Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q2 2011 Q3 2011 Q4 2011 Q2 2012 Q3 2012 Q4 2012 Q2 2013 Q3 2013 Q4 2013 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Calgary Office, Q1 2015 Softening demand and new supply lifts vacancy Vacancy Rate 15.4% Asking Net Rent $21.15 per sq. ft. Net Absorption (475,528 sq. ft.) Completions 79,153 sq. ft. Figure 1: Market Fundamentals *Arrows indicate change from previous quarter. Absorption and Supply (000s sq. ft.) Vacancy Rate (%) 1,000 20% 750 15% 500 10% 250 5% 0 0% (250) -5% (500) -10% Net Absorption New Supply Vacancy Rate Q1 2015 witnessed 79,153 sq. ft. of new supply added to inventory. Four large blocks of space came to market, adding up to a combined 438,439 sq. ft. of space for lease. Suburban office space vacancy increased by 230 bps to 15.4%. Of the speculative projects in the pipeline, 632,784 sq. ft. is slated to be delivered in 2015, the majority of which will be added in the South submarket. Low energy prices have pushed some tenants into a wait and see posture, allowing opportunistic tenants to lease spaces that would have previously been unattainable due to competition from larger firms. The Suburban office market reflected the recent drop in energy prices with 475,528 sq. ft. of negative net absorption during Q1 2015. Most of the space returned over the quarter was Class A, accounting for 446,709 sq. ft. of the negative net absorption. 360,000 sq. ft. was returned by a single tenant who gave space back in two separate properties: Southland Park 1 and Sundance Place. Two other tenants each contributed close to 40,000 sq. ft. bringing the aggregate total negative net absorption from the three tenants to 438,439 sq. ft. The first quarter of the year typically experiences weak demand for suburban office space. The weak demand may also be overstating the current market as some prospective tenants sit on the sidelines and consider the many alternatives. Q1 2015 CBRE Research 2015, CBRE Limited 1
Q3 2010 Q4 2010 Q2 2011 Q3 2011 Q4 2011 Q2 2012 Q3 2012 Q4 2012 Q2 2013 Q3 2013 Q4 2013 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Figure 2: Market Statistics Q1 2015 Submarket Inventory Vacancy Rate (%) Sublease Space Net Absorption Under Construction Net Asking Rents ($ per ) Beltline 5,968,068 16.7 402,331 (110,568) 316,500 20.89 South Central 3,938,648 12.2 86,028 4,339 231,609 18.46 South 5,207,548 20.9 270,600 (387,148) 1,431,784 22.59 Northeast 5,906,424 11.9 130,590 33,243 96,145 20.74 Northwest 2,239,193 14.0 105,502 (15,394) 90,000 22.42 Total 23,259,881 15.4 995,051 (475,528) 2,166,038 21.15 Source: CBRE Research, Q1 2015 NET ASKING RENTS Q1 2015 witnessed an adjustment in net asking rents across all building classes. This was most pronounced in the Beltline. While negative net absorption took place primarily in Class A space, rents dropped across all classes and submarkets as landlords made an effort to remain competitive with attractively priced sublease space. OUTLOOK Looking forward to Q2 2015, rental rates will face downward pressure from both weaker demand and new supply. Uncertainty has held up decision making, which could improve in the second half of 2015 pending the performance of energy prices. Figure 3: Suburban Net Asking Rents Net Asking Rent (per sq. ft.) $26.00 $24.00 $22.00 $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 Beltline Overall Class A Class B Class C Q1 2015 CBRE Research 2015, CBRE Limited 2
NEW SUPPLY AND UNDER CONSTRUCTION Figure 4: Under Construction The market added Crowfoot 75 and the Arcuri Business Centre to our inventory for Q1 2015, with the two buildings contributing 79,153 sq. ft. of space to the Northwest submarket. Neither property had pre-lease commitments for space and, as such, contributed to the rise in our vacancy rate. There is currently 2.2 million sq. ft. of suburban office space under construction, which is in line with long-term averages, particularly when considering 661,000 sq. ft. of that represents the remaining phases of Imperial Oil s new home in Quarry Park. Of the speculative projects in the pipeline, 632,784 sq. ft. is slated to be delivered in 2015, the majority of which will be added in the South submarket. Northeast, 144,362 632,784 sq. ft. South, 349,926 South Central, 138,496 Figure 5: Under Construction Property name Submarket Address Size (sq. ft.) Expected Completion Crowfoot 75 Northwest 75 Crowfoot Rise 52,329 Added to inventory Arcuri Business Centre Northwest 70 Country Hills Landing NW 26,823 Added to inventory Fountain Court - Building 1 South Central Glenmore Tr. & Blackfoot Tr. 24,406 Q2 2015 Fountain Court - Building 2 South Central Glenmore Tr. & Blackfoot Tr. 36,544 Q2 2015 Fountain Court - Building 3 South Central Glenmore Tr. & Blackfoot Tr. 29,546 Q3 2015 Douglasdale Medical & Professional Centre II South 11420-114 Avenue SE 48,000 Q3 2015 Quarry Crossing Building B South 50 Quarry Park Blvd. SE 161,926 Q3 2015 Seton Professional Centre East & West South 4448 Front Street SE 96,908 Q1 2016 Imperial Oil Campus - Quarry Park South 275 Quarry Park Blvd. SE 661,000 Q2 2016 Place 10 - East Tower Beltline 524-10th Avenue SW 316,500 Q1 2017 The Windsor South Central 50th Avenue & Elbow Drive SW 70,113 Q1 2017 The District at North Deerfoot Northeast Deerfoot Tr. & Country Hills Blvd. 96,145 Q1 2017 Computer Modelling Group Headquarters Northwest 3710-33rd Avenue NW 90,000 Q2 2017 Quarry Crossing II Building D Southeast 2403-2455-96th Avenue SE 149,750 Q2 2017 Quarry Crossing II Building C Southeast 2403-2455-96th Avenue SE 181,100 Q3 2017 Quarry Crossing II Building E Southeast 2403-2455-96th Avenue SE 181,100 Q3 2017 Garrison Corner South Central 3425-22nd Street SW 23,000 TBD Source: CBRE Research, Q1 2015 Q1 2015 CBRE Research 2015, CBRE Limited 3
Q1 1988 Q1 1989 Q1 1990 Q1 1991 Q1 1992 Q1 1993 Q1 1994 Q1 1995 Q1 1996 Q1 1997 Q1 1998 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2015f Q1 2016f Figure 6: Notable Lease Transactions Size (sq. ft.) Tenant Building Name Industry 48,000 Alberta Health Services Sunridge Medical Gallery Medical 27,000 City of Calgary Sunridge Government 14,100 Canadian Back Institute Intergraph Building Medical Figure 7: Calgary Total Employment & Unemployment Rate Total Employment - Calgary (000s) 1200 Unemployment Rate (%) 12% 1000 10% 800 8% 600 6% 400 4% 200 2% 0 0% Total Employment - Calgary (LHS) Calgary Unemployment Rate (RHS) Source: Conference Board of Canada, CBRE Research, Q1 2015. THE ECONOMY The consensus forecast for Alberta s 2015 economic growth is close to zero, with the range of estimates deviating little from a no growth scenario. For context, six years ago during the global financial crisis, Alberta suffered a 4.2% contraction to its economy, while unemployment climbed above 7.0%. In Calgary, the unemployment rate peaked at 7.5% in Q4 2009. In February, Alberta lost 14,000 jobs, pushing the unemployment rate to 5.3%. This was an 80- basis-point (bps) rise over the previous month and represents the highest jobless rate since September 2011. In the Calgary census metropolitan area, employment rose by 2,100 jobs during February, up 0.3% from January. Despite the gain, the unemployment rate advanced 30 bps to 5.0%. According to the Conference Board of Canada (CBoC), Calgary can expect to see 7,067 jobs slashed over H1 2015. The CBoC is calling for the city s unemployment rate to climb over the course of 2015 before peaking at 6.3% in Q1 2016. Q1 2015 CBRE Research 2015, CBRE Limited 4
SUBMARKET MAP CBRE segregates the suburban office market into five submarkets; Northeast, Northwest, South Central, South and Beltline. The Beltline submarket represents the area immediately South of the downtown core. It is bounded by the CP rail tracks to the North, 17 th Ave. on the South, Macleod Trail on the East and 14 th St. on the West. The Beltline also includes commercial buildings in the concentrations in Scarboro, Victoria Park, 4 th St. SW corridor just south of 17 th Ave. and the area of Mission. The South Central submarket, excluding the Beltline and the downtown core, is bounded on the North by the Bow River on the West side of Deerfoot Trail and 17 th Ave. SE on the East side of Deerfoot Trail. The South Central south border is Glenmore Trail between 14 St. SW and the Bow River where the boarder drops down to Heritage Dr.. The South submarket is comprised of all areas South of Heritage Dr. and Glenmore Trail. The Northeast submarket covers the area North of 17 th Ave. SE and the Bow River and East of Centre St. North. The Northwest submarket is bounded on the South by the Bow River and on the East by Centre St. North. CONTACTS Jeffrey Hurren Senior Research Analyst +1 403 750 0519 jeffrey.hurren@cbre.com Chris Ghersinich Research Analyst +1 403 750 0543 chris.ghersinich@cbre.com OUR OFFICES CBRE Calgary 530 8th Avenue SW, Suite 500 Calgary, AB T2P 3S8 To learn more about CBRE Global Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway. Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE Limited clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE Limited.