Category: Economy

Key Takeaways:

• Institutional construction investment in B.C. has dropped nearly 11 per cent while labour and material costs have continued to rise.
• The industry is seeing its lowest unemployment rate since 1976 and the number of trades people has dropped five per cent during the past three years.
• Contractors continue to see payment delays of 90-120 days.

The Whole Story:

The BC Construction Association is calling their latest batch of data a reversal of fortunes that shows heavy pressure on the construction sector.  

The statistics reported in the Fall 2022 BC Construction Association (BCCA) Industry Stat Pack, combined with findings from a new economic and policy report published this month by the organization, show a difficult road being tread by the province’s builders. 

The complete Stat Pack, Economic Report from Sage Policy Group and more information can be found here.

High costs and declining demand

Investment in B.C.’s industrial, commercial, and institutional (ICI) construction sectors is down 10.9 per cent since February 2020, while the non-residential building price index spiked 19.6 per cent.

Rising prices led to the largest industry in B.C.’s goods sector growing 10 per cent in dollar value despite the decrease in demand, contributing 9.7 per cent of provincial GDP. Construction has seen a massive 80 per cent increase in the value of current projects compared to five years ago.

The BCCA noted that contractors are struggling to balance declining commercial demand with rising costs of materials and labour, even as waning procurement standards on public sector projects add to project risk.

“The construction industry is massive, essential, and struggling”

BCCA President Chris Atchison

B.C. is also seeing its lowest construction unemployment rate since 1976 at 5.7 per cent, with the competition for talent sending average construction skyrocketing 26 per cent since 2017 and 11 per cent since last year alone. The 2022 jump includes a 2 per cent increase due to the 5 days mandatory paid sick leave legislated this past January.

Prompt payment still elusive 

The BCCA also expressed frustration that the provincial government has yet to deliver on prompt payment legislation. They noted that contractors regularly wait 90-120 days to be paid, put them in extreme financial jeopardy.

“Waiting to be paid is getting even more expensive” said Chris Atchison, BCCA president. “Slow payment for services rendered is unique to our industry, and with costs of goods, labour, and borrowing all rising, many BC contractors are reaching crisis.  Prompt payment legislation is not experimental, it is proven. Unlocking cash flow is an economic necessity and in the best interests of every community in BC.”

Labour grows more scarce 

According to BCCA data, the number of ICI construction companies in B.C. has grown to 26,262 but the number of tradespeople in the industry has dropped 5 per cent over three years. The average company size has shrunk 7 per cent over the last three years to an average of 6.53 workers.

Women comprise 5.7 per cent of tradespeople, an increase of 24 per cent since 2017 but a year-over-year decrease of 8 per cent.

“The construction industry is massive, essential, and struggling” said Atchison.  “Make no mistake: many employers are reaching a breaking point. The urgent need for more housing and other infrastructure development hangs in the balance.”

Key Takeaways:

• RBC Bank expects a moderate recession to hit in the first quarter of 2023.
• If inflation can’t slow sustainably, more rate hikes could come and the recession could deepen.
• The manufacturing sector will likely be the first to pull back when the recession hits.

The Whole Story:

A moderate recession could creep into Canada sooner than expected.

The Royal Bank of Canada (RBC) believes that the downturn could hit as early as the first quarter of next year. 

Previously, the bank projected a moderate recession for Canada’s economy in the second quarter of 2023. They now believe this downturn will arrive as early as the first quarter of next year.

RBC added that higher prices and interest rates will trim $3,000 off the average household’s purchasing power, weighing on goods purchases.

The bank expects the jobless rate to approach 7 per cent while remaining less severe than in previous downturns.

RBC experts added that as debt-servicing costs increase and purchasing power declines, lower income Canadians – many already adjusting to the loss of pandemic support – will be hit hardest.

One of the main points RBC made was that no matter when the recession hits, it won’t be felt equally by all. 

“The manufacturing sector will likely be among the first to pull back while some high-contact service sectors like travel and hospitality could prove more resilient than in a ‘normal’ historical recession,” wrote RBC experts.

The bank noted that they have already seen cracks forming in the economy, including a sharply cooled housing market and an aggressive rate-hiking cycle by central banks. RBC added that while labour markets remain strong, employment is down by 92,000 over the last four months.

“While the Bank of Canada is expected to lift the overnight rate to 4 per cent, the U.S. Federal Reserve will likely hike to between 4.5 per cent and 4.75 per cent by early 2023,” wrote bank experts. “These factors will hasten the arrival of a recession in Canada.”

RBC experts explained that what happens next will depend on a range of factors, with interest rate increases the most significant among them. 

“Central banks will be reluctant to throw in the towel on rate hikes before they are confident that inflation will slow sustainably,” they wrote. “We expect the Bank of Canada to pause its rate-hiking cycle in late 2022 followed by the Fed in early 2023.”

They noted that this is contingent on inflation pressures easing. 

“More stubborn inflation trends over the coming months could yet prompt additional hikes, and a potentially larger decline in household consumption and a deeper recession,” they added.

Key Takeaways:

• The $1.12 billion deal gives 23 First Nation and Métis groups partial non-operating interest in seven Enbridge pipelines.
• The investment will be guided by newly created entity, Athabasca Indigenous Investments.
• Closing of the transaction is expected to occur within the next month.

The Whole Story

Enbridge has inked a $1.12 billion agreement with 23 First Nation and Métis communities for them to collectively acquire an 11.57 per cent non-operating interest in seven Enbridge-operated pipelines in the Athabasca region of northern Alberta.

The agreement also creates Athabasca Indigenous Investments (Aii), which is tasked with guiding the investment. Aii now represents the largest energy-related Indigenous economic partnership transaction in North America ever.

“We are very pleased to be joining our Indigenous partners in this landmark collaboration,” said Al Monaco, president and CEO of Enbridge. “We believe this partnership exemplifies how Enbridge and Indigenous communities can work together, not only in stewarding the environment, but also in owning and operating critical energy infrastructure. We are looking forward to working with the Aii and deepening our relationship well into the future. This also fully aligns with our priority to recycle capital at attractive valuations, which can be used to fund numerous growth opportunities within our conventional and low carbon platforms.”

Pipelines included in the transaction are the Athabasca, Wood Buffalo/Athabasca Twin and associated tanks; Norlite Diluent; Waupisoo; Wood Buffalo; Woodland; and the Woodland extension. Enbridge added that these assets are underpinned by “long-life resources and long-term contracts”, which provide highly predictable cash flows.

Enbridge noted that the agreement stems from commitments it made in its recently released Indigenous Reconciliation Action Plan (IRAP). The IRAP incorporates advice into facility siting, environmental and cultural monitoring, employment, training and procurement opportunities and, most recently, financial partnerships such as the proposed Wabamun Carbon Hub.

“On behalf of the Indigenous partners, we are proud to become equity owners in these high-quality assets which contribute to North American energy supply and security,” said Justin Bourque, president of Aii. “Our partner logo theme – Seven Pipelines, Seven Generations – speaks to the long-term value potential of these assets, which will help enhance quality of life in our communities for many years to come.”

Chief Greg Desjarlais of Frog Lake First Nation, called the agreement a historic day for Indigenous people in the Athabasca region.

“In addition to an opportunity to generate wealth for our people, this investment supports economic sovereignty for our communities,” he said. “We look forward to working with a leading energy company like Enbridge, which shares Indigenous values of water, land and environmental stewardship.”

Closing of the transaction is expected to occur within the next month. BMO Capital Markets acted as financial advisor to Enbridge and Torys LLP as legal counsel. RBC Capital Markets acted as financial advisor to Athabasca Indigenous Investments and Boughton Law as legal counsel.

Key Takeaways:

• The rate hike creates challenges for developers in the short term, but is necessary for the health of the overall economy, says BakerWest CEO Jacky Chan.
• Chan believes the challenges could impact housing numbers years down the line.
• He advised developers to act wisely and efficiently with the projects they choose.

The Whole Story:

In September the Bank of Canada increased its target for the overnight rate to 3.25 per cent.

It was the fifth consecutive rate hike this year and the bank noted that it planned to continue its policy of quantitative tightening.

“The global and Canadian economies are evolving broadly in line with the Bank’s July projection,” stated bank officials. “The effects of COVID-19 outbreaks, ongoing supply disruptions, and the war in Ukraine continue to dampen growth and boost prices.”

Bank officials explained that global inflation remains high and measures of core inflation are moving up in most countries. In response, central banks around the world continue to tighten monetary policy.
“The Canadian economy continues to operate in excess demand and labour markets remain tight,” said officials.

Officials added that given the outlook for inflation, the bank anticipates the policy interest rate will need to rise further.

“Quantitative tightening is complementing increases in the policy rate,” stated bank officials. “As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2 per cent inflation target.”

Jacky Chan, founder and CEO of real estate firm BakerWest, explained that while the hike will make things more challenging for developers in the short term, it is necessary in the long term for the health of the economy.

“The immediate impact of a rate hike, specifically for developers and developments is that it poses a change to the financial model of every single development.”

“When projects are being contemplated or planned, or the valuations or appraisals of land are being done, obviously the financial costs are a big component of whether something could move forward or not,” said Chan. “You see headlines saying the Canadian market is going to see a big crash, real estate will drop more than 25 per cent this year. To be honest I think those comments are far fetched. I don’t know where those speculations came from in terms of supporting factors. What a lot don’t realize the fundamental reason why the interest is being increased so dramatically. That is a forgotten truth. People only see the immediate negative financial effects.”

Chan explained that when times are tough the government wants to lower the rate to encourage more borrowing, hiring, purchasing and development, and more activity in general so it can sustain a downturn. He added that the government doesn’t make these decisions blindly.

“The government also knows all of the economic metrics ahead of time,” said Chan. “They have the most accurate forecast of real time economic data and also future economic data.”

According to Chan, such a drastic rate change suggests that the bank has evidence that the economy will get out of control if nothing is done. While this is good in the long term, it presents some short term challenges.

“A lot of the numbers have to be redone now,” said Chan. “It impacts the immediate borrowing capacity of developers and buyers. Furthermore it impacts developers in a much bigger way because most of real estate development is a business of financial leverage. You’re using heavy financial leverage to actually make a profit for developments. That basically takes away the majority or all the profit or the safety buffer for these major financial decisions.”

This can create a domino effect that ends up in less housing supply, something sorely needed throughout Canada. Chan said that when developers can’t build projects quickly, it will negatively impact housing supply, even at pre-construction and presale stages.

“Let’s say we have a lot of these developments getting slowed down or reworked,” said Chan. “It will effect a huge portion of the supply three, four, five, six years down the road. What will that mean for the demand that is also increasing?”

On the consumer side, those with mortgages could see a higher percentage of their payments going towards interest.

“With desperate times come desperate measures and each measure comes with a cost,” said Chan. “While it creates a positive impact for the long-term health of the economy, we need to learn to adapt during these difficult times.”

Chan said developers must be more discerning and that the rate hikes could weed out developers who act more impulsively.

“We need to be more effective, more careful and more efficient with everything we do,” said Chan. “It creates a situation where it will be a more healthily competitive market where everyone needs to be better, faster, more accurate and more careful with their work and calculations in order to succeed.”

Key Takeaways:

• The past 10 years have seen real estate listings in major Canadian markets decline.
• RE/MAX experts say a massive effort must be undertake during the current housing lull to avoid more boom and bust price cycles.
• Purpose-built rentals, new-home construction and policies that support and accelerate residential building activity are key to reverse the crunch.

Digging In:

Canada’s needs to take advantage of its real estate lull to build for future booms, a new report warns.

A recent report by real estate company RE/MAX Canada showed that inventory levels in the nation’s major real estate markets have been slipping over the past decade, with active listings in July running below the 10-year average in almost all markets surveyed based on Canadian Real Estate Association data and insights from the RE/MAX network. The company noted that this was despite softer overall real estate activity.

Declining inventory

The report pored over active listings in July from 2013 to 2022 in eight large markets—Greater Vancouver, Calgary, Winnipeg, Hamilton-Burlington, the Greater Toronto Area, Ottawa, Montreal (CMA) and Halifax-Dartmouth. 

Researchers found inventory levels have fallen below the 10-year average in seven of those markets in 2022. Double-digit declines are noted in Halifax-Dartmouth (65.5 per cent below the 10-year average); Ottawa (down by almost 42 per cent); Montreal (down 40 per cent from the nine-year average); Calgary (running 26 per cent below average inventory levels); Winnipeg (down 23 per cent), and Greater Vancouver (down 16 per cent). The housing inventory shortage was less-pronounced in the Greater Toronto Area, where supply was down almost seven per cent from the 10-year average. Hamilton-Burlington was the only market to buck the trend, reporting a nominal 3.2-per-cent increase over the 10-year average.

In analyzing the 10-year July average in the decade spanning 2003 and 2012, several Canada real estate markets experienced more active listings than in the most recent decade (2013-2022). These included the Greater Toronto Area (21,243 active listings versus 16,458), Hamilton-Burlington (3,473 active listings versus 2,304) and Greater Vancouver (14,352 active listings versus 12,792).

“Supply was far more robust in the early 2000s in centres such as Greater Vancouver, the Greater Toronto Area and Hamilton-Burlington,” explained Christopher Alexander, RE/MAX Canada president. “That stability lent itself to healthy sales and price appreciation year-over-year and provided an anchor for the Canadian housing market during the Great Recession. Population growth and household formation have played a significant role in depleting inventory levels from coast to coast over the most recent decade, triggering chronic housing shortages in large urban centres that resulted in mini ‘boom’ and ‘bust’ cycles. If we don’t move now to build more housing in the current lull, it’s expected that this same scenario will continue to resurface over and over again.”

According to Statistics Canada, Canada has seen significant double-digit population growth between 2006 and 2021, and that is poised to increase further with Canada’s commitment to bring in 1.2 million immigrants into the country between 2021 and 2023, combined with growth in new international students. The strategy is aimed at propelling economic growth and reducing labour shortages. 

Planning For Tomorrow

However, the report’s researchers explained that in the context of Canada real estate inventory, the increase in newcomers combined with new household formation overall is expected to intensify the inventory shortfall further, especially in the major urban markets of Vancouver and Toronto.

They believe that inventory remains key to the overall health of the Canada real estate market. RE/MAX noted a recent report from Canada Mortgage and Housing Corp. (CMHC) concluded that the country needs to build 3.5 million new homes by 2030 to address housing affordability, yet it is only averaging only 200,000 to 300,000 new units per year.

“The truth of the matter is that we probably need more than the CMHC estimate to create the desired level of affordability,” says Alexander. “During this window of softer demand, building efforts should be ramped up, not down. The offshoot effect is straining rental markets and contributing to ever-rising levels of homelessness throughout the country.”

Experts noted that it’s not just about more people. New housing starts and purpose-built rentals are few and far between. RE/MAX argued that the potential housing supply issue could push even more buyers into the rental pool, which itself is already facing pressure, as evidenced by rising prices. They believe this could result in even fewer listings of homes for sale, as some of the rental stock that comes on stream actually pulls from the stock of existing dwellings already in short supply.  

A Perfect Storm Gathers

According to RE/MAX, a number of factors have combined to create a perfect storm impacting available housing today and in the future, including inflation and rising interest rates, increased global supply chain interruptions, swelling construction costs and a serious shortage of trades labour, to high land acquisition costs and slow municipal approval processes.

“Current market realities have upended the economic viability of many developments, causing new residential projects to be cancelled or put on hold indefinitely,” said Elton Ash, executive vice president of RE/MAX Canada. “The feasibility of many new or planned housing starts is now in question, but the ones that already had smaller margins—affordable housing and starter homes—are at the top of the chopping block. If we’re already experiencing an inventory crisis, what will the consequences be when demand rebounds?”

Projects Shelved

Researchers stated that developer pullback is evident in light of softening demand in the short term combined with current economic and market realities. CMHC noted a decrease in the seasonally adjusted annual rate of housing starts in Canada’s urban areas in July of 2022, driven by lower starts in the single-detached category. 

CMHC found stronger declines in multi-unit residential starts in Vancouver, while a significant slow-down occurred in both multi-unit and detached residential starts in Montreal. Yet, RE/MAX stated that the trend could be strangest in Canada’s largest housing market—Greater Toronto. According to the Q2-2022 Condominium Market Survey by real estate research firm Urbanation, approximately 35,000 new condo units were anticipated to launch for pre-construction sale in the GTA in 2022. In the first half of the year, close to 16,000 units were launched. With less than 10,000 units expected during the remainder of 2022, it’s estimated that at least 10,000 new units will be put on the shelf.

“The phenomenon of scrapped or paused development projects is a serious concern, and various stakeholders are taking stock and assessing future impacts,” says Alexander. “The challenge is that we need a new development and growth strategy that is geared toward the long-term outlook. There simply isn’t enough stock to keep pace with demand now, and the need for housing is intensifying with population growth. Although demand is currently softer that we’ve seen in the last two years, it is expected to rebound, and our market is not prepared for when that happens. We’re seeing fewer housing starts at a time when we should be getting ready for the next inevitable upswing.”

Researchers argued that purpose-built rentals, new-home construction and policies that support and accelerate residential building activity – including factors like zoning, development fees and levies, approval processes, government partnerships, interest-free loans and incentives – are key to reversing the inventory crunch. 

“The trouble is that housing development is a slow process, and experience tells us the only thing slower might be government processes,” said Alexander. “Removing barriers and cutting red tape is necessary. A crisis is looming, but the outcome is not cast in stone. There is a short runway to reverse course before the impacts become very real for Canadian homebuyers and renters.”

Key Takeaways:

• Calgary is helping fund research into creative downtown revitalization.
• Research will be conducted by experts at the University of Calgary.
• One of the next steps will be bringing in stakeholders like building owners, developers, policy makers and civic leaders to realize new projects. 

The Whole Story:

The city of Calgary is looking for more ways to breathe new life into its downtown core. 

The city will spend $350,000 on research as part of its partnership with the School of Architecture, Planning and Landscape’s (SAPL) Civic Commons Catalyst Initiative at the University of Calgary. The funding will allow Civic Commons Catalyst researchers search innovative methods to spur economic revitalization in the downtown and transform underutilized spaces. The project is part of the Urban Alliance, a strategic partnership between the city and the University of Calgary.  

“The transformation of downtown Calgary will yield benefits citywide for generations to come,” said Terry Wong, city councillor. “We’re making an investment in the Civic Commons Catalyst because the University of Calgary brings both local and global expertise, along with a focus on innovation and the use of data and research to help address urgent issues Calgarians face daily.”

With the funding, the city and SAPL’s Center for Civilization will proceed to new phase of the Civic Commons Catalyst partnership with a focus on transforming underutilized public and private space. The city noted that it has placed a priority on this area of work through its office to residential conversion program, projects that are exploring how public space is utilized on Stephen Avenue and 8 Street S.W., and working with community organizations to activate and program public space.

“While it is the whole of civilization that finds itself at a critical inflection point, it is cities where these challenges will unfold. Therefore, cities must be the fulcrum upon which bold solutions are found,” said Alberto de Salvatierra, director of the Center for Civilization and assistant professor at SAPL.

As SAPL comes up with ideas, they will make recommendations to the city’s downtown strategy team. City officials said that bringing in stakeholders like building owners, developers, policy makers and civic leaders is the next step, and facilitates the potential of realizing these projects. 

“This research partnership exemplifies the University of Calgary’s commitment to our community and the critical importance that design-based research plays in the shaping of great cities and societies. Downtown Calgary is facing unprecedented challenges from high vacancy rates and social vulnerability that is affecting the quality of life in our city,” says Ed McCauley, University of Calgary president and vice-chancellor. “The Civic Commons Catalyst reframes these problems to show how underutilized spatial assets can become opportunities for social, economic, and environmental innovation. It is an important example of how great universities and great cities can work together.”

The federal government plans to spend more than $2 billion to create 17,000 homes for families across the country, including thousands of affordable housing units.

The investment, which includes funding from budget 2021 and budget 2022, will go toward:

• Creating 4,500 additional affordable housing units by extending the Rapid Housing Initiative for a third round. This will include women-focused housing projects and projects supporting those experiencing or at risk of homelessness;
• Creating at least 10,800 housing units, including 6,000 affordable units, through the Affordable Housing Innovation Fund, which encourages new funding models and innovative building techniques in the affordable housing sector; and
• Creating a new, five-year rent-to-own stream under the Affordable Housing Innovation Fund to help housing providers develop and test rent-to-own models and projects, with the goal to help Canadian families across the country transition from renting to owning a home.

Applications are now being accepted for both the Affordable Housing Innovation Fund and its new rent-to-own stream. As part of their application, candidates will be required to demonstrate their commitment to innovation, affordability, and financial sustainability.

More information on the extended Rapid Housing Initiative will be available soon, followed by the opening of the application and proposal process.

“When people have a home of their own, whether they rent or they own, they are better able to invest in themselves, and invest in their communities,” said Prime Minister Justin Trudeau. “Our government understands that it is only by investing in people, that we can grow our economy. Tackling housing affordability is a complex problem and there is no one silver bullet, but announcements like today’s give more people a place to call home, and a real and fair chance at success.” 

Key Takeaways:

• Strong residential performances in other provinces were easily offset by weak values in Ontario.
• Industrial permits also dipped, also mainly due to Ontario.
• A years-long downward trend of residential permit values showed signs of recovery in Newfoundland and Labrador, but StatsCan said this is mainly due to a rise in construction costs.

The Whole Story:

Building permits took a tumble this July, mainly thanks to the residential sector and Ontario.

Statistics Canada (StatCan) reported that the country’s building permit values dropped 6.6 percent in July to $11.2 billion, mainly due to the residential sector, which fell 8.6 per cent to $7.6 billion. The non-residential sector also dropped slightly by 2.1 per cent.

The agency reported thatOn a constant dollar basis (2012=100), the total value of building permits decreased 4.8 per cent to $6.9 billion.

Where art thou, Ontario?

StatCan’s data showed that strong residential permit gains in B.C. and Quebec were easily offset by tepid construction intentions in six other provinces – particularly Ontario.

Construction intentions in the single-family homes component declined 5.7 per cent, as double digit decreases in Ontario (-13.9 per cent) offset the gains. 

StatCan noted that despite the decline, this component remained 14.8 per cent higher than the same month of 2021.

The value of building permits in the multi-family homes component dropped 11.1 per cent. Declines were posted in six provinces, with Ontario (-32.8 per cent) reporting the largest decrease. Conversely, British Columbia had a number of permits for condos and apartments, pushing the province’s permits value up 9.3 per cent.

Industrial creates drag

In July, the total permit value of the non-residential sector decreased 2.1 per cent to $3.6 billion. Gains in the commercial and institutional components were quickly  offset by losses in the industrial component.

The value of building permits in the industrial component dipped 16.9 per cent, largely due to Ontario (-31.1 per cent), which had its third consecutive monthly decline. After nearing the billion-dollar mark back in January and April, the component has returned to more typical levels.

Commercial permit values edged up 0.1 per cent; Alberta (+72.8  per cent) had the highest increase, stemming from various permits issued in Calgary and Edmonton.

Construction intentions in the institutional component jumped 7.9 per cent, with B.C.(+207.2 per cent) leading the pack. StatsCan noted that tepid results in June, as well as several large permits, contributed to the significant increase in July.

Newfoundland and Labrador stagnates 

The value of residential permits, along with the number of units in Newfoundland and Labrador, has been on a downward trend since its peak in early 2010, with the lowest values for the series observed at the beginning of the COVID-19 pandemic. This trend has been impacting both single- and multi-family dwellings similarly. StatsCan’s data show the region has experienced some recovery during the pandemic, but the recovery has been mainly driven by an increase in construction costs.

StatsCan noted that Newfoundland and Labrador’s population has remained relatively consistent at around 520,000 since 2010, leading to a smaller demand for new houses, explained the agency. In contrast, other provinces have had notable increases in both population and number of units during the same time period.

Since 2010, non-residential permits for the province have also been on a downward trend. On an annual basis, from 2010 to the end of 2021, the total value of permits for the sector in Newfoundland and Labrador has decreased 59 per cent, while Canada, excluding the province of Newfoundland and Labrador, has jumped 38 per cent.

Key Takeaways:

• Commercial real estate construction created $278.4 billion of economic activity last year.
• Despite solid investment, lingering economic impacts from Covid could create risk for some assets.
• However, pent up demand for multifamily housing is likely to be huge forward.

Digging In:

While North American real estate development is holding the line, it faces ongoing challenges, a new report from the Commercial Real Estate Development Association shows. 

The group commissioned the report to examine the economic benefits of commercial construction across four distinct asset classes: industrial, retail and entertainment, office, and multifamily housing during 2021. 

The report also digs into the benefits of commercial brokerage, property management and landlord operations. It analyzes the commercial real estate sector across Canada and for selected major metropolitan centres including Montréal, Ottawa, Toronto, Calgary, Edmonton and Vancouver. Metrics are also provided for the provinces of Quebec, Ontario, Alberta and British Columbia.

“The Canadian economy is emerging from a two-year period with significant fluctuations in GDP and jobs due to the COVID-19 pandemic and the public health measures undertaken by governments to contain the infection,” stated the report. “The commercial real estate sector could be vulnerable to long-term impacts related to the pandemic, such as the demand for office space that will continue to evolve with hybrid work practices, and the demand for retail and industrial space that will continue to evolve with shifts in e-commerce trends.” 

The report also found that high inflation and rising interest rates have also increased costs for new commercial real estate development. 

But the research showed that despite these risks, non-residential investment is generally holding up, and leasing activity related to new buildings is robust. 

“At the same time, an acknowledged housing shortage in Canada and the emergence of Gen-Z, a large cohort of young people emerging into their prime rental years, will continue to create opportunities for multifamily investors looking to bring new apartment buildings to market,” said the report. “Although the commercial real estate industry faces challenges from the pandemic and slowing economic growth, it promises to continue to be a major contributor to the Canadian economy in the years ahead.”

Here are some of the report’s key findings: 

• The commercial real estate sector’s building construction spending and ongoing operations generated $278.4 billion of economic activity in Canada in 2021. 
• It generated $148.4 billion in net contribution to GDP in Canada in 2021.
• In 2021, Canada’s commercial real estate sector created and supported 1 million jobs in Canada, of which 372,710 are direct jobs. 

Key Takeaways:

• Alberta’s new rules that enforce prompt payment in construction are now in effect.
• Owners are mandated to pay contracts within 28 days of a proper invoice.
• To avoid going to court, the new rules also feature an adjudication process for disputes.

The Whole Story:

Prompt payment is now the law of the land for Alberta. 

Formerly known as the Builder’s Lien Act, the Prompt Payment and Construction Lien Act is now in force.

The prompt payment framework ushers in a new era for Alberta construction with payment timelines and a dispute resolution process. 

New rules

The new act creates rules for the timing of payments and sets out a streamlined adjudication process for disputes related to payment or work performed as an alternative to court.

Prompt payment is introduced by mandating owners to provide payment to their contractors within 28 days of receiving a proper invoice for construction services and requires that those contractors who receive payment from an owner subsequently pay their subcontractors within seven days.

The new act applies to all private construction contracts in Alberta created on or after Aug. 29, 2022. Current contracts that extend past two years must become compliant with the new rules by Aug. 29, 2024.

According to the act, if a dispute arises regarding work performed under a construction contract, parties to the contract may initiate an adjudication process to resolve the dispute.

Adjudicators are certified and trained through nominating authorities. The province says that it will authorize organizations to serve as Nominating Authorities through an open procurement process.

At the time the contract is signed, project owners and contractors can choose the nominating authority that they would prefer to work with in the event of a dispute.

Builders rejoice

Legislation around payment has long been a goal for industry leaders. 

“Payment practices in Alberta have deteriorated over many years. Accounts receivable frequently in excess of 60 days shifts the burden of project financing to contractors and subcontractor,” said Trevor Doucette, senior vice-chair, Alberta Construction Association (ACA). “This legislation provides certainty of regular payment for work properly performed and invoiced. The new prompt pay provisions will play an essential role in keeping cash flowing through the life of a construction project. Annual release of lien holdbacks will also free up cash much earlier than under the past legislation.”

The Alberta Trade Contractors Association (ATCC) also celebrated the legislation.

“On behalf of the hard-working tradespeople and construction trade business owners of Alberta, we are looking forward to the implementation of prompt payment in our province,”  The ATCC was formed in 2014 with the primary purpose of achieving prompt payment legislation and has been advocating to the Alberta government since then for its implementation. On behalf of the 11 trade contractor associations that are ATCC members, we celebrate the government on this great achievement.”

Who and when?

Kerry Powell, a partner Gowling WLG Canada, offered a series of tips to the Alberta Construction Association around who the legislation applies to and when. 

Powell explained that while the legislation applies to anyone who is performing work, providing services, or furnishing goods or materials with respect to an improvement in land, it does not apply to Public Works projects, P3’s with the Government of Alberta, Federal Government projects, or operations and maintenance work that does not involve an improvement to the project lands.

The new legislation also applies to suppliers even if they are located outside of Alberta as long their product is being used in an improvement in Alberta. 

Powell also stressed the point at which the clock starts ticking. 

“The new legislation will apply to subcontracts and supply agreements based upon the date of the contract between the owner and the contractor – NOT the date of that the subcontract or supply agreement is entered into between the subcontractor and the contractor or the supplier or the contractor – so you will need to know the date of the prime contract to know if the new legislation applies to your subcontract or supplier agreement,” wrote Powell in a message to ACA members.

Meanwhile, in other provinces

West of Alberta, in B.C., prompt payment legislation remains elusive. The B.C. Construction Association and other groups in the province have long advocated for legislation but movement by government has been slow. Officials announced earlier this year that they won’t even begin industry engagement on the issue until mid to late next year. 

Currently Ontario, Saskatchewan, Nova Scotia also have prompt payment legislation in effect.

Key Takeaways:

• DIRTT is pausing operations in South Carolina. 
• The plant was designed to maximize manufacturing of wall tiles, a key part of DIRTT’s construction system.
• Officials cited low demand as the reason for the suspension but could revisit the decision in the future.

The Whole Story:

The Calgary-based lindustrialized construction and design firm announced their decision to suspend operations at a manufacturing facility in Rock Hill, S.C. 

“With sufficient capacity for current and expected production requirements at its facilities in Savannah, Georgia and Calgary, Alberta, the decision is part of the company’s ongoing focus on realigning the organization, driving efficiency, and improving profitability,” said the company in a statement.

DIRTT added that it will continue to assess its capacity requirements and will evaluate options to restart operations at the Rock Hill facility as volume demand continues to expand.

“We’re committed to meeting our clients’ expectations when it comes to building a quality, agile space,” said Benjamin Urban, DIRTT’s CEO. “DIRTT’s approach to industrialized construction ensures quality and project lead times will not be impacted as we shift production to our other facilities.”

Urban also thanked DIRTT’s Rock Hill team for their commitment to building exceptional spaces for clients across the U.S. and Canada. He added that DIRTT will be supporting the staff with their transitions.

DIRTT announced the facility in 2021 as an $18.5 million investment. The plant operated in a leased, custom-built 130,000 square foot building. The plant was designed to maximize manufacturing of wall tiles, a key component of DIRTT’s construction system.

Key Takeaways:

• Ritchie Bros reported recent U.S. sales for excavators have dipped.
• Despite this, Canadian sales remained strong.
• The auctioneer said supply issues remain a critical factor in pricing and sales.

The Whole Story:

An August report by heavy equipment auctioneer and seller Ritchie Bros. found that the U.S. median prices for large excavators are down 9 per cent year over year, while mini excavator prices declined 5 per cent in the last 90 days. 

However the company noted that things looked far less glum in Canada where large excavator prices jumped 12 per cent year over, while mini excavator prices over the last 90 days have rocketed up 31 per cent.

The report also covered Ritchie Bros.’ individual mix-adjusted industry indexes, which are still up over 2021, but declining on a month-to-month basis since the peak pricing achieved earlier this year. In the U.S., truck tractor pricing still leads the way, up 27 per cent year over year, while vocational trucks, medium, and large earthmoving prices are up 18 per cent, 15 per cent, and 12 per cent respectively. Meanwhile, in Canada, truck tractor pricing is up 25 per cent, while vocational trucks, medium, and large earthmoving come in at +10 per cent, +13 per cent, and +12 per cent.

“We continue to experience year-over-year price inflation for equipment and trucks in the U.S. and Canada,” said Doug Olive, senior vice president of pricing for Ritchie Bros. “However, as the transportation and logistics markets normalize, we have seen truck prices decline. We are seeing similar pricing trends across our other industry indexes as well, with year-over-year increases, but declining on a month-to-month basis.”

Doug Rusch, managing director of rouse sales explained that tight supply continues to be the story in the retail market, with lower-than-typical sales volumes driving strong pricing and retail values increasing 2 per cent in July. 

“Excavators in particular have shown strong pricing, with retail values rising 4 to 5 per cent in the past 90 days across all sizes classes,” said Rusch. “Auction values for excavators have moderated a bit since June 2022. Since then, we have seen smaller class mini excavator prices decline 6-7 per cent percent at auction, while larger excavators have declined 2 per cent.”

Key Takeaways:

• The city of Kelowna is rethinking its development cost charges following advice from the province and to help fund infrastructure for projected population growth.
• The changes in include bumping carriage home DCCs from $2,500 to at least $23,000.
• The city would also create a new light industrial category to capture shifts in the industrial market.

The Whole Story:

The city of Kelowna is looking to boost revenue as construction costs increase and its population is forecast to boom.

If approved, the development cost charges (DCCs) would rise for some types of new homes and create new categories for industrial developments. 

Chain reaction

In a report to council, officials explained that labour shortages and an oversupply of construction projects flooding the market have caused upward pressure on construction costs, with tender costing coming in significantly higher than engineering estimates. 

According to the city, construction and land costs in the DCC Program have not been updated in more than three years and since that time construction costs have increased on average by 20 per cent and land costs have increased more than 40 per cent. All project costs in the proposed update reflect 2021 costs so are approximately a year old and may not reflect the recent surge in construction and land costs.

“If construction and land costs continue to trend upward, the DCC program costs may need to be updated within a year of the adoption of this update to keep pace with inflation,” wrote city staff in their report to council.

Carriage homes

One of the biggest proposed increases is to carriage houses. The city estimates that 30 per cent of single-family homes in Kelowna will be built with suites or carriage houses. Council agreed in

2008 to charge a flat fee DCC of $2,500 for all secondary suites and carriage houses which would normally be charged a much higher rate equivalent to a condominium.

The city explained that this practice was flagged by the province as an area that needed to be amended because it provided a specific land use subsidy which is not permitted, as any subsidy must be applied evenly for all land uses.

The city is proposing a new category for Carriage Houses and assessed a higher DCC in the range of $23,000 to $28,000, which officials say better reflects the actual infrastructure impact of the stand-alone units.

Light industrial 

Kelowna has some of the lowest Industrial DCCs in the province that staff say does not fully fund the servicing demands of the emerging light industrial development trend.

In their report to council, staff proposed splitting the industrial category into two categories – light industrial and heavy industrial to better reflect servicing costs.

The light industrial DCC is approximately 50 per cent of the commercial DCC rate and is more in line with the cost of servicing this development form. 

“The heavy industrial DCC is consistent with the previous DCC Program and collects DCC based on a gross site area for land intensive industrial developments like gravel extraction, wrecking yards, outdoor storage, and asphalt and concrete plants.”

Location, location, location

Certain areas of the city have seen higher rates leading up to the latest proposal. Kelowna’s city centre represents about 85 per cent of the new residential units and DCCs have increased less than 5 per cent per year for the past three years. Cumulative increase in residential DCCs, excluding carriage houses, for the three years since the last update is approximately 14 per cent.

However, the city’s Southwest Mission is nearing buildout with some of the infrastructure already in place. This area is seeing the smallest increase – less than 3 per cent per year since the last update in 2019. But it still has the highest overall DCCs due to high costs of extending services to the area at the southern boundary of the City. Cumulative increase in residential DCCs, excluding carriage houses, for the three years since the last update is approximately 4 per cent.

Key Takeaways:

• Quebec struggled with residential construction investment.
• Ontario showed strong recovery following construction worker strike.
• Overall investment in construction saw growth, bolstered by non-residential work.

The Whole Story:

Residential construction experienced its first major hiccup of the year. Statistics Canada announced residential construction investment dipped for the first time in nine months in June while gains in the non-residential sector helped push overall construction investment up 0.3 per cent to $20.8 billion.

The agency explained that the majority of strength for the month came from Ontario, reporting gains in all building components following a weak May resulting from a construction workers strike in the province.

On a constant dollar basis (2012=100), investment in building construction declined 0.6 per cent to $12.5 billion.

Quebec creates drag

Despite six provinces reporting growth, residential construction investment declined 0.4 per cent to 15.5 billion in June, with Quebec (-6.7 per cent) contributing the most to the dip.

Multi-unit construction investment fell 1.6 per cent to $6.9 billion in June. The agency noted that despite the decrease, investment in multi-unit construction has shown an overall upward trend since last October.

Within residential construction, Investment in single-family homes continued to show strength, having outpaced multi-unit construction since the COVID-19 pandemic downturn. It increased 0.7 per cent to $8.6 billion in June, with gains in six provinces.

Non-residential construction investment increased 2.4 per cent to $5.3 billion in June.

Commercial investment advanced 2.7 per cent to $3.0 billion, led by Ontario (+4.1 per cent). This boost came after falling for the first time in 13 months in May due to the Ontario construction workers strike. The commercial component made up for the temporary decline and continued its upward trend, said the agency.

Institutional construction investment rose 0.7 per cent to $1.4 billion with six provinces reporting gains, led by Ontario (+3.8 per cent).

Beyond homes

Investment in the industrial component increased 3.7 per cent to $974 million, the highest monthly value increase since May 2020, just after pandemic-related shutdowns.

The total value of investment in building construction rose 3.3 per cent to $62.3 billion in the second quarter, the third consecutive quarterly increase. Investment for residential buildings reached $46.4 billion, largely due to increased spending on multi-unit construction. The non-residential sector rose 2.6 per cent to $15.8 billion.

Ontario’s growth in the second quarter remained flat when compared with the first quarter of the year, with the strike impacting investment in all components. Industrial construction was the only component to show notable growth for the east.

Single-unit gains

Residential investment in the single-unit component increased for the third quarter in a row, rising 2.6 per cent for the quarter to $25.7 billion. Statistics Canada highlighted that the multi-unit component has increased for the previous three quarters, rising 4.5 per cent this quarter, with most of the growth coming from Quebec.

Key takeaways: 

• Nearly 600 square km near Edmonton will be Alberta’s first designated industrial zone.
• Projects in the zone will benefit from shared infrastructure and streamlined regulatory processes.
• Participation in the zone means agreeing to some environmental conditions and coordinated planning. 

The Whole Story:

The province is launching a new pilot project to create its first designated industrial zone (DIZ). 

Officials say facilities located in the DIZ will benefit from optimized regulatory approvals, shared access to infrastructure and resources and minimized cumulative environmental impacts.

The province is calling the new zone, just northeast of Edmonton, the Industrial Heartland.

It extends into five different municipalities, including 533 square km within the city of Fort Saskatchewan and the counties of Lamont, Strathcona and Sturgeon. About 49 square km resides in a section of Edmonton known as the Edmonton Energy and Technology Park.

So what’s the catch?

Proponents in the zone must agree to zone specific environmental assessments, topsoil management guidelines, air emissions requirements, water quality management and financial or human resources for implementing environmental management programs

The province said it created the new zone in part because the Edmonton Metropolitan Region has grown into the country’s largest hydrocarbon processing region and is home to world-scale oil and gas refineries, and chemical and petrochemical facilities.

Proponents in the zone could see environmental approval renewals take just 6 months instead of the average 18 months. 

They would also be part of careful planning that aims to create industrial clusters so resources and infrastructure costs could be reduced and shared. It also lessens the environmental impact of facilities. Cluster infrastructure initiatives focus on creating regional water supply infrastructure, shared wastewater treatment options and electricity solutions.

According to Alberta’s Industrial Heartland Association, a non-profit that is working to promote industrial development, the province’s petrochemical sector could attract more than $30 billion in capital investment by 2030 if supported. 

“By designating the Heartland an industrial zone, the region emerges as a competitive force through regulatory efficiency and scaled infrastructure, unlocking Alberta’s potential to be a world leader in responsible energy,” explained Dean Setoguchi, CEO of Canadian energy giant Keyera. “This aligns with Keyera’s plans to leverage our pipeline infrastructure and nearly 1,300 acres of undeveloped land in the region for a low carbon vision that will position us as a significant player in Alberta’s energy future.”