Ongoing Economic Recovery Drives Q2 CLI Higher
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The BCREA Commercial Leading Indicator (CLI) rose from 150 to 155 in the second quarter of 2021, representing the fourth consecutive increase as the economy recovered from the COVID-19-induced recession. Compared to the same time last year, the index was up by 25 per cent.
It is important to note that while the economy is posting a very strong recovery, we are still in a very abnormal and uncertain environment for commercial real estate. Normally, the type of growth we see reflected in the CLI would imply an improvement in demand for retail and office space. However, the complexities of the COVID-19 pandemic and related public health restrictions are driving a wedge between what we see in the data and what is being experienced on the ground.
Overall manufacturing sales rose 5 per cent in Q2 on higher sales in the wood products, food manufacturing, and chemical products sectors. The economic activity component of the CLI was also positively driven by a 4.8 per cent increase in wholesale trade, while retail sales were flat on continued non-essential retail lockdowns in the quarter and considerable quarterly declines in motor vehicle sales due to the ongoing semiconductor chip supply shortage.
Employment in key commercial real estate sectors such as finance, insurance, real estate (FIRE) and leasing increased by about 13,800 jobs in Q2. For a second consecutive month the office employment component of the index has hit an all-time high. However, the effect of this strong employment growth on the demand for office space remains unclear as many nominal "office workers" continue to work remotely. Manufacturing employment also jumped by 9,200 workers as quarterly manufacturing sales figures continued to hit all-time records.
The CLI's financial component was positive in Q2 of 2021 for the third consecutive month. REIT prices approached all-time records and risk spreads between corporate and government debt continued to narrow.
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