2025 Canadian Cost Guide: Costs are stabilizing despite looming threats on the horizon

2025 Canadian Cost Guide shows some long-awaited relief from accelerating price increases

Construction costs remain elevated following supply chain disruptions during the pandemic that sent prices soaring. From the beginning of 2021 through early 2023 costs on some items rose as much as 40% on an annualized basis. The 2025 Canadian Cost Guide shows that overall cost increases have been stabilizing throughout 2024 and early 2025 and that cost increases are more in line with general inflation. The big question is whether that stability has staying power with significant crosscurrents that could shift supply, demand and pricing in the coming months.

“The major influencers that will be driving construction costs in 2025 have the potential to follow two paths,” says Peter Norman, Vice President and Economic Strategist at Altus Group. One path is the baseline trend for stabilizing and perhaps even declining costs due to softer construction volumes in 2025.

The second path involves upward pressure on material costs related to new tariffs. “The threat of tariffs could offset the baseline view of costs in 2025,” says Norman. Tariffs remain a significant wildcard due to uncertainty about how they will play out: what goods will be impacted will be impacted; how long tariffs might be in place; and whether retaliatory tariffs could further escalate tensions and contribute to higher costs.

Crosscurrents could impact pricing in 2025

Several issues could alter the cost landscape in the coming months, with escalating trade tensions with the United States are at the forefront. In addition to an array of broader macroeconomic risks, US and Canadian tariffs are directly impacting construction material costs. Typically, about 8.1% of the total cost of construction is spent on materials imported from the US. While this relatively low reliance on US materials across the board limits the upside cost risks, these US imports are focused on certain products and certain types of construction activities that will see more disruptions as the trade dispute lingers.

Other major issues that could put upward or downward pressure on construction costs in the coming months are:

• Although Canada’s Consumer Price Index (CPI) has been gradually cooling after hitting a multi-decade high in 2022, core inflation remains sticky, particularly in wages and services, both of which heavily impact construction costs.

• The Bank of Canada is expected to continue its rate-cutting cycle through 2025, which typically spurs development. However, a faster rate decline in Canada versus the US could weaken the Canadian dollar.

• Ongoing labour negotiations and anticipated building code revisions could add complexity to budgeting and forecasting, though recently weaker construction labour market conditions may have a cooling effect on labour costs.

Construction costs are influenced by both global and local economic conditions, market trends and advancements in building materials, practices and methods. The 2025 Canadian Cost Guide takes all these factors into account to provide a resource for initial budgeting or as a benchmark for estimating costs across various regions and building types. Highlights of regional cost trends include:

Vancouver

Construction costs in the region are expected to climb slightly higher in 2025. As an example, estimates on construction costs on condominiums/apartments up to 12 storeys increased from a range of $325 to $400 psf in 2024 to $330 to $405 psf for 2025. Some of the factors contributing to higher costs are building code and building performance improvements (e.g. envelope performance for the City of Vancouver), higher labour costs, and material availability.

Material costs are flat to slightly higher at roughly 0-3% on average. Those materials that have seen a bigger spike in costs include excavation/disposal material (+30%), mechanical (+10%) and electrical materials (+5%). On the opposite side, those materials that have experienced a noticeable drop in pricing are glass/glazing (-15/20%) and reinforcement steel (-5%).

Trends in project feasibility: Land cost remains a key issue for project feasibility. Simple rental low- to mid-rise buildings close to transit perform best.

Montreal

Construction costs for the region are up. Industrial warehouse and residential low- and mid-rise apartment buildings are still in high demand and have seen the most activity and increased costs. For example, industrial distribution construction costs jumped from a range of $155 to $430 psf in 2024 to $160 to $440 psf in 2025. Other building types are less in demand and therefore have seen very little activity and marginal price differences.

Construction material costs are generally up across the board with significant increases occurring in mechanical and electrical materials and also major equipment. Many sub-trade prices have been flat due to less construction activity and fewer construction starts. The early trades, such as excavation, formwork and concrete supply, have seen some decreased pricing in the market, whereas masonry is one area that is experiencing bigger increases.

Demand is still high in the residential market; however, supply has decreased because projects were not feasible. The CMHC incentive program has helped many projects become viable. New building codes on energy efficiency have contributed to increased construction costs. Union labour negotiations’ new collective agreement was confirmed, and has caused substantial increases in construction costs.

Trends in project feasibility: Industrial space (warehousing) is still feasible. However, there are signs of oversupply and less demand at present. The residential rental asset class of low and mid-rise buildings shows signs of feasibility, especially in the suburban markets and off-island regions, due to CMHC financing programs and easier development approvals by municipalities.

Calgary & Edmonton

Construction costs are generally up with year-over-year increases in both material costs and labour. Higher labour costs are due in part to the lack of qualified labour for specific trades. The labour and material increases, when combined with a hotter construction market (residential and infrastructure), have resulted in a lack of competition on a number of projects that are contributing to higher than anticipated construction costs in the region.

Residential construction costs moved higher, but within a reasonable range, whereas there is evidence of larger cost increases in public infrastructure projects. Another factor impacting costs in the region is municipal city grants to fund the conversion of downtown empty office spaces into residential multifamily units.

Trends in project feasibility: Among those building types exhibiting good feasibility are residential low-rise timber frame multifamily rental (6 storeys or less) and high-rise concrete multifamily rentals (10-15 storeys as well as 25 storeys).

Toronto

Toronto is one of two outliers where construction costs, on average, have declined due to a drop in building activity and lower demand. Private sector prices moved slightly lower with high-rise residential seeing a bigger drop compared to commercial due to excess availability of contractors. Among the trade contracts that stand out for a decline in construction costs is concrete formwork for high-rise residential.

Some of the factors weighing on building activity in Toronto include the elevated interest rate environment and lack of market confidence in capital appreciation for condos. However, there are incentives to build purpose-built rentals.

Trends in project feasibility: Feasibility is impacted largely by the lack of demand from investors as pricing for resale/ existing buildings is a lot cheaper than new construction due to high construction costs. Pro formas are more feasible for industrial warehouses, data centres, and to a lesser extent, rental apartments due to government incentives and rebates.

Halifax/ St. John

Labour shortages and market uncertainty are resulting in overall higher construction costs. Materials that stand out for bigger cost increases are steel and exterior doors. On the opposite side, petroleum-based products have experienced a decline due to the drop in oil prices and a shift in energy costs. Copper prices also have declined.

Another factor contributing to higher construction costs is the increased frequency of natural disasters (wildfires, floods, heatwaves, wind storms), which are requiring developers/contractors to construct with more resilient standards to protect against these risks. Immigration policy changes also make it more difficult to replenish labour pools.

Trends in project feasibility: Challenges with the logistics of zoning and residential developments are major factors with project feasibility. Sustainability-focused projects with whole lifecycle costing analysis applied are required to find if pro formas make sense for the project to be viable. In addition, both markets are seeing more CMHC financed residential projects, and pro formas that are working on high-density mixed-use residential projects.

Ottawa

Ottawa is another region defying the broader trend of rising construction costs. Overall costs in the private sector went down, while costs in the public sector are mostly flat to slightly higher. For example, the cost of building up to 12-storey condos/apartments ranges from a low of $270 psf to a high of $345 psf compared to 2024 when the range was $285 to $365 psf. The region saw declines in costs for formwork, rebar and aluminum windows. The costs of fit-up projects remain relatively stable as they are more heavily reliant on labour. Because Ottawa is dominated by the public sector, upcoming federal elections may have an impact on development activity.

Trends in project feasibility: CMHC funded projects are the only ones that can make financial feasibility work in the private sector.

Monitoring costs in a dynamic market

Building development and construction companies must closely monitor cost trends and assess the broader economic landscape to make strategic, data-backed decisions in an ever-changing market. The 2025 Canadian Cost Guide aims to serve as a helpful resource for initial budgeting or as a benchmark for estimating costs. However, we strongly recommend that you consult with a qualified professional to create an accurate estimate and pro forma figures tailored to the specific conditions and details of your unique development and infrastructure projects.

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