Construction forecast: leaders weigh in on 2023

Key Takeaways:

• The short term forecast, particularly for public and civil work, looks strong.
• Inflation and long lead times on materials are expected to continue but might ease a bit.
• Labour shortages are here to stay as expected.
• Sustainability efforts, like electrification and the shift to greener energy sources are fueling projects.
• Inflation and recession concerns are likely to impact some parts of the residential sector.
• The demand for digitization and data continues to rise.

The Whole Story:

Few could have predicted that Russia would invade Ukraine, Elon Musk would buy Twitter and that inflation would soar in 2022.

While there’s no crystal ball to peer into for hints at how 2023 will go, we did the next best thing and asked as many construction leaders as we could about how they felt going into the new year. Generally, the industry is confident that despite some familiar challenges, the short-term forecast is looking rosy.

Orion Construction – (general contractor)

“We are cautiously optimistic,” said Josh Gaglardi, president of Orion Construction. “We are really hopeful to see some normalization and reduction in construction costs in the next 6-12 months as supply chains normalize a bit and demand for materials comes off a bit.” 

He added that regardless of what’s going on in the private market, there is still extremely strong demand for labour and materials in public work. 

“Demand will remain high this year so I am not too concerned about having work,” he said. “We have a firm footing to know where we are at and we can put together a strong gameplan.” 

In 2022, Gaglardi saw the stickiness of ESG and believes in the coming year and years after that, the industry could see those trickle down effects from investors. 

“In 2023 we have a handful of net-zero projects that we wouldn’t have had in years prior,” said Gaglardi. “We will see more solar panels, more sustainable initiatives, more consultation with First Nations groups for sure.” 

Alltrade Industrial Contractors – (industrial)

Electrification is here and it’s poised to create shockwaves. 

Kevin Ritzmann, senior director for Alltrade Industrial Contractors, said grid electrification will continue to increase both for new power generation with increased demand and for electric vehicle mandates across the country. He believes this will drive new investment in renewables across Canada and increase investment in provinces that are currently building renewables heavily – like Alberta, Saskatchewan, Quebec, and Ontario. This could also be bolstered by federal incentives which could slice the cost of renewable energy projects down. 

“What’s interesting is we thought in Ontario that we had enough power but it looks like there is more demand and with Pickering Nuclear coming down, we need more investment in power generation,” said Ritzmann.

He added that major car manufacturers are anticipating EV regulations and investing big in new or renovated facilities. 

2023 will also see continued investment in major transit infrastructure projects across Ontario, Quebec, and Alberta.  And as new projects enter into design phases there will be a pipeline of future work across Canada (Ontario Line, Eglinton Crosstown West Extension, GO Regional Express Rail, Calgary Green Line LRT).

Alltrade continues to see shortages of tradespeople and long lead times on materials, making one’s planning and partners more important than ever. He doesn’t expect these challenges to ease significantly in the coming year. He noted that the U.S. is experiencing similar project booms and is also competing for talent and materials. 

“We were seeing power transformers go from ten months to a year and half to as high as two years,” he said. “That’s a huge lead time.” 

Naikoon Contracting – (homebuilding)

Josef Geluch, president of Naikoon Contracting, believes there may be some sunny skies before the storm.  

“We are confident in our construction market and I feel that we are starting to see some indicators of settling for some of those supply chain issues,” he said. “It’s going to be very interesting and I will be on the edge of my seat to see how the year unfolds.”

However the later part of the year and going into 2024 could be rough for some parts of the sector, like low density housing. He said watching leading indicators like architectural work and build permit application volumes will be key to see into the future. 

“2024 looks a bit concerning, but we are lucky to be in Vancouver as we have a bit of insulation here compared to the rest of North America,” said Geluch. “Everything is still firing on all cylinders for active construction. We are still building out a backlog from two, three, four years ago.” 

He also highlighted the issue of municipal processing times as something that should be addressed. 

“Bottlenecks and bureaucracy cause problems and it takes years and years to get a project off the ground,” he said. “There have been ambitious statements made by cities and the province to fix this. If that is possible, I don’t know, but it would be timely to do so. It might save us in subsequent years where the market might be soft.” 

On the tech side, Geluch believes the industry is in the midst of its most exciting decade ever as digitization tools like BIM and VDC are becoming more widely adopted. 

“It can allow you to see into the future more tangibly,” he said. “Leveraging digital assets into value propositions is gonna grow and be huge. It will change the way projects are managed. It’s nothing new but people have begun to figure out its true implementation.” 

COWI Canada – (consulting)

Jesse Unke, vice president of COWI in Canada, believes that finding and retaining people will be the biggest issue.

“Going into 2023, I think a lot of my concern on the engineering side is finding and retaining people,” he said. “I think it is still a big concern for myself and my colleagues and people in the industry. If you are in consulting, law, contracting or anything that touches construction, retaining and attracting new staff is going to continue to be a challenge.” 

He added that it’s no longer just a simple formula of compensation or opportunity that people are looking for. Company culture, and approaches to EDI, sustainability, remote working and technology are some factors that are retaining and attracting staff.

“Also, in the back of my mind is if we are really through COVID. Is there going to be another wave?” he said, noting that getting back to in-person, face-to-face meetings has been great for the industry in terms of building relationships and trust. “I would hate to see that taken away from us, but if that happens, we obviously have to do our due diligence to keep our staff safe.”

Unke said supply chains and material costs continue to be a big issue, especially on infrastructure projects. The long lead times and unseen costs negatively impact schedule and costs. 

“Whether it’s vertical or linear construction, it can really hold things up,” he said. “A good example would be climate resiliency work. You can put all the infrastructure in place, but without a critical piece of the project like a pump, you’re out of luck. These are similar things we were concerned about in 2022 and it’s carrying over.” 

He noted that inflation could cause some projects to get shelved or cut back as borrowing power for private clients isn’t as strong. 

On the tech side, increased innovation in technology and digitalization – especially in engineering – such as the transition to and utilization of BIM from traditional CAD, is changing the way business is done.

Gensler – (design)

Steven Paynter, principal at Gensler’s Toronto office, explained that following a pandemic-fueled course correction, the real estate industry continues to face transformational shifts in how buildings will be designed and used. 

“Amid high uncertainty, many of our clients are now focusing on strategic, asset-level decision-making,” he said. “We’ve seen the conversation about office to residential conversions move from the fringes to the mainstream in 2022, and I’m confident that will continue to be a hot topic into 2023.” 

 According to Paynter, in times of uncertainty, quality really reigns supreme.

“We’ll see winners and losers in the different sectors as well as a heightened bifurcation between high quality and low quality assets,” he said. “This trend continues to drive the demand for architects to come to the table as strategic partners to help their clients reposition stranded assets and create places that really lead with experience.”

Pitt Meadows Plumbing and Mechanical Systems – (mechanical)

Steve Robinson, owner of Pitt Meadows Plumbing and Mechanical, is feeling optimistic about the months ahead. 

“We’re probably suffering through all the current industry-wide problems that everybody has been verbalizing,” he said, listing supply chains, pricing challenges and finding adequate labour as the usual suspects. 

“Looking forward, we think the coming year will be significantly better for us from a revenue perspective,” he said. “We have a significant amount of work booked already and we will continue to leverage benefits of off-site construction to ensure that the labour challenges as well as supply challenges don’t affect our productivity or ability to turn your project over to you in the timeframe we told you we would.”

Robinson noted that the company has used unique strategies in the past year that allowed it to continue to optimize its jump into industrialized construction including the purchase of WQC Mechanical.

“We will continue to do synergies similar to that in the future,” said Robinson.

He added that they will also continue to leverage extreme planning and moving as much labour off a job site into their shop environment.

“If you’d talked to us four or five months ago, we saw significant evidence and the traditional pointers for a significant or minimal slowdown,” he said. “But you can’t really have a recession without significant unemployment. It’s as simple as that. And until we start to see significant unemployment, I don’t believe you will see any significant recession of any kind.”

He noted that there are significant initiatives from the province and federal government to build large amounts of homes and improve infrastructure, and immigration targets are set to expand.  

“The slowdown in construction is probably over-reported and may never actually come to fruition anytime in the short term,” he said. “For sophisticated construction service purchasers who understand the value of time and money and whose expectations are high, we will continue to be their provider of choice.”

Procore – (technology)

“Looking ahead to 2023, I expect a year of challenge and change as the Canadian construction industry grapples with ongoing problems such as the labour shortage while continuing to move toward integrated project delivery to achieve greater efficiency,” said Jas Saraw, Procore’s vice president in Canada. “At Procore, we are watching adoption of on-site technologies such as drones and augmented reality with interest, while we also expect further developments in project tools that improve the connection from the field to the back office, and offer predictive insights in order to further drive project efficiency.”

Saraw added that as labour, supply chain and financial constraints put pressure on the industry, there will be accelerated adoption of integrated project delivery to improve efficiency, streamline collaboration between stakeholders and minimize waste.

As the industry continues to digitize, Saraw believes data will become more and more powerful.

“With more contractors moving project information from paper to the cloud, it will be increasingly possible to draw insights from historical data to inform decisions about budgets, scheduling and other aspects of construction,” they said. “AI (Artificial Intelligence) and ML (Machine Learning), will take the complex data and voluminous data that is collected on jobsites and start to make sense of the data in order to drive predictive insights that will allow all project stakeholders to make more effective decisions earlier in the design and build process and ultimately shield themselves from downstream risk as the project schedule progresses.”

505-Junk – (waste/recycling)

Builders want more data – that includes tracking their waste and where it goes.

Barry Hartman, CEO and founder of 505-Junk, said he is seeing an increase in requirements for diversion and an increase in accountability data requested from clients. In the past, data on waste diversion had usually been requested for LEED requirements. 

“Those clients can actually view those metrics and know their waste is being kept out of a landfill and they have evidence,” said Hartman. 

He attributed this shift partly to the rise of online storytelling through social media. 

“What story do construction companies want to tell? Not only is it the right thing to do, it’s a good marketing play as well,” he said. 

505 is following this trend by testing out incentives where they will plant trees on their client’s behalf if more waste is diverted from landfills. 

505 has also found the density of Metro Vancouver and the number of projects have made it challenging to place bins on site. Hartman is finding the demand for live loading is increasing to a point where using cranes to empty self-dumping bins is becoming common.