Understanding the Impact of Construction Costs in Canada: Insights from Altus Group’s Annual Canadian Cost Guide
In late March, Altus Group, a leading commercial real estate services company, released its annual Canadian Cost Guide, shedding light on the current landscape of construction costs across Canada. This comprehensive report, drawing from proprietary data spanning over 6,200 diverse projects—including residential, commercial, and infrastructure—provides a riveting snapshot of costs, meticulously broken down by location and asset type.
A Closer Look at Construction Costs
The Canadian Cost Guide primarily focuses on "hard" construction costs. This means the figures published are specifically related to the physical construction of buildings, excluding elements such as site servicing, consultant fees, and development charges. It serves as a vital benchmark for stakeholders across the real estate spectrum, despite not functioning as a predictive tool for future cost fluctuations.
What stands out prominently in this year’s report is the significantly higher construction cost ranges for Vancouver compared to other Canadian markets. Notably, these costs are elevated across various building types, both residential and commercial, highlighting Vancouver’s unique position in the Canadian real estate landscape.
Vancouver: A City of Rising Costs
For instance, the report reveals that the cost of constructing concrete high-rise buildings—those typically ranging from 13 to 39 storeys—in Metro Vancouver hovers between $360 and $455 per square foot. In stark contrast, the Greater Toronto Area (GTA) shows lower ranges, with costs starting near $300 and peaking below $400.
Additionally, when examining six-storey woodframe buildings—another staple in Vancouver’s construction scene—the costs range from $275 to $365 per square foot, again surpassing those of all other markets.
Interestingly, the only situation where construction costs in Toronto overtook Vancouver was for stacked townhouses in the GTA. Here, costs began around $230 per square foot, marginally above Vancouver’s starting price of $225, while the upper limits for Vancouver remained notably higher.
Influencing Factors Behind the Costs
Christopher Mullins, Altus Group’s Vancouver lead, attributes these climbing costs in part to a myriad of policy changes and regulatory requirements. Shifts towards enhanced building sustainability—such as the transition from BC Energy Step Code 3 to Step Code 4—and new building performance mandates have necessitated higher-quality materials, including high-performance glazing and tighter air-tightness standards.
Furthermore, safety regulations stemming from recent seismic assessments are critical. British Columbia’s seismic vulnerability compels more stringent building requirements, thereby inflating costs. Mullins elaborates, stating that these stringent seismic design requirements significantly affect costs, not just for the above-grade structure but even below-grade considerations, impacting parking and excavation expenses.
Labor and Material Costs: A Comparative Analysis
While rising material prices are a universal issue, they are not the sole reason for Vancouver’s inflated construction budgets. Mullins highlights the labor market as a crucial factor. The ongoing demand for skilled labor in Vancouver, spurred by major projects like St. Paul’s Hospital and Oakridge Park, underscores the competition for qualified tradespeople. Although labor challenges exist in Ontario as well, Mullins argues that the slowdown in the condo market has resulted in a more abundant skilled labor pool in the province, alleviating some upward pressure on costs.
Trends and Future Concerns
Although construction costs have generally escalated since the pandemic onset, Mullins notes a slowdown in price escalation recently, with Vancouver’s annual increases stabilizing around 2% to 4%. However, in the current climate, developer focus has shifted from construction costs to other pressing expenses like development cost charges (DCCs) and sourcing issues, which prominently influence project feasibility.
Colin Doran, Altus Group’s Head of Development Advisory – Americas, succinctly puts it: while the variance in construction costs is noteworthy, it pales in comparison to other factors impacting project viability. Government charges, demand fluctuations, and revenue projections play more immediate roles in determining whether projects can move forward.
Conclusion
The insights from Altus Group’s Canadian Cost Guide provide valuable context for understanding the landscape of construction costs in Canada, particularly emphasizing the unique challenges faced by developers in Vancouver. As policy changes and market dynamics continue to evolve, stakeholders are encouraged to adapt their strategies, considering not just the construction costs but the comprehensive suite of variables that influence project feasibility. In this ever-changing environment, being informed is more critical than ever for navigating the complexities of the Canadian real estate market.
