Office Market Overview Canada Fourth Quarter Canada s office market saw some firming at year-end

Transcription

1 Office Market Overview Canada Fourth Quarter 2015 Canada s office market saw some firming at year-end

2 Office market overview National market conditions 2015 was not a stellar year for the Canadian economy. Plunging oil prices and a slow financial market were felt coast to coast and recent GDP forecasts suggest the economy grew at a mere 1.2 percent in Looking ahead, the Canadian economy is forecasted to improve, growing at 1.7 percent in 2016 and 1.8 percent in A low Canadian dollar, stronger manufacturing and exports, and a more optimistic U.S. economy are expected to support domestic growth and offset further decline in the low commodity-price environment. Despite the lackluster economy, Canada s office market saw some firming at year-end and posted 472,483 square feet of positive net absorption in the fourth quarter. This is a positive sign and marked the third consecutive quarter posting positive net absorption. However, it was not enough to offset the first quarter s two million square feet of negative net absorption. The quarterly uptick in occupied space was driven primarily by tenants in Metro Vancouver and the Greater Toronto Area (GTA). In Vancouver, the technology and digital media industries continue to outperform other sectors, with companies like Eventbase Technologies doubling their size at 1286 Homer Street and Fully Managed tripling their size in Sun Tower. In Canada s largest office market, the GTA, major moves took place in both the Downtown and Suburban office markets. Notable deals included firms from the financial, media, and consulting industries with Scotiabank at 4715 Tahoe Boulevard and ARI renewing and expanding to 45,000 square feet at 1270 Central Parkway. Other markets posting positive gains in the fourth quarter include Greater Montreal (247,620 s.f.), Ottawa and Gatineau (282,050 s.f.), and Winnipeg (76,774 s.f.). Despite these positive gains 2015 ended, as mentioned, in the red with nearly 600,000 square feet of negative net absorption, driven primarily by the downturn in Alberta. Unemployment in Calgary rose to 7.0 percent at the end of 2015, the highest since 2010, and as oil prices continue to drop the office market is forced to navigate through highly uncertain and harsh economic conditions. Calgary recorded 685,212 square feet of negative net absorption in the fourth quarter with the vast majority, not surprisingly, occurring in the Downtown market. Calgary s Suburban office market, on the other hand, continues to remain afloat despite the continuous depression of oil prices. Indication of a correlation between oil prices and vacancy in the suburbs is present but not as significant as its downtown counterpart due to a greater diversity of tenants in the suburban market. Greater Edmonton s office market ended 2015 with additional negative net absorption of 7,030 square feet. The market remains flat, and we expect the current trend of low leasing transactions to persist through The national office vacancy rate ended the last quarter of the year at 10.7 percent, which was a decrease of 30 basis points quarteron-quarter, but an increase of 130 basis points when compared year-on-year. Although the vacancy rate saw a slight decrease nationally, if we look closer at the local office markets it was only Calgary that saw any significant movement in the fourth quarter. In fact, the vacancy rate remained more or less unchanged across the vast majority of office markets while Calgary saw an uptick of 260 basis points quarter-on-quarter, reaching 14.2 percent. The total vacancy rate has skyrocketed in Calgary in the last twelve months, increasing 630 basis points. From an occupier standpoint, this has created numerous opportunities and tenants actively looking in the Downtown marketplace are benefiting from the broad range of market options for both head lease and sublease space. Nationally, the overall Class A net asking rent inched down 1.4 percent quarter-on-quarter and 7.1 percent year-on-year. This was, again, primarily driven by the reduction in rates across the Calgary office market. Rents in the Downtown Toronto office market remained buoyant despite the new construction and higher vacancy rate. Class A average net rent in Downtown Toronto saw a slight uptick year-on-year increasing 2.6 percent to $28.27 per square foot. On the construction front, 2.5 million square feet were completed in the fourth quarter. Vancouver was the recipient of 864,926 square feet with two notable downtown buildings; Rogers Arena West Tower and 745 Thurlow. In Calgary, the 850,000 square feet Calgary City Centre opened its doors with key tenants such as Progress, Inter Pipeline, and Ernst & Young. Another 16.8 million square feet is currently under construction with the majority to be completed in the Greater Toronto Area (5.4 m.s.f.), Calgary (4.1 m.s.f.), Montreal (2.0 m.s.f.) and Vancouver (1.5 m.s.f.)., Bank of Canada, TD Securities JLL Canada Office Market Overview Fourth Quarter

3 Positive net absorption in Q2 Q4enough to offset Q1 losses Downtown net absorption worsens while Suburban improves continues to climb settling at 10.7 percent in Q Sublease space continues to climb, nationally 10.6 million s.f. available Downtown sublet space as percent of total available space rising in Calgary Nationally, Downtown Class A rents are falling Office construction underway as percent of total inventory, Strong demand for Class A product under construction brought the preleasing rate up in Q JLL Canada Office Market Overview Fourth Quarter

4 Canadian economy Global and national economic conditions The global economy grew at its slowest pace since the financial crisis, despite advanced economies growing at their fastest pace since The sub-par growth was attributable to emerging market economies as they struggled with plummeting commodity prices, capital outflows and a continued slowdown in China. The global economy is forecasted to grow at just 3.1 percent in 2015 and 3.3 percent in After a dismal start to 2015, Canada s economy posted a healthy 2.3 percent annualized gain in the third quarter. Strong exports, firm consumer spending, and a buoyant housing market supported the bounce back after two consecutive quarters of negative GDP growth. It appears the bounce back in the third quarter was only temporary, as the Canadian economy is anticipated to end 2015 on a soft note, with real GDP forecasted to grow at 1.3 percent in the fourth quarter and the Canadian economy forecasted to grow at just 1.2 percent in 2015, making it the worst performance since The economy is expected to pick up the economic slack in 2016 and 2017, growing at 1.7 percent and 1.8 percent respectively. Despite the underwhelming economic performance, the Canadian labour market posted gains of 158,000 in 2015 or 0.9 percent, slightly above the growth rate of 0.7 percent in Notwithstanding the gains in the labour market, the unemployment rate rose by 40 basis points to 7.1 percent as approximately 110,000 new participants entered the workforce. British Columbia had the strongest employment gains in 2015, up 52,000 or 2.3 percent. At a national level, the largest declines in employment were seen in the support sector for mining and oil and gas extraction; while the largest gains (5.2%) in employment were realized in professional, scientific and technical services. economy appears to be gaining momentum, boding well for Canadian exports in the second half of 2015 and anticipated to continue into All in all, total exports are forecasted to increase by 3.1 percent in 2015 and 3.6 percent in 2016, down from 5.4 percent in the previous year. Canada s housing market defied expectations in 2015, with national home sales increasing by 5.5 percent and national house prices increasing by an average of 12.0 percent. The historically low interest rate environment and strong homebuyer demographics have helped prosper demand in both British Columbia and Ontario, offsetting the weakening conditions in the energy dependent provinces Alberta and Saskatchewan. Momentum in the housing sector is anticipated to continue, with historically low interest rates fueling demand well into Canada s core inflation rate remained above the 2.0 percent midpoint of the Bank of Canada s (BoC) target range for 15 consecutive months; however, the BoC stated that it discounted the persistence of the core measure due to the depreciation of the Canadian dollar, which likely inflated the core rate by 0.5 to 0.7 percent. The headline rate remained at the lower end of the target band at 1.0 percent due to stark energy prices. The Bank of Canada held the overnight rate at 0.5 percent in January 2016 and is anticipated to continue to hold the rate throughout 2016, until concerns regarding the inflation rate exceeding the target rate become more prevalent. The Canadian dollar currently stands at an 11-year low. Tumbling oil prices, diverging growth outlooks and expected interest rate differentials have all pushed the value of the Canadian dollar lower relative to its U.S. counterpart. Given the weakened Canadian dollar, exports are anticipated to see a boost in 2015 and 2016; however, trade numbers to date have been disappointing, indicative of the slow start the U.S. economy experienced in the first quarter of Fortunately, the U.S., Bank of Canada, TD Securities, Bank of Nova Scotia JLL Canada Office Market Overview Fourth Quarter

5 1-month net change (thousands) 12-month % change The rate of job creation continues to rise increasing by roughly 1 percent over the past 12 months despite the economic slowdown month net change 12 month % change Annual real GDP growth was negative in October in first time since 2009, Statistics Canada, Statistics Canada Main industrial sectors annual GDP change, October 2014 to October 2015 Global oversupply push WTI below the US$40 per barrel mark, Statistics Canada A weaker Loonie is expected to boost manufacturing and exporting industries in Canada, U.S. Energy Information Administration Bank of Canada keeps the overnight target rate at 0.50 percent as the economy continues to struggle, Bank of Canada, Bank of Canada Canadian Trade Balance continues its negative trend Household Debt to Disposable Income Ratio remains elevated, Statistics Canada, Statistics Canada JLL Canada Office Market Overview Fourth Quarter

6 Canadian Office property clock Toronto Quebec city Halifax Peaking phase Falling phase Calgary Winnipeg, Montréal Rising phase Bottoming phase Edmonton Canada Ottawa, Vancouver Reading the clock JLL s office clock demonstrates where each market sits within its real estate cycle. Markets generally move clockwise around the clock. Geographies on the left side of the clock are generally landlordfavourable, while markets on the right side of the clock are typically tenant-favourable. JLL Canada Office Market Overview Fourth Quarter

7 Downtown Toronto Toronto downtown markets remain buoyant Strong fundamentals in 2015 The downtown Toronto office market exhibited solid fundamentals this year with 100 basis point drop in vacancy to 5.6 percent from 6.6 percent in The limited space availability was a result of steady demand and a lack of new supply added to the market. In fact, Allied s 134 Peter Street was the only significant downtown completion in 2015 and it was 95 percent pre-leased on completion. The solid demand was reflected in consistent leasing numbers and nearly 900,000 square feet of direct deals were completed in each of the four quarters of As a result of the tight market with limited space availability and persistent demand, the average gross rent increased by 5.1 percent (last 12 months) to $48.86 per square foot. Some notable transactions included Traveledge (74,000 sf) in 2 Queen Street East, Touchstone Institute (41,500 sf) in 145 Wellington Street West, Ole Media (26,000 sf) in 120 Bremner Blvd. and The Score (31,000 sf) in King Street West. Consistent leasing activity Direct Sublet # of Deals Downtown West submarket absorption highest in Q Downtown West market has a strong year end finish The Downtown West office market was the top performing submarket with 250,221 square feet of the total 443,074 square feet of positive net absorption in Q4. This supports the strong demand narrative for brick & beam buildings and cool amenities by the submarkets favoured sector, Technology, and its key labour force, the millennials. The limited supply in the Downtown West submarket saw further tightness in Q4 as a result of increased tenants taking up occupancy. This significantly lowered total vacancy to 6.4 percent from 8.3 percent in the previous quarter. The strong office market conditions in Downtown West were reflected in the high gross asking rents which are on par with the more modern and central Downtown South office market. Downtown Office Market will experience tight supply conditions Despite 3.68 million square feet of new office construction expected in the next three years, the Downtown Office market will see supply under pressure as 75 percent of the new space has already been pre-leased. Keeping in view the current low vacancy rate in the Downtown market and majority of the new expected supply leased, the market fundamentals in the Downtown market are expected to be under pressure and remain tight for the next months. New buildings under construction new office buildings 5% of Current total inventory 900,000 square feet available 71,989,127 Total inventory (s.f.) 5.6% 443,074 Q4, 2015 net absorption (s.f.) 708,479 YTD net absorption (s.f.) $28.27 Avg. Class A asking net rent 2.6% 12-month rent growth 3,684,828 Total under construction (s.f.) 74.0% Total preleased JLL Canada Office Market Overview Fourth Quarter

8 Suburban Toronto Flight to quality still the common trend Market fundamentals remain divided across the suburbs The suburban office market recorded 200,000 square feet of negative net absorption in the fourth quarter and as a result the overall vacancy rate increased to 13.4 percent. The figures show a divide in the suburbs as the North and East contributed 283,000 square feet of positive net absorption, while the West subtracted 483,000 square feet. The negative swing in the West is a result of leading companies becoming increasingly motivated to move out of aging product in to new Class A space of higher quality with little to no deferred maintenance costs. Additionally, landlords are rewarding tenants for their relocations with only an average rent increase of $3.20 per square foot for the upgrade. Notable transactions include Scotiabank s 142,000 square foot lease in 4715 Tahoe Drive and ARI s renewal and expansion to 45,000 square feet in 1270 Central Parkway. Suburban vacancy by class GTA West experiences a second straight quarter of negative absorption This quarter sets a record for the biggest removal of space in the West in any quarter in the last 10 years. Only four percent of this displacement is a result of Class A buildings losing tenants, while the overwhelming majority being second and third generation Class B and C buildings in Etobicoke, Oakville and Burlington. Tenants such as Hatch, AMD, and The Center for Skills for Development are examples of this flight to quality. This trend is expected to carry onwards with 900,000 square feet under construction in the West which offer suitable alternatives to aging product. In turn, this puts pressure on old-stock landlords to cut better deals or re-invest in their product to avoid having large blocks of vacancy remain in their buildings. Flight to quality why it makes sense Market demand is obvious, as over the past two years 58.0 percent of Class A buildings completed in the suburbs has leased and development has yet to slow. Tenants appear quite willing to pay for the higher quality product, so the new buildings make long-term economic sense from the developer s standpoint. Economic decisions are being made to use less space per employee to optimize space, maximizing return to the owner while reducing tenants overall rental costs. Leasing of space is no longer solely a real estate decision as companies recognize the importance of including HR to measure the quality and location as a tool to attract and retain employees, which in turn reduces overall expenses. Absorption by Class A, B & C in the West office market (s.f.) Suburban Class A office buildings outperforming Class B 58% - 4% Class A buildings (13) completed this year have leased at a rate of 58 percent compared to Class B buildings (7) at a rate of 4%. 87,336,224 Total inventory (s.f.) 13.7% -200,254 Q net absorption (s.f.) -115,954 YTD net absorption (s.f.) $16.22 Avg. Class A asking net rent -0.1% 12-month rent growth 1,775,530 Total under construction (s.f.) 38.9% Total preleased JLL Canada Office Market Overview Fourth Quarter

9 Ottawa and Gatineau Slow growth in Ottawa s office leasing market New wave of technology firms establishing in Ottawa Ottawa is becoming an increasingly popular city for technology firms to establish, grow and mature. The weak Canadian dollar and relatively lower real estate costs due to a weakened market have influenced many tech firms decision to establish or expand in the city. Shopify s decision to expand and remain headquartered in Ottawa after its successful IPO in 2015 also encourages potential tenants to follow suit. Though Ottawa historically attracted hardware based tech firms, the majority of new tech firms now choosing the city are software and cloud companies. For example, Qlik, a Swedish software company, recently chose Ottawa to establish its new R&D centre after a methodical approach to identifying and selecting candidate cities globally. Global uncertainty dampening Ottawa s office market rebound The recent volatility in global economies has suppressed the Canadian dollar and is edging up inflation. This has put pressure on Ottawa s commercial and public organizations to be cautious about forecasting growth and space requirements. Companies continue to actively right size their space while downtown landlords remain bearish and offer increasingly aggressive inducements. Some tenants are still taking advantage of market conditions by moving up from Class B to Class A buildings, as evidenced by the Downtown Class A direct vacancy falling 50 basis points quarter over quarter while the Suburban Class B direct vacancy climbed 40 basis points over the same time period. Cautious growth likely for Feds in 2016 and 2017 The relentless fall of oil prices has, and continues to, slash the Federal Government s revenue by billions of dollars. Unsurprisingly, this is impacting the Fed s spending and investment plans, including their hiring intentions and subsequent real estate costs. For 2016, we expect that the Feds will initiate some new hiring and that a few real estate deals already in the pipeline will still go ahead. Though it usually takes about 24 months from when the Feds begin searching for space to move-in, we do not anticipate any new office deals for the Feds this year, but some new deals may materialize in Large R&D centres coming to Ottawa 45,000 s.f. Size of Qlik s R&D space in the Kanata node. Ottawa s Downtown Class A vacancy decreases from Q3 Source: Altus InSite, JLL Research Feds are patient when deciding on office space 24 months Average time from when the Feds begin searching for space 2,257 to move-in. 43,368,586 Total inventory (s.f.) 10.1% 282,050 Q net absorption (s.f.) 25,062 YTD net absorption (s.f.) $17.78 Avg. Class A asking net rent -2.0% 12-month rent growth 319,318 Total under construction (s.f.) 79.6% Total preleased JLL Canada Office Market Overview Fourth Quarter

10 Montréal Tenant favorable market conditions carry into 2016 Unemployment remains steady in Q The growth experienced in Montreal s labour market over the previous three quarters has come to a halt in Q The unemployment rate in Montréal has remained steady at 8.7 percent while the overall unemployment rate in the province was lower at 7.6 percent at the end of The service-producing sector, which accounts for nearly 80 percent of employment in Quebec, saw a loss of 5,900 jobs quarter-over-quarter, while the goods-producing sector more than off-set those losses with an increase of 9,000 jobs over the same period. Office leasing market breakdown by industry Positive leasing momentum The GMA office market has seen a continuation in growth since last quarter with a total net absorption of 274,620 square feet. This gain was offset by an increase in inventory of 306,764 square feet, helping keep total vacancy at a standstill from its Q level of 12.6 percent. Construction activity has eased in the GMA with two million square feet of space down from 2.2 million square feet last quarter, with a slight pre-leasing rate increase from 38.3 percent to 45.1 percent. Sublease availability in the GMA has increased by 2.7 percent this quarter to reach 1,407,001 square feet. Subleases in the CBD account for 54.3 percent of the GMA s total available sublease square footage at the end of Q Average gross effective rents by region and building class Outlook remains favorable for tenants amid positive leasing momentum The GMA has 12 million square feet of vacant office space with another two million square feet of space available for lease expected to be vacated in the next 24 months. 1.4 million of Class A inventory will be added to the GMA, 30 percent of which will be completed in 2016, and the balance delivered in At the current pre-leasing rate, we anticipate up to one million square feet of vacant new completions will be added to the market in the next two years. No new construction has broken ground this quarter. In terms of sublease availabilities, 242,746 square feet of space is coming to term in the GMA next quarter. As a result, vacancy is expected to halt its upward momentum in most submarkets during 2016 causing the GMA s total vacancy rate to persist near 14 percent. Year-over-year the average asking net effective rent in Class A and B properties in the CBD have respectively dropped by 8.5 percent and six percent. Leasing activity has picked up throughout 2015, we forecast tenant favorable conditions to slightly downshift across the GMA going into ,817,729 Total inventory (s.f.) 12.6% 274,620 Q net absorption (s.f.) 42,334 YTD net absorption (s.f.) Available sublease space by lease expiration (,000 s.f.) $18.35 Avg. Class A asking net rent -6.7% 12-month rent growth 2,257 2,051,239 Total under construction (s.f.) 45.1% Total preleased JLL Canada Office Market Overview Fourth Quarter

11 Edmonton Edmonton s forecast calls for more of the same Edmonton s office market chugs along The office leasing market across Edmonton remains flat. A number of tenants continue to adjust to the softened economy in Alberta by downsizing in an effort to reduce their overhead costs. There is still much sublease space available across Downtown Edmonton, and the roughly 1.1 million square feet of new office developments scheduled for completion in 2016 will further add vacant space to the market. However, the timing of these new developments have been known for quite some time, so the negative effects will likely not be as dramatic. As there remains limited demand for space, Edmonton s outlook will remain tenant favoured for the foreseeable future. Negative absorption persists in Downtown Edmonton -23,070 s.f. Downtown Edmonton s Q4 net absorption., Altus InSite Commercial real estate developers shifting focus? The increasing vacancy and contracted demand for office space in Edmonton is forcing commercial real estate developers to rethink future strategy and growth. One opportunity includes shifting focus to build rental apartments instead since Alberta s housing market remains healthy despite setbacks in the economy. For example, Strategic Group, a fully integrated commercial real estate owner, manager, and developer, has recently shifted away from building office product and aims to have at least nine apartment buildings under construction in Alberta by mid Will other commercial real estate developers follow suit and pivot to building rental apartments too? in Downtown Edmonton continues to rise, Altus InSite City of Edmonton to consolidate offices at the end of 2016 The City of Edmonton (City) is scheduled to consolidate numerous offices and move in to roughly 350,000 square feet at the new EAD Tower when complete at the end of However, some of the City s current leases are expiring in early 2016, months before completion of their new consolidated location. Luckily for the City, the weakened demand for office space in Edmonton means that landlords do not want space in their buildings vacating and sitting empty, especially not the City s current average of about 100,000 square feet per property. Therefore, the City has been able to negotiate flexible, short-term leases such as an extension at CN Tower until the end of 2016 with a 90 day notice period of termination by either party after that time. 24,159,073 Total inventory (s.f.) 9.6% -7,030 Q net absorption (s.f.) -95,693 YTD net absorption (s.f.) City of Edmonton s new office at EAD Tower 350,000 s.f. Amount of space the City of Edmonton will $20.62 Avg. Class A asking net rent -1.0% 12-month net rent growth consolidate into 2,257at new EAD Tower. 1,793,169 Total under construction (s.f.) 74.9% Total preleased JLL Canada Office Market Overview Fourth Quarter

12 Downtown Calgary Perception is everything Tenants look to capitalize on current market conditions Although the oil price decline hasn t been beneficial to the downtown Calgary office market, it isn t all bad news. Tenants currently looking in the marketplace have opportunities. There are over 700 options in various sizes within the downtown market for tenants to view, totaling almost 8.1 million square feet of marketed space. However, tenants should note options within the sub 3,000 square foot range are limited. Only 18.3 percent of the over 700 options meet that size criteria and, as a result, is creating a competitive sub-section of the market. Additionally, average asking net rents declined quarter over quarter by 9.2 percent, to $18.84 per square foot. These factors indicate all downtown sub-markets in 2016 are likely to remain tenant favourable as rental rates continue to drop and the number of options grows. Availability rate increases 17.2% Availability rate Q Decrease in demand continues Demand for downtown office space continues to weaken. In Q4 2015, the downtown Calgary office market saw its fifth consecutive quarter of increased vacancy rates, reaching 14.1 percent. This represents a quarter over quarter vacancy rate increase of 2.6 percent. If the vacancy rate was to include space occupiable within the next six months, it would increase to 17.2 percent. In Q4, there was negative net absorption of 675,255 square feet. This totals a negative 2.6 million square feet of absorption in The addition of Calgary City Centre to inventory augmented negative net absorption, as tenants moving to this new building leave space behind; 232,021 square feet of that space is currently on the sublease market. We anticipate continued lack of demand for office space through 2016 if depressed oil prices persist and tenants in the downtown core, primarily energy industry companies, take further austerity measures as a response. Inducements increase Q saw landlords find creative ways to entice tenants to fill current building vacancies. Inducements such as free rent periods, increased tenancy improvement allowances and lease buyouts are examples of such encouragements. Furthermore, with the majority of activity in the sublease markets landlords will need to continue utilizing inducements in 2016 to compete in attracting and retaining these tenancies. Sublease market continues to rise Downtown overall asking net rental rates decline $18.84 Downtown overall asking net rental rates (9.2% decrease from Q3) 41,682,752 Total inventory (s.f.) 14.1% -675,255 Q net absorption (s.f.) -2,619,260 YTD net absorption (s.f.) $21.13 Avg. Class A asking net rent -38.3% 12-month rent growth 2,940,430 Total under construction (s.f.) 68.9% Total preleased JLL Canada Office Market Overview Fourth Quarter

13 Suburban Calgary Suburbs remain stagnant heading into 2016 Suburban Market remains tenant favoured heading into 2016 Calgary s suburban office market continues to feel the repercussions of oil prices that are now below US$30.00 per barrel (WTI) and natural gas prices hovering around US$2.00/mcf. Not all sectors of the suburbs are being affected in the same way as some areas have proven to be more resilient than others. Nonetheless, vacancy is slowly on the rise and there has been a slow and progressive compression in average net asking rates. Vacancy currently sits at 14.1 percent in the suburbs and 14.6 percent in the Beltline, and rental rates have decreased by almost 13 percent across the board over the last 12 months. Class A vacancy is notably higher than its historical average and currently is sitting at 14.9 percent. The spike in Class A vacancy is mostly due to the delivery of unleased, new construction, and larger sublease availability. New product on the horizon The suburban market currently has 10 buildings, totaling 1,165,918 square feet of office space, under construction. The majority of these buildings are nearing completion and all of them should be complete by the end of The largest increase in supply will occur in the suburban south with 551,572 square feet entering the market. The negotiation tug of war on net rates between landlords and tenants has caused a stalemate in pre-leasing activity on new developments. Unless landlords and tenants can bridge the gap in their difference of opinion, expect vacancy to continue its rise heading into Historical suburban office market vacancy Suburban & Beltline vs. Downtown Class A office vacancy Suburban and Beltline 14.9% V. 13.0% Class A vacancy rate Downtown Although diverse, suburbs still not immune to oil and gas collapse The tenant diversity in the suburbs has enabled the market to better withstand the pressures of a struggling oil and gas industry. This is specifically true when comparing the suburbs to the downtown core. Industries that aren t necessarily correlated with the oil and gas industry are looking to take advantage of the depressed economy, and secure excellent lease deals. The interpretation of this activity is ambiguous, as demand, in and of itself, is not necessarily positive for landlords. When activity is concentrated on tenants pursuing aggressive, low NER lease deals, this demand is not synonymous with a market recovery or strength. Beltline headlease and sublease space 2,257 25,401,147 Total inventory (s.f.) 14.3% 52,544 Q net absorption (s.f.) 218,248 YTD net absorption (s.f.) $22.80 Avg. Class A asking net rent -6.4% 12-month rent growth 1,165,918 Total under construction (s.f.) 66.4% Total pre-leased JLL Canada Office Market Overview Fourth Quarter

14 Metro Vancouver Metro Vancouver adjusts to high amounts of new inventory Downtown vacancy reduction expected as development cycle subsides The delivery of 745 Thurlow and Aquilini Centre West in Q represents the culmination of downtown s recent development cycle. 745 Thurlow is 89 percent leased, Aquilini Centre West is 17 percent leased, and of the 1.83 million square feet of new office space delivered to the downtown market in 2015, 88 percent is now leased. The Telus Garden Podium and 510 Seymour are the only new downtown developments slated for delivery in 2016 and combined will add 124,416 square feet to the market. The technology and digital media industries continue to outperform other sectors, with companies like Eventbase Technologies doubling their size at 1286 Homer Street and Fully Managed tripling their size to 15,000 square feet in Sun Tower. Other notable transactions include Rocky Mountaineer leasing 36,400 square feet at 980 Howe Street and McElhanney Consulting Services securing 40,000 square feet at 858 Beatty Street. Downtown Core Class A/AAA vacancy rate 11.9% As the downtown development cycle peaks, reduction in vacancy rate expected over next 24 months Downtown Core Class A/AAA absorption Downsizings and relocations contribute to Broadway vacancy increase Marine Gateway s delivery (253,112 square feet) contributed to the four percent vacancy rise from Q3 to Q4. Westport Innovations have consolidated out of multiple locations in South Vancouver and Richmond to secure 50 percent of the building. Additionally a number of tenants have vacated the Broadway Corridor including Hothead Games who vacated 10,000 square feet at Discovery Parks for an expansion and relocation into 40,000 square feet downtown. Renfrew Centre (161,611 square feet) and The Mirror Building (18,000 square feet) are the only two buildings scheduled for 2016 delivery, however there is currently approximately 420,000 square feet of new office space under construction throughout the Broadway Corridor scheduled for 2017 delivery. Source: Thomson Reuters, JLL Research Overall Suburban office vacancy Burnaby and Surrey perform well in the suburbs Burnaby and Surrey submarkets benefited from strong tenant demand, absorbing 52,800 square feet and 137,000 square feet respectively. Notable transactions in Burnaby include Mindfield Group s securing of 12,000 square feet at 3480 Gilmore Way and the Neil Squire Foundation s lease of 9,100 square feet at 3999 Henning Drive. Metro Vancouver will also be moving into thirteen floors of its newly acquired Metrotower III. In Surrey, Coast Mountain Bus Company removed their 20,000 square foot sublease offering after two years on the market. 55,904,147 Total inventory (s.f.) 11.8% 249,378 Q net absorption (s.f.) 1,274,190 YTD net absorption (s.f.) $35.36 Avg. Class A asking net rent -1.8% 12-month rent growth 2,257 1,627,586 Total under construction (s.f.) 29.4% Total preleased JLL Canada Office Market Overview Fourth Quarter

15 Canadian office market statistics Key office markets Fourth quarter 2015 Inventory (s.f.) Quarterly total net absorption (s.f., including subleases) YTD total net absorption (s.f., including subleases) YTD total net absorption (% of inventory) (%) Average gross marketed rent ($ PSF) Under construction (s.f.) Quebec City 18,753,428-26,126-37, % 7.3% $ ,375 Downtown 'A' 2,336, , % 9.1% $ Ottawa-Gatineau 43,368, ,050 25, % 10.1% $ ,318 Downtown 'A' 9,718,334 31,361-39, % 6.8% $ ,000 Calgary 67,084, ,212-2,545, % 14.2% $ ,106,348 Downtown 'A' 30,555, ,622-1,506, % 13.0% $ ,940,430 Edmonton 24,159,073-7,030-95, % 9.6% $ ,793,169 Downtown A 11,131,383 32,678-10, % 8.0% $ ,706,732 Vancouver 55,904, ,378 1,274, % 11.8% $ ,561,655 Downtown 'A' 15,079, , , % 11.9% $ ,100 Toronto 175,422, , , % 9.7% $ ,460,358 Downtown 'A' 46,624, , , % 5.7% $ ,584,828 Winnipeg 11,191,127 76,774 61, % 9.2% $ Downtown 'A' 3,692,147 22,589 48, % 6.9% $ Montreal 95,817, ,620 42, % 12.6% $ ,051,239 Downtown 'A' 24,616,565 41,961 50, % 10.7% $ ,200 Halifax 10,663,441-25, , % 15.4% $ ,000 Downtown A 1,654,856 11, , % 18.8% $ ,000 Canadian major market total 502,363, , , % 11.1% $32.32* 15,930,462 *Weighted Average, Altus InSite JLL Canada Office Market Overview Fourth Quarter

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