With a little over $5.05B in expenditure intentions in 20221, non-residential capital investment in the Québec City census metropolitan area (CMA) increased by 25% compared to 2021, when the region had registered $4.3B in investments according to preliminary data. Most of the growth in 2022 came to construction activities, which attracted more than half of expenditure intentions (62.9%), against slightly more than one third (37.1%) in machinery and equipment.
The CMA’s building construction sector (residential and non-residential) also registered a significant increase in investment, about 16%. In this sector, non-residential investment had a record increase of 49%, in part due to the institutional and government segment, where expenditures have doubled. The residential sector registered more modest growth in terms of dollars invested and a decrease in the number of housing starts after an overheating in 2021.
This decrease seems to have intensified in the first quarter of 2023, when the number of housing starts in the CMA was half the number registered in the same quarter of 2022. These results are very different from the results reported the previous year (2021–2022). The data for that period showed a historic performance of the Québec City CMA in terms of construction starts, units under construction as well as completions. The historic drop in the number of construction starts recorded this year is a challenge for the Québec City CMA as it also registered an exceptional increase in population (14.5 per mille). Moreover, the CMA’s labour market, which ranked first among all Canadian regions, will further increase the need for housing in the region as more and more new workers will continue to settle in the region.
The 2022–2023 report also highlights the significant place of foreign investment in capital expenditure intentions in the CMA. More than one quarter (27%) of the private dollars invested in 2022 came from abroad (United States, Europe and others). The number of foreign subsidiaries also increased significantly since 2018 (10% more). Their sales figures and economic benefits were estimated at several billion dollars in 2022 ($19.9B in sales and $11.3B in benefits). These represented nearly $800M in revenue for the provincial government and over $600M for the federal government, not to mention the over 60,000 direct and indirect jobs for the Québec City region.
During 2022, non-residential tangible investment in the Québec City CMA increased by 25% compared to 2021. Most of this growth was generated by construction activities, which attracted more than half of expenditure intentions (62.9%), against slightly more than one third (37.1%) in machinery and equipment. The construction3 component also reached the highest amount in fifteen years, with intended expenditures of $3.2B, 17% more than the previous record (2018), when intended expenditures for construction had reached $2.7B.
The breakdown of these expenditures by type of industry shows that service-producing industries attracted 83.1% of investment ($4.2B), against 16.9% ($851M) for goods-producing industries. The data also shows that 40% of the amounts invested ($2B) came from the private sector, compared to 41.7% in 2021. The share of public investment in these expenditures grew by 48.6% over the same period.
Most private expenditures (59%) were set toward machinery and equipment, while the rest was invested in construction. This trend was the opposite for public dollars, with more than three quarters (78%) going to construction, and less than one quarter (22%) invested in machinery and equipment. In 2022, more than two thirds of private capital expenditures ($1.3B) came from the province of Quebec, and nearly one fifth (20%, or $408M) came from the United States.
Overall, slightly more than one quarter (27%) of all private expenditure intentions came from abroad: United States, Europe, and others. This shows that the CMA attracts a lot of foreign investments as well as many foreign subsidiaries. Their number and impact keep growing. The data compiled by Québec International shows that there were almost 300 foreign subsidiaries in the CMA in 2022, contributing to nearly $11.3B of the region’s GDP and 14% of total employment.
The CMA’s building construction sector (residential and non-residential) also registered a significant increase in investment, about 16%. In this sector, non-residential investment saw a record increase of 49%, attributed in part to the institutional and governmental segment, where expenditures have doubled. On the other hand, the residential segment registered a modest increase in terms of dollars invested and a historic drop in the number of housing starts.
This decrease further intensified in the first part of 2023. In the first quarter of 2023, the number of housing starts in the CMA was half the number registered in the same quarter of 2022. This decrease contrasts with 2021, when the residential construction sector in the CMA had seen a memorable performance in terms of housing starts, units under construction, and units completed (Report and Outlook, Investment, 2021–2022), going as far as overheating the market and creating scarcity.
The rising prices and interest rates that followed explain this downturn in the number of housing starts since 2022. This situation creates a dilemma for investors in the sector who need to choose between the rental market and the property market. In that regard, the increased cost of financing, supply disruptions for certain construction components, and the high interest rates will undoubtedly impact the results in 2023 in terms of housing starts. Therefore, the cost of existing properties will continue to increase despite the decreasing number of resales.
This slowdown in the property market, combined with sustained growth in employment and net migration, will lead to an increased demand in the rental market in the coming years. The near-zero vacancy rate will add pressure on this sector, which will require major investments in new constructions in the coming years. Otherwise, the prices will likely increase significantly and negatively impact the accessibility and affordability of housing in the region.
This tension in the residential sector in general represents a unique challenge for the Québec City CMA, whose labour market ranks highest among Canadian regions and more than ever needs new workers and new housing units to welcome them.