Major City Insights

Kitchener–Cambridge–Waterloo

May 29, 2024

Overview
Labour and employment
Economic indicators
Construction and real estate

Cooling local economic growth still outpaces the nation’s

Kitchener–Cambridge–Waterloo’s usually upbeat economy is cooling against a backdrop of high interest rates and recession worries, but local expansion should still be faster than Canada’s this year.
The area has long been a manufacturing hub, creating varied outputs like ice skates, buttons, textiles, and meat products, then automobile parts and eventually high-tech products. In 1910, Kitchener (Berlin, then) was the first inland city to access inexpensive power from Niagara Falls, reinforcing its industrial growth.
The area’s economy has sprung back from its COVID trough. Real GDP rose by a 21-year high of 5.5 per cent in 2021 and a further 3.8 per cent in 2022. Expansion cooled to 1.3 per cent in 2023.
We expect another GDP gain of 1.3 per cent in 2024, then a stronger 2.8 per cent expansion in 2025 and gains hovering near 3 per cent in 2026–28.
In a break from recent norms, Kitchener–Cambridge–Waterloo’s GDP growth merely matched Ontario’s in 2023 after outpacing it for 13 consecutive years. The local advantage will re-emerge in 2024 and continue throughout our forecast.
Local net in-migration continues to hit record highs, propelled by brisk international arrivals and newcomers from other Ontario cities.
Housing the resulting population hikes is not easy. In a clear signal of the need for additional dwellings, the annual ratio of housing starts to population growth fell below 0.2 in 2022 (indicating that only 0.2 homes were started on average for every newcomer) and remained there in 2023, after averaging 0.5 during the previous 20 years.

Labour and employment

Employment in Kitchener–Cambridge–Waterloo posted a third straight annual gain in 2023, rising 3.0 per cent (10,100 jobs) to a record 343,800. This followed increases of 5.8 per cent in 2021 and 3.3 per cent in 2022.
Despite last year’s job gains, the area’s unemployment rate edged up to 6.0 per cent. The rate remains well below the pandemic-induced 10 per cent annual figure from 2020, however.
We see employment growth slowing to 0.9 per cent (3,100 positions) in 2024, the smallest since 2018, other than the year COVID first hit. Such moderation will boost the unemployment rate further, to 6.5 per cent, the highest annual figure (again, apart from 2020) since 2013.
This year’s employment gain will be led by increases of about 3,500 jobs in the manufacturing sector and of 2,100 jobs in each of professional and technical services and healthcare services.
Employment growth will rise to 1.5 per cent in 2025 (a gain of nearly 5,400 positions) and 1.8 per cent in 2026 (roughly 6,200 additional jobs).
All the 2025 job hikes will come from services, paced by advances in educational services, accommodation and food services, and health care services.
The employment gains in 2025 will trim the region’s unemployment rate to 6.1 per cent.
Ongoing annual employment increases near 1.5 per cent in 2026–28 will cut the rate to 5.4 per cent by 2028.
The area’s population is surging, fuelled by electric migratory inflows like the 2023 record high estimated at 28,500 net new arrivals. This boosted the local head count by 4.6 per cent, also an estimated record high.
Outsized federal immigration targets are bringing international newcomers, while the region’s healthy economy and relatively affordable housing are attracting net intercity migrants.
Net interprovincial migration losses seem at least partly fuelled by outflows of people seeking even cheaper housing and jobs in Alberta. Residents have also relocated to more affordable Atlantic Canada.
Net international and intercity migration will both ease in 2024 but nonetheless offset net interprovincial outflows to generate a still brisk net in-migration of 17,800 people, lifting the area’s population by 3.7 per cent.
We expect further 2.4 per cent population growth in 2025 as international and intercity inflows continue. Annual advances will subsequently taper off to 1.5 per cent in 2028, nearer the average annual growth of 1.6 per cent in the 20 years to 2022.

Economic indicators

Kitchener–Cambridge–Waterloo’s diverse and innovative manufacturing sector propels the region’s economy. The industry generated about 18 per cent of local GDP in 2023, nearly twice Canada’s 10 per cent.
Manufacturing output rose 1.9 per cent in 2023, the third straight annual expansion, after rising 5.0 per cent in 2022. Despite these increases, the industry’s output remained below its 2019 pre-COVID level last year.
Fractional 0.2 per cent growth will keep manufacturing output just below its pre-COVID peak in 2024 as well, but a stronger 2.5 per cent gain will finally push the sector past this milestone.
Auto parts maker PWO Canada plans to invest $9.6 million to add a new assembly line and potentially 27 jobs. The firm specializes in advanced lightweight metal components and subsystems and hopes to capitalize on the shift to electric vehicles.
Another auto parts firm, Dana Canada, will spend about $60 million to increase capacity at its Cambridge and Oakville factories, which make components and parts for electric vehicles. The expansions are expected to create about 100 jobs.
Teledyne’s Waterloo operations will manufacture more than 800 drones, worth over $95 million, to support Ukraine’s war effort, with deliveries beginning in April.
Meanwhile 2021 start-up Evolved.Bio has announced a breakthrough in growing fresh human muscle tissue in the lab to regenerate lost muscles. The firm emerged from Velocity, the University of Waterloo’s start-up support program. Animal-based trials will begin this year, and human trials in 2027.
While such developments will fuel continued expansion in the area’s professional and technical output, growth will throttle back from a 6.0 per cent gain in 2023 to a three-year low of 1.7 per cent in 2024. We expect faster 3.3 per cent growth in 2025, then annual advances in the mid-3 per cent rate in 2026–28.
The area’s retail sales growth slowed to 0.6 per cent in 2023. This followed vigorous post-pandemic rebounds of 11.0 per cent in 2021 and 11.9 per cent in 2022—the fastest two-year gain since at least 1992.
We expect retail sales to rise 2.1 per cent in 2024, then 3.4 per cent in 2025. Advances will hover near 4 per cent in 2026–28.
Last year’s moderating retail sales growth trimmed retail trade output by 2.0 per cent, the first shrinkage in three years. Better sales volumes in 2024 will arrest declines, leaving retail trade output unchanged.
Persistent sales gains in 2025 will prompt resumed 2.6 per cent retail trade growth. We expect similar annual gains in 2026–28.
Falling Canadian inflation was mirrored locally in a drop in the area’s consumer price index growth from 6.8 per cent in 2022 to 3.8 per cent last year. We see local inflation moderating to 2.8 per cent this year and 2.1 per cent in 2025.

Construction and real estate

Burgeoning population growth in Kitchener–Cambridge–Waterloo has unsurprisingly produced robust housing demand. Rising interest rates stifled this demand through most of 2022 and early 2023. Plateauing rates in late 2023 then levelled the area’s existing housing market, leaving it in a balanced position with moderate sales volumes.
The housing market is now a coiled spring set to bounce as interest rates decline.
The softer market weakened prices. The area’s average resale value is now near $760,000, well off levels approaching $1 million in early 2022. Look for healthy price increases this year as sales pick up.
The weaker resale market limited output growth in finance, insurance, and real estate, the area’s largest industry, to 1.4 per cent in 2022 and 1.0 per cent in 2023.
A weak hand-off from 2023 and recently modest resale market performance will limit finance, insurance, and real estate output to 0.6 per cent growth in 2024, the weakest non-COVID year since 2009. A strengthening resale market will spur a stronger 3.1 per cent advance next year. Gains will hover near 3 per cent annually in 2026–28.
The new home market has performed similarly. The inventory of unsold new homes rose as interest rates rose but remains less than half of its 20-year average. We see this backlog decreasing this year along with interest rates.
This decreasing backlog, along with a falling volume of units under construction, will prompt a 2024 increase in housing starts, even as developers stickhandle labour shortages and land availability.
Indeed, we expect starts to rise 22 per cent to a record 5,700 units in 2024. The region’s evident housing backlog will keep starts near this level in 2025–28.
To address a student housing shortage, Kitchener’s Conestoga College recently bought two Waterloo properties and leased the former Inn of Waterloo. These dwellings should eventually house at least 400 students. The college has also bought a vacant 12-storey tower in downtown Kitchener, has opened another residence in Waterloo, and is planning one at its Doon campus.
For its part, the University of Waterloo is planning to build a 500-bed student residence on its main campus.
Kitchener will get $42 million from the federal Housing Accelerator Fund after inking a deal with the federal government in November. The city has agreed to allow up to four units on a single property and promises to deliver 35,000 new homes by 2031.
Planning continues for a new regional hospital to replace the current St. Mary’s and Grand River hospitals. The new hospital’s site and cost remain unannounced, and it won’t open for at least a decade.
Ontario is also seeking proposals to replace east Kitchener’s Frederick Street bridge. This is an important prerequisite for widening the two-lane Highway 7 between Kitchener and Guelph. The project has been discussed for decades.
In all, construction output is set to grow by 1.9 per cent in 2024 and 2.5 per cent in 2025, following two straight years of contraction including a 1.8 per cent shrinkage in 2023.