alberta construction costs: it’s been a wild ride · pdf file ·...

Alberta Construction Costs:

It’s been a wild ride

Alberta Construction Costs: It’s been a wild ride

Introduction

Troy Braithwaite Manager, Business Development

PCL Construction Management Inc.

2882 – 11 Street NECalgary, Alberta, T2E 7S7

Phone: 403-250-4807 / 403-819-9220

E-mail: [email protected]


Agenda

• Overview of current conditions in trade and material pricing

• Current projects shaping / influencing the cost landscape

• Recap of the past and where we are now

• Where are we going?

• Disclaimer


Welcome


Economic Outlook

• Global demand for energy commodities reduced. Price drops from the highs of 2008 has resulted in a reduction in employment in Oil and Gas

• Employment along the entire value chain of energy


Economic Outlook

• Calgary unemployment YTD – June 6.6%

• Calgary unemployment YTD – August 7%

• Year end 2008 – unemployment 3.1%.

• Current national average of 7.1%


Economic Outlook

• As energy prices stabilize, Calgary will stabilize into 2010.

• Housing/Condominium starts September 09 vs. 08 up 105% ($177 M from $86 M)

• YTD ending June 2009 are down 78.6%

• Building Permit values September 09 vs. 08 up 25% ($277 M from $222 M)

• YTD ending June 2009 are down 51.4%


Economic Outlook

• Downtown office vacancy rates are currently 12%

• Projected 18% - 20% vacancy into 2011


Economic Outlook

• Statistical overall deflation 0.3%

• Construction values falling 15% - 35% depending on the project

• 13,900 construction jobs lost in first six months of 2009


PCL Commercial Update

• Trade Pricing very competitive

• Substantial increase in a number of trades bidding

• More than 10 M&E on mid-size projects

• 18 months ago many projects had zero M&E quotes



• Material prices down 30-40% from last year, but labour costs up (new agreements) marginally, for net reduction of 15% - 20% in quoted prices

• Both Calgary and Edmonton markets experiencing similar challenges



• Predominantly public spending

• No large scale condo projects starting

• Private developments are scarce or relatively small in size

• Smaller projects are very competitive

• The Bow

• University campuses

• Penny Lane


PCL Civil Update

• Large infrastructure projects underway provide much needed monthly cash flow

• Both Calgary & Edmonton ring road projects

• New Calgary & Edmonton LRT Routes

• West Leg LRT - $625 M

• Power distribution projects


PCL Industrial Update

• An increased number of projects and resources required in the Industrial Construction Market

• Maintenance work continues

• Industrial/oil producing clients that fund from cash flow starting to move forward

• PCL Industrial looking for 500+ additional work force


2007 & 2008 Markets

• Supply and demand for construction services were not in equilibrium

• Demand far out-paced supply

• Construction services substantially increased yet still could not catch up to demand

• Then came the October 2008 financial crisis


2008 & 2009 – 4th Quarter Market

• Demand for construction services drops off

• Market now unbalanced with demand very low

• What happens when demand plummetsafter ramping up supply?

• PCL imported 180 skilled tradespeople (Mexico, Germany,Ireland & US)


Commodity Pricing

• Our most recent installed rebar quotes have been coming in at $1,600 - $1,700 per tonne and that is down from $2,600 per tonne from middle of 2008

• Concrete is down a much more modest 15 –20% depending on project

• Copper was down 40% - now recovered to down 10%


Commodity Pricing

• Construction material pricing is low

• Chinese Demand is low for both commodities and construction materials.

• So – Where do we go from here?


Supply & Demand

• 3 scenarios to reach a balanced market– Supply shrinks

– Prices are lowered

– Demand increasesHere’s a hint!


Construction Pricing

• Up to 35% lower pricing in 2009 compared to 2008

• Excellent time to lock-in construction contracts

• Stability of schedule / work force availability

• Some are taking advantage

• And now the punch line…


Construction Inflation Summary: 2009 -2012

BUILD

BO

UG

HT

OU

T


Cost Escalation/De-Escalation Scale

2009/10 2010/11 2011/12

Buildings -20 - 35 0 3

Roads -15 -5 5

Underground -5 0 5

Bridges -8 0 3

Other Capital -5 0 3


So Much More to Discuss

• Architects & Engineers

• Productivity

• Skilled labour shortage

• Ageing workforce

• Average age of carpenter –48 years old (most don’t make itto 55)

• Move back to lump sum tender

PCLPCL’’s s

Crystal Ball Crystal Ball

sayssays……


Summary

• Cost of labour is about the same but sub-trades are bidding with lower margin AND higher productivities

• Mechanical quotes off about 20% from last year due to the compression of margins and higher productivities

• Taking risk out

• Bulk of the deflationary movement in prices has occurred. Might be a few points left to squeeze out but we see pricing stabilizing at today’s lower levels and starting a slow recovery of 3%-5% from today’s levels in 2010.


Troy Braithwaite

Manager, Business Development for

PCL Construction Management Inc.

2882 – 11 Street NECalgary, Alberta, T2E 7S7

Phone: 403-250-4807 / 403-819-9220

E-mail: [email protected]

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