Fourth Quarter 2017 / Office Market Report

Transcription

1 Fourth Quarter 2017 / Office Market Report Calgary Calgary s theme for 2018 needs to be resiliency and evolution 2017 started the year with a prevailing feeling of uncertainty. But despite that, Calgarians have an ingrained ability to recover from misfortune and adapt to change. Take the response to the 2013 flood, one of the costliest natural disasters Canada has ever seen. Calgary's timely, structured, and outcome-focused approach to recovery was crucial in getting the City back on its feet. In the past, businesses that have weathered economic downturns have emerged stronger than when they started. Innovation and entrepreneurship is part of the standard practices in what Calgary-based companies bring to the table. While a long road to economic recovery remains ahead, new attitudes and approaches to the established commercial real estate market are being unveiled. Many landlords are considering what alternatives are available for their older, less desirable office properties. Officeto-residential conversion is starting to take place, with one confirmed project (Artis REIT s Sierra Place) in the works and several others being considered or in the process of being brought forward. Additionally, demolition of properties for redevelopment is being weighed for some locations. The first confirmed office property on the casualty list is the former CBC Building along Memorial. This site is being repurposed as a residential condominium development. council approved increasing the city s economic development investment fund to a total value of $100 million. The aim of the fund is to diversify the economy, create jobs, support ways to reduce the downtown office vacancy rate and help local companies expand. Ideas around advancement of the agri-food sector, aiding in conversion of unoccupied buildings, and enabling Calgary to be a city where autonomous vehicles can be tested are just some of the early ideas. While the fund s terms of reference and the governance model have yet to be finalized, the proposed concept is to have Calgary Economic Development and a third party consider all opportunities or potential investments and allow Calgary to compete nationally and internationally to attract economic investment. Also, market sentiment has improved as compared to this time last year. Many economic indicators are starting to show WTI Spot Price ($US per barrel) $160 $140 $120 $100 $80 $60 $40 $20 Source: U.S. Energy Information Administration, Avison Young Market Facts 23. Calgary Overall Vacancy 26. Downtown Vacancy 18.4% Beltline Vacancy 17. Suburban North Vacancy 22.6% Suburban South Vacancy historical price of oil versus calgary downtown office vacancy rate 3 1 Vacancy Rate (%) Growing existing businesses and developing and attracting new ones has even greater potential, than repurposing properties, to absorb vacant space. Late in December 2017, Calgary city $0 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 Calgary Downtown Office Vacancy Rate Calgary DT Office Vacancy Rate Partnership. Performance. avisonyoung.com

2 continued from page 1 recovery, but a long journey remains. According to the Conference Board of Canada Calgary s 2017 GDP growth led the country, and is forecasted to regain a dominant position in economic growth between 2018 and However, this long-term growth is at a slower pace than Calgary experienced during the previous decade. For the first time in two years, crude oil has hit US$60 a barrel. Anecdotally, $60 per barrel is the price level where noticeable activity starts occurring in oil sector businesses. However, there needs to be cautious optimism at this time, because there are still concerns. The current pricing appears to be a short-term rally, with prices likely to head back below US$60 per barrel once the extreme cold weather subsides. Recent predictions believe that American drillers will put more rigs to work as oil continues to strengthen, with shale growth driving forecasts of record U.S. supply in That could undermine plans by producers including OPEC, who have pledged to extend production curbs through the end of 2018 to cut a global oversupply. Past economic recoveries in Calgary have been about rebounding prices for oil and gas, but going forward, recovery in the energy sector is going to be about being a low-cost producer and/or offering a better product (e.g. a lower carbon product). This is where technology and innovation, which are abundant in Calgary s energy sector, need to be brought to light. Lower-cost office space, which is now readily available, will be beneficial as well. Employment (Number of People) , , , , , , , , , ,300 Jan ,000 Feb % 820,100 Mar-15 calgary cma employment and unemployment rate Calgary CMA Employment and Unemployment Rate 5.9% 825,600 Apr ,200 May % 824,500 Jun % 818,100 Jul-15 Labour Force 6.9% 816,900 Aug % 818,400 Sep % 814,700 Oct % 6.7% 809,000 Nov ,400 Dec % 797,600 Jan ,500 Feb % 802,100 Mar % 803,000 Apr-16 Employment recovered. As of May 2017, employment in Calgary is back above the peak level recorded in May 2015 (827,200 people) according to the Statistics Canada Labour Force Survey. However, most of the gains were in lower-paying jobs, suggesting that while there was overall gain in employment, the new jobs were not of the same quality as those that were lost. It is hoped that as more signs 4.6% 8.6% 800,900 May % 794,700 Jun ,000 Jul % 797,600 Aug % 802,000 Sep-16 Unemployment Rate 10.1% 805,200 Oct % 810,400 Nov % 815,700 Dec-16 Unemployment Rate 9.8% 818,000 Jan % 819,300 Feb % 820,100 Mar % 822,800 Apr % 827,900 May % 833,600 Jun ,700 Jul ,300 Aug ,500 Sep % 828,900 Oct % 826,900 Nov ,100 Dec Source: Statistics Canada of economic recovery emerge and further economic diversification takes hold, companies will create more jobs in those highly-skilled, higher-pay occupations. 4.6% calgary is forcasted to lead among major canadian cities in annual gdp growth for 2018 Source: Conference Board of Canada forecasted annual real gdp growth rates for major cities across canada Forecasted Annual Real GDP Growth Rates for Major Cities Across Canada One of the strongest indicators for Calgary s recovery is that the labour market saw the unemployment rate shrink back to 7. as of December 2017, after it hit a 24-year high for unemployment rate in November 2016 at 10.2%. It remains one of the highest among major cities in Canada, but it is now feasible that a balanced employment market could be reached within the year. The number of jobs has % % 2.1% Source: Conference Board of Canada 2017F 2018F 2019F 2020F 2021F Vancouver Edmonton Calgary Saskatoon Toronto Ottawa Montreal Canada AVISON YOUNG Q Office Market Report 2

3 CALGARY OVERALL Calgary Overall ABSORPTION (DEMAND) VACANCY (SUPPLY) RENTAL RATES The Calgary office market finished the year on a down note. After the beleaguered Downtown market reached its peak vacancy in second quarter and started to record positive absorption in third quarter, the final quarter of the year saw vacancy increase once again. The overall vacancy rate rose from 23.1% to 23. during the fourth quarter of 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. This increase in vacancy was due in large part to tenants opting to let their leases (or portions thereof ) lapse as they drew towards the end of their lease terms. The return of space coupled with subleases reaching the end of their terms, forced landlords to add to the already substantial headlease market. Headlease space (space available directly from the landlord) now represents 71% of Calgary s overall availability. In the last three years, the amount of vacant office space in Calgary tripled from 5.9 msf to the current 17.9 msf. The good news is that 2017 saw vacancy increase at a much slower pace than the previous two years. The amount of vacant office space across Calgary increased by 94% in 2015 and by 41% in saw the amount of available space on the market increase by. 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 6 of the vacancy for their respective market segments and 31% of the city-wide vacancy. Absorption for the overall Calgary office market returned to being negative in the fourth quarter of 2017, with negative (-322,000 sf ) being absorbed. The only Calgary submarket to see positive absorption in fourth quarter 2017 was the Suburban South. Overall absorption for the year was negative (-502,000 sf ), a vast improvement over the negative (-3.3 million square feet (msf )) of absorption recorded in 2015 and negative (-2.7 msf ) of absorption recorded in calgary overall office vacancy rates % % 4.91% 3.48% 13.47% Downtown Beltline Suburban North 22.6% 7.29% 15.29% Suburban South % Overall -500,000-1,000,000-1,500,000-2,000,000-2,500,000-3,000,000 calgary annual absorption by area of city 500, ,205, ,000 16, ,000 68, , ,000 95,000-2,658, , Downtown Beltline Suburban North Suburban South Overall Quoted taxes and operating costs average $17.89 per square foot (psf ) for all building classes, across the entire city. Class AA buildings average $23.48 psf, class A buildings average $18.87 psf, class B buildings average $17.07 psf, and class C buildings average $14.43 psf. These numbers are further broken down within the specific area of city sections later in this report. However, it is important to note that assessments for office properties are falling across the city. Small decreases were seen in some categories throughout the 73% of households in Calgary own their own homes The highest home ownership rate of major Canadian cities and the fastest growing between 2011 and specifically: 21.8 % 58.3 % own condominiums own single-family homes AVERAGE NUMBER OF 2.6% people in each household Source: Statistics Canada 3 AVISON YOUNG Q Office Market Report

4 Bearspaw LEGEND City Boundary Stoney Current/Future LRT Line Current/Future Major Transportation Route/ Main Hwy Traffic Volumes (VPD) 2016 City of Calgary 772 West 566 (Future) To Airdrie, Red Deer and Edmonton 566 Balzac Ave. Country Hills Country Hills 112 Ave. N.E. 1A 201 Airport Tr. (Future) 96 Ave Berkshire 88 Ave N.E. 80 Ave. Calgary International 72 Ave. N.E. Airport Nose 2 Martindale Hill 64 Ave. 64 Ave. N.E. Bowness McKnight 1 40 Ave. 32 Ave. University of Calgary 2 20 Ave. Trans - Canada Hwy Ave. Marlborough 13 Ave. 8 Ave. 17 Ave. S.W. 17 Ave. S.W. 17 Ave. 1A 26 Ave. S.W. 26 Ave Ave. S.W Ave. Peigan 46 Ave. S.W. Glenmore 50 Ave. S.W. 50 Ave. 50 Ave. 61 Ave. 61 Ave. 66 Ave. S.W Ave. Glenmore 75 Ave. S.W. Heritage 90 Ave. S.W. 90 Ave Ave. Palliser Oakwood Tsuu T ina Nation Southland Braeside 114 Ave. Woodbine Ralph Klein Fish 130 Ave. Creek 146 Ave. Prov. Shawnessy 2 Sun Valley X 22X 201 To Hwy. 22, Chaparral Bragg Creek 2A 2 To Okotoks, High River, and Fort MacLeod 12 Mile Coulee Rocky Ridge Tussle Dr ẉood Valley Tuscany Ridge Old Banff Coach Elbow Rocky Ridge Bow 101 St. S.W. Royal Royal (Future) Stoney (Future) Slopeview Oak Wy. Scenic (Future) Oak Stoney Scurfield Acres Scenic Acres Nose Old Banff 85 St. Wentworth Discovery Ridge Arbour Way Nose Hill River 48 Ave. Bowness 34 Ave. 85 St. Hill Silver 77 St. Coach 81 St. 77 St. Patterson Citadel Hawkwood Ranch Crowchild 144 Ave. Country Springs Hill Coach 69 St. S.W. lands Road Strathcona Strathcona Sierra Morena Sarcee Hills Sarcee Patina Signal Hill Tr. Tr. 53 St. Fish 53 St. S.W. 37 St. S.W. 24 St. S.W. McKevitt James Hamptons Edgepark Edgemont Dalhousie 53 St. Creek Symons Valley Rd Hamptons John Laurie Bowness a i l Bow 45 St. S.W. Stoney Sh aganap pi Tr Road Spruce Shaga Northland Brisebois nappi Northmount Evanspark 24 Ave. 29 ST. Hidden dale S.W. 37 St. 29 St. Richmond Road Richardson Way Sarcee Oakfield Nose Glenmore Reservoir (Future) Richard Crowchild 24 St. S.W. Valley 19 St. 14 St. 5 Ave. Woodpark 19 St. S.W. 19 St. Bridlewood 16 St. S.W. Range Road St. S.W. 14 St. 14 St. S.W. Evergreen St. 14 St. Creek Beddington Berkley So merset Centre Street Panamount Beddington 14 St. Cambrian 162 Hunterview Northmount 10 St. Elbow Ave. Country 40 Elbow Memorial Harvest Trelle Village 32 Ave. N.E. 4 Ave. S.W. 11 Ave. S.W. 12 Ave. S.W. Hills Spiller 58 Ave. S.W. 58 Ave. Canyon Shawnee Millrise Ave. 4 St. 6 Ave. 9 Ave. Southland Anderson 4 St. S.W. Mission 6 St. Tr. Macleod 12 Ave. Centre St. Willow Fairmount Edmonton Nose Coventry 6 St. Bonavista Bonaventure Meadows Midlake Regal 8 Ave. N.E. Blackfoot Midnapore 11 St. N.E. Nose Cres. 1 Ave. N.E. 8 St. Ave. 46 Acadia 11 St. Bonavista Sunmills Stoney Deerfoot Creek Deer 12 St. N.E. fo o Sundance Chaparral t Ogden Queen Creek Road Bow Bow 19 St. N.E. 32 Ave. N.E. 18 St. sland Tr 19 St. 19 St. 20A St. River Ridge Deer 19 St. 24 St. Ogden 76 Ave. Run 194 Ave. 210 Ave. Bottom Deer 24 St. Barlow 28 St. Stoney 144 Ave. 32 St. Douglasdale McKenzie Cranston City of Calgary base map supplied by: 36 St. 36 St. N.E. 36 St. Memorial Barlow Mt. McKenzie Metis Metis Irrigation McKenzie Towne Falc McDonald onridge Fal conri 44 Ave. N.E. Whitehorn Temple 32 Ave. N.E. Rundlehorn St. Erin Woods Ave. 52 St. Madigan C.N.R. dge C.N.R. Glenmore Deerfoot Stoney 52 St. N.E. (Future) 60 St. N.E. 64 St. N.E. 68 St. 68 St. N.E. 68 St. Coral Way California Springs Applewood Laguna Abbeydale Canal N avisonyoung.com St. 84 St. calgary overall continued from page 3 year, and it is expected property taxes in the downtown will continue to decline in the near future. There was one new building completed in fourth quarter 2017, Royal Vista Centre (49,000 sf ), which had no leasing in place at the time of completion. Approximately 738,000 sf of new office space, in six buildings, remains under construction across Calgary. The majority of this is in Downtown (62%), followed by the Suburban North (24%), Beltline (9%), and Suburban South (). Very little new construction is anticipated to be announced in the city for several years, 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 down larger blocks of space that aren t moving, rental rates remain competitive and inducements (such as free rent and 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. Stay in touch by following Avison Young on Social Media % 13.8% 31.9% 3 3.4% 26.4% % 25.1% 22.1% 22.6% 7.7% % 8.3% 9.4% 3 1 Class AA 13.2% 6.4% 18.4% 28.6% 25.8% 18.3% Class A Class B Class C Overall % downtown calgary office vacancy by location 16.2% 13.2% Class AA 35.3% 4.3% % 25.4% 24.8% 8.4% 17.1% Class A Class B Class C Overall 62.3% 15.9% 46.4% Class AA 15.3% % 10.6% 36.1% 2.2% % 27.1% 24.8% Class A Class B Class C Overall 24.4% 24.4% 42.3% 9.2% 33.1% % % 17.8% 13.3% 10.4% Class Class A Class B Class C Overall AA All Downtown Central Core West Core East Village 45.1 msf 30.0 msf (67%) 11.0 msf (24%) 4.1 msf (9%) 18.4% 15.2% 4.9% 0.1% % 5.8% % 7.1% 19.4% 19.2% 6.1% 10.7% 26.2% 7.9% 18.2% beltline calgary office vacancy by location Beltline Calgary Office Vacancy by Location 15.1% 15.3% 6.8% % 13.7% % 10.7% 4.8% 4.3% 3.3% 9.4% 6.8% % 4.8% 5.6% 3.3% Class A Class B Class C Overall Class A Class B Class C Overall Class A Class B Class C Overall Class A Class B Class C Overall Class A Class B Class C Overall All Beltline Beltline Core 17th Avenue Mission Sunalta 8.3 msf 6.4 msf (77%) 0.4 msf () 1.4 msf (16%) 0.2 msf (2%) 18.2% 4.6% 15.3% In this new series of graphs (above), view the differences in vacancy rates for further geographic breakdowns of the four main Calgary submarkets. Click HERE to view the entire series. 12. To Banff To Cochrane To Bragg Creek Lower Springbank NW Sarcee SW (Future)(Future) Charles wood 14 St. S.W. Centre St. Bonaventure Macleod land Glenmore Barlow NE SE Shepard % Stoney Stoney Stoney To Strathmore To Hwy. 24 To Chestermere and Medicine Hat AVISON YOUNG Q Office Market Report 4

5 Downtown Downtown The Downtown Calgary office market saw its vacancy peak in second quarter 2017, however turbulence is still expected on the long journey to recovery. Fourth quarter 2017 saw a return to negative absorption, but vacancy remains below the peak value of 26.4%. Downtown Calgary vacancy, as of fourth quarter 2017 is 26.. This is up from 25.7% in third quarter 2017, and from 23.9% 12 months ago in fourth quarter Total vacancy for the Downtown office market is 11.9 msf, broken down by: 8.3 msf of headlease space (7) and 3.5 msf of sublease space (3). 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 saw the amount of vacant space in the Downtown market increase by 13%. This is a much slower pace ABSORPTION (DEMAND) 26.4% 11.01% 15.38% 22.1% 8.29% 13.76% VACANCY (SUPPLY) 31.9% 3.37% 28.57% % RENTAL RATES downtown calgary office vacancy rates % 18. Class AA Class A Class B Class C Overall 1,000,000-1,000,000-1,500,000-2,000,000-2,500,000-3,000,000-3,500,000 downtown calgary annual office absorption 500, ,000 1,360, ,000-3,068,000-2,205, , than the previous two years. The amount of vacant office space in Downtown Calgary increased by 133% in 2015 and by 51% in In the last three years combined, the amount of vacant office space in Downtown Calgary quadrupled from 3.0 msf to the current 11.9 msf. Fourth quarter 2017 saw the return to negative absorption for all building classes, except for class C buildings. Over the last three months, class AA buildings saw negative (-124,000 sf ) of absorption, class A saw negative (-108,000 sf ) of absorption, class B saw negative (-72,000 sf ) of absorption, and class C saw positive 17,000 sf of absorption. Vacancy by class is now: class AA 26.4%, class A 22.1%, class B 31.9%, and class C 26.. The amount of space coming onto the market has slowed down substantially. Absorption in the Downtown office market for fourth quarter 2017 was negative (-288,000 sf ). For all of 2017 downtown Calgary has a cumulative negative absorption of (-189,000 sf ). This is a noticeable improvement over the negative (-3.1 msf ) of absorption recorded in 2015 and negative (-2.2 msf ) of absorption recorded in Thanks to the extreme nature of the downturn over the last few 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). Average asking rents for headlease space in Downtown range between $4 and $38 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 $21.11 psf for all building classes, in the Downtown market. Class AA buildings average $23.48 psf, class A buildings average $21.00 psf, class B buildings average $18.11 psf, and class C buildings average $16.16 psf. There are 14 availabilities on the market in Downtown Calgary that have over 100,000 sf available as one contiguous block. These 14 blocks of space represent 23% of the total availability of space in the Downtown market and 67% 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% pre-leased, but the occupancy for the building will be phased in over the next several quarters as it will take time for fixturing and move-in to be completed. This one building increased the downtown office inventory by 3%. As a result of the current economic conditions and weak demand for space no new development is 5 AVISON YOUNG Q Office Market Report

6 continued from page 5 expected to be announced in Calgary s downtown core for several years. 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% preleased - with over a year to go before occupancy starts to take place. Looking to the future, without a substantial change in the Calgary economy, TELUS Sky will potentially push vacancy up to 27.7%, using pessimistic assumptions. The current realistic prediction is that absorption will be flat for the first half 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%, resulting in vacancy reaching just shy of that mark (26.3%) when TELUS Sky comes online and trending downwards thereafter. 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 labour 66% employment: % 52.3% Downtown of calgary's labour force: of calgarians are employed vs. the canadian average of 60.2% of aboriginals are employed vs. the canadian average of 52.1% of calgarians (15-24 yrs old) are employed vs. the canadian average of 51.9% 3.6% 32. are immigrants have postsecondary education of calgarians (64+ yrs old) are employed vs. the canadian average of 4.4% Source: Calgary Economic Development % 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) 26.4% % % 25.7% Brookfield Place - East (1,400,000 sf) 27.7%27.7%27.7%27.7%27.7%27.6% % % 26.3% %25.3% % 24.3% % 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 Q1 and Q2, positive 100,000 sf in each of Q3 and Q and beyond: Positive 150,000 sf in each quarter Pessimistic Assumptions: 2018: Negative 150,000 sf in Q1, and 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 ABSORPTION (DEMAND) VACANCY (SUPPLY) RENTAL RATES The vacancy rate in the Beltline office market edged upwards again to sit at 18.4% in fourth quarter This is up from 17.3% in third quarter 2017, and from months ago in fourth quarter Vacancy appears to have peaked during this downturn for this market segment at 19.1% in the third quarter of beltlilne calgary office vacancy by class 24. The amount of vacant office space in Beltline Calgary increased by 4 in 2015 and by 3% in In the last three years combined, the amount of vacant office space in Beltline Calgary increased 73% from 883,000 sf to the current 1.5 msf. Looking at the breakdown between building classes, fourth quarter 2017 saw positive absorption for class A buildings and negative absorption for class B and C buildings. Over the last three months class A buildings saw positive 44,000 sf of absorption, class B saw negative (-108,000 sf ) of absorption, and class C saw negative (-30,000 sf ) absorption. Vacancy by class is now: class A 13.2%, class B 24., and class C 15.2%. beltline calgary office market average asking rents Headlease - High-Low-Average - ($/SF/Annum) $30.00 $25.00 $22.00 $20.00 $15.00 $15.00 $10.00 $10.00 $5.00 $0.00 Class A Class B Class C % 6.41% 5.63% 18.41% 15.2% % 18.4% 4.91% 13.47% Absorption in the Beltline office market for fourth quarter 2017 was negative (-94,000 sf ). It is unfortunate that negative absorption has returned throughout 2017, this has pushed the year to be the worst for negative absorption since 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. Range Average Similarly, quoted taxes and operating costs average $18.22 psf for all building classes, in the Beltline market. Class A buildings average $19.90 psf, class B buildings average $17.32 psf, and class C buildings average $16.49 psf. 6.84% Class A Class B Class C Overall This increase in vacancy comes about through a 92,000-sf increase in headlease space, and an increase of less than 2,000 sf within the sublease market this quarter. Total vacancy for the Beltline office market is 1.5 msf, broken down by: 1,120,000 sf of headlease space (73%) and 409,000 sf of sublease space (27%) saw the amount of vacant space in the Beltline market increase by 16%. Average asking rents for headlease space in the Beltline range between $5 and $27 per square foot, per annum. Class A buildings typically range between $18 and $27 psf (average $22 psf ). Class B buildings typically range between $12 and $18 psf (average $15 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. 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 7 AVISON YOUNG Q Office Market Report

8 BELTLINE continued from page 7 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 69% of this space is available on a headlease basis. No new projects commenced in fourth quarter 2017, however two projects, 14th Street Office Building at th Avenue SW and Mount Royal West, remain under construction. These building contain a total area of 66,000 sf and combined are 47% pre-leased at this time - with all of this pre-leasing being in the 14th Street Office Building. beltline calgary annual office absorption 1,200,000 1,063,000 1,000, , , , ,000 16, , , , ,000 Calgary's Unemployment Rate is now 7.. 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 December 2017, prepared by Avison Young's Calgary Research team (monthover-month and year-over year comparisons). CLICK HERE to view -400, calgary q notable office leasing transactions Downtown Tenant Building Name Address Size (sf) Deal Type Plains Midstream Canada Plains Midstream Plaza 607-8th Avenue SW 167,000 Renewal - Expansion Spartan Energy* The Bow 500 Centre Street SE 40,000 Sublease - New Aon Eau Claire Tower 620-3rd Avenue SW 27,000 Sublease - New Beltline Tenant Building Name Address Size (sf) Deal Type Copithorne and Blakely Corporation* Biscuit Block th Avenue SE 7,000 Sublease - New Katz Group Real Estate* Joffre Place th Avenue SW 7,000 Headlease Trilogy Software Inc.* Dorchester Square th Street SW 5,000 Headlease Suburban North Tenant Building Name Address Size (sf) Deal Type Low Glenn & Card LLP* Sunridge Business I 2886 Sunridge Way NE 8,000 Headlease Dynacare Gamma Laboratory* Willowglen Business Manning Road NE 4,000 Headlease S. Shewchuk & Associates Ltd.* Stockman Centre th Avenue NE 3,000 Headlease - Renewal Suburban South Tenant Building Name Address Size (sf) Deal Type HOCS Projects* Railway Corporate Centre A 6807 Railway Street SE 26,000 Headlease Aware 360* Glenmore Professional Centre th Avenue SW 11,000 Headlease 420 Dispensaries* Tull Business nd Avenue SE 6,000 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. in fourth quarter 2017, up from 15.4% in third quarter 2017, and from 16.9% 12 months ago. Vacancy appears to have peaked during this downturn for this market segment at 21.3% in the third quarter of Headlease space increased by 259,000 sf, while sublease space decreased by 24,000 sf during the last three months. Total vacancy for the Suburban North office market is 1.7 msf, broken down by 1.4 msf of headlease space (8) and 344,000 sf of sublease space () saw the amount of vacant space in the Suburban North market increase by 16%. The amount of vacant office space suburban north calgary office vacancy by class % 3.23% 15.52% 14.6% 5.28% 9.27% 18.6% % % 14.0 suburban north calgary annual office absorption 200, , , , ,000 1,000, , ,000-14,000 68, , North Calgary increased 8 from 963,000 sf to the current 1.7 msf. Fourth quarter 2017 saw negative absorption for class A and B buildings, and positive absorption for class C buildings in the Suburban North. Over the last three months class A buildings saw negative (-32,000 sf ) of absorption, class B saw negative (-67,000 sf ) of absorption, and class C saw positive 30,000 sf of absorption. Vacancy by class is now: class A 18.7%, class B 14.6%, and class C 18.6%. Absorption in the Suburban North office market for fourth quarter 2017 was negative (-69,000 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 $16 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 $14.40 psf for all building classes, in the Suburban North market. Class A buildings average $15.35 psf, class B buildings average $13.56 psf, and class C buildings average $12.18 psf. There are 13 availabilities in Suburban North Calgary with more than 30,000 sf available in one contiguous block. These 13 blocks of space represent 42% of the total availability of space in the Suburban North office market and 77% of this space is available on a headlease basis. One new office building was added to inventory in fourth quarter 2017, Royal Vista Centre (49,000 sf ), which had no leasing in place at the time of completion. Two office buildings remain under construction in Suburban North Calgary. These are: Hexagon Calgary Class A Class B Class C Overall calgary office market average taxes and operating costs Class AA Class A Class B Class C All Classes Downtown $23.48 $21.00 $18.11 $16.16 $21.11 in Suburban North Calgary increased by 3 in 2015 and by 14% in In the last three years combined, the amount of vacant office space in Suburban Beltline - $19.90 $17.32 $16.49 $18.22 Suburban North - $15.35 $13.56 $12.18 $14.40 Suburban South - $14.98 $14.48 $9.67 $14.46 Overall $23.48 $18.87 $17.07 $14.43 $17.89 (per square foot, per annum) 9 AVISON YOUNG Q Office Market Report

10 suburban north office market average asking rents Headlease - High-Low-Average - ($/SF/Annum) $35.00 $30.00 $27.00 $25.00 $20.00 $19.00 $15.00 $13.00 $10.00 $9.00 market is 2.7 msf, broken down by 1.84 msf of headlease space (68%) and 879,000 sf of sublease space (32%). Fourth quarter 2017 saw positive absorption for class A and C buildings and negative absorption for class B buildings in the Suburban South office market. Over the last three months class A buildings saw positive 106,000 sf of absorption, class B saw negative (-13,000 sf ) of absorption, and class C saw positive 34,000 sf of absorption. Vacancy by class is now: class A 25.7%, class B 13.6%, and class C 12.6%. suburban suburban south calgary annual office absorption 1,500,000 1,355,000 1,000, ,000 95, , ,000 $5.00 suburban south calgary office vacancy by class -500, ,000 $0.00 New Construction Class A Class B Class C 3 Range Average 25.7% 1,000, continued from page 9 Campus, and One North Business Centre. They represent 181,000 sf of new space, which will increase the Suburban North office inventory by 2%. 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. Suburban South ABSORPTION (DEMAND) VACANCY (SUPPLY) RENTAL RATES The Suburban South office vacancy rate decreased to 22.6% in fourth quarter 2017, down from 23.6% in third quarter 2017, but up from 22. twelve months ago in fourth quarter Vacancy appears to have peaked during this downturn for this market segment at 24.3% in the first quarter of Headlease space decreased by 134,000 sf over the last quarter, while sublease space increased by 7,000 sf. Total vacancy for the Suburban South office % 13.6% 0.34% 13.22% 12.6% 1.12% % 7.29% 15.29% Class A Class B Class C Overall Absorption in the Suburban South office market for fourth quarter 2017 was positive 127,000 sf. Thanks to positive absorption in the first and second quarters of 2017, the 2017 annual absorption for the Suburban South office market is positive 95,000 sf, making it the best performing submarket in Calgary for the year. The 5-year annual 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 $25 psf, (average $19 psf ). Class B buildings typically range between $10 and $16 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 $14.46 psf for all building classes, in the Suburban South market. AVISON YOUNG Q Office Market Report 10

11 suburban suburban south office market average asking rents Suburban South Office Market Average Asking Rents Headlease - High-Low-Average - ($/SF/Annum) $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 $27.00 New Construction Range $19.00 $14.00 $10.00 Class A Class B Class C Average continued from page 10 Class A buildings average $14.98 psf, class B buildings average $14.48 psf, and class C buildings average $9.67 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 6 of the total availability of space in the Suburban South office market and 63% of this space is available on a headlease basis. No new buildings were added to inventory in fourth 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 39% preleased. Given the current, widespread availability in the office market and slow absorption of space, limited new construction is anticipated to commence in Did You Know? Did you know Avison Young is considered one of the most diverse firms in the commercial real estate industry with an overall makeup of 4 women, according to a CREW white paper and Avison Young case study? CLICK HERE to view 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 14th Street Office (RECA Building) th Avenue SW 38,000 Q % Mount Royal West th Street SW 28,000 Q Suburban North New Supply Building Name Address Office Area (sf) Expected Completion % Leased / Pre-Leased LEED Target Royal Vista Corner 9 Royal Vista NW 49,000 Complete 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 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 % 11 AVISON YOUNG Q Office Market Report

12 featured downtown featured beltline featured suburban north featured suburban south Selkirk House ATCO Centre I & II WhiteWater Place th Street SE BROCHURE BROCHURE BROCHURE BROCHURE 555-4th Avenue SW SUBLEASE Opportunity Up to 11,149 sf (chalkline opp.) 909 & th Avenue SW HEADLEASE / SUBLEASE From 2,271 sf up to 113,573 sf th Street NW HEADLEASE Opportunity 2,092 sf th Street SE HEADLEASE Opportunity 11,500 sf Gulf Canada Square BROCHURE BROCHURE BROCHURE th Avenue SW 325 Manning Road NE Corner Court BROCHURE 401-9th Avenue SW SUBLEASE Opportunity From 3,567 sf up to 340,126 sf th Avenue SW HEADLEASE Opportunity From 1,685 sf up to 9,860 sf 325 Manning Road NE HEADLEASE Opportunity From ±1,000 sf - ±14,000 sf nd Street SE HEADLEASE Opportunity From 5,901sf up to 13,416 sf featured downtown F1RST Tower Existing First Class leaseholds including demountable wall systems On-site Professional Management & 24/7 Security Fitness centre in the building Underground parking Plus st Street SE HEADLEASE Opportunity From 11,250 sf up to 330,965 sf + 15 connected Walking/Bike trails BROCHURE Access to restaurants, coffee shops, eateries & services Avison Young Calgary Office Team Taylor Archer Loveleen Bhatti Roseleen Bhatti Rachel Carter Eric Demaere Spencer Duff Steve Goertz Larry Gurtler Eric Horne Chris Howard ext. 223 Jason Kopchia Tinyan Leung Research Susan Thompson Graphics Penelope Johnson Jordyn Malkinson Miri Mammadov Paul McKay Alexi Olcheski Nairn Rodger Kirsten Scott Glenn Simpson Anna Sorensen Mark St. Pierre Todd Throndson Alex Wong Allan Zivot Business Condominium Team Pali Bedi Fred Clemens Puneet Nagpal 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.