Those shiny office towers standing majestically on the skylines of Edmonton and Calgary aren’t just impressive—they’re expensive! The costs of these major commercial office projects tend to fall during recessions. But what’s happening this time?
The graph below shows how office construction costs have both risen and fallen at certain points over the last 20 years. With costs in 2002 set equal to 100, the index value for Edmonton builders stood at 163.8 in the last quarter of 2016, or nearly 64 per cent higher than in 2002. The index for Calgary was 166.3. Building costs tracked by Statistics Canada include services required for design and construction, such as structural tradeworkers, architects, and mechanical and electrical trades. The index does not include building material costs.
The costs showed a major drop in both cities during the 2009 recession, but that downturn was short-lived. Costs gradually resumed their rise after that but fell short of the record high set in 2008. In this most recent recession, costs have fallen only modestly. From a peak in the second quarter of 2014, costs fell by only 3.5 per cent in Calgary and 4 per cent in Edmonton.
Costs appear to have stabilized and even inched higher in the fourth quarter of last year, suggesting that builders may not see much more cost reduction in 2017. It may not matter too much. Given that office vacancy rates are set to hit record highs in 2017, it’s unlikely another major office tower will be built for quite some time.