The BCREA Commercial Leading. Indicator (CLI) declined for the first time in three years, falling. 1.5 points in the fir
June 2018
Commercial Leading Indicator Commercial Leading Indicator Points to Slower Activity on the Horizon The BCREA Commercial Leading Indicator (CLI) declined for the
Commercial Leading Indicator
first time in three years, falling 1.5 points in the first quarter of 2018 to an index level of 134.2. That decrease represents a 1.1 per cent dip over the fourth quarter of 2017. The index is still 3.4 per cent higher than this time one year ago. The BC economy is likely slowing down following four consecutive years of very strong growth. Employment growth in the province has flattened out while retail and wholesale trade have moderated after a blockbuster year in 2017. Moreover, rising interest rates have challenged investor demand for REITs and credit spreads have
trade coupled with a quarter-over-quarter downtick
widened, meaning slightly less accommodative
in manufacturing sales led to the first decline in
financial conditions. That said, the trend in the CLI
the economic activity component since the second
remains positive, signalling continued, albeit slower,
quarter of 2015. However, much of the decline is due
growth in commercial real estate activity.
to comparatively slower growth following a very strong
The first quarter of 2018 marked the first time since
fourth quarter, rather than a signficant weakening of
2008 that all three components of the CLI posted
overall economic activity.
declines. Slower growth in retail and wholesale
Employment growth in BC has stalled over the past six months as the BC economy appears to be
About the CLI The BCREA Commercial Leading Indicator forecasts changes in broad commercial real estate activity. Our research shows that the variables that compose the CLI reliably forecast BC commercial real estate activity at a lag of two to four quarters. The index is revised each quarter, due to revisions in the underlying data.
operating near full capacity. Key commercial real estate sectors are also seeing employment weakening with the CLI office employment measure falling by about 6,800 jobs, with losses concentrated in the finance, insurance and real estate sectors, while manufacturing payrolls contracted by 1,000 jobs. The CLI’s financial component was also lower to start the year, as higher interest rates and flat REIT prices prompted a modest deterioration in a still favourable borrowing environment.
Photo by: Thom Quine
Commercial Leading Indicator
June 2018
Quarterly Trends by CLI Components Contribution of Individual CLI Components
Q1 Highlights: • Economic Activity: Retail sales declined 1 per cent on a quarterly basis in the first quarter, but were 4.1 per cent higher compared to the first quarter of 2017. Wholesale trade was up 1.9 per cent on a quarterly basis, and was 7.2 per cent higher year-over-year. Sales in the manufacturing sector declined 0.3 per cent on a quarterly basis.
• Employment: The benchmark index for Canadian REITs finished the first quarter flat compared to the fourth quarter of 2017. Short-term credit spreads widened for a third straight quarter and are now at
Variation in the Commercial Leading Indicator can be broken out into three distinct components:
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The economic activity component of the CLI follows the overall trend in BC’s economy and reflects changes in economic variables shown to lead commercial real estate activity.
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The employment component reflects changes in the commercial real estate environment, due to changes in the overall business cycle.
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The financial component acts as an early-warning indicator from financial markets that could signal turning points in the commercial real estate market.
their highest level since 2009, reflecting tighter short-term borrowing conditions.
• Financial: The CLI employment component fell for the second straight quarter due to lower levels of employment in the finance, insurance and real estate sectors as well as a decline in manufacturing employment.
Send questions and comments about Commercial Leading Indicator to: Cameron Muir, Chief Economist,
[email protected]; 604.742.2780 Brendon Ogmundson, Deputy Chief Economist,
[email protected]; 604.742.2796
Additional economics information is available on BCREA’s website at: www.bcrea.bc.ca. To subscribe to BCREA news releases by email visit: www.bcrea.bc.ca/news-and-publications/publications/managesubscriptions.
Commercial Leading Indicator is published quarterly by the British Columbia Real Estate Association. Real estate boards, real estate associations and REALTORS® may reprint this content, provided that credit is given to BCREA by including the following statement: “Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information.
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