How Construction Market Conditions in Ontario are adjusting to pandemic recovery behaviours amid the COVID-19 variants

Construction Market Conditions in Ontario continue to adjust their pandemic recovery behaviours amid the COVID-19 variants and the uncertainty they deliver. Multiple sectors are moving forward with caution on their return-to-work policies and government is closely monitoring the performance of the vaccines against severe disease, particularly as the Omicron variant has spread quickly in recent weeks.

Construction Demand

Meanwhile, activity on new projects continues to accelerate as the Architectural Billings Index (ABI) has shown an increased designer workload for the eighth-straight month. Our continued polling of design firms working in Ontario suggests that staffing to keep pace with demand is their biggest current risk. Since the ABI is a leading indicator of construction demand, it typically anticipates short- and mid-term needs for skilled labour, materials, and equipment.

Construction Spending in the?non-residential sector?is up for the quarter and sits just below its position one year ago, with continued significant growth occurring in Institutional projects. Spending on?Commercial building?and?Industrial developments?experienced marginal changes in the last quarter but are somewhat below their positions from a year ago.

Supply Chain

Supply chains in North America and globally continue to experience impacts to production coupled with strong demand; however, very long lead times for selected manufactured items have tapered somewhat and pricing is less volatile.

Overall, the Industrial Product Price Index (IPPI) has risen 0.6% in the last quarter and 14.9% since a year ago.

The IPPI is led by Metal Products, Construction Materials, and Plastic & Rubber Products, which have double-digit escalation in cost in the twelve months, although Lumber and Other Wood Products have experienced relief and are down substantially from the peak that we saw in Q2 2021. Lead times in manufactured steel items such as joists, metal panels, door frames, and HVAC & electrical equipment all remain elevated. Likewise, insulation, roofing membranes, and specialty coatings have experienced significant back logs as raw materials continue to be allocated to manufacturers on a restricted basis.

Project teams must carefully plan their work to account for these impacts or face disrupted sequencing in the field. Owners should be aware of the conditions, demand a managed approach, and participate in contingency allocation to avoid rising prices.

Construction Employment

Construction employment through the end of September 2021 has leveled at pre-pandemic levels and is substantially unchanged from our previous report.

The industry has normalized the health & safety protocols associated with the pandemic, but worker productivity may become impacted by government response to variants and must be monitored as employers are primarily concerned about balancing their supply of skilled labour and experienced supervision with growth in customer demand. In all, the cost index has demonstrated a moderate climb through Q3 2021 and is showing clear signs of escalation due to high demand coupled with material and labour shortages. Owners that are currently planning work in Ontario should consider escalation contingency in the order of 1.1 to 1.3% per quarter for the start of 2022 with lead-times trending 25 to 50% longer than normal.