The soaring construction costs that have characterized Canadian real estate over the last few years appear to have moderated. But we may be in the relative calm before the storm.
Altus Group has released its 2024 Canadian Cost Guide, offering an assessment of development and construction costs across all asset classes in major markets for the year ahed. It draws on an internal database of more than 5,700 development projects and over 1.4 billion sq. ft valued at over $440B to create a price range for different building types.
The rising cost of some materials, like concrete, and the fall of others, including lumber, worked to counterbalance each other amidst high interest rates, persistent inflation, and a shortage of skilled labour. As such, low to moderate cost increases were recorded for most building types.
"It appears that the scales are tilting toward moderation of construction costs over the next six to 12 months," said Colin Doran, Head of Development Advisory, Americas at Altus Group.
"However, this equilibrium may be relatively short-lived as rapid population growth and a large backlog of projects will inevitably spur more development activity in key Canadian cities."
In the Greater Toronto Area, the cost of building a 13- to 39-storey residential tower now ranges from a low of $295 to a high of $380 per sq. ft, $10 more psf than a year ago. The same building in Vancouver runs $350 to $440 psf; in 2023, it ranged from $330 to $400 psf. Though still significantly more affordable at $275 to $340 psf, such a building in Halifax cost $190 to $265 psf a year ago.
Meanwhile, the price of constructing a single-family residential home with an unfinished basement has risen just $5 psf in the GTA ($210 to $285 psf), Vancouver ($190 to $320 psf), and Ottawa/Gatnieau ($145 to $230 psf) since 2023.
Though demand for office space is dwindling, the cost to build has still edged up. At the high end of the price range, constructing a five to 30-storey Class A building runs $420 psf in Vancouver, $355 psf in Calgary, and $350 psf in Montreal. The figures have increased by $40, $15, and $45 psf, respectively, since 2023.
While construction costs remain elevated in comparison to their pre-pandemic levels, they’ve come down from their "absolute highs," noted David Schoonjans, Senior Director of Development Advisory at Altus Group, as issues like supply chain snarls are resolved and commodity prices come down.
"For building owners and developers, I think 2024 might be the best time to tender a project that that we've seen in a while, and probably the best time that we're likely to see over the next several years," Schoonjans told STOREYS.
"But I think that’s unlikely to last more than say, 12 or 18 months. The slowing office market won’t make the cost of building any less expensive, there will just be fewer offices built. Looking at residential, we had an acute housing shortage beforehand, and now starts are slowing and we have record immigration. There is this huge latent demand for housing that is only growing."
"At some point that dam has got to break loose — maybe triggered by lower interest rates — and then there's got to be a lot of construction happening. There’s going to be massive demand that will drive costs up."
While the forewarned flurry of housing construction will ease supply constraints, without a coinciding "drastic" drop in building costs, there will be little relief on the affordability front. Both occurrences are "unlikely," Schoonjans said, adding: "I'd be very surprised by the end of, say, 2025, if costs aren't notably higher than they are today."
