Each quarter, the Canadian Real Estate Association (CREA) publishes a summary of key economic indicators for commercial real estate in Canada. Housing starts, non-residential building permits, gross domestic product (GDP) and the labour market are routinely monitored by CREA’s economic team as predictors for the commercial real estate market. For residential market information, visit CREA Stats.
Looking at commercial real estate data for the first quarter of 2024, the Canadian Real Estate Association (CREA) is seeing a decline in the number of non-residential building permits issued, slower housing starts, and an easing labour market, all evidence of a potential slowdown in new construction projects across the country.
Notably, the value of non-residential building permits issued was down almost 5% compared to the first quarter of 2023.
Despite being lower than a few years ago when interest rates were low, housing starts were up compared to this time last year. There are many challenges facing the housing sector, such as: higher interest rates, material and labour costs, and high land values.
The labour market continues to show signs of easing. There are more people in Canada entering the labour force than those getting a job and wage growth is not expected to keep up with the change in the cost of living most Canadians have experienced over the last few years.
For the commercial real estate market, 2024 remains uncertain as the Canadian economy will have to cope with uncertainty around future interest rate cuts, a slowing labour market, affordability concerns, and a slowing economy.
Here’s a deeper dive into some of the data CREA is monitoring on the commercial side of real estate.
Housing Starts
Source: CMHC
While down from record levels seen when interest rates were more accommodative, Canadian housing starts rose by about 8% in the first quarter of 2024, compared to the fourth quarter of 2023, and were about 12% higher compared to the first quarter in 2023.
The federal government’s 2024 budget released in April 2024 featured major housing policy announcements, which are supposed to help incentivize close to 3.9 million new homes being built by 2031. Some of the incentives include $8.5 billion for new housing over the next five years, a freeze on development cost charges (DCC) for certain municipalities with populations greater than 300,000, a $15 billion top up for the Apartment Construction Loan Program, and the removal of GST on new purpose-built rentals.
The federal government has also promised to review their federal lands portfolio to potentially open some federal land for sale and long-term leases for development as well as looking into converting old Canada Post buildings into housing.
A report by the Conference Board of Canada, produced in conjunction with CREA, the Ontario Real Estate Association (OREA), and British Columbia Real Estate Association (BCREA), highlighted Canada needs to fill 12,000 skilled labour vacancies per year in the residential construction industry over the next decade to meet our country’s housing needs, and non-traditional sources of construction labour will play a crucial role in filling those vacancies.
Non-Residential Building Permits
Source: Statistics Canada
Approximately $12.97 billion in non-residential building permits were issued from January to March 2024. This was down almost 5% from the same three-month period a year ago, but up close to 7% from the three months prior, with gains led by the commercial component in Ontario, Quebec, and British Columbia.
The number of approved non-residential permits also decreased on a quarter-over-quarter and year-over-year basis, with the industrial and institutional/governmental components seeing most of the pullback.
On a quarter-over-quarter basis, construction intentions remained strong in British Columbia and Prince Edward Island but were notably weaker across the rest of the country.
On a year-over-year basis, there were higher construction intentions for the first quarter of 2024 compared to 2023 across most of the country except in Ontario and Newfoundland and Labrador.
Long regulatory hurdles and skilled labour shortages continue to make it challenging to bring non-residential buildings on to the market in Canada. Rising construction costs have also impacted the financial feasibility of new projects, with Statistics Canada reporting non-residential construction costs have increased by about 44% since 2017.
Labour Market Dynamics
Source: Statistics Canada
The national unemployment rate in Canada came in at 6.1% in April 2024 with the economy adding 90,000 jobs in the month. This increase was largely driven by part-time employment, which may not provide the same level of income or stability as full-time positions.
The national employment rate, which measures the number of people who are employed as a percentage of the working-age population, held steady at 61.4% in April following six consecutive months of declines.
Near record-levels of population growth in Canada continue to influence the labour market, and growth in the national working-age population is outpacing the growth in employment. This indicates that, while more people are entering the workforce, not all of them are finding employment, nudging the unemployment rate higher and the employment rate lower.
According to the Bank of Canada’s first-quarter 2024 Business Outlook Survey, the labour market continues to ease but wage growth is still higher than average. Easing labour conditions are reflective of both weaker demand for new workers and a greater supply of available workers in the labour market. Wage adjustments are still expected to remain higher than average, mainly due to adjustments for the high cost of living.
Gross Domestic Product (GDP) Growth
Source: Statistics Canada
In its April 2024 Monetary Policy Report, the Bank noted inflation continues to slow as monetary policy works to reduce inflationary pressures. They also mentioned while Canada’s economy showed no growth in the second half of 2023, GDP is estimated to rebound in 2024, with the Canadian economy forecasted to grow by 1.5% in 2024 compared to 1.1% last year, before increasing by another 2.2% in 2025.
While GDP growth has been flat since the spring of 2023, real GDP per capita has been stagnating since early 2020, as increases in real output have not kept up with population growth. Real GDP per capita is expected to continue to trend lower in the near future. Senior leadership at the Bank of Canada have described this as a national emergency.
Overall, Consumer Price Index (CPI) slowed to 2.7% in April 2024. This was the fourth straight month of easing inflation and of inflation running within the Bank’s 1% to 3% target range. Mortgage interest costs and rent remain the largest contributors to high inflation, with mortgage interest costs rising 24.5% and rents increasing 8.2% on a year-over-year basis. When excluding the shelter component from overall inflation, CPI comes in at just under 1.2%.
The next CREA commercial snapshot will be available later this summer and cover economic activity for Q2 2024.
