After increasing by a blistering 10.6% year over year in second-quarter 2007, non-residential construction costs slowed slightly to 9.6% in the third quarter.

This moderation was the result of slower quarter growth in all three construction categories. In the institutional category, costs slowed from 10.1% year over year in the second quarter, to 8.8% in the third quarter. Industrial construction costs slowed from 9.6% to 8.5%, while commercial construction costs moved from 11.2% to 10.3%.

Costs in Western Canada Increasing Faster than in the East
As has been the case over the past several years, non-residential construction prices in western Canada increased at a considerably faster rate than they did in the east. For example, non-residential construction prices in Edmonton rose by 17.9% year over year in the third quarter. Calgary saw a 17.1% increase and Vancouver a 13.3% rise.

In all three of these metropolitan areas, the year-over-year increase in commercial construction costs outpaced the growth of industrial and institutional construction costs.

However, it should be noted that the year-over-year change in the composite index of non-residential construction costs declined in the third quarter, when compared to the second quarter, in all major metropolitan areas and in all construction categories.

Among the major central and Atlantic Canada metropolitan areas, construction costs increased from a high of 6.5% in Ottawa to a low of 3.4% in Montréal.

Commercial Costs Rise Fastest in the West; Industrial in the East
In contrast to the west, where commercial costs showed the most dramatic increases, industrial construction costs rose more quickly than other categories in the rest of the country.

Looking ahead, a large volume of on-going and planned non-residential construction will continue to push building costs in the west higher at a faster pace than in the east.

However, industrial construction costs across the country are likely to slow further because of the moderating growth of industrial profits and the drop in industrial capacity utilization.

Costs in the other construction categories are also likely to continue to ease, due in part to declining machinery and equipment prices brought on by (1) the recent rise in the value of the Canadian dollar versus the U.S. dollar; (2) slower growth of institutional building; and (3) the fact that the peak has been reached in commercial building.