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During the first quarter, the industry lost jobs in key sectors for the first time since mid-2018, the British Columbia Real Estate Association reports

Commercial real estate is holding up better than many other B.C. industries during the COVID-19 pandemic. But as some ugly new numbers show, this is no time to gloat.

In a recent briefing, the British Columbia Real Estate Association reports that its BCREA Commercial Leading Indicator (CLI) plunged from 134.2 to 123.2 during the first quarter of the year. The index—which aims to forecast changes in broad commercial real estate activity throughout the province—fell 4.8 percent compared to the same period in 2019.

As the BCREA explains, variation in the CLI consists of three components: economic, employment and financial. The employment component follows the overall trend of the B.C. economy, reflecting changes shown to lead commercial real estate activity. The employment piece reflects industry changes due to shifts in the broader business cycle, while the financial component offers early warnings from financial markets that could signal turning points for commercial real estate.

When the province shut down in the second half of March as the pandemic took hold, all three CLI components turned negative.

When it came to economic activity, manufacturing sales led the downturn, with a 2.4-percent decline. The loss of about 13,500 jobs in key commercial property sectors like finance, insurance, real estate and leasing drove the employment drop. This marked the first negative employment growth for those sectors since the summer of 2018, the BCREA notes.

The biggest drag on the CLI index: its financial component, thanks to a February meltdown in financial markets that pushed Canadian real estate investment trust (REIT) prices lower and private borrowing costs higher.

The takeaway? “This suggests that going forward, the environment for commercial real estate activity in the province will be weak as the economy gradually reopens and temporarily unemployed individuals slowly return to work,” the BCREA says.

The provincial economy was already slowing in the last quarter of 2019, the briefing observes. With the pandemic making things worse, B.C. retail sales tumbled 10 percent in March, Statistics Canada reports, after growing for the first two months of this year.

The variables that make up the CLI, which is revised quarterly, reliably forecast B.C. commercial real estate activity at a lag of two to four quarters, according to the BCREA. For the full CLI report, click here.