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.
An infographic from StatsCan shows building permit value changes across the country. – StatsCan
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.
A chart from the Commercial Real Estate Development Association breaks down real estate development-related economic activity in major markets. – Commercial Real Estate Development Association
“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.
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.
A graphic from Statistics Canada shows construction investment for June. – Statistics Canada
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.
A map shows Alberta’s new designated industrial zone near Edmonton. – Government of Alberta
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.”
