First Quarter 2018 / Office Market Report

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1 After two years of crushing recession, Calgary s economy began to grow again in Despite the recession officially being behind us now, its negative effects continue to linger. The path to recovery remains long and difficult. Looking forward, the forecast is not for clear, blue skies, but there are no storm clouds gathering either. This year s focus will be about building momentum for the future. According to the Conference Board of Canada Calgary s 2017 GDP growth led the country at 6.9%, and is forecasted to regain a dominant position in economic growth between 2018 and Calgary s real GDP is forecasted to grow by 2. in 2018, fully recouping the economic losses experienced after the oil price collapse in However, long-term growth is forecasted to take place at a slower pace than Calgary experienced during the previous decade. One of the strongest indicators for Calgary s recovery is that employment has fully recovered from the losses incurred over the last two years. In May 2015 Calgary s employment peaked at 826,000 people before beginning its downward slide through the downturn. As of March 2018, Calgary s employment is 842,900 people (16,900 people above that previous peak). In terms of the unemployment rate, recovery does not occur in a straight line, but the general trend has been downwards over the last year. The unemployment rate for March 2018 increased to 8.2%, from 7. in December 2017, but is down from 9.2% 12 months ago in March Calgary s unemployment rate remains distant from the low of 4.4% recorded in November 2014, but is well below the First Quarter 2018 / Office Market Report Calgary Calgary has returned to positive economic growth, but the long-term view of the market remains challenged. peak unemployment rate of 10.3% which was recorded over a year ago in November However, like much of Calgary s economy, excitement around these gains needs to be tempered. Most of the gains were in lowerpaying jobs, suggesting that while there was overall gain in employment, the new jobs were not of the same quality as those that were lost. The good news is that over the last year Full-Time employment has shown positive gains, while Part-Time employment has seen a decline in the number of positions. Also, Calgary s labour force has grown faster than it has created jobs in the past few months. While this is good news that people are entering or returning to the local job market, it is putting upward pressure on Calgary s unemployment rate. It is hoped that as economic recovery takes a stronger hold, companies will create more jobs in those highly-skilled, higher-pay occupations. Employment (Number of People) 850, , , , , , , , , % % % 6.8% 6.6% 6.7% 6.8% 7.6% % 8.7% % % 9.6% 10.1% 10.3% 10.2% 9.9% Market Facts 23.2% Calgary Overall Vacancy 25.6% Downtown Vacancy 18. Beltline Vacancy 17.7% Suburban North Vacancy 21.8% Suburban South Vacancy calgary cma employment and unemployment rate Calgary CMA Employment and Unemployment Rate 9.4% 9.2% 9.2% 9.3% 8.9% % 8.4% 8.1% 7.7% % 7.9% 8.2% 816, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,900 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Employment Employment Unemployment Rate Unemployment Rate Source: Statistics Canada Partnership. Performance. avisonyoung.com

2 continued from page 1 Getting oil to tidewater is the largest dark cloud hanging over Calgary s economic recovery. Oil prices for West Texas Intermediate (WTI) have been above US$60 a barrel since late December. However, Alberta oil continues to trade at a discount. Western Canadian Select (WCS), which is the benchmark price for much of the crude oil in Alberta, had a price differential of US$24.28 a barrel (or 39%) below WTI in first quarter While WTI benchmark prices continue to strengthen and perform well from a global market perspective, WCS differentials widened as a result of increasing inventories and the inability to increase exports to markets other than the U.S. According to a recent Alberta Government provincial fiscal report, even if three new oil pipelines (Keystone XL, the Trans Mountain expansion, and Enbridge s Line 3 replacement project) are built, the province will still face constraints moving crude to market throughout 2018 and In order for Calgary s predominantly energy-based economy to get back into firm growth mode, a solution to the ongoing pipeline bottleneck issues needs to be found. Another opportunity for the economy to find success is diversification. Growth in sectors outside of the traditional major players has great potential. Students today are preparing for jobs that didn t exist ten year ago. Calgary is wellpositioned to take advantage of the opportunity to prepare for and create the businesses, jobs and workplaces of tomorrow. Calgary continues to have one of the youngest age demographic for a work force in any major city in Canada and this will translate into opportunities for the city. In March 2018, Calgary City Council approved the city s $100 million Economic Development Investment Fund in full, including the creation of a new city-owned agency. The aim of the fund is to diversify the economy, create jobs, support ways to reduce the downtown office vacancy rate and help local companies expand. Ideas around advancement of the agri-food sector, AVISON YOUNG Q Office Market Report WTI Spot Price ($US per barrel) $160 $140 $120 $100 $80 $60 $40 $20 $0 Source: U.S. Energy Information Administration, Avison Young historical price of oil versus calgary downtown office vacancy rate January-00 June-00 November-00 April-01 September-01 February-02 July-02 December-02 May-03 October-03 March-04 August-04 January-05 June-05 November-05 April-06 September-06 February-07 July-07 December-07 May-08 October-08 March-09 August-09 January-10 June-10 November-10 April-11 September-11 February-12 July-12 December-12 May-13 October-13 March-14 August-14 January-15 June-15 November-15 April-16 September-16 February-17 July-17 December-17 WTI Monthly Spot Price aiding in conversion of unoccupied buildings, and enabling Calgary to be a city where autonomous vehicles can be tested are just some of the early ideas. This new agency will consider all opportunities or potential investments and allow Calgary to compete nationally and internationally for projects that will enable economic growth, retention and diversification, create employment and increase the property tax assessment Calgary DT Office Vacancy Rate base. It is anticipated that applications for funding will begin being accepted in second quarter While things are looking up in terms of Calgary s economic growth, and the groundwork is being laid for future growth and evolution, it is going to take more time before a higher share of Calgarians feel their outlook has moved towards the positive side of the scale. TOP 10 JOBS THAT DIDN'T EXIST IN THE 90'S Social Media Manager Big Data Analyst App Developer Sustainability Manager Uber Driver Online Content Creator Driverless Car Engineer Drone Operator Vacancy Rate (%) Cloud Computer Specialist Millennial Generation Expert Source: Mount Royal University - Drilling for Innovation 2

3 CALGARY OVERALL 3 Calgary Overall ABSORPTION (DEMAND) VACANCY (SUPPLY) RENTAL RATES The Calgary office market started the year on a positive note. After the beleaguered Downtown market reached its peak vacancy in second quarter 2017, the first quarter of 2018 saw vacancy make an improvement. The overall vacancy rate decreased to 23.2% during the first quarter of 2018 from 23. in fourth quarter 2017, but up from months ago in first quarter This decrease in vacancy was predominantly due to the absorption of space in the Downtown market, including the first occupancy in the newly completed Brookfield Place tower being completed. Headlease space (space available directly from the landlord) currently represents 74% of Calgary s overall availability. Large, contiguous blocks of office space continue to stand out in the market analysis. Contrary to the prevailing beliefs, these blocks are available predominantly on a headlease basis. Large block space, defined as one contiguous availability over 100,000 square feet (sf ) in the Downtown market, or over 30,000 sf in the Beltline and surrounding suburban markets, represent between 17% and 63% of the vacancy for their respective market segments and 33% of the city-wide vacancy. Many landlords are considering what alternatives are available for their older, less-desirable office properties. The second office-to-residential conversion of this downturn is in the works, this time taking place in the Beltline. Removing some older, obsolete buildings from Calgary s office inventory will help with the overall vacancy problem, and a number of buildings are being considered for this program will likely see more of these come to realization. Absorption for the overall Calgary office market returned to being positive in the first quarter of 2018, with positive 212,000 sf being absorbed. The positive absorption was seen in the Downtown and Suburban South office market segments in first quarter 2018, while the Beltline and Suburban North office market segments saw negative absorption. The 5-year average annual absorption for Calgary s overall office market is negative (-1,245,000 sf ) per year and the 10-year average is 284,000 sf per year. The ranges for average asking rents are starting to tighten as leasing activity increases. While the averages have not seen much movement over the last quarter, thanks to a larger number of transactions there is more information available to more accurately identify what range they should fall within. Quoted taxes and operating costs average $17.59 per square foot (psf ) for all building classes, across the entire city. Class AA buildings average $23.28 psf, class A buildings average $18.58 psf, class B buildings average $16.72 psf, and class C buildings average $14.23 psf. These numbers are further broken down within calgary overall office vacancy rates 25.6% % % 3.34% 13.07% Headlease Vacancy 17.7% 14.34% Downtown Beltline Suburban North 21.8% 5.81% 16.0 Suburban South 23.2% 6.01% 17.17% Overall Sublease Vacancy 300, , , , , , , , ,000 calgary annual absorption by area of city 0-189, , ,000-29, ,000-22,000 95,000 93, , , Downtown Beltline Suburban North Suburban South Overall the specific area of city sections later in this report. However, it is important to note that assessments for office properties are seeing a divergence. Average assessments have decreased slightly over the last three months in the Downtown and Beltline office markets, while the suburban office markets have seen slight increases in average assessments. The 2018 tax rates will be released in April, which is when further adjustments to taxes and operating costs are anticipated. Due to the high levels of vacancy in the central areas of Calgary, the tax burden has seen some shifting to suburban properties. There was one new building completed in first quarter 2018, 14th Street Office Building at th Avenue SW (38,000 sf ), which was 73% leased at the time of completion. Approximately 700,000 sf of new office space, in five buildings, remains under construction across Calgary, with 56% pre-leasing in place. The majority of this is in Downtown (66%), followed by the Suburban North (26%), Suburban South (4%), and Beltline (4%). Very little new construction is anticipated to be announced in the city for several years, AVISON YOUNG Q Office Market Report

4 While costs can vary depending on the location and scope, it is estimated that building with union labor can have a -3 effect on costs, but using union labor is sometimes necessary due to local codes and/or practices. ing is a more important factor in suburban areas, but even projects in cities often have some form of parking, especially residential projects. Brooklyn Bridge Source: Shutterstock.com Many of the adaptive reuse projects in urban areas have Perhaps the best example of this trend in the developed New York area around is transit lines i.e., trains, buses, subways, etc. the borough-wide transformation of Brooklyn, Based which on is the still increasing going desire of today s workforce, a finished strong as of this report. On Long Island, the growing project s demand proximity for to transit Adaptive is often reuse a major projects selling offer point many when advantages to communities, live-work-play lifestyles has triggered the transformation developers are of an trying to residents, attract tenants occupants and buyers. and developers. Utilizing existing structures with character and historical significance often paves the way for area long utilized for industrial, manufacturing and distribution an area-wide renaissance. Developers are able to recycle, or Converted Warehouse into retail and multi-residential properties. breathe new life into, an otherwise old and obsolete structure. Source: Unsplash.com Today, the integration of office space, retail services and vibrant Although projects sometimes require creativity, imagination and residential communities is sought-after by communities, patience, the many benefits include: In most adaptive reuse residents projects, the and existing corporations mechanical alike. Revitalization of blighted areas; systems (electric, heating ventilation, air-conditioning To date, the projects that have been completed on Long Island plumbing, etc.) will likely be upgraded to serve the new Lower impact on the environment due to public are almost too numerous to count. These projects have areawide benefits to employees, residents and the entire community. biking and walking to work; transportation and shorter commutes, which can include intended use. Dumbo, Brooklyn These mixed-use projects provide a live-work-play environment, Source: Shutterstock.com Preservation of a city s identity and cultural and historical which offers not only convenience and amenities, but an significance; Today s technology is moving at a fast pace. New projects will environmentally friendly footprint on the community. need wireless connectivity, and many of the new LEED projects Combined acquisition and redevelopment costs typically fall below replacement costs in certain markets offering financial will advance things a step According further with to the computerized Commercial Observer, energymanagement systems. neighborhood of Bushwick, industrial buildings are experiencing in the Long Island incentives to complete these projects; a second life as bars, theaters, music venues, specialty gyms and Ability to capitalize on locations that cannot be redeveloped, Executive Summary just about anything boutique or hipster-approved p. 2 such as waterfront or parkside spaces; This trend Many municipalities will has offer enticed incentives, investors especially and developers in areas to capitalize on the new Incentives often offered by local and state governments make Benefits of Adaptive Reuse that Projects are undergoing area-wide.. and.... increased.... transformation demand While..... slightly p. 3 projects more financially viable; more complicated, incentives such as tax credits and lower Ability to achieve LEED status through construction with Adaptive Reuse Takes Over entitlements Queens. sometimes make..... a.. project viable p. 4 green materials and techniques; easier commuting patterns. Denver is building 119 miles of light rail and 70 new stations in a decade. History of Adaptive Reuse p. 5 Source: Shutterstock.com Considerations p. 6 Conclusion p. 9 continued from page 3 given the widespread availability across the entire Calgary office market. While energy and energy servicing companies continue to make up a large share of the leasing transactions being recorded, growth from areas such as information and technology, not-for-profits, government, business services and green technology are definitely being noticed. Also, activity by smaller tenants is growing noticeably. Demand for space under 5,000 sf continues to be high. However, due to an abundance of existing options in this size range and pressure on landlords to demise larger blocks of space that aren t moving, rental rates remain competitive and inducements (such as free rent and An Avison Young Topical Report An Avison Young Topical Report An Avison Young Topical Union vs. Report non-union labor APRIL 2018 Mechanical systems Technology Adaptive Reuse Projects What s Old is New Again Table of Contents Incentives 3 Partnership. Performance. 8 Partnership. Performance. ing Transit lines and TOD Benefits of adaptive reuse projects improvement allowances) are substantial in many cases. Meanwhile, the market for large pockets of space will continue to have significant competition for the foreseeable future, maintaining the downward pressure on rental rates within this category. As Calgary comes off the bottom of this downturn, it is expected that a flight-toquality will continue. Flight-to-quality is where tenants move away from class B and C buildings and move to class A and AA buildings at almost the same or lower cost structure. This can already be seen with higher vacancy rates in lower-quality buildings. Introducing Avison Young's Latest Topical Report: Adaptive Reuse Projects - What's Old is New Again VIEW OR DOWNLOAD REPORT HERE calgary overall FOCUS on Investment The start of 2018 has seen a continuation of the narrative witnessed throughout 2017 where value add office plays and core office investments continue to be top of mind for active participants in our market. A listing at Avenue NE, one that Avison Young represents, saw two rounds of bids for a newer-vintage, 90,133 sf office building. There are a number of market participants willing to aggressively pursue quality office assets even with (and because of ) substantial near-term leasing risk. Another recent transaction, Intrinsic Group s purchase of the Wi-Lan Building, commonly referred to as the Yellow Pages Building, is a unique example of an office real estate investment that takes advantage of negative market sentiment allowing a purchaser to buy a best-in-class building at a substantial discount to replacement costs. 1 Partnership. Performance. Calgary Q Office Construction Summary calgary q under construction and new supply Downtown Under Construction Building Name Address Office Area (sf) Expected Completion % Leased / Pre-Leased LEED Target TELUS Sky 110-7th Avenue SW 460,000 Q % Platinum Beltline Under Construction Building Name Address Office Area (sf) Expected Completion % Leased / Pre-Leased LEED Target Mount Royal West th Street SW 28,000 Q Beltline New Supply Building Name Address Office Area (sf) Expected Completion % Leased / Pre-Leased LEED Target 14th Street Office (RECA Building) th Avenue SW 36,000 Complete 72% Suburban North Under Construction Building Name Address Office Area (sf) Expected Completion % Leased / Pre-Leased LEED Target Hexagon Calgary Campus th Street NE 160,000 Q One North Business Centre 1348 Northmount Drive NW 20,000 Q Suburban South Under Construction Building Name Address Office Area (sf) Expected Completion % Leased / Pre-Leased LEED Target Macleod Professional Centre 3916 Macleod SE 31,000 Q % AVISON YOUNG Q Office Market Report 4

5 Downtown Downtown DOWNTOWN CALGARY 5 YEAR AND 10 YEAR AVERAGE ANNUAL ABSORPTION 3,000,000 2,407,000 ABSORPTION (DEMAND) VACANCY (SUPPLY) RENTAL RATES 2,000,000 2,088,000 The Downtown Calgary office market saw vacancy decrease to its lowest level since this time last year. Downtown Calgary office vacancy, as of first quarter 2018 is 25.6%. This is down from 26. in fourth quarter 2017, but up from months ago in first quarter ,000, ,000, , , , , Year Annual Average Absorption -162,000 sf per year -189, ,000 Total vacancy for the Downtown office market is 11.7 msf, broken down by: 8.6 msf of headlease space (74%) and 3.1 msf of sublease space (26%). It is anticipated that sublease availability will continue to be seen transitioning to headlease availability over the course of the next year as sublease terms continue to expire. -2,000,000-3,000,000-4,000,000-1,360,000 5-Year Annual Average Absorption -1,289,000 sf per year -3,068,000-2,205, First quarter 2018 saw the return to positive absorption for class AA and C buildings. Over the last three months, class AA buildings saw positive 368,000 sf of absorption, class A saw negative (-157,000 sf ) of absorption, class B downtown calgary office vacancy rates % 13.92% 22.9% % Headlease Vacancy 32.4% 3.28% 29.16% 25.6% 25.6% 0.64% 24.98% % Class AA Class A Class B Class C Overall Sublease Vacancy saw negative (-52,000 sf ) of absorption, and class C saw positive 10,000 sf of absorption. Vacancy by class is now: class AA 24., class A 22.9%, class B 32.4%, and class C 25.6%. All indicators point to Calgary s Downtown office market having found peak vacancy for this cycle. Absorption in the Downtown office market for first quarter 2018 was positive 169,000 sf. Over the last 12 months downtown Calgary has a cumulative negative absorption of (-23,000 sf ). This is a noticeable improvement over the negative (-3.1 msf ) of absorption recorded in 2015, negative (-2.2 msf ) of absorption recorded in 2016, and negative (-189,000 sf ) of absorption recorded in Thanks to the extreme nature of the downturn over the last three years, the 5-year average annual absorption is negative (-1,289,000 sf per year) and the 10-year average annual absorption is now negative (-162,000 sf per year). For reference, the annual absorption in 2014 was 376,000 sf, and negative (-1.4 msf ) in Average asking rents for headlease space in Downtown range between $4 and $36 per square foot, per annum. New Construction buildings typically range between $32 and $36 psf (average $35 psf ). Class AA buildings typically range between $22 and $26 psf (average $24 psf ). Class A buildings typically range between $13 and $17 psf (average $15 psf ). Class B buildings typically range between $8 and $12 psf (average $9 psf ). Class C buildings typically range between $4 and $7 psf (average $6 psf ). Location, building quality, size of space, and length of term will all play into ultimately determining what the asking rate for a property is. Sublease opportunities can offer substantial discounts from these rates and vary widely. Similarly, quoted taxes and operating costs average $20.71 psf for all building classes, in the Downtown market. Class AA buildings average $23.28 psf, class A buildings average $20.56 psf, class B buildings average $17.46 psf, and class C buildings average $15.56 psf. There is currently downward pressure on assessments for downtown office properties, potentially resulting in further declines in taxes and operating costs. This is a direct result of the weak economy and high vacancy rates. 5 AVISON YOUNG Q Office Market Report

6 Downtown continued from page 5 There are 15 availabilities on the market in Downtown Calgary that have over 100,000 sf available as one contiguous block. These 15 blocks of space represent 26% of the total availability of space in the Downtown market and 6 of this space is available on a headlease basis. Brookfield Place Calgary East was added to inventory in second quarter This 1.4 msf office tower is 79% preleased, and first quarter 2018 saw the first of the occupancy for the building with Scotiabank being phased in. This one building increased the downtown office inventory by 3%. The last remaining office building under construction in downtown Calgary is TELUS Sky. It contains 460,000 sf of new office space, which will result in a 1% increase in inventory, and is 39% pre-leased - with approximately a year to go before occupancy starts to take place. As a result of the current economic conditions and weak demand for space downtown calgary office market average asking rents Downtown Office Market Average Asking Rents Headlease - High-Low-Average - ($/SF/Annum) $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 $35.00 New Construction Range $24.00 $15.00 $9.00 $6.00 Class AA Class A Class B Class C Average no new development is expected to be announced in Calgary s downtown core for several years. Looking to the future, without a substantial change in the Calgary economy, TELUS Sky will potentially push vacancy up to 27%, using pessimistic assumptions. The current realistic prediction is that absorption will be flat for the second quarter of 2018, positive 100,000 sf in each of Q3 and Q4 2018, and rising to 150,000 sf per quarter in 2019 and beyond. These reasonable assumptions indicate that Q was the peak vacancy for this downturn at 26.4%. Even with the addition of one more building in a year s time, vacancy is forecasted to rise to 25.9%, remaining below the peak value recorded in you can now follow the avison young calgary office on twitter % 6.1% 6.2% 6.2% 9.1% 10.7% downtown calgary office historical and projected vacancy 12.2% 16.3% Calgary City Centre (853,000 sf) 17.6% Eau Claire Tower (613,000 sf) 21.1% 23.9%23.9% 22.9% 707 Fifth (564,000 sf) %26.8% 26.4% % 25.7% % 25.8%26. Brookfield Place - East (1,400,000 sf) 25.6%25.6% 25.4% 25.9% 25.6%25.2%24.9%24.6%24.3% 23.9% 23.6%23.3% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q TELUS Sky (460,000 sf) REASONABLE ASSUMPTIONS: 2018: Flat absorption in Q2, and positive 100,000 sf in each of Q3 and Q and beyond: Positive 150,000 sf in each quarter PESSIMISTIC ASSUMPTIONS: 2018: Negative 100,000 sf in each of Q2, Q3 and Q4 2019: Flat absorption 2020: Positive 50,000 sf in each of Q1 and Q2, positive 100,000 sf in each of Q3 and Q4 Vacancy Rate - Reasonable Assumptions Vacancy Rate - Pessimistic Assumptions AVISON YOUNG Q Office Market Report 6

7 BELTLINE Beltline The vacancy rate in the Beltline office market edged upwards again to sit at 18. in first quarter This is up from 17.4% in fourth quarter 2017, and from 16.4% 12 months ago in first quarter The current vacancy also remains below the peak of 19.1% recorded in third quarter ABSORPTION (DEMAND) VACANCY (SUPPLY) RENTAL RATES beltlilne calgary office vacancy by class 15.9% 8.72% 7.21% 22.2% 4.71% 17.46% Headlease Vacancy % 14.76% % 13.07% Class A Class B Class C Overall Sublease Vacancy Total vacancy for the Beltline office market is 1.5 msf, broken down by: 1,0840,000 sf of headlease space (71%) and 449,000 sf of sublease space (29%). Looking at the breakdown between building classes, first quarter 2018 saw negative absorption for class A buildings and positive absorption for class B and C buildings. Over the last three months class A buildings saw negative (-53,000 sf ) of absorption, class B saw positive 20,000 sf of absorption, and class C saw positive 4,000 sf of absorption. Vacancy by class is now: class A 15.9%, class B 22.2%, and class C 15.. Absorption in the Beltline office market for first quarter 2018 was negative (-29,000 sf ). The Beltline office market s 5-year average annual absorption is 112,000 sf per year and the 10-year average is 174,000 sf per year. For the second time during this downturn cycle, a long-standing office building is working its way towards being converted into a residential property. The Stephenson Building ( th Avenue SW) is a 62,000- sf, seven-storey, class B office building owned by Strategic Group. Avison Young has removed this property from the inventory of office properties, as space is no longer being actively marketed for lease. Average asking rents for headlease space in the Beltline range between $5 and $26 per square foot, per annum. Class A buildings typically range between $18 and $26 psf (average $22 psf ). Class B buildings typically range between $12 and $16 psf (average $14 psf ). Class C buildings typically range between $5 and $12 psf (average $10 psf ). Location, building quality, size of space, and length of term will all play into ultimately determining what the asking rate for a property is. Sublease opportunities can offer substantial discounts from these rates and vary widely. Similarly, quoted taxes and operating costs average $18.04 psf for all building classes, in the Beltline market. Class A buildings average $19.60 psf, class B buildings average $17.27 psf, and class C buildings average $16.23 psf. 1,200,000 1,000, , , , , , ,000 beltline calgary annual office absorption 0 1,063,000-80,000 16, ,000 There are six availabilities in Beltline Calgary with more than 30,000 sf available as one contiguous block. These six blocks of space represent 17% of the total availability of space in the Beltline office market and 37% of this space is available on a headlease basis. According to ATB Financial s Business Beat Index, which measures Alberta business owners confidence in their own business operations, economic optimism is up compared to the past two years: CLICK HERE Calgary Q Office Market Statistics DOWNLOAD CHART HERE -29, AVISON YOUNG Q Office Market Report

8 BELTLINE continued from page 7 No new projects commenced in first quarter One project, 14th Street Office Building at th Avenue SW (36,000 sf ) was completed, with 73% pre-leasing in place. One project, Mount Royal West, remains under construction and as of first quarter 2018 is fully leased. Want to know more about Calgary's new $100 Million Economic Development Investment Fund (EDIF)? Overview from Calgary Economic Development CLICK HERE City of Calgary Fund Governance and Terms of Reference CLICK HERE beltline calgary office market average asking rents Headlease - High-Low-Average - ($/SF/Annum) $30.00 $25.00 $22.00 $20.00 $15.00 $14.00 $10.00 $10.00 $5.00 $0.00 Class A Class B Class C Range Average Calgary's Unemployment Rate is now 8.2%. How does this compare to other markets, provinces and the Canadian average? What industries have been gaining jobs in the last year? View Calgary specific analysis and graphs of Statistics Canada's Labour Force Survey for March 2018, prepared by Avison Young's Calgary Research team (monthover-month and year-over year comparisons). CLICK HERE to view calgary q notable office leasing transactions Downtown Tenant Building Name Address Size (sf) Deal Type Alberta Infrastructure Century Place 855-8th Avenue SW 48,000 Headlease Baker Hughes* Gulf Canada Square 401-9th Avenue SW 47,000 Headlease Nuvista Energy Eighth Avenue Place - East 525-8th Avenue SW 37,000 Headlease CGG Services* Gulf Canada Square 401-9th Avenue SW 35,000 Sublease Beltline Tenant Building Name Address Size (sf) Deal Type Copeman Healthcare* Mount Royal West th Street SW 28,000 Headlease Katz Group Real Estate* Joffre Place th Avenue SW 6,500 Headlease Tara D. Pipella Professional Corp.* Dorchester Square th Street SW 6,300 Headlease Suburban North Tenant Building Name Address Size (sf) Deal Type General Dynamics* th Avenue NE th Avenue NE 148,000 Headlease Platifab Yellow Pages Building 2891 Sunridge Way NE 16,000 Headlease Health Sciences Association of Alberta* Harvest Hills Office A th Avenue NE 12,500 Headlease Suburban South Tenant Building Name Address Size (sf) Deal Type Rockwell Automation Fountain Court th Avenue SE 25,000 Headlease Masuch-Albert LLP Blackfoot Point Blackfoot SE 16,000 Headlease Zephyr Sleep Technologies Blackfoot Point Blackfoot SE 8,500 Headlease * Indicates transactions Avison Young was involved in AVISON YOUNG Q Office Market Report 8

9 suburban Suburban North ABSORPTION (DEMAND) VACANCY (SUPPLY) RENTAL RATES The Suburban North office vacancy rate increased to 17.7% in first quarter 2018, up from 17. in fourth quarter 2017, but down from months ago. Vacancy appears to have peaked during this downturn for this market segment at 21.3% in the third quarter of Looking at the quadrants themselves, vacancy for the Suburban Northeast is 16.9%, while the vacancy for the Suburban Northwest is 19.8%. Meanwhile the overall suburban office vacancy rate is 19.9%. suburban north calgary office vacancy by class % % % 10.03% % 19.37% 17.7% 3.34% 14.34% Class A Class B Class C Overall Headlease Vacancy Sublease Vacancy suburban north calgary annual office absorption 150, ,000 50, , , , , , ,000-14,000 68, ,000-22, First quarter 2018 saw positive absorption for class A buildings, and negative absorption for class B and C buildings in the Suburban North. Over the last three months class A buildings saw positive 13,000 sf of absorption, class B saw negative (-14,000 sf ) of absorption, and class C saw negative (-21,000 sf ) of absorption. Vacancy by class is now: class A 18.4%, class B 15., and class C 20.. Absorption in the Suburban North office market for first quarter 2018 was negative (-22,000 sf ). The 5-year average annual absorption for the Suburban North office market is negative (-177,000 sf per year), and the 10-year average annual absorption is 28,000 sf per year. Average asking rents for headlease space in the Suburban North range between $6 and $30 per square foot, per annum. New Construction buildings typically range between $25 and $30 psf, (average $27 psf ). Class A buildings typically range between $18 and $26 psf (average $19 psf ). Class B buildings typically range between $9 and $15 psf (average $13 psf ). Class C buildings typically range between $6 and $12 psf (average $9 psf ). Location, building quality, size of space, and length of term will all play into ultimately determining what the asking rate for a property is. Sublease opportunities can offer substantial discounts from these rates and vary widely. Similarly, quoted taxes and operating costs average $14.52 psf for all building classes, in the Suburban North market. Class A buildings average $15.38 psf, class B buildings average $13.95 psf, and class C buildings average $12.19 psf. There are 14 availabilities in Suburban North Calgary with more than 30,000 sf available in one contiguous block. These 14 blocks of space represent 43% of the total availability of space in the Suburban North office market and 78% of this space is available on a headlease basis. No new office buildings were added to inventory in first quarter 2018 in the Suburban North office market. Two office buildings remain under construction in Suburban North Calgary. These are: Hexagon Calgary Campus, and One North Business Centre. They represent 181,000 sf of new space, which will increase the Suburban North office inventory by 2%. Headlease space increased by 35,000 sf, while sublease space decreased by 13,000 sf during the last three months. Total vacancy for the Suburban North office market is 1.8 msf, broken down by 1.4 msf of headlease space (81%) and 331,000 sf of sublease space (19%). calgary office market average taxes and operating costs Class AA Class A Class B Class C All Classes Downtown $23.28 $20.56 $17.46 $15.56 $20.71 Beltline - $19.60 $17.27 $16.23 $18.04 Suburban North - $15.38 $13.95 $12.19 $14.52 Suburban South - $15.01 $14.64 $10.48 $14.57 Overall $23.28 $18.58 $16.72 $14.23 $17.59 (per square foot, per annum) 9 AVISON YOUNG Q Office Market Report

10 suburban north office market average asking rents $35.00 Headlease - High-Low-Average - ($/SF/Annum) Southeast is 23.2%, while the vacancy for the Suburban Southwest is 18.7%. Meanwhile the overall suburban office vacancy rate is 19.9%. suburban suburban south calgary annual office absorption 1,500,000 1,355,000 $30.00 $25.00 $20.00 $15.00 $27.00 $19.00 Headlease space increased by 84,000 sf over the last quarter, while sublease space decreased by 179,000 sf. Total vacancy for the Suburban South office market is 2.6 msf, broken down by 1.93 msf of headlease space (73%) and 700,000 sf of sublease space (27%). 1,000, ,000 $10.00 $5.00 $0.00 New Construction $13.00 $9.00 Class A Class B Class C First quarter 2018 saw positive absorption for all classes of buildings in the Suburban South office market. Over the last three months class A buildings saw positive 52,000 sf of absorption, class B saw positive 36,000 sf of absorption, and class C saw positive 0-500, , ,000 95,000 93,000 Range continued from page 9 Suburban South Average The good news is the Hexagon Calgary Campus building is being purposebuilt for its owner-user, and as such, combined these two buildings are 93% pre-leased. Stay in touch by following Avison Young on Social Media ABSORPTION (DEMAND) VACANCY (SUPPLY) RENTAL RATES The Suburban South office vacancy rate decreased to 21.8% in first quarter 2018, down from 22.6% in fourth quarter 2017, and from 24.3% twelve months ago in first quarter Vacancy appears to have peaked during this downturn for this market segment at 24.3% in the first quarter of Looking at the quadrants themselves, vacancy for the Suburban suburban south calgary office vacancy by class % 7.66% 17.42% 11.8% % 11.36% 21.8% 5.81% 16.0 Class A Class B Class C Overall Headlease Vacancy Sublease Vacancy 6,000 sf of absorption. Vacancy by class is now: class A 25.1%, class B 11.8%, and class C 12.. Absorption in the Suburban South office market for first quarter 2018 was positive 93,000 sf. The 5-year annual -1,000, average absorption is 109,000 sf per year, and the 10-year annual average absorption is 257,000 sf per year. Average asking rents for headlease space in the Suburban South range between $6 and $30 per square foot, per annum. New Construction buildings typically range between $25 and $30 psf, (average $27 psf ). Class A buildings typically range between $15 and $23 psf, (average $19 psf ). Class B buildings typically range between $10 and $15 psf, (average $14 psf ). Class C buildings typically range between $6 and $12 psf, (average $10 psf ). Location, building quality, size of space, and length of term will all play into ultimately determining what the asking rate for a property is. Sublease opportunities can offer substantial discounts from these rates and vary widely. Similarly, quoted taxes and operating average $14.57 psf for all building classes, in the Suburban South market. Class A buildings average $15.01 psf, AVISON YOUNG Q Office Market Report 10

11 12 Mile Coulee Rd. (Future) 85 St. Rd. Sarcee a i l Crowchild 19 St. 16 St. 14 St. 10 St. 4 St. Centre St. F 11 St. N.E. 8 St. Ogden 19 St. S.E. 24 St. 36 St. S.E. 36 St. S.E. 36 St. N.E. suburban suburban south office market average asking rents SUBURBAN NORTH office vacancy by location Headlease - High-Low-Average - ($/SF/Annum). 2 $35.00 $30.00 $25.00 $ % 3.2% % 17.7% 3.3% % 17.3% % 0.4% 16.9% % 1.6% 19.8% 2.9% % $20.00 $15.00 $19.00 $ % % 14.3% 11.8% 12.3% 20.7% 13.4% 9.4% 4.9% 13.2% 16.9% $10.00 $10.00 Class A Class B Class C Overall Class A Class B Class C Overall Class A Class B Class C Overall 4. $5.00 Suburban North NE NW 9.9 msf 7.3 msf (74%) 2.6 msf (26%) Headlease Vacancy Sublease Vacancy $0.00 New Construction Range Class A Class B Class C Average SUBURBAN SOUTH office vacancy by location Suburban South Office Vacancy by Location 3 11 continued from page 10 class B buildings average $14.64 psf, and class C buildings average $10.48 psf. There are 20 availabilities in Suburban South Calgary with more than 30,000 sf available in one contiguous block. These 20 blocks of space represent 63% of the total availability of space in the Suburban South office market and 67% of this space is available on a headlease basis. No new buildings were added to inventory in first quarter One office building remains under construction in Suburban South Calgary: Macleod Professional Centre. This building contains 31,000 sf of new space, and is currently 53% preleased. Given the current, widespread availability in the office market and slow absorption of space, limited new construction is anticipated to commence in % 7.7% 17.4% 11.8% % 11.8% 11.4% Bearspaw Rd. To Banff To Cochrane 21.8% 5.8% LEGEND City Boundary Stoney Current/Future LRT Line Current/Future Major Transportation Route/ Main Hwy Traffic Volumes (VPD) A 26.6% 10.3% % 9.6% Ave. 9.6% In this new series of graphs (above), view the differences in vacancy rates 9 Ave. for further geographic breakdowns of 13 Ave. the four main Calgary submarkets. Click HERE to view the entire series. To Bragg Creek Tussle Dr ẉood 8 C.P.R. Elbow Bow 1 City of Calgary Royal Royal Oak Wy. Oak River % 0.8% 13.6% 23.2% % C.P.R. West Nose Creek 21.3% 1.1% 20.2% % % 0.4% 0.4% % 0.8% Balzac 17.9% S.E. AVISON YOUNG Q Office Market Report 8 Nose C.P.R. Nose Creek 2 Creek 2 To Airdrie, Red and Edmont Class A Class B Class C Overall Class A Class B Class C Overall Class A Class B Class C Overall Suburban South SE SW 12.1 msf 8.4 msf (7) 3.7 msf (3) Headlease Vacancy Sublease Vacancy Headlease Vacancy NW Calgary Sublease Vacancy NE International 72 Ave. N.E. Airport Nose Hill 64 Ave. Par Bowness McKnight Valley Rocky Ridge Tuscany Ridge Old Banff Coach Rd. Lower Springbank Rd. Rocky Ridge Rd. 101 St. (Future) Stoney (Future) Slopeview Scenic Stoney Scurfield Acres Scenic Acres Nose Old Banff 48 Ave. Wentworth 85 St. Hill Silver 77 St. Coach 81 St. Discovery Ridge Arbour Lake Way Nose Hill Bowness 34 Ave. 17 Ave. 77 St. Patterson Rd. Citadel Ranch Crowchild 144 Ave. Country Springs Coach Hill 69 St. Hawkwood lands Road Strathcona Strathcona Sierra Morena Patina Tr. Hills Sarcee Signal Hill Tr. 53 St. Sarcee Hamptons John 53 St. Edgepark Drive Edgemont Dalhousie 40 Ave. Bowness Bow 45 St. Stoney Sh Glenmore Shaga Northland nappi Brisebois Symons Valley Rd Hamptons Laurie aganap pi Tr 32 Ave. Road Spruce 37 St. Richmond 46 Ave. Northmount 24 Ave. 29 St. Road 29 ST. Evanspark dale Richardson Way Sarcee Glenmore University of Calgary Hidden Richard Valley 19 St. Charles wood Rd. 66 Ave. 14 St. 5 Ave. Drive 19 St. Range Road St. Berkshire 33 Ave. 50 Ave. 14 St. 17 Ave. 26 Ave. Beddington Berkley Centre Street Panamount Beddington 14 St. Cambrian Hunterview Northmount 75 Ave. Drive Drive 40 Ave. 20 Ave. Elbow Memorial 11 Ave. 50 Ave. 4 St. 6 Ave. 9 Ave. Country 32 Mission Harvest 12 Ave. 58 Ave. Centre St. 4 Ave. Macleod Rd. Trelle Village Rd. Ave. N.E. 12 Ave. Hills Edmonton Coventry Country Hills Spiller 42 Ave. 58 Ave. 6 St. Deerfoot Regal 8 Ave. N.E. Blackfoot Stoney Cres. 1 Ave. N.E. Rd. S.E. Ave. 46 S.E. S.E. 11 St. Deer 12 St. N.E. fo o t Airport Tr. Road Glenmore 19 St. N.E. 32 Ave. N.E. 19 St. 20A St. S.E. 19 St. Ogden Barlow 76 Ave. Barlow 28 St. S.E. 144 Ave. 32 St. Memorial Peigan Country 88 Av 44 Whiteh 32 A 2 Rund Trans Marlbo 26 Ave. S.E 50 Ave 61 Ave 72 D

12 featured downtown Fina Building 736-8th Avenue SW HEADLEASE Opportunity From 1,897 sf up to 13,649 sf Hanover Place 101-6th Avenue SW HEADLEASE Opportunity From 997 sf up to 222,662 sf featured suburban north Centre 810 featured beltline RECA Building th Avenue SW HEADLEASE Opportunity 3,453 sf Gulf Canada Square featured suburban south th Avenue SE 401-9th Avenue SW SUBLEASE Opportunity From 3,567 sf up to 340,126 sf Avison Young Calgary Office Team Taylor Archer Jordyn Malkinson Loveleen Bhatti Miri Mammadov Roseleen Bhatti Paul McKay Rachel Carter Alexi Olcheski Eric Demaere Nairn Rodger Spencer Duff Kirsten Scott Steve Goertz Glenn Simpson Larry Gurtler Anna Sorensen Eric Horne Mark St. Pierre Chris Howard Todd Throndson Jason Kopchia Alex Wong Tinyan Leung Allan Zivot th Street NE SUBLEASE Opportunity 3,634 sf HEADLEASE Opportunity From 1,700 sf up to 11,711 sf Business Condominium Team Pali Bedi Fred Clemens Puneet Nagpal 325 Manning Road NE Snowdon Block For more information, please contact: Research Susan Thompson Manning Road NE HEADLEASE Opportunity From ±1,000 sf - ±18,107 sf th Street SE HEADLEASE Opportunity From 1,369 sf up to 2,840 sf Graphics Penelope Johnson penelope.johnson@avisonyoung.com Eighth Avenue Place West - Suite 1200, 585-8th Avenue SW, Calgary, AB T2P 1G1 T F: Avison Young Real Estate Alberta Inc. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young. AVISON YOUNG Q Office Market Report Partnership. Performance.