Individual data by city and province included in report: naiop.org/canadiancontributions2018
A newly released study – “Economic Impacts of Commercial Real Estate in Canada” – quantifies the economic impact of commercial real estate investment in Canada, with a specific focus on estimating the impact tied to investment in the country’s largest Census Metropolitan Areas (CMAs), including:
Download the full report at naiop.org/canadiancontributions2018.
The analysis also includes estimates of the government revenues that are associated with the economic activity stimulated in the country by commercial real estate through the indirect taxes (sales taxes and user fees) charged on products and services, and taxes on the labour and corporate income that is generated.
In 2017, the $38.6 billion spent on commercial real estate in Canada supported:
- $40.2 billion in gross domestic product (GDP)
- $25.2 billion in labour income
- 419,197 jobs
- $10.1 billion in government revenues
The four provinces of British Columbia, Alberta, Ontario and Quebec accounted for 89.1 percent of CRE investment in 2017:
- Ontario accounted for 40.8 per cent
- Alberta accounted for 18.5 per cent
- Quebec accounted for 18.1 per cent
- British Columbia accounted for 11.8 per cent
Hard construction costs, which includes all the building activities and assembly of the structure, are easily the largest segment of investment. They account for more than 60 per cent of commercial real estate spending, which amounted to nearly $25 billion across Canada alone in 2017. Soft construction costs account for the next highest share at $5.3 billion, followed by interior buildout ($4.9 billion), and site development and infrastructure costs ($3.7 billion).
The report says that the Canadian economy is on pace to expand just 2.0 per cent in 2018, which is less than the 3.0 per cent expansion recorded in 2017. Furthermore, significant structural issues in the economy are expected to hold growth to 1.8 per cent expansion in each of the next two years. Overall, the outlook for growth in the Canadian economy at this time remains positive, but modest.
Moreover, the level of uncertainty that companies currently face is creating a murkier-than-normal picture of the future. On the positive side, labour markets have proven largely resilient, and fiscal stimulus is likely to provide a modest boost to investment in the near term. Offsetting these are tariffs on key export products, high levels of consumer debt, weak oil prices, stretched capacity in manufacturing, and a cooling housing market.
“With this report, NAIOP aims to reinforce the importance of commercial real estate investment to the Canadian economy,” said Thomas Bisacquino, NAIOP president and CEO. “The benefits of this investment is favorable not only nationally, but also to cities and provinces, as it creates new jobs, improves infrastructure, and creates places to work, shop, live and play.”
The NAIOP Research Foundation publishes an annual companion study detailing the economic impact of commercial real estate development in the U.S. (naiop.org/contributions2019). “For our more than 3,000 members that comprise four chapters in Canada, this study is can be used by real estate professionals and government officials and employees to understand and quantify the key economic benefits of commercial real estate investment,” Bisacquino said.
The “Economic Impacts of Commercial Real Estate in Canada” report is authored by The Conference Board of Canada and published by the NAIOP Research Foundation. Download the full report at naiop.org/canadiancontributions2018.
CRE Outlook by City
Canada’s six largest cities accounted for close to 60 per cent of all commercial real estate spending in 2017. Toronto, Canada’s largest city, accounted for one-fifth of total commercial real estate spending alone.
Few municipal economies have performed as well as Vancouver’s in recent years. In 2017, economic activity expanded by an exceptional 4.5 per cent, which was the highest rate in 12 years. The economy’s expansion will slow from this pace, in line with most regions in the country, and current expected gains may ease to 2.6 per cent in 2018 and 2.4 per cent in 2019.
Calgary’s economic growth will remain positive, but modest. It is forecasted to see gains of 2.5 per cent in 2019 and 2.4 per cent in 2020.
Although it held up fairly well in 2017, Edmonton’s economy continues to cope with the massive, province-wide fallout from the extended period of low petroleum prices that have significantly dampened the prospects for oil producers. This is a key reason why real GDP growth is forecasted to moderate from its 3.1 per cent expansion in 2017 to just 2.3 per cent in 2018 and 2019.
Toronto’s office segment is the most vibrant in the country. The report says that this should remain the case during the next several years, as close to 50 per cent of the office space construction pipeline in Canada is currently expected to be delivered in the city.
Ottawa-Gatineau’s economy expanded by 2.7 per cent in 2017, the highest rate in 10 years. As with the other major jurisdictions in this report, however, economic activity will moderate during the next two years. This study forecasts a gain of 2.0 per cent in 2018, followed by 1.8 per cent in 2019. The housing market has cooled, but not to the same extent as in other major jurisdictions across the country. Population growth remains solid, and non-residential construction activity continues on an upward trajectory.
Montreal’s economy is healthy and on track to expand by 2.9 per cent in 2018. Although this pace of growth is somewhat slower than 2017, it is nonetheless strong in the context of tighter mortgage rules, higher interest rates and the international trade uncertainty that the Canadian economy is grappling with.
Economic Impact of Commercial Real Estate by City/Province
In 2017, commercial real estate spending in Vancouver totalled $2.9 billion which resulted in the following footprint on the Canadian economy:
- $3.1 billion in GDP
- $1.9 billion in labour income
- 30,800 jobs
- $710 million in government revenues
In 2017, commercial real estate spending in Calgary totalled $2.7 billion, which resulted in the following economic footprint on the Canadian economy:
- $2.8 billion in GDP
- $1.7 billion in labour income
- 23,100 jobs
- $578 million in government revenues
In 2017, commercial real estate spending in Edmonton totalled $2.8 billion, which resulted in the following economic footprint on the Canadian economy:
- $2.8 billion in GDP
- $1.7 billion in labour income
- 23,600 jobs
- $590 million in government revenues
In 2017, commercial real estate spending in the country’s largest municipal economy totalled $8.4 billion, which resulted in the following footprint on the Canadian economy:
- $8.7 billion in GDP
- $5.6 billion in labour income
- 91,900 jobs
- $2.2 billion in government revenues
In 2017, commercial real estate spending in Ottawa totalled $1.5 billion which resulted in the following economic footprint on the Canadian economy:
- $1.5 billion in GDP
- $979 million in labour income
- 16,100 jobs
- $379 million in government revenues
In 2017, commercial real estate spending in Montreal totalled $3.7 billion, which resulted in the following economic footprint on the Canadian economy:
- $3.8 billion in GDP
- $2.5 billion in labour income
- 45,100 jobs
- $1.0 billion in government revenues
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About NAIOP: NAIOP, the Commercial Real Estate Development Association, is the leading organization for developers, owners and related professionals in office, industrial, retail and mixed-use real estate. NAIOP comprises 19,000 members in North America. NAIOP advances responsible commercial real estate development and advocates for effective public policy. For more information, visit naiop.org.