Investment

Robust economic growth before COVID-19 crisis

Investment is essential to a healthy economy. Individuals must have confidence in the stability of the economy to make major purchases, and businesses must have confidence to expand their operations. When this occurs, the wealth and well-being of a community improves.

Halifax had many positive indicators in 2019 and demonstrated strong economic growth: GDP grew faster than in most benchmark cities, retail activity was strong, and consumer confidence neared an all-time high.

Prior to the COVID-19 crisis, businesses expressed record-high levels of confidence in their economic prospects.

Local businesses cited factors such as the city’s high quality of life, connections to post-secondary institutions, and a workplace safety culture as advantages.

Investment in non-residential construction declined from its 2018 peak but remained high. Meanwhile, the availability of office and industrial space declined as businesses began to occupy the large volume of new space constructed in recent years. Rents remain lower and availability rates higher than national averages, suggesting that Halifax will remain quite competitive in terms of real estate offerings when attracting investment to the city.

COVID-19 Impacts

It is clear that the very positive results for 2019 do not reflect our current economic realities, which must be viewed in the context of the COVID-19 public health crisis. The uncertainty caused by COVID-19 has upended business as usual. This makes it difficult for companies to plan ahead or find meaningful signals across the shifting economic landscape. As businesses consider their future investment, a healthy level of caution is warranted.

While 2020 is likely to include a significant decline in investment compared to 2019, the strong economic indicators from last year suggest that Halifax has the fundamentals needed for businesses to once again be successful and for the economy to return to growth.

Economic Growth

2019 was a banner year for Halifax, with real GDP growth of 2.6% and strong indicators in many key sectors of the economy. According to the Conference Board of Canada, this increase in economic activity was driven by 12% growth in the construction sector and 5% growth in the health care sector. Meanwhile, retail sales grew by an impressive 3% in 2019, increasing to $8.3 billion. Halifax outperformed many of its benchmark cities boasting the third-fastest growth in real GDP (behind St. John’s and Victoria) and the fastest growth in retail sales.

Consumer confidence also has been strong. According to Narrative Research, Halifax’s Consumer Confidence Index was 105.4 in Q4 2019, up from an average of 104.5 in 2018. Not only has Halifax’s consumer confidence grown, it was just 2% below the city’s record-high recorded in Q4 2009.

However, satisfaction with such strong economic performance must be tempered with a healthy dose of caution. Since these data were gathered, the COVID-19 crisis has stalled economic growth, upended business as usual, and put a damper on consumer confidence. Within the retail sector, consumers will likely delay key purchases until they feel it is safe to go out in public. Many businesses and consumers alike will avoid making major investments until their income and employment situations have stabilized.

Despite these temporary disruptions, Halifax has demonstrated strong economic fundamentals including rising incomes, strong construction and retail activity, and high consumer confidence. The exceptional growth seen in 2019 will not be matched in 2020 when economic contraction seems all but certain; however, the city has a strong foundation on which to rebuild.

  • Source: Conference Board of Canada, Metropolitan Outlook - Winter 2020

    Real GDP and Annual Growth Rate

    • According to the Conference Board of Canada, Halifax experienced significant GDP growth in 2019, with the economy growing by 2.6%. This was faster than the 1.6% growth of 2018.
    • Halifax’s GDP growth was third-fastest among the benchmark cities, trailing St. John’s and just behind Victoria.
    • While the Conference Board had originally projected GDP growth of 1.9% for Halifax in 2020, COVID-19 has significantly modified economic prospects. The Conference Board is now predicting a 3.4% decline in GDP for 2020.
  • Source: Conference Board of Canada, Metropolitan Outlook - Winter 2020

    Retail Sales and Annual Growth Rate

    • Retail sales growth has been exceptionally strong in Halifax, with overall sales increasing 3.0% in 2019. This growth has been faster than any other benchmark city.
    • Retail sales grew the second fastest in Kitchener-Cambridge-Waterloo at 2.5%.
    • The Conference Board is now predicting a decline in retail sales for Halifax of 3.6% in 2020 as retail outlets curtail their operations.
  • The Consumer Confidence Index is a composite of 5 questions on household economic well-being and expectations around the economy.
    Data were not collected in Q1 2019 nor Q3 2019.
    Source: Narrative Research, Consumer Confidence Index (Various)

    Consumer Confidence Index

    • According to Narrative Research, Halifax’s Consumer Confidence Index increased to 105.4 by Q4 2019. This is 0.9 points higher than 2018.
    • Over the past decade, Halifax’s Consumer Confidence Index has been as high as 107.4 (in Q4 2009) and as low as 80.5 (in Q1 2009).

Business Confidence

The Partnership’s Business Confidence Survey gathers input on various issues from business owners across the city and their views on Halifax’s economy. Through our partner and Investor Narrative Research, we construct a Business Confidence Index (BCI) on a scale from -100 to +100 based on the responses to 5 questions. These questions cover the past and current performance of Halifax’s economy, its performance relative to other cities, and predictions about future prospects.

The 2020 BCI hit a record high and continues a trend of steadily improving business opinion that began in 2015. The current survey was conducted between February 28 and March 16, so most responses were recorded prior to the implementation of social-distancing measures. Therefore, this year’s BCI reflects opinions of Halifax under largely normal circumstances. It should be interpreted as a benchmark of business opinion before the crisis.

Businesses indicated significant plans for growth in 2020, including increases in their sales activities, widespread additional hiring, investments in R&D, and the introduction of new processes or services. Unlike past editions of the Halifax Index, we have deliberately chosen to exclude these data here. The circumstances surrounding the COVID-19 crisis have severely upended planned business activities and these results likely are no longer a meaningful reflection of future economic conditions or business activities.

Halifax businesses continue to have positive things to say about the city’s quality of life. Among all the factors that contribute to or detract from their operations, it is the most positively cited, with 79% of business-owners considering it an advantage. Other frequently cited advantages include connections to universities and colleges (77%), the workplace safety culture (77%), telecommunications and internet services (67%), and the quality of the labour force (64%). The factors most likely to be cited as a disadvantage are the tax environment (58%), energy costs (54%), and real estate or office rental costs (46%).

  • RATINGS OF BUSINESS CONFIDENCE
    Index and Share of Business-Owner Respondents, Halifax, 2013 to 2020

    Year

    BCI

    Rating of Halifax as a Place to Do Business

    Above Average

    Just Average

    Below Average

    Don’t Know/
    No Answer

    Spring 2013

    24.6

    19%

    59%

    18%

    4%

    Spring 2014

    20.2

    14%

    66%

    17%

    4%

    Spring 2015

    21.1

    15%

    61%

    20%

    4%

    Spring 2016

    28.1

    26%

    55%

    14%

    5%

    Spring 2017

    29.1

    23%

    60%

    12%

    4%

    Spring 2018

    32.9

    27%

    57%

    12%

    3%

    Spring 2019

    32.8

    26%

    61%

    10%

    3%

    Spring 2020

    34.9

    32%

    55%

    10%

    4%

    Source: Narrative Research, Business Confidence Survey (Various)

    Business Confidence

    • Roughly 1 in 3 businesses (32%) believe Halifax is an above-average place to do business, while only 1 in 10 indicated it is below average. These are a record-high and a record-low, respectively.
    • On average, businesses with 11 or more employees were more likely to view Halifax’s economy favourably, with 41% considering Halifax an above-average place to do business. Only 27% of businesses with 10 or fewer employees shared the same outlook.
  • Survey Question: Would you say the following aspects of Halifax present a major advantage, moderate advantage, minor advantage, minor disadvantage, moderate disadvantage, or a major disadvantage for your business?
    Source: Narrative Research, Business Confidence Survey (Various)

    Ratings of Factors Affecting Businesses

    • The city’s quality of life continues to be the most frequently cited advantage of doing business in Halifax. 4 in 5 (79%) businesses consider it an advantage, including 27% of businesses who consider it a major advantage.
    • Three factors are no longer considered a net advantage1in 2020, despite being a net advantage in 2019. These are the availability of labour, cost of living for residents, and cost of real estate. No factors changed from being a net disadvantage in 2019 to a net advantage in 2020.
    • The broader tax environment continues to be the least popular factor contributing to the city’s business environment. More than half (58%) of businesses consider it some form of disadvantage for the city’s economy, including 20% who consider it a major disadvantage.

Non-residential Real Estate

Overall investment in non-residential construction decreased by $50.6 million (-13.5%) in 2019. Investment in commercial and institutional construction fell by $31.3 million (-10.3%) and $22.5 million (-45.6%), respectively. Industrial construction investment grew by 3.2 million (13.3%) for a total of $27.3 million, the highest level of industrial investment since 2015.

Although the downtown office vacancy rate dropped by almost a full percentage point through 2019, the 18.6% downtown office vacancy reached in Q4 2019 is almost double the national figure of 9.8%. Halifax’s suburban office vacancy rate rose to 13.3% in Q4 2019, much closer to the national figure of 12.2%.

According to CBRE, 2019 marked the third year in a row that more than 200,000 sq. ft. of industrial space was leased in Halifax. While the tightening industrial market has caused the industrial availability rate to fall by almost half since 2016, the 6.7% rate reached in Q4 2019 is still more than double the national rate of 3.0%.

Rents for office and industrial space rose through 2019, though both remain noticeably lower than national averages.

  • Source: Statistics Canada, Investment in Construction, Table 34-10-0175-01

    Investment in Non-Residential Building Construction

    • Following 2 years of growth in non-residential building construction, 2019 experienced a decrease in investment of $50.6 million (-13.5%) from 2018.
    • Commercial projects once again led non-residential construction with $271.5 million in investment through 2019, a decline of $31.3 million (-10.3%) from the previous year.
    • Industrial construction investment experienced healthy growth in 2019 with an increase of $3.2 million (13.3%) over 2018, the highest amount of industrial investment since 2015.
    • Investment in institutional and governmental construction projects hit a 5-year low in 2019 at $26.8 million, a $22.5 million (45.6%) decrease from 2018.
  • Source: CBRE, Office Marketview (Various)

    Office Vacancy and Rental Rates by Region

    • Between Q4 2018 and Q4 2019, the downtown office vacancy rate dropped 0.9 percentage points to 18.6%. In comparison, the national average was 9.8%.
    • The suburban office vacancy rate increased by 0.5 percentage points to 13.3%, close to the national average of 12.2%.
    • Average asking net rents in downtown office spaces increased slightly to $15.85 psf, while the average suburban office rent rose to $13.86 psf. This compares to the national downtown and suburban rates of $22.08 and $17.60, respectively.
  • Source: CBRE, Industrial Marketview (Various)

    Industrial Rent and Availability Rates

    • The industrial availability rate reached 6.7% in Q4 2019, down from 7.0% in Q4 2018. While the rate dropped compared to the previous year, Q4 2019 was the first time in 2.5 years where the industrial availability rate increased over the previous quarter. Halifax’s industrial availability rate is more than double the national rate of 3.0%.
    • Average rent for industrial space in Q4 2019 was $8.16 psf, up from $8.05 psf in Q4 2018. This amount is below the national average of $8.69 psf.

Trade & Tourism

Trade and tourism experienced another strong year in Halifax. New records were set for air cargo volumes, overnight stays, and cruise passengers. Unfortunately, tourism-related industries suffered significant losses in the initial weeks of the COVID-19 crisis.

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