Study: Review of non-residential construction

2005

Non-residential investment hit a record high in 2005 for the fifth year in a row, and the West can take a lot of the credit, according to a new study.

Non-residential investment (commercial, industrial and institutional projects) hit $31.5 billion last year, up 8.7% from 2004. This was the strongest gain since 2002.

The $1.4-billion gain in office tower investment accounted more than one-half of the total increase in non-residential construction last year. Just two metropolitan areas (Vancouver and Calgary) accounted for nearly one-quarter of the jump in investment in office towers.

Nationally, investment in office tower construction soared 28.2% to $6.2 billion in 2005, halting a two-year decline. But it was not the only bright spot. Investment in hospitals and health clinics was up at the national level for the fifth year in a row, rising in seven provinces.

Investment in warehouses jumped 14.6% to $2.0 billion, likely the result of a strong performance by retailers and wholesalers, supported by consumer spending and international trade. Ontario was the leader in warehouse construction.

Western Canada spearheaded the growth in industrial investment. Alberta and British Columbia alone accounted for one-fifth of all investment in the nation's manufacturing plants in 2005. They also generated one-half the total gain last year in all investment in buildings associated with maintenance, such as repair shops.

This study examines investment in non-residential construction in 2005 as well as trends since the turn of the millennium.

Investment up in two of three components

Last year's record $31.5 billion in non-residential investment nearly matched the Alberta government's total revenue, and comprised nearly 2.3% of Canada's gross domestic product.

Investment rose in the commercial and industrial components, and declined in the institutional component.

Commercial projects such as shopping centres, office buildings and cinema complexes, accounted for the lion's share of non-residential investment, about 55%. Investment totalled a record high $17.5 billion, up 12.7%.

Industrial projects, such as factories, recorded the largest gain (+20.3%), reaching a record $5.6 billion. Spending on institutional buildings such as hospitals, museums and schools slipped 4.7% to $8.3 billion.

All provinces and territories posted increases in investment in non-residential buildings in 2005, except for Newfoundland and Labrador, Saskatchewan and Nunavut.

The largest gains occurred in Alberta, which saw booming conditions as a result of oil prices, and in British Columbia, which saw rising trade with Asia and preparations for the 2010 Olympics, among other factors.

Rebound in office buildings

Demand for office buildings surged in 2005 following a soft performance in this sector from 2000 to 2004.

Lower vacancy rates and higher rents for office space across the country encouraged businesses to invest in the construction of office buildings.

In Western Canada, the metropolitan areas of Calgary and Vancouver posted strong gains.

In Calgary, investment in office tower construction soared 58.1% to $497 million, largely the result of demand for office space by businesses in the energy sector.

In Vancouver, investment shot up 45.1% to $458 million. This performance can be partly attributed to good economic growth, increased commercial transactions with Asia and low vacancy rates.

Another likely factor was strong demand from a growing number of organizations and businesses (notably telecommunications and consulting firms) serving the 2010 Olympics.

East of the Prairies, several factors contributed to gains in spending on office buildings. Vacancy rates declined sharply in the major centres and rents were up, leading to strong gains in such investment in Toronto, Halifax, Québec and Montréal.

Definitions, data sources and methods: survey number 5014.

The analytical article "Review of non-residential construction in 2005" (11-621-MIE2006043, free) is now available online in the Analysis in Brief series. To obtain a copy, go to the Our products and services page on our website.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Bechir Oueriemmi (613-951-1165), Investment and Capital Stock Division.