Non-residential construction costs in Canada's seven largest census metro areas (CMAs) increased by 11.6% year over year in second-quarter 2008. This figure marks the fastest growth in non-residential construction costs since first-quarter 1982.

The rapid year-over-year increase clearly indicates that Canada's non-residential construction sector is operating well above its production capacity.

In second-quarter 2008, construction costs in Calgary (+16.1%) and Edmonton(+15.4%) continued to outpace the rest of the country, just as they have done since early 2005.

Following a pull-back in fourth-quarter 2007, non-residential construction prices in Vancouver have edged steadily higher. While the increase is due primarily to an escalation in industrial prices, commercial and institutional construction prices have also accelerated slightly in the second quarter.While the growth of construction costs has moderated in Alberta, it has picked up significantly in Toronto, Ottawa and Montréal.

In Toronto, Canada's largest CMA, non-residential construction costs increased by 10.3% year over year in second-quarter 2008, up sharply from 7.2% in the first quarter.

Over the past three quarters, growth of non-residential building in Toronto has increased by13.4% year over year on average, the strongest sustained period of growth since late 2004.

In Ottawa, second-quarter 2008 construction costs are up by 8.9% year over year, their strongest year over year increase in more than twenty-five years. All this despite a significant -21% drop in non-residential building in the Ottawa CMA.

In Ottawa, costs in all three construction categories were up more than 8% year over year in the second quarter, led by a 12.4% increase in industrial construction costs.

In Montréal, while construction costs eased slightly from 6.2% year over year to 6.1% year over year in the second quarter, they were up from 2.6% in the first quarter of 2007.

In Halifax, a slowing in non-residential building has caused non-residential construction costs to slow compared to a year ago. In second-quarter 2008, they increased by 5.8% year over year, compared to 5.2% in the first quarter.

Looking forward, the effect of moderating energy/commodity prices and a gradual slowing in non-residential construction should push growth of non-residential building costs to a peak late in 2008 or early in 2009. Costs should then moderate heading into 2010.