High interest rates and excess inflation have reignited a slump in investment in industrial, commercial and institutional real estate projects, says a new report from the B.C. Construction Association.

In the first half of 2023, real investment in ICI projects was essentially flat, dipping 1.6%, but it remained 14% below its 2019 peak. Momentum has dissipated after real investment rebounded more than 10% in 2022 as the COVID-19 pandemic eased, the economy reopened and pent-up demand was released into the marketplace.

The situation is different in actual terms, said the BCCA. Developers’ expenditures on building construction have increased 10% from pre-pandemic levels in February 2020 due to higher construction-delivery costs. Increases have resulted from worker shortages, lengthy lead times for equipment and other construction inputs and challenges in obtaining timely payments from service purchasers.

In nominal, not inflation-adjusted terms, institutional and government construction has increased more than 45% since February 2020. But industrial construction is down 12% in real terms and 4% in nominal terms over the past year.

In nominal terms, industrial construction has declined 9% since the start of the pandemic.