The Conference Board of Canada’s Economist Robyn Gibbard offers the following perspectives/insights on today’s release of building permit data for December:
“The value of non-residential building permits issued in January increased significantly from December 2017. However, the trend for building investment appears to be levelling off now that it has recovered from the losses experienced after the commodities price crash. Investment is now being driven mostly by booming industrial building construction, which is not surprising given that commercial vacancy rates are still elevated.”
—Robyn Gibbard, Economist, The Conference Board of Canada.
- Non-residential building permits issued in January increased 15.4 per cent year-on-year. Non-residential building permits reached the bottom of a trough in the final quarter of 2016 before turning upwards again. However, this trend peaked in the middle of 2017 and has plateaued since.
- All three subcomponents (industrial, commercial, institutional) contributed to the trend growth in 2017. The largest contributor has been the industrial sector, where very low vacancy rates are driving new construction. Industrial building permits are up by 17.2 per cent year-on-year. Despite the solid performance over the last year, new industrial building permits began to level off at the end of 2017.
- The commercial sector has also been trending upward since 2016, but at a much slower rate. This sector is facing headwinds to growth in the medium term thanks to record-high office vacancy rates, especially in Alberta. However, it did see notable growth in January and commercial building permits are now up 20.4 per cent year-on-year.
- The strong regional divergence in building permits we saw in 2017 has started to ease. Building permits are up substantially year-on-year in the resource-rich provinces of Newfoundland and Labrador and Saskatchewan. While building permits are still down year-on-year in Alberta, they are also down in the non-resource driven provinces of Nova Scotia, New Brunswick, and Manitoba.
- Overall, even though the level of investment is beginning to plateau, strong year-over-year growth points to a continued expansion in non-residential building investment relative to 2017. This is consistent with our latest Canadian Outlook which forecasts that businesses will increase their real spending on buildings by 2.9 per cent in 2018.