CLI Rises in First Quarter 2022

Jun 02, 2022

Posted by
Ryan McLaughlin


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The BCREA Commercial Leading Indicator (CLI) rose to 154 from 150 in the first quarter of 2022, recovering most of the ground lost over the prior two quarters. Compared to the same time in 2021, the index was up by 3.4 per cent.

It is important to note that while the Canadian economy generally continues to recover strongly, the environment for commercial real estate remains highly abnormal and uncertain. Although the CLI was designed to interpret economic and office employment growth as positive indicators for commercial real estate demand, the recent strong growth of these indicators may not translate as readily into improved conditions in the commercial real estate market relative to the pre-pandemic period.

The CLI rose in the first quarter almost entirely due to improvements in the economic activity component of the index, while the financial component contributed only slightly and the employment component was essentially flat. The economic activity index was driven upwards by rising wholesale trade and manufacturing sales, whereas retail sales, although historically elevated, were largely flat from the prior quarter. Improving manufacturing sales were concentrated among non-durable goods such as food and beverages, whereas wholesale trade was especially strong for building and machinery materials as the province continues to experience a boom in the number of projects under construction. Although COVID-19 lockdowns have eased, supply chain obstacles and the war in Ukraine continue to generate instability and rising prices which contributed to rising sales figures.

The small increase in the financial component of the index was driven by a decrease in the spread between government and corporate borrowing rates. This spread on 3-month bonds fell from 18 to 10 basis points in the first quarter amid generally rising bond yields. The spread is important as it indicates the ease with which the private sector can borrow relative to government, which is a driver of commercial real estate activity. REIT prices fell slightly since last quarter, which dampened the financial component of the index. Finally, the employment component of the index was essentially flat with a four thousand job decline in manufacturing employment completely offsetting an equivalent increase in office (finance, insurance, and real estate) employment.

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Ryan McLaughlin
Chief Economist
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