Canada’s struggling head office sector—a warning sign

Statistics Canada’s latest count of corporate head offices provides an opportunity to judge how the country is doing in growing Canadian-based businesses. It also sheds light on which provinces and metropolitan areas have the most attractive “hosting conditions” for large and medium-sized enterprises.

Nationally, there has been a notable decrease in the number of companies of sufficient size to meet Statistics Canada’s definition of a “corporate head office.” From 2018 to 2022, the country lost 83 head offices; since 2012, the decline has been greater—140.

Source: Statistics Canada

Employment in the head office sector has also dwindled, falling by almost 8 per cent over 2018-2022 and by a little more than 6 per cent since 2012, even as Canada’s population and overall economy grew. Surprisingly, headquarters jobs edged lower from 2021 to 2022, despite the economy rebounding from the pandemic shock.

Source: Statistics Canada

The serial decline in head office employment is concerning because these jobs tend to be among the most desirable and well-paid in the economy. Even with Canada’s rapidly expanding population, it seems we are becoming less hospitable as a location for company growth and the high-value activities that business headquarters stimulate and sustain. That matters. Corporate head offices bring multiple economic benefits to the cities and regions that host them including higher incomes, greater innovation and more extensive connections to external markets.

In Canada, most head offices are found in four provinces—in descending order, Ontario, Quebec, Alberta and British Columbia. Ontario is home to four in 10 Canadian headquarters, followed by Quebec (21 per cent), Alberta (14 per cent) and B.C. (12 per cent). Among the biggest Canadian metros, Toronto hosts more than one-quarter of the country’s head offices, followed by Montreal (14 per cent), Vancouver (9 per cent) and Calgary (7 per cent).

When we turn to the distribution of head office employment by city, the picture changes somewhat. On this measure, the Greater Toronto area is even more dominant (almost one-third of all head office jobs in 2022) while Metro Vancouver slips well behind Calgary (7 per cent versus 12 per cent), despite having a much bigger population. The latter finding means the average head office in Calgary is substantially larger than the typical Vancouver headquarters.

B.C. is an example of jurisdiction that has long punched below its weight in hosting head offices and the jobs they foster. While it accounts for 14 per cent of Canada’s population, B.C.’s share of national head office jobs is only half as large (although B.C. has lost proportionately fewer head offices than Canada since 2012). As noted above, B.C. also significantly trails Alberta in head office employment—both absolutely and on a population-adjusted basis. Several factors likely contribute to this poor performance.

B.C.’s provincial corporate income tax rate is much higher than Alberta’s (12 per cent vs. 8 per cent). The personal income tax burden is also higher for managers, professionals and other skilled workers, with the top combined federal-provincial tax rate sitting just shy of 54 per cent in B.C. compared to 48 per cent in Alberta.

Like most other provinces, B.C. maintains a sales/consumption tax while Alberta is the only Canadian jurisdiction without a broad consumption tax.

Moreover, B.C.’s retail-based sales tax is not harmonized with the federal GST and applies to a wide range of “business inputs” in addition to goods and services purchased by consumers. That makes the province’s overall business tax regime less competitive and dampens investment and growth in some industries. The scarcity and high cost of land and industrial space, coupled with relatively expensive office space, further impedes business expansion in B.C.’s Lower Mainland, particularly in the manufacturing, wholesale and transportation/distribution sectors.

Finally, especially under the current provincial government, B.C. has become an increasingly difficult and costly place to do business in the natural resource industries that operate on the Crown land base. These industries collectively supply more than half the province’s exports and traditionally have provided a large share of B.C.’s corporate headquarters.

Canada’s struggling head office sector should worry citizens and policymakers alike. The loss of Canadian headquarters and head office jobs since the mid-2010s has coincided with other negative developments, such as the downshifting of trend economic growth, a pattern of weak non-residential business investment, stagnant productivity, rising net direct investment outflows, diminishing foreign portfolio investment in Canadian equities, and a steady decline in Canada’s North American and global market shares across most internationally traded-goods industries.

The shrinking head office sector is another sign that Canada faces serious structural economic problems that require urgent attention from governments and legislators.