Rise in Building Costs Helps Propel Nine Month Building Permit Values to New All Time Record

ICI building permit values for the first nine months of 2007 totalled over $8.4 billion, surpassing the $7 billion 1989 peak for the first time.

The year started with one of the single biggest first quarters on record, topping $2.5 billion, up 52 per cent over the first quarter of 2006. The Gains were maintained through the second and third quarters of 2007 resulting in a 29 per cent increase over the first nine months of the year. All three sectors registered significant increases however, the industrial sector, recorded the most striking gain of 45 per cent over the same period in 2006. Institutional and commercial permits, also up significantly, recorded gains of 38 and 20 per cent, respectively.

Commercial permit values totalled over $4.2 billion, with office buildings the single largest component of the commercial sector, totalling over $1.5 billion. Within the Industrial sector, in which permits totalled almost $2.2 billion, plants and factories was the largest single category of growth, valuing just over $2.1 billion. Institutional permits totalled just under $2.2 billion over the same period, led by hospital building intentions of $915 million.

Although there is no doubt we are in the midst of boom in non-residential construction, much of the growth in permit values may be attributed to a surge in the cost of building. Statistic Canada’s non-residential building price index for seven metropolitan areas across Canada, has grown 41 per cent since 2000, and 16 per cent alone since the start of 2006. The 29 per cent increase in non-residential building intentions this year is quite dramatic, however if we correct for the non-residential building price inflation, 2007 permit values would be at about the same level as they were in 2003.

ICI permit values for the first three quarters of 2007 were up in every region in the province except Eastern Ontario, where a 62 per cent drop in the value of institutional permit values offset strong gains in the industrial and commercial sectors.

In Northern Ontario Institutional permit values ere up 1.9 per cent due primarily to large hospital projects in Sudbury and North Bay. Industrial permits were also up 55 per cent relative to the same period last year. However, at only $68 million, the sector had little impact on total permit values of $320 million, an increase of 11 per cent over the first half of 2006.

GTA permit values registered at just over $3.7 billion in the first nine months of 2007, up 23 per cent over the same period in 2006. At $2.4 billion, commercial permits were up over 25 per cent, and continue to be the prime source of growth of GTA building intentions. Low office space vacancies continue to spur on plans for large office towers projects in the downtown core. However, it is predicted that once these projects are completed over the next few years, the additional office space put in place should balance out the market.

Although GTA industrial building intentions jumped to an early 38 per cent gain over the first half of last year, a sharp decline over the third quarter resulted in an 11 per cent overall decline for the nine months period. After significant declines over 2005 and 2006, institutional permit values look like they might rebound this year, as they posted a sharp 49 per cent rise over the first three quarters of 2006 to just over $816 million.

Central Ontario permit values increased evenly in all three ICI components to total just over $2.1 billion in the first nine months of 2007, up 50 per cent over the same period in 2006. Commercial permit values, at $988 million – were the single largest ICI component, increasing 43 per cent over the same period in 2006. The increase in commercial permit values was concentrated in the Hamilton area, where there was a 16 per cent increase over the same nine month period in 2006. This increase follows two consecutive declines in the region in both 2005 and 2006.

Strong building intentions in the auto and energy sectors propelled Southwestern Ontario’s industrial permit growth up 37 per cent to $373 million over the first nine months of 2006. Growth in industrial permits was concentrated in the London and Stratford-Bruce regions, in which industrial permit values increased 266 per cent and 130 per cent respectively. Windsor-Sarnia witnessed declines in both industrial (down 17 per cent) and commercial (down 22 per cent) permit values, while institutional permits totalled a healthy $115 million, a growth of 2.5 per cent over the same nine month period in 2006. As a whole, Southwestern Ontario ICI permit values recorded gains in all three ICI sectors and grew by 26 per cent overall to just over $881 million over the first nine months of last year.