The BCREA Commercial Leading Indicator
(CLI) was down sharply in the first quarter
of 2020 from 134.2 to 123.2, reflecting
the slowdown prompted by the COVID-19
pandemic. Compared to the same time last
year, the index was down by 4.8 per cent.
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 per cent
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.