: How to deal with a slowdown?

What a difference a year makes.

In late 2007, crystal ball gazers reported that after several years of blue skies, a few puffs of cloud were gathering on the horizon for Alberta's construction industry in 2008. But who could predict the ill wind that blew in from the south last summer and fall, bringing with it a tempest?

It's impossible to say with any certainty what this year will bring to Alberta. But it could get ugly.

Calgary Economic Development says the value of building permits will fall to between $4 billion and $4.5 billion this year from about $4.8 billion in 2008.

Dave Smith, executive VP of the Calgary Construction Association, predicts a bigger hit. "I think in 2009, we're going to see a substantial downturn in the number of permits," he says. "I'm suggesting in the range of $2.2 [billion] to $2.5 billion in the city of Calgary."

No one likes the "R" word. Still, now that the Bank of Canada has said that the nation's economy has officially entered a recession-something that had been predicted for months-the good news is that some experts believe Alberta won't be hit as hard as other parts of Canada.

Says Robert Hogue, senior economist at RBC: "The general economic context in North America is going to be fairly difficult. So Alberta is going to feel it. However, relative to other provinces, it's still going to be in better shape."

Statistics Canada reports that investment continued to climb in Alberta's nonresidential construction market through the third quarter of 2008 (fourth-quarter results were not available as Alberta Construction Magazine went to press). Third-quarter results showed investment of $2.69 billion. That's up from $2.65 billion in third quarter 2007. How much growth will continue into this year remains to be seen.

"A lot of people in construction are wondering, what does this mean right now?" says George Gritziotis, executive director of the Construction Sector Council. In some sectors, it doesn't mean much.

Unlike in the residential construction market, where economic effects hit hard and fast, industrial and commercial construction projects tend to be large and long-term, mitigating short-term effects on industry. In fact, in many areas contractors are busy. Many have work scheduled for the next 12 to 18 months.

There are indications these sectors will be hit later, though.

"When some big players are coming out and saying we're postponing, we're stopping, we're cancelling, that's an obvious impact," Gritziotis says.

While it's too far of a stretch to claim any upside to an economic downturn, the subsequent slowdown in construction does offer some opportunity to an overworked industry. The past few years have been marked by project delays, rising material costs, and difficulty hiring skilled labour.

Says Ken Gibson, executive director of the Alberta Construction Association:

"The amount of work that people would like to build couldn't actually be built in the year that people wanted it built. In fact, what was happening every year in the forecast was that the peak building years were being pushed forward in time."

Gibson says the slowdown will return industry to normal levels of activity.

This could allow for projects to be completed on time. And it could mean lower costs for owners and improve the quality of labour. Gritziotis warns that the slowdown won't solve industry's labour woes.

"The big challenge is to make sure that we don't take our eye off the big structural and demographic issue that the industry is faced with, which is an aging workforce," he says.

Smith points out that some potential retirees with shrinking investments may choose to continue working, thus maintaining a level of expertise within industry until new labour can be properly trained. But Gritziotis is worried about the alternative.

"One of the things we're concerned with is, in a slowdown, a lot of the older workers that were hanging in there because they wanted to make hay while the sun shines may hang up their cleats," he says. "That in itself is a big challenge because we may be losing some of our most highly skilled workers and a lot of corporate memory as a result."

A slower year offers the chance to prepare for the next upswing.

Industry can use experience gained working through the boom to rethink how projects are scheduled, what skills will be required in the future, and how training programs should be structured.

Here are some predictions and issues for the new year in each of the main four construction sectors.


The global credit crunch could take a deep bite out of the commercial construction sector in 2009. Smith reports that some commercial projects have been put on hold and more delays and cancellations could happen. Reports of possible delays to The Bow, a high-profile, $1.3-billion project, because of an inability to obtain financing show just how serious the situation could get.

Bob Hildenbrandt, VP of Ledcor Construction in Calgary, says The Bow project is still on track. But even he echoes what Smith says about project delays.

According to Statistics Canada, Alberta's commercial sector was the only sector to show a decline between the second and third quarters of 2008. Investment fell from $1.87 billion to $1.86 billion.

Year-over-year, though, investment grew 14.9 per cent from third-quarter 2007. But that was before the full effect of the slowdown began to manifest itself.

The inability to obtain financing in today's tight credit market is one factor in the slowdown. A second factor is the high price of land during the recent boom.

Says Gibson, "As we go into this correction, where we see the housing market coming down, housing prices coming down, the value of land coming down, developers may be sitting on projects where they had costed them out with a certain level of profit in mind, based on a certain expectation of what the market would bear." Now, the project economics
don't make sense.

Major projects expected throughout 2009 include the $200-million redevelopment of Calgary's Eaton Centre-TD Square Shopping Centre in the city core, continuation of the $400-million CrossIron Mills mall north of Calgary, and the $275-million addition to Calgary's Chinook Centre. In Edmonton, construction of the $500-million Currents of Windermere retail and commercial development will continue into 2010.


The Inventory of Major Alberta Projects published last October listed a total of $188 billion worth of oil and gas, oilsands, and pipeline projects on the books. That was up from $161 billion in September 2007.

Oilsands construction continues to be the major player. Projects totalled $168 billion at the end of October, up from $161billion in September of the year before.

But falling oil prices have raised concerns about continued investment in the oilsands and indeed, companies are pulling back. For example, Nexen Inc. and Opti Canada Inc. announced at the end of October that the decision of whether or not to move forward with Phase 2 of their $2.8-billion Long Lake project would be delayed until the end of this year.

Gibson, however, points out that the falling loonie counteracts declining prices to some degree.

"What appears to be happening, in reading the press and talking to people in the industry, is that the mines and the related bitumen extraction is slowing down a wee bit, but will likely largely go ahead, with some notable exceptions," he says.

Upstream projects, such as multibillion-dollar upgraders, are another story.

In December, StatoilHydro announced the withdrawal of its regulatory application for a bitumen upgrader in Alberta's Industrial Heartland. It cited "prohibitive construction costs" as one reason for the decision. On a positive note, it will continue with its steam assisted gravity drainage project at Leismer. Construction will be completed in 2010.

Suncor Energy Inc. is slowing construction of the $20.6-billion Voyageur upgrader and the Fort Hills Energy Limited Partnership has put off making a decision on whether or not to undertake construction of the $12-billion Sturgeon upgrader until later in 2009.

Says Gritziotis: "Even though there are slowdowns, there are still major projects that are going ahead, especially for companies that are well capitalized and have cash. They're still going to be putting projects forward, it's just that there are others that are slowing down."


Governments around the world are committing to increased spending on construction projects as one way to boost flagging economies. Canada is no different.

"I see most of the new building coming in from the public sector versus that of the private," Smith observes. "So transportation infrastructure and hospital work will continue, schools will continue, but the private sector, I think, will hold back somewhat."

At the end of October, there were $21 billion in infrastructure projects and $14 billion worth of institutional projects listed in the Inventory of Major Alberta Projects.

In September 2007, infrastructure projects totalled just $17 billion, while institutional projects came to $12 billion.

Predictions are that the projects, at least those that are publicly funded, will go through. "We think [government interest in infrastructure] is good news and we believe that it will partially help offset the hit that we're going to take, primarily in a lot of the private industrial construction activity," Gritziotis says. But, he adds, the offset will only be partial.

"We're still looking forward to a recovery and having all infrastructure projects, both private and public sector, going forward," he says.

In Calgary, the northeast and northwest section of the ring road-projects totaling $1.4 billion-should be completed this year.

Work on the $1.4-billion Anthony Henday Drive northwest section in Edmonton is expected to proceed through to 2011. The Calgary Airport Authority also has several projects totalling $1.9 billion under construction or planned.

Also, Alberta Infrastructure has $1.8 billion in school construction and renovation projects planned or underway around the province.

2015 ACM Email Button


Free account to gain access to ACM digital editions.