The BCREA Commercial Leading Indicator (CLI) has seen a decline in the first quarter of 2020 from 134.2 to 123.2, which can be attributed to the COVID-19 pandemic. Compared to the same time last year, the index was down by 4.8%.

The pandemic-induced shutdown of the economy in the last two weeks of the first quarter of 2020 had a notable impact on the CLI, turning all components negative. On the economic activity component, manufacturing sales led the decline. On the employment component, a fall in key commercial real estate sector jobs was the primary driver. Meanwhile, the financial component had the largest negative impact on the CLI, as REIT prices tumbled and risk spreads widened in March. The underlying trend in the CLI was relatively flat in the previous six quarters, but has taken a sudden downward turn due to the pandemic. This suggests that going forward, the environment for commercial real estate activity in the province will be weak as the economy gradually re-opens, and temporarily unemployed individuals slowly return to work.

BC's economy was beginning to slow in the last quarter of 2019, but the rate of slowing was exacerbated by the pandemic in the first quarter of 2020. A fall in manufacturing sales of both durable and nondurable goods were the main drag on economic activity. Also contributing to the drag, but to a lesser extent, were lower wholesale trade sales in motor vehicles, and building material and supplies. Meanwhile, although growth in retail sales was positive in the first two months of 2020, it was not enough to offset the 10% monthly decline in March, as retail stores across the province were shut down halfway through the month due to the pandemic.

Employment growth in key commercial real estate sectors such as finance, insurance, real estate and leasing was negative for the first time since the summer of 2018, down by about 13,500 jobs in the first quarter. Additionally, manufacturing employment fell by about 1,830 jobs from the previous quarter.

The CLI's financial component was negative in the first quarter of 2020 as growing fears of the potential impact of the pandemic resulted in a full market meltdown in late February, sending equity markets into free fall and government bond yields plummeting. However, private borrowing costs rose sharply due to elevated risk premiums, causing a tightening of credit conditions.

Source: British Columbia Real Estate Association (BCREA)

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The BCREA Commercial Leading Indicator (CLI) has decreased to 134.3 in 2019 Q4 for the second straight month. Looking back at the same time last year, the CLI has increased by 0.3%. The provincial economic activity slowed down which can be attributed to a slow down in the wholesale trade (2.0% decrease) and manufacturing sales (0.6% decease) despite retail sales seeing an increase of 0.8%

The economic activity component of the CLI has been negative for the sixth consecutive quarter. The economic activity component follows the overall trend in the BC economy and reflects changes in economic variables shown to lead commercial real estate activity.

The employment component of the CLI has also seen a negative change due to a decline in manufacturing employment despite office employment increasing. The employment component reflects changes in the commercial real estate environment due to changes in the overall business cycle.

The financial component of the CLI has also seen a negative change despite seeing three consecutive quarters of positive performance. The financial component acts as an early warning indicator from financial markets that could signal turning points in the commercial real estate market.

The underlying trend in the CLI has been relatively flat over the past six quarters, suggesting a continued stable environment for commercial real estate activity in the province. 

The slowdown in BC's economy can be attributed to weak manufacturing sales in durable goods and lower wholesale trade sales in motor vehicles and machinery and equipment. On the contrary, retail sales were positive after two consecutive quarters of negative growth. However, retail sales saw the lowest growth rate since the 2009 financial crisis.

There has been an increase of 1,600 jobs in the fourth quarter in 2019 for key commercial real estate sectors which include finance, insurance, real estate and leasing. On the other hand, there has been a decrease of 6,700 jobs in the manufacturing sector last quarter.

Source: British Columbia Real Estate Association (BCREA)

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