New commercial permit numbers reveal pros and cons for brokers

“Well, it’s very competitive among the vendors – we’re certainly seeing an uptick in commercial business and probably in comparison to residential,” Don McClure, a commercial mortgage specialist with Mortgage Intelligence in Kitchener, Ont, told “Commercially, businesses are re-investing and certainly people are looking for investment properties.”

That stepped-up competition between the broker channel and the big banks may be the only downside to February building permit numbers released by StatsCan on Thursday.

While the overall number of building permits rose 9.9% in February from January’s seasonally adjusted performance, none of that growth came from residential construction permits, which fell 18.3% during the period. It was a different story for commercial and other non-residential construction plans. The value of those permits increased 72.9% to $2.8 billion in February, over the previous month.

The year-over-year numbers tell the same story: February’s residential permits were down 15.6 % from the same month last year – their lowest level since July 2009. Non-residential permits were actually up 47.3%.

The growing in plans to build commercial properties like strip malls, office buildings and industrial space also speaks to just how readily available financing is at the Big Five and other lenders. It’s an indication that commercial brokers may face increased competition to capture their share of this burgeoning pie.

“The residential market may be showing signs of cooling, but the commercial market is very liquid in terms of capital now and from that perspective it’s a healthy market, a good market -- it’s not overheated,” Dave Forster, VP of Murray & Company, a full-service financial advisory specializing in commercial, told “But, from a broker’s perspective, it’s not necessarily the best market where there would be more volatility in terms of liquidity and banks wouldn’t be quite e as keen.”

The observations jive with those of the Big Five, now preparing for a ramp-up in business lending as the economy moves forward.

Last week, TD Bank’s chief executive Ed Clark told shareholders the bank is seeing a transition from consumer to business lending as the economy, with manufacturers, retailers and other business owners borrowing to fund capital expenses.

"One of the deserving elements during the downturn is that while the consumer kept on borrowing and spending in Canada — different than what occurred in the United States — the commercial sector was still tentative about whether to invest." said Clark at last week’s annual meeting. "Now it seems their confidence level has moved up and our business leaders are in fact now starting to draw down, take down money and reinvest in their businesses."
Clark’s observations around a slowing mortgage sector have taken some mortgage professionals by surprise. But the bank’s shift to business lending likely signals good times ahead for a mortgage industry still grappling with federal rule ushered in last month. They seek to curb consumer borrowing. The drop in residential building permits for February preceded that belt-tightening exercise.

Growth in non-residential sector permits was especially strong in Calgary, Edmonton, London and McClure’s Kitchener–Cambridge–Waterloo area, according to the StatsCan report.

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