Analyzing the Shift from Residential to Non-Residential Investments in 2024

Analyzing the Shift from Residential to Non-Residential Investments in 2024
DATE
October 22, 2024
READING TIME
time

In 2024, the Canadian construction landscape witnessed an interesting shift from residential to non-residential investments. As of August 2024, the total value of building permits in Canada decreased by 7.0%, dropping to $11.5 billion. This decline was spread across both the residential and non-residential sectors, though the specifics of each tell a compelling story about the current state of the economy and the construction industry.

Decline in Residential Investments

Residential building permits, which typically make up the bulk of building activity in Canada, fell by $387.2 million (-5.2%) in August 2024, landing at $7.1 billion. This dip was primarily driven by a significant reduction in multi-unit construction, which dropped by $538.2 million. Provinces like Ontario and British Columbia contributed to the majority of this reduction, with multi-unit permit values declining by $308.3 million and $127.4 million, respectively.

Although single-family permits tempered this overall decline, showing an increase of $151 million, the long-standing trend towards urban densification and multi-unit developments (such as apartments and condos) has slowed. In fact, despite the current downturn in monthly permit values, the 12-month cumulative total for multi-family units still grew by 2.8% from the previous year. This signifies that, while short-term disruptions are evident, the long-term demand for multi-unit housing remains relatively stable.

Rise in Non-Residential Investments

On the other hand, the non-residential sector saw a notable shift. The value of non-residential building permits fell by $471.0 million (-9.7%) to $4.4 billion in August 2024, largely due to declines in institutional (-$382.2 million) and commercial (-$46.2 million) construction. Despite this decline, industrial permits only fell by $42.6 million, maintaining a strong foothold with a year-over-year growth of 49.0%.

This growth in the industrial sector is particularly noteworthy, driven by large-scale projects like the $900 million battery plant permit issued in St. Thomas, Ontario, as well as other developments supporting Canada’s electric vehicle supply chain in municipalities like Windsor, Ontario, and Bécancour, Quebec. These investments reflect the federal government's commitment to bolstering the country's green economy and building infrastructure that supports clean energy and advanced manufacturing.

Economic Drivers Behind the Shift

The shift from residential to non-residential investments can be linked to several economic and policy-driven factors.

  1. Rising Interest Rates and Affordability: In recent years, rising interest rates have made it more difficult for homebuyers to secure mortgages, cooling demand for residential construction. This has contributed to the slowdown in housing permits, especially in multi-family units, as developers face reduced demand and higher borrowing costs. However, some provinces, like Alberta, bucked this trend, with residential permits increasing by 8.4% as a result of more favorable conditions for single-family homes.
  2. Government Focus on Infrastructure and Green Energy: The federal and provincial governments have been heavily investing in infrastructure projects that support industrial growth, particularly in sectors that align with green energy initiatives. Battery plants, electric vehicle production, and other industrial developments have been prioritized, as reflected in the robust growth of industrial permits in 2024.
  3. Increased Demand for Commercial and Industrial Spaces: As more companies adjust to post-pandemic shifts in business operations and supply chains, demand for industrial and commercial spaces has increased. While there was a small decline in commercial permits in August 2024, the overall trend has been one of growth, with the sector seeing steady demand for distribution centers, warehousing, and logistics facilities as e-commerce continues to expand.
  4. Institutional Delays: The sharp decline in institutional permits (-$382.2 million) can be attributed to delays in public sector funding or projects. However, these are often cyclical and can rebound once government budgets and planning cycles align with project execution phases.

Outlook for 2024 and Beyond

The outlook for 2024 suggests that this trend may continue as both public and private sector investments lean more heavily towards infrastructure and industrial developments. With growing initiatives aimed at enhancing Canada's green economy, such as battery manufacturing plants, the industrial component of the non-residential sector is poised for sustained growth.

Moreover, as interest rates potentially stabilize and inflation moderates, we could see a rebalancing between residential and non-residential construction activities. However, for now, the data indicates that the non-residential sector, particularly industrial projects, will continue to drive growth in the Canadian construction landscape.

Conclusion

The shift from residential to non-residential investments in Canada in 2024 is a reflection of broader economic trends, policy priorities, and market demands. While residential construction, especially in multi-family units, has slowed, the industrial sector has surged ahead, supported by government-backed initiatives and growing demand for modern infrastructure. As Canada navigates a complex economic environment, the continued growth of industrial and non-residential investments will play a key role in shaping the country's construction and economic future.

Sources:

Disclaimer:
The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.

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Analyzing the Shift from Residential to Non-Residential Investments in 2024

In 2024, the Canadian construction landscape witnessed an interesting shift from residential to non-residential investments. As of August 2024, the total value of building permits in Canada decreased by 7.0%, dropping to $11.5 billion. This decline was spread across both the residential and non-residential sectors, though the specifics of each tell a compelling story about the current state of the economy and the construction industry.

Decline in Residential Investments

Residential building permits, which typically make up the bulk of building activity in Canada, fell by $387.2 million (-5.2%) in August 2024, landing at $7.1 billion. This dip was primarily driven by a significant reduction in multi-unit construction, which dropped by $538.2 million. Provinces like Ontario and British Columbia contributed to the majority of this reduction, with multi-unit permit values declining by $308.3 million and $127.4 million, respectively.

Although single-family permits tempered this overall decline, showing an increase of $151 million, the long-standing trend towards urban densification and multi-unit developments (such as apartments and condos) has slowed. In fact, despite the current downturn in monthly permit values, the 12-month cumulative total for multi-family units still grew by 2.8% from the previous year. This signifies that, while short-term disruptions are evident, the long-term demand for multi-unit housing remains relatively stable.

Rise in Non-Residential Investments

On the other hand, the non-residential sector saw a notable shift. The value of non-residential building permits fell by $471.0 million (-9.7%) to $4.4 billion in August 2024, largely due to declines in institutional (-$382.2 million) and commercial (-$46.2 million) construction. Despite this decline, industrial permits only fell by $42.6 million, maintaining a strong foothold with a year-over-year growth of 49.0%.

This growth in the industrial sector is particularly noteworthy, driven by large-scale projects like the $900 million battery plant permit issued in St. Thomas, Ontario, as well as other developments supporting Canada’s electric vehicle supply chain in municipalities like Windsor, Ontario, and Bécancour, Quebec. These investments reflect the federal government's commitment to bolstering the country's green economy and building infrastructure that supports clean energy and advanced manufacturing.

Economic Drivers Behind the Shift

The shift from residential to non-residential investments can be linked to several economic and policy-driven factors.

  1. Rising Interest Rates and Affordability: In recent years, rising interest rates have made it more difficult for homebuyers to secure mortgages, cooling demand for residential construction. This has contributed to the slowdown in housing permits, especially in multi-family units, as developers face reduced demand and higher borrowing costs. However, some provinces, like Alberta, bucked this trend, with residential permits increasing by 8.4% as a result of more favorable conditions for single-family homes.
  2. Government Focus on Infrastructure and Green Energy: The federal and provincial governments have been heavily investing in infrastructure projects that support industrial growth, particularly in sectors that align with green energy initiatives. Battery plants, electric vehicle production, and other industrial developments have been prioritized, as reflected in the robust growth of industrial permits in 2024.
  3. Increased Demand for Commercial and Industrial Spaces: As more companies adjust to post-pandemic shifts in business operations and supply chains, demand for industrial and commercial spaces has increased. While there was a small decline in commercial permits in August 2024, the overall trend has been one of growth, with the sector seeing steady demand for distribution centers, warehousing, and logistics facilities as e-commerce continues to expand.
  4. Institutional Delays: The sharp decline in institutional permits (-$382.2 million) can be attributed to delays in public sector funding or projects. However, these are often cyclical and can rebound once government budgets and planning cycles align with project execution phases.

Outlook for 2024 and Beyond

The outlook for 2024 suggests that this trend may continue as both public and private sector investments lean more heavily towards infrastructure and industrial developments. With growing initiatives aimed at enhancing Canada's green economy, such as battery manufacturing plants, the industrial component of the non-residential sector is poised for sustained growth.

Moreover, as interest rates potentially stabilize and inflation moderates, we could see a rebalancing between residential and non-residential construction activities. However, for now, the data indicates that the non-residential sector, particularly industrial projects, will continue to drive growth in the Canadian construction landscape.

Conclusion

The shift from residential to non-residential investments in Canada in 2024 is a reflection of broader economic trends, policy priorities, and market demands. While residential construction, especially in multi-family units, has slowed, the industrial sector has surged ahead, supported by government-backed initiatives and growing demand for modern infrastructure. As Canada navigates a complex economic environment, the continued growth of industrial and non-residential investments will play a key role in shaping the country's construction and economic future.

Sources: