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Expect different drivers to power Vancouver after the Olympics

0 456 Market Intelligence

Heading into 2010, it is clear that the Vancouver economy is emerging from recession.

Heading into 2010, it is clear that the Vancouver economy is emerging from recession.

There is evidence of a sustained pickup in the key elements of domestic demand.

In particular, consumer spending, as reflected by retail sales, has increased in six of the past nine months. In September sales were 7% higher than they were in January.

In addition, record low interest rates have caused housing demand in Vancouver to escalate sharply. Year to date, existing home sales are up by 39.1%, and average house prices are up 22% year over year.

Despite the strong pattern of existing home sales, however, new residential construction is still weak. But the fundamental drivers of new housing appear to be improving.

First, interest rates are expected to remain relatively low over the near term.

Second, the latest (Q1/2010) Manpower Outlook Survey indicates that Vancouver’s employers expect a positive hiring climate in early 2010. This suggests that the stronger pattern of job growth seen in the past few months will continue into next year.

Finally, according to Canada Mortgage and Housing Corp., the inventory of unsold new and resale homes is shrinking quickly, setting the stage for an upturn in new construction in 2010.

Looking ahead, in the very near term, the Vancouver economy will get a shot in the arm from the surge in tourism spending related to the 2010 Olympic Games (which run from Feb. 12 to 28).

Following this uptick, the metro area’s economy will be driven by more ordinary sources of growth.

This will include strengthening U.S. and Asian demand for raw materials; a gradual strengthening of new residential construction; and a steady increase in international travel stemming in part from the recent agreement with China on approved destination status.

Having said this, B.C.’s most recent Major Projects Inventory indicates that non-residential construction in Vancouver will probably slow next year, due in part to a post-Olympic bust in institutional spending.

Also, the recent slowdown in office-based employment and an accompanying increase in office vacancy rates will probably depress commercial construction well into 2011.

Employment: Vancouver CMA vs Canada
Canada
Data source: Statistics Canada/Chart: Reed Construction Data – CanaData.

by John Clinkard

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