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Non-Residential Building Permit Growth Spurt Ends With Big Decline in October

Dec 12, 2018

The Conference Board of Canada’s economist Robyn Gibbard offers the following insights on the release of building permit data for October.

Quote

“The value of non-residential building permits fell in October, led by declining industrial building intentions. Building permits were experiencing a growth spurt for most of 2018, but the trend is now negative. Since building permits are a leading indicator of construction activity, this suggests we will see less non-residential construction in 2019. That is unfortunate, as non-residential building construction has been a significant contributor to economic growth this year.”
—Robyn Gibbard, Economist, The Conference Board of Canada

Insights

  • Total non-residential building permits issued in October fell 7 per cent compared to September. Building permits are now 13.5 per cent lower than they were at the same period last year. After growing in five of the previous six months, the poor October result means that the building permit trend is now on the decline.
  • Industrial and institutional permits both declined significantly on a year-over-year basis. Industrial building permits are now down 42.5 per cent from last October, while institutional permits are down 19 per cent. The trend in Industrial is now showing a steep decline, which is a surprise given that the industrial vacancy rate is at a very low 3.3 per cent. Normally, such a low vacancy rate would encourage businesses to build more buildings to meet the demand.
  • On the positive side, commercial building permits, which usually signal the construction of office and retail buildings, increased by 2.5 per cent year-on-year. This is a sign of continued strength of the commercial building market. Office vacancy rates remain very low in some major metropolitan centres—3.1 per cent vacancy in Toronto and 4.4 per cent vacancy in Vancouver—which is contributing to strong investment.
  • Since the start of 2017, real non-residential building construction has grown by 10.8 per cent, making it a major contributor to economic growth. Since building permits are a leading indicator for building construction, a downward trend in building permits suggests that 2019 will be a softer year for building construction. This is in line with our fall Canadian Outlook which projected that businesses would increase their real spending on non-residential buildings by 6.9 per cent in 2018 but just 1.8 per cent in 2019.

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