To say there’s been some fear about Alberta’s construction activity is an understatement. Given the amount of over-build that we’ve seen—particularly for commercial real estate—the sector is surely headed for a crash. Or is it?
The best forward-looking indicator of where construction activity is going is building permits. According to the latest report, both Calgary and Edmonton should see construction activity this year tread close to the 10-year average.
The heavy orange line in the chart below shows Calgary’s total building permits (including both residential and non-residential projects) over the last decade. To eliminate monthly volatility in the data, the line is smoothed using a 12-month trending average. The dashed orange line is the average level of monthly building permits since the start of 2007. Currently, the 12-month trend line for Calgary is precisely at the 10-year average mark.
Edmonton is doing even better. Its 12-month trend line is currently 13 per cent higher than the 10-year average.
True, permits in both cities are down considerably from the highs hit in 2014 and 2015. This is particularly the case in Calgary where permits are off by more than a quarter. But a pullback in commercial construction is to be expected given the vast amount of office space on the market.
So, is the sky falling in the construction sector? This year will be slow compared to two years ago. But the better comparison is the 10-year average, over which time Alberta experienced two recessions and plenty of boom years in between. Against this benchmark, construction activity in both cities should be, well… average.
(Also, yesterday's Owl chart on Alberta's housing starts was mislabelled. Sorry! We've corrected it. See it below today's chart and on atb.com/economics.)