OUTLOOK 2013THE CHANGING LANDSCAPEOF CANADA’SResearch PublicationA Cushman & Wakefield COMMERCIALREAL ESTATE MARKETSA Cush...
OUTLOOK 2013A Cushman & Wakefield Research PublicationNATIONAL:                                                           ...
OUTLOOK 2013A Cushman & Wakefield Research Publication Central Area - Projected New Developments 2013-2016 - sf (millions)...
OUTLOOK 2013A Cushman & Wakefield Research PublicationVANCOUVER:                                                          ...
OUTLOOK 2013A Cushman & Wakefield Research PublicationCALGARY:                                                            ...
OUTLOOK 2013A Cushman & Wakefield Research Publicationfeeling the effects of a persistently weak gas market. As well,the s...
OUTLOOK 2013A Cushman & Wakefield Research PublicationEDMONTON:                                                           ...
OUTLOOK 2013A Cushman & Wakefield Research PublicationWINNIPEG:                                                           ...
OUTLOOK 2013A Cushman & Wakefield Research Publicationexpansionary demand in both central and suburban markets willkeep th...
OUTLOOK 2013A Cushman & Wakefield Research PublicationLONDON:                                                             ...
OUTLOOK 2013A Cushman & Wakefield Research PublicationWATERLOO REGION:                                                    ...
OUTLOOK 2013A Cushman & Wakefield Research PublicationTORONTO:                                                            ...
OUTLOOK 2013A Cushman & Wakefield Research Publicationspace in the third quarter of 2012, is expected to soften over      ...
OUTLOOK 2013A Cushman & Wakefield Research PublicationOTTAWA:                                                             ...
OUTLOOK 2013A Cushman & Wakefield Research Publicationhave mostly completed transactions to relocate to Kanata,creating po...
OUTLOOK 2013A Cushman & Wakefield Research PublicationMONTREAL:                                                           ...
OUTLOOK 2013A Cushman & Wakefield Research Publicationpast two years. Although there has been very little speculativeconst...
OUTLOOK 2013A Cushman & Wakefield Research PublicationSAINT JOHN:                                                         ...
OUTLOOK 2013A Cushman & Wakefield Research PublicationMONCTON:                                                            ...
OUTLOOK 2013A Cushman & Wakefield Research PublicationFREDERICTON:                                                        ...
Cushman & Wakefield 2013 Canadian Office Outlook
Cushman & Wakefield 2013 Canadian Office Outlook
Cushman & Wakefield 2013 Canadian Office Outlook
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Cushman & Wakefield 2013 Canadian Office Outlook

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Cushman & Wakefield 2013 Canadian Office Outlook

  1. 1. OUTLOOK 2013THE CHANGING LANDSCAPEOF CANADA’SResearch PublicationA Cushman & Wakefield COMMERCIALREAL ESTATE MARKETSA Cushman & Wakefield Research Publication 2 National 14 Ottawa 4 Vancouver 16 Montreal 5 Calgary 18 Saint John 7 Edmonton 19 Moncton 8 Winnipeg 20 Fredericton 10 London 21 Halifax 11 Waterloo 22 St John’s 12 Toronto 23 Contact
  2. 2. OUTLOOK 2013A Cushman & Wakefield Research PublicationNATIONAL: MARKETS AT A GLANCEstable in 2013, better OFFICEtimes ahead Central Area Inventory: Q3 2012: 265.5 million sfOFFICE Q4 2013: 266.8 million sfGlobal office market demand was hit with a one­ two punch after - Vacancy Rate Outlook:the recession of 2008, but not so for Canada¹s central markets. Q3 2012: 5.1%In fact, most major markets saw unprecedented expansionary Q4 2013: 5.3%demand growth beginning in the summer of 2009, particularlyin downtown Toronto, which posted record absorption levels. Rental Rate Outlook:Growth was boosted by recovering resource prices, a buoyantengineering sector and healthy banking and professional services Suburbansectors — and fueled by low interest rates. Inventory: Q3 2012: 197.2 million sfAt the same time, more Canadians bought in to the idea of Q4 2013: 201.1 million sfdowntown living and businesses responded by moving closerto the growing pools of educated workers. The consequence is Vacancy Rate Outlook:that Canada¹s overall central office vacancy nosedived to one Q3 2012: 9.8%of the lowest points in the past 30 years — 5.1%, with class A Q4 2013: 10.4% Rental Rate Outlook:Resilient demand and rising rental rates havedriven one of the most robust development cycles CENTRAL AREAin Canada’s top office markets since the late 1980s. OFFICE 8,000 12%vacancy at 4.2% (as of Q3 2012). In some cases, tenants migrating 6,000 9% Absorption (sf, thousands)from suburban locations have shown a willingness to increase 4,000 6%occupancy costs to be where the action is and gain access to Vacancy rate 2,000 3%the downtown talent pool. Attracting and retaining a productive 0 0%workforce is a priority for business today and this is driving (2,000)greater investment in central market real estate in some cities. (4,000)But there are always exceptions. In Calgary, both Imperial Oil (6,000) 00 01 02 03 04 05 06 07 08 09 10 11 12F 13Fand Canadian Pacific recently announced plans to relocate outof the downtown market to suburban locations, as part of what ABSORPTION OVERALL VACANCY RATEappears to be cost-cutting strategies. Whether other companieswill follow is uncertain, but the relocations will bring relief to the since the late 1980s, even as global economic uncertaintyspace squeeze in downtown Calgary market over the longer run. continued to weigh down office markets around the world. Even though demand appears to be easing, the U.S. is poised for a moreThe popularity of new office buildings and the opportunity robust recovery to take hold in the latter half of 2013 and intothey present to create employee-driven workplaces remains a 2014. This should boost Canadian markets, particularly suburbanmotivating force behind decisions to relocate. Acquisitions and markets, where activity is more closely tied to the U.S.multiple-location consolidations are additional trends that areallowing tenants to densify and rethink their space in order to After over two decades of little construction, Vancouver¹sincrease productivity. downtown is about to see more than 1.7 million square feet (msf) of new developments rise, which includes the 465,000-(sf)Resilient demand and rising rental rates have driven one of the Telus Garden Tower. Calgary, Montreal, Ottawa and Toronto aremost robust development cycles in Canada’s top office markets all seeing substantial new development activity, a phenomenon 2
  3. 3. OUTLOOK 2013A Cushman & Wakefield Research Publication Central Area - Projected New Developments 2013-2016 - sf (millions) Vancouver Calgary Winnipeg Toronto Ottawa Montreal Halifax St. John’s 0 1 2 3 4 5 6that extends to St. John¹s, NL, where over 545,000 sf is going growth, but as confidence is restored demand will once againup, of which 370,000 sf is within the downtown area. Toronto¹s shift into expansionary territory in the latter half of 2013 and intodowntown is undergoing yet another hot development cycle, with 2014. Very tight demand conditions will put upward pressure onover 3.5 msf announced and additional announcements expected rental rates over the near term, a situation that will only changein the coming quarters. when enough tenants have relocated into new towers, leaving behind competitive space within older buildings.OUTLOOK Very constrained development activity has held overall vacancyCanadian markets are not only well-positioned to weather softer rates fairly tight across suburban markets and this means thatdemand conditions over the first half of 2013, but tenants will once they experience a more sustained level of expansionarywelcome the slowdown, which will mean more modest increases growth, upward pressure on rental rates will likely follow shortlyin rental rates in the near term. While markets will remain after. Canada¹s suburban markets should grow more or less inextraordinarily tight, most will not see any significant central step with the U.S. recovery.market additions to new supply until 2014 through 2016. Positivedemand conditions are expected to resume in the latter half of2013, and some markets are likely to experience pent-up demandbefore the new buildings hit the market, particularly in the tightestcities such as Vancouver, Calgary and Toronto.The popularity of new office buildings and theopportunity they present to create employee-driven workplaces remains a motivating forcebehind decisions to relocateA late-2013 central market upturn will be driven by a number offactors, including sustained low interest rates, the anticipatedU.S. economic recovery, a stabilized euro zone and a slowdrop in value of the Canadian dollar, which will help revitalizemanufacturing and export growth. In markets such as Vancouverand Toronto, central growth will continue to come from tenantswho see advantages to being located in downtown markets oversuburban locations.Central demand over 2013 will begin at very nominal levels ascompanies focus more on cost containment than future revenue 3
  4. 4. OUTLOOK 2013A Cushman & Wakefield Research PublicationVANCOUVER: MARKETS AT A GLANCEstrong development cycle OFFICE Central AreaEconomic Outlook Inventory: Q3 2012: 30.9 million sfAccording to RBC Economics¹ Provincial Forecast, British Q4 2013: 31.0 million sfColumbia¹s growth prospects will receive a boost in 2013 fromtwo major projects: the federal government¹s $8-billion order Vacancy Rate Outlook:(over eight years) with Vancouver-based Seaspan Marine for seven Q3 2012: 4.1%non-combat ships and the $3.3-billion modernization of Rio Tinto Q4 2013: 3.6%Alcan¹s aluminum smelter in Kitimat. Ramped-up investment on Rental Rate Outlook:the projects will contribute to an expected re-acceleration ofgrowth to 2.7% in 2013, up from an expected 2.3% in 2012. Suburban Inventory:Overview Q3 2012: 21.4 million sf Q4 2013: 22.2 million sfVancouver office markets continued to be a hotbed of activitythrough 2012 marked by slow, steady demand and record-low Vacancy Rate Outlook:vacancy within some submarkets and asset classes. This of course Q3 2012: 12.0%has propelled the most significant office development cycle to be Q4 2013: 14.6%seen in Vancouver in 20 years. Rental Rate Outlook:With the softening of resource prices in the latter half of theyear and because premium space has all but run out, there wassome softening in demand in central markets. However, overall CENTRAL AREA OFFICEvacancy tightened through the year, falling to 7.3% by the thirdquarter of 2012. 1,500 15%In the red-hot central market, overall vacancy dipped to 4.1%, 1,000 10%with class A at a low of 2.8%. While demand remained slow but Absorption (sf, thousands)positive in the central markets, this was not the case in suburban Vacancy rate 500 5%markets, where several new tenants entered the picture, drivingnew construction and inventory growth. 0 0%There are nine properties currently under construction in central (500)Vancouver and another 11 in the suburban market, with the total (1,000)amount of new inventory coming on stream remaining balanced 00 01 02 03 04 05 06 07 08 09 10 11 12F 13Fbetween the markets, at 52% and 48% respectively. Many of these ABSORPTION OVERALL VACANCY RATEprojects have prelease commitments in place, which makes itdifficult to predict how new inventory will affect future occupancy OUTLOOKrates and, therefore, lease rates. Given the current state of theoffice leasing market, we expect that it will slowly stabilize within As we move through the latter half of 2013 and into 2014, withthe next few years. the anticipated recovery in the U.S. economy and more stable global economic conditions — particularly in Asia — office demandDowntown Vancouver will see about 1.7 msf rise between mid- in Vancouver should gain modest momentum in advance of the2014 and the end of 2015. This will provide much-needed relief for arrival of the new developments. Looking forward, we are likelylarger tenants. While central area class A vacancy is expected to to see weak demand over the first half of 2013 and strengtheningreach about 12.4% at its peak in 2015, the new developments are fundamentals after that. Key sectors, such as gaming, technology,adding an excitement in the market that has not been seen in more mining and engineering, will continue to lead growth.than 20 years. All classes vacancy will reach just shy of 8% vacancy,due to the tighter conditions in Class B and C markets. 4
  5. 5. OUTLOOK 2013A Cushman & Wakefield Research PublicationCALGARY: MARKETS AT A GLANCElow vacancy drives OFFICEnew build cycle Central Area Inventory: Q3 2012: 45.3 million sfEconomic Outlook Q4 2013: 45.9 million sfA great deal of economic uncertainty was lifted with the approval Vacancy Rate Outlook:of the China National Offshore Oil Corporation’s $15.1-billion Q3 2012: 3.2%acquisition of Nexen and Petronas’s $6-billion acquisition of Q4 2013: 3.8%Progress Energy Resources. These massive deals sent a signalthat the federal government is not closed to foreign investment Rental Rate Outlook:in the energy sector despite tough restrictions, which lessensCanada’s reliance on exporting heavy oil to the U.S. This also Suburbandemonstrates that both Canada and the investors understand the Inventory:economic importance of developing and delivering heavy oil to Q3 2012: 16.1 million sfAsian markets.   Q4 2013: 16.8 million sfAdditionally, $61 billion has recently been poured into exploration Vacancy Rate Outlook:and development outside of the oil sands, which should continue Q3 2012: 11.3%to drive investment in Liquefied Natural Gas, light oil, shale oil Q4 2013: 10.3%and shale gas. This suggests that Canada will continue to entertain Rental Rate Outlook:measured state-owned enterprise investment in these energysector areas in the near future.Assuming that greater global stability is achieved, Alberta will CENTRAL AREA OFFICEcontinue to be the envy of the country in 2013, with a stableunemployment rate in the 4% range and annual GDP growth in 4,000 12%the order of 3.5% to 3.8%. 3,000 9% Absorption (sf, thousands) 2,000 6% Vacancy rateAs always, Calgary’s fortunes and that of its office 1,000 3%market will rise and fall with the health of the 0 0%global energy industry. With so many projects in (1,000)the pipeline, however, any slowdown is likely to be (2,000) 00 01 02 03 04 05 06 07 08 09 10 11 12F 13Fincidental in the big picture. ABSORPTION OVERALL VACANCY RATEOverview demand strength in 2011 averaged 717,000 sf per quarter — or 2.86 msf for the year.Acquisitions, mergers and buyouts may be an accelerateddriving force in Calgary’s office markets in 2013, with significant While demand softened slightly in 2012, absorption spiked withtakeovers in the gas sectors expected as companies position the arrival and occupancy of H&R’s 1.9-msf Bow tower, which wasthemselves in advance of a potential price rebound. fully leased by Cenovus Energy and Encana Corporation. The lack of substantial new and available inventory has put a hard cap onOverall vacancy in central Calgary as of the third quarter of 2012 absorption. Current developments will bring relief to beleagueredwas 3.2%, with downtown premium space scraping the bottom of tenants, but that won’t happen for two-and-a-half to five years.the barrel at 0.6% or, in other words, non-existent. The dynamic Softening demand was attributable to weakening oil prices duedowntown market’s all classes absorption has averaged 207,000 to the global slowdown. At the same time, there was a notablesf per quarter, or 828,000 sf per year since 2000. Remarkably, increase in sublet space returned by the gas-weighted sector 5
  6. 6. OUTLOOK 2013A Cushman & Wakefield Research Publicationfeeling the effects of a persistently weak gas market. As well,the sense of urgency to complete transactions also eased, as didcompetition for larger blocks of space.  Four major office towers are currently in the works that couldbring in excess of 1.7 msf to market. Eighth Avenue Place West willadd about 840,000 sf to market and is fully preleased and CadillacFairview is aggressively marketing its 820,000-sf tower. Also inpursuit of a new development is Oxford Properties. Although notannounced, Oxford is working hard to secure enough tenantsto start construction on its 615,000-sf complex. Brookfieldis also at the table, albeit for a late 2016 or early 2017completion, to develop Western Canada’s tallest office towerat 60 floors or 1.4 msf. outlookAs always, Calgary’s fortunes and that of its office market willrise and fall with the health of the global energy industry. Withso many projects in the pipeline, however, any slowdown is likelyto be incidental in the big picture. In this suffocatingly tight officemarket, very little breathing room will come from the shuffling ofmarket players next year. However, Encana’s physical relocationinto The Bow in the fourth quarter of 2012 may bring up to400,000 sf to market.Looking forward, the surprise announcements by Imperial Oil thatit will be relocating to the suburban markets will translate intomore than 1.2 msf being displaced downtown between 2014 and2016, providing significant opportunities for larger space users.Although common for engineering and the oil and gas servicesector to locate in peripheral markets such as the Beltline andthe suburban markets, the migration of an oil company into asuburban market is unheard of. The subsequent announcementof CP’s long-term plan to construct its own office complex onits suburban site in the south can be viewed as adding credibilityto the concept of suburban markets becoming an increasinglyviable alternative to the core for major corporations and “big oil,”Calgary’s primary industry. 6
  7. 7. OUTLOOK 2013A Cushman & Wakefield Research PublicationEDMONTON: MARKETS AT A GLANCErents moving up OFFICE Central Areaeconomic outlook Inventory: Q3 2012: 15.6 million sfAlberta’s Capital is heavily influenced by the oil and gas sectors Q4 2013: 15.6 million sfand, for the central office markets, by the space needs of thefederal, provincial and local governments. Alberta¹s economy Vacancy Rate Outlook:continues to lead the pack in Canada and solid growth will Q3 2012: 7.4%continue, though it will taper off somewhat in 2013. Still, Q4 2013: 6.9%unemployment will remain stable around 4% and GDP growth Rental Rate Outlook:should be in the range of 3.5% to 3.8%. SuburbanOverview Inventory:With absorption expected to reach 400,000 in 2012, Edmonton’s Q3 2012: 9.9 million sf Q4 2013: 10.4 million sfoffice market is set to chalk up its second strong year in a row.In 2011, absorption was 558,000 sf. And there’s no sign of let up. Vacancy Rate Outlook:The engineering and construction sectors are expanding rapidly Q3 2012: 14.1%and all levels of government are back in the market looking for Q4 2013: 14.8%space, particularly the City, which has an RFP out to downtowndevelopers for up to 450,000 sf. Rental Rate Outlook:The most significant leasing transaction in 2012 was the hugeexpansion completed by Enbridge. The energy leader leased an CENTRAL AREA OFFICEadditional 240,000 sf in four separate buildings in the downtownclass A market, significantly reducing competitive space in this asset 300 10%class and driving some positive momentum in rental rates. 200In the third quarter of 2012, vacancy in Edmonton¹s central office Absorption (sf, thousands) 5% 100market, made up of the Financial Core and Government District, Vacancy ratestood at 7.4%. Although the suburban market saw positive 0 0%absorption of almost 50,000 sf, vacancy increased slightly to (100)14.1%, due to 95,000 sf of new inventory added to the market. (200)From a new development perspective, the 55,000-sf Cash Store (300)Financial Building opened on 156th Street and Yellowhead Trail, 08 09 10 11 12F 13Fmoving Cash Store out of West Gate Business Park. In addition, ABSORPTION OVERALL VACANCY RATEa new 40,000-sf building at Westlink Park will house GolderAssociates who moved from Mayfield Business Centre. Although Outlookcitywide absorption totaled 61,570 sf, this new inventory causedvacancy to nudge upward slightly from 9.9% to 10.0%. Reflecting the city¹s healthy and growing economic fundamentals, net asking rents will continue to move upwards, especially in theThe class B product in the Financial Core experienced the most Financial Core. With the Enbridge expansion in the downtownchange in Edmonton with positive absorption in the third quarter market and the First and Jasper redevelopment (the formerof close to 100,700 sf. Most of this absorption occurred in the First EPCOR building) recently leasing its remaining 96,000 sf to Jacobsand Jasper redevelopment site in which Jacobs Engineering leased Engineering, most of the vacant space created from the openingout the remaining 96,000 sf left behind in the building when EPCOR of the new EPCOR Tower has been filled. Given the low vacancy,relocated to the new EPCOR Tower. Jacobs will displace similar the number of large contiguous pockets of space has tightened. Asspace when it relocates, however, bringing a significant amount of a result, demand for suburban office space, where rental rates areclass B space back to market within the Government District.   rising at a slower pace, may increase for larger office requirements. 7
  8. 8. OUTLOOK 2013A Cushman & Wakefield Research PublicationWINNIPEG: MARKETS AT A GLANCELOTS OF ACTION OFFICE Central AreaEconomic outlook Inventory: Q3 2012: 10.1 million sfWestern Canada will set the economic pace in this country this Q4 2013: 10.3 million sfyear and next, benefiting the most from booming activity relatedto commodities and strong gains in agricultural sectors. Overall Vacancy Rate Outlook:growth in Manitoba in 2013 will see a growing contribution from Q3 2012: 6.4%manufacturing. Further expected strengthening in construction Q4 2013: 7.6%spending will provide additional support for growth. The net Rental Rate Outlook:effect of these factors will be growth remaining little changed at3.2% in 2013. Source: RBC Research Provincial Outlook Suburban Inventory:Overview Q3 2012: 3.2 million sf Q4 2013: 3.5 million sfLeasing activity was active across 2012 with some expansionarygrowth in central Winnipeg that pushed overall vacancy down Vacancy Rate Outlook:to 6.4% from 7.7% one year ago. As in other sectors of the Q3 2012: 11.6%country, attracting and retaining staff is on the minds of Winnipeg Q4 2013: 15.4%businesses, and to this end, there is a strong interest in new orupdated quality space and location. Rental Rate Outlook:Downtown Winnipeg is undergoing a major CENTRAL AREA OFFICErevitalization program that is already transformingthe area and will have a significant impact on the 800 10%city’s long-term business and office growth. 600 8% Absorption (sf, thousands) Vacancy rate 400 5%Densification and consolidation of multiple-premises operations 200 3%has offset some of the expansionary growth in Winnipeg, astenants focus on cost containment and improving productivity. 0 0%Many occupiers are willing to relocate, but are looking for (200)new build-out incentives in order to densify and develop more 00 01 02 03 04 05 06 07 08 09 10 11 12F 13Fcollaborative workplace environments. ABSORPTION OVERALL VACANCY RATEDowntown Winnipeg is undergoing a major revitalization programthat is already transforming the area and will have a significant situated on a nearby surface parking lot owned by Manitoba Publicimpact on the city’s long-term business and office growth. Insurance Corp.CentreVenture Development Corporation is working with the Office development activity is significant in both central andcity, the province and other parties to invest in and revitalize the suburban markets, with about 300,000 sf of new developmentsdowntown area. This $600-million multi-faceted program includes currently being built in downtown Winnipeg, and almost 320,000the new sports, hospitality and entertainment district (SHED), sf under construction within suburban markets.encompassing an 11-block area downtown.The 200,000-sf Centrepoint mixed-use tower (retail, office, hotel, Outlookcondo) to be completed in the third quarter of 2014 is the first The new office developments will push vacancy rates up slightly insignificant new project under construction within the SHED and Winnipeg¹s central and suburban markets, but continued modestconceptual planning is being prepared for a second project to be 8
  9. 9. OUTLOOK 2013A Cushman & Wakefield Research Publicationexpansionary demand in both central and suburban markets willkeep them at a reasonable level. Vacancy in central Winnipegwill rise to around 7.6% by end of 2013 and is expected to peakaround 8.1% later in 2014.Suburban vacancy, which currently stands at 11.6%, will riseto 15.4% by the end of 2013, due to the 317,000 sf of newdevelopments coming to market and as a result of the movementof tenants to the downtown market. As we progress through2014, vacancy will begin to decline, based on modest to moderateabsorption assumptions.Tenants will continue to see best value and prime location as keyto attracting and retaining a talented workforce. The continuedrevitalization of Winnipeg¹s downtown, an initiative welcomedby business and residents alike is expected to drive increasinglystronger office demand.Rental rate pressure should continue to inch upwards in bothcentral and suburban markets due to tight markets, newdevelopment and continued modest expansionary demand. 9
  10. 10. OUTLOOK 2013A Cushman & Wakefield Research PublicationLONDON: MARKETS AT A GLANCETurning a corner OFFICE Central AreaOffice Inventory: Q3 2012: 3.9 million sfLondon, with one of the highest office vacancy rates in Canada, Q4 2013: 3.9 million sfappears to be turning the corner as all local organic absorptionis consuming historically stubborn vacancy. A number of major Vacancy Rate Outlook:tenants took occupancy in 2012, bringing overall downtown Q3 2012: 15.9%availability to 15.8%, the lowest it’s been in over 10 years. Q4 2013: 15.8%In 2013, the office market in London will again be supported by Rental Rate Outlook:large occupiers such at TD Canada Trust, London Life, Canada SuburbanLife, Bell, Citibank and the City of London. Any flux in these localuser strategies would have a profound effect on recent gains. With the former Galleria Mall (now CitiPlaza) firmly entrenched Inventory:The coming year will also see more approved lands for office asQ3 2012: facility, and suburban Westmount Mall evolving in the an office n/aconstruction in the suburbs. The vast majority of new suburban same2013: Q4 direction, it may be some time before a major new non- n/aprojects in 2011-2012 were build-to-suits for the medical sector, medical office project will be seen in London. These retrofits Vacancy Rate Outlook:but this may begin to change. London’s history of protecting the depressed larger floorplate rates and construction for many years Q3 2012: n/adowntown office market (80% of the stock) at the expense of and have remaining potential to convert retail premises to cheap Q4 2013: n/asuburban growth may be changing. office on short notice. Rental Rate Outlook: n/a Should the City elect to build a new City Hall in 2013, its eventualoutlook completion in two or three years will have an effect on the class BDowntown class A vacancy is forecast to decline from the current market in London. But until then, expect plodding but noticeable9% to a historic 8.8%. Overall downtown’s 2012 rate of 15.9% absorption and some higher altitude in rents through 2013.should also decline marginally. However, downtown class Bbuildings will continue to struggle, with those that control onsiteparking faring the best. Vacancy in this asset class will remainstagnant at 21%.Large floorplate users (new and renewal) in London will faceincreasingly intransigent landlords whose newfound confidencewill be reflected in higher face rates and lower inducements. Weexpect downtown class A rents in the $13 to $21 psf range,class B from $10 to $12 psf and suburban rates to range from $11to $13 psf. Operating costs in London top out at $16 psf. 10
  11. 11. OUTLOOK 2013A Cushman & Wakefield Research PublicationWATERLOO REGION: MARKETS AT A GLANCESlow and steady OFFICE Central AreaOverview Inventory: Q3 2012: 2.7 million sfWaterloo Region has a long and proud history of manufacturing Q4 2013: 2.7 million sfand innovation, especially in the technology sector. The regionis made up of three cities, Waterloo, Kitchener and Cambridge, Vacancy Rate Outlook:as well as the Townships of Woolwich, Wellesley, Wilmot and Q3 2012: 19.8%North Dumfries. It is rapidly growing and moving forward with Q4 2013: 16.1%development plans to accommodate accelerated population Rental Rate Outlook:growth. A Rapid Transit System, which includes a light rail transitline to be completed by 2017 and multi-modal transit hub, is Suburbanalready driving development in the downtown cores of both Inventory:Kitchener and Waterloo. Q3 2012: 4.1 million sfThe City of Waterloo was named the Intelligent Community of Q4 2013: 4.2 million sfthe Year in 2007, and is home to Wilfred Laurier University and Vacancy Rate Outlook:the University of Waterloo, as well as numerous tech companies Q3 2012: 13.8%and incubators. The region has seen a tremendous increase in Q4 2013: 12.7%technology start-ups, international tech companies and innovationin the last few years. Rental Rate Outlook:outlook Cambridge has experienced persistently high vacancy at 30%RIM, Google, OpenText and Desire2Learn are some of the well- in the Downtown Core and 18.5% in the suburban market.known large technology companies located in the region. Waterloo Primarily an industrial market, it has been affected by speculativealso continues to benefit from a large presence of traditional construction and municipal office supply coming to the market.employers such as Manulife, Sun Life Financial and the universities.The city consistently has the lowest vacancy in the region.The Uptown Waterloo core market has achieved critical mass, witha low vacancy rate of 6.5%. Most of the financial services offices arelocated in the core, which continues to command premium rentswith limited supply. The Waterloo suburban market saw an increasein vacancy to 9%. It is still considered stable, but larger transactionshave slowed. RIM occupies substantial suburban office space and itsoccupancy needs remain unknown as it continues to find its way inan intensely competitive industry.Kitchener has experienced its own technology revitalization inthe last few years with the redevelopment of old industrial spacesinto chic brick-and-beam office space — almost 500,000 sf hasbeen converted since 2009. While positive for Kitchener, the coremarket continues to be affected by tired availabilities. Vacancy wasat a high 20.6% in the third quarter of 2012, a slight decrease from22% seen earlier in the year. Overall vacancy for suburban Kitcheneris 11.1%, with the lowest rate of 1.5% found in the Gateway Nodelocated on the HWY 401. Strong demand exists here for class A & Bbuildings with easy access to transportation corridors, parking andamenities. New supply is expected to meet this demand. 11
  12. 12. OUTLOOK 2013A Cushman & Wakefield Research PublicationTORONTO: MARKETS AT A GLANCEmore robust development OFFICE Central AreaEconomic Outlook Inventory: Q3 2012: 84.9 million sfStronger economic conditions, particularly in the U.S., are Q4 2013: 85.0 million sfexpected to take hold by the latter half of 2013, which willhave spin-off benefits for Ontario and ultimately Toronto’s Vacancy Rate Outlook:office markets. Canada’s economic expansion is expected to be Q3 2012: 4.6%constrained at about 2% and the unemployment rate will remain Q4 2013: 4.8%above 7% through 2013, according to TD Economics. Rental Rate Outlook:Overview SuburbanDowntown Toronto¹s office market performance has been a Inventory:shining light in North America. In the wake of the last recession Q3 2012: 84.6 million sf Q4 2013: 85.2 million sfwhen 4.5 msf of new developments were slated to flood themarket between 2009 and 2011 many saw vacancy soaring into the Vacancy Rate Outlook:mid-teens. Instead, 99% of this space is now occupied and, by the Q3 2012: 8.9%end of 2012, downtown vacancy was a tight 4.3%. Demand was Q4 2013: 8.9%strongest in late 2010 and through 2011, and eased somewhat in2012, dragged down by persistent global economic uncertainty. Rental Rate Outlook:However, although some tenants have returned space to themarket and decisions are taking longer, about 190,000 sf ofpositive absorption took place in the third quarter of 2012, still TORONTO OFFICE GTA OFFICEabove-average performance. 8,000 12%The migration of tenants into the downtown 6,000 9% Absorption (sf, thousands)market from midtown and suburban markets Vacancy rate 4,000 6%will contribute to expansionary demand in 2,000 3%downtown Toronto. 0 0% (2,000)Given the recent buoyancy in demand, tight markets and upward 00 01 02 03 04 05 06 07 08 09 10 11 12F 13Fpressure on rental rates, it¹s no surprise that new downtown ABSORPTION OVERALL VACANCY RATEdevelopment announcements were a repeat story in 2012.About 3.5 msf of new office space is slated to further transform doors in GTA West and tenants relocating into these buildingsToronto¹s skyline between 2014 and 2017. Until the latter half of pushed absorption to 180,000 sf. Demand in the GTA East market2014 when the first two developments bring relief, the market will remained weak and vacancy held relatively flat. Vacancy rates inremain very tight and additional rate increases are inevitable in the GTA East and West were 9.2% and 10.4% respectively, whilewhat has become a landlord¹s market. the GTA North remained extremely tight at 4.7%Toronto¹s suburban markets, which are far more exposed toU.S. and global economic upheaval in general, have had a tough outlooktime since 2008. Multiple-premises consolidations, densification The outlook for downtown Toronto demand remains optimisticand contractions continue to displace space, though, in the third even in the face of easing demand conditions, which will likelyquarter of 2012, green sprouts of positive growth emerged in the reduce the rate of absorption in the coming quarters. DemandGTA West market. A number of new developments opened their from the city¹s mighty banking sector, which continued to absorb 12
  13. 13. OUTLOOK 2013A Cushman & Wakefield Research Publicationspace in the third quarter of 2012, is expected to soften over TORONTO OFFICE CENTRAL OFFICE2013 as institutions focus on cost containment alongside revenuegrowth. Rental rates will continue to see upward pressure over 4,000 12%the near term, given limited options in a tight market. 3,000 9% Absorption (sf, thousands)The migration of tenants into the downtown market from 2,000 6%midtown and suburban markets will contribute to expansionary Vacancy ratedemand in downtown Toronto as companies continue to move 1,000 3%closer to concentrated, educated workforce pools. As well, 0 0%the new high-quality office stock coming on stream will be very (1,000)attractive to tenants looking to achieve efficiencies throughupdated occupancy strategies. (2,000) 00 01 02 03 04 05 06 07 08 09 10 11 12F 13FNotably, of the 3.9 msf of new construction, Menkes’ One York is ABSORPTION OVERALL VACANCY RATEthe only building to move forward without a lead tenant or pre-commitment — a sign of confidence that this seasoned developerhas in the quality of its buildings and long-term viability of the TORONTO OFFICE SUBURBAN OFFICEdowntown Toronto market. We also expect to see a growing 4,000 12%willingness among tenants to expand into the downtown fringemarkets, including south, east and west markets, which have the 3,000 9% Absorption (sf, thousands)greatest development potential. Vacancy rate 2,000 6%Suburban markets will continue to be held back by weakeconomic conditions and are likely to experience weak overall 1,000 3%demand through the first half of 2013. As our largest trading 0 0%partner emerges from the doldrums later in the year, demandshould see a significant boost. The key factors limiting growth (1,000) 00 01 02 03 04 05 06 07 08 09 10 11 12F 13Fare a continued cycle of densification and the consolidation ofmultiple-location operations. Drivers of growth will continue to ABSORPTION OVERALL VACANCY RATEinclude engineering, the healthcare and pharmaceutical sector,insurance, technology and professional services. 13
  14. 14. OUTLOOK 2013A Cushman & Wakefield Research PublicationOTTAWA: MARKETS AT A GLANCEbalancing act OFFICE Central AreaOverview Inventory: Q3 2012: 17.9 million sfThe health of Ottawa’s office market is closely tied to demand Q4 2013: 17.9 million sfgrowth from the federal government. Since the government isin cost-containment mode, demand for office space was weak Vacancy Rate Outlook:through most of 2012. While vacancy increased slightly in the Q3 2012: 5.7%past two years, downtown Ottawa remained relatively tight with Q4 2013: 5.3%a central area vacancy rate of only 5.7%. The Capital’s vacancy is Rental Rate Outlook:historically one of the most stable in the country with very littlevolatility in rental rates.    SuburbanThe federal government will have to address its aging stock of Inventory:buildings over the coming years and this will create demand for Q3 2012: 19.5 million sfspace as tenancies relocate into longer-term swing space in order Q4 2013: 20.0 million sfto buy time until major retrofits are completed. For instance, the Vacancy Rate Outlook:Bank of Canada leased the majority of the space at the old EDC Q3 2012: 8.7%building, but the space it vacated at 234 Wellington is owned Q4 2013: 10.1%by the federal government and will not return to market beforereceiving a major retrofit.   Rental Rate Outlook:Ottawa is active on the development front with CENTRAL AREAfive buildings under construction, two of which are OFFICElocated in the downtown market. 1,000 8% 750 6% Absorption (sf, thousands)As the government consolidates or realigns its occupancies across 500 4%Ottawa, some space will be returned to market. Health Canada Vacancy rateand The Status of Women Canada for instance, will relocate into 250 2%other existing Health Canada controlled space in 2013, adding 0 0%about 110,000 sf of available space at 123 Slater Street. In addition, (250)the Department of Defense and Canadian Armed Forces will berelocating many of their offices into the 2.2-msf Carling Campus, (500) 00 01 02 03 04 05 06 07 08 09 10 11 12F 13F(former home of Nortel Networks) and will displace space from a ABSORPTION OVERALL VACANCY RATEnumber of its current locations across Ottawa.While some of these buildings are owned and others leased, the in Q4 2014. This build-to-suit federal government building willrelocations will occur over a period of years, and much of this be occupied by the Treasury Board and Department of Finance,space will be used as swing space. DND and Canadian Armed which are coming out of Esplanade Laurier. This existing buildingForces have 42 office locations in Ottawa and Gatineau. The will be going through a major retrofit. The second significantintent is to relocate up to 10,000 employees into the campus. building under construction is Morguard’s 150 Elgin, a 350,000-sf,Even though the departments own many of the buildings they multipurpose tower slated for delivery in the first quarter of 2014.currently occupy, some space will return to market in Ottawa, The Canada Council for the Arts has leased around 85,000 sf andincreasing availabilities. is moving out of 350 Albert St.Ottawa is active on the development front with five buildings Suburban markets were stable over 2012 with relatively tightunder construction, two of which are located in the downtown vacancy at 8.7% in the third quarter. Though market demand hasmarket. GWL’s 90 Elgin, at Bank and Laurier, will come to market been modest, high-tech tenancies located in the Nortel Campus 14
  15. 15. OUTLOOK 2013A Cushman & Wakefield Research Publicationhave mostly completed transactions to relocate to Kanata,creating positive absorption in the market and tightening vacancy.Three new developments are rising in the suburban markets thatwill add 490,000 sf. The market is active with tenants who arerevisiting their occupancy decisions, but this is not translating intoexpansionary demand.outlookOttawa’s central area vacancy rate is expected to rise to 6.9% (allclasses) and 7.9% for class A by the first quarter of 2014. Rentalrates will remain stable in downtown and suburban markets.Ottawa will see modest demand from non-government businessdrivers and this will gain some momentum into 2014.  The market will remain relatively balanced, although someadditional softening may occur as the government begins tooccupy the Carling Campus. Because of the timeframe for thisrelocation and due to the need for swing space to address theneed to upgrade many existing locations, it is uncertain how muchtotal space will be displaced. Space returning to market will bepartially offset by moderate demand anticipated to come from thepublic sector as the aging space challenges are addressed. 15
  16. 16. OUTLOOK 2013A Cushman & Wakefield Research PublicationMONTREAL: MARKETS AT A GLANCEexciting times OFFICE Central AreaOverview Inventory: Q3 2012: 48.0 million sfMontreal is seeing its first significant non-subsidized office Q4 2013: 48.0 million sfdevelopment go up in over 20 years. That’s big news for thisvibrant city and its downtown office market, which has been quiet Vacancy Rate Outlook:for many years. Now sitting at near historic low office vacancy Q3 2012: 6.1%rates, there is a sense that business optimism has regained a Q4 2013: 6.3%strong foothold and that a cycle of expansionary growth has Rental Rate Outlook:begun. In the near term, Montreal will see some softening ofdemand, however, as weakening global economic conditions reach Suburbaninto the boardrooms and companies put occupancy decisions on Inventory:hold. But, not to worry: growth is expected to roar back in the Q3 2012: 34.8 million sflatter half of 2013. Q4 2013: 34.9 million sfBecause Montreal office markets languished with vacancy hovering Vacancy Rate Outlook:within the 10% to 12% range for so many years prior to 2008, Q3 2012: 9.7%it surprised many when it recovered so quickly from the global Q4 2013: 9.7%recession, shifting to positive absorption midway through 2010.Healthy demand and tightening vacancy followed, with the central Rental Rate Outlook:class A falling below the key 6% barrier across all asset classes. CENTRAL AREA OFFICEBecause Montreal office markets languished withvacancy hovering within the 10% to 12% range for 1,500 15%so many years prior to 2008, it surprised many 1,000 10% Absorption (sf, thousands)when it recovered so quickly from the recession. 500 5% Vacancy rate 0 0%Montreal’s downtown revitalization is being fuelled by a growing (500)condominium sector that has attracted a diversified and educated (1,000)workforce. This trend was punctuated with the kick-off in early2012 of the Tour des Canadiens condo project, a 48-storey tower (1,500) 00 01 02 03 04 05 06 07 08 09 10 11 12F 13Fwith 520 units and the L’Avenue project, a 590,000-sf mixed-use ABSORPTION OVERALL VACANCY RATEproject of residential condos, office and retail. Both projects arebeing built adjacent to the Bell Centre. came forward with a huge vote of confidence in the market withThe real turning point in the overall health of Montreal’s office its 2012 announcement that it would build a 520,000-sf LEEDmarket came in 2011. Since then, steady moderate expansionary Platinum tower, with Deloitte as the lead tenant (The Deloittedemand has chipped away at the vacancy rate until it reached Tower). Currently, larger tenants have very few options inrespectable new lows. Central class A now stands at 5.9% and downtown Montreal, and these new developments will bringclass B is a tight 6.7%. welcome relief.While demand eased in 2012, companies continued to grow and Montreal’s suburban markets were hit relatively hard by thethe market tightened. Then Kevric’s Altoria project started a recession, but they too bounced back faster than expected,35-storey mixed-use building that includes 10 floors or 240,000 sf posting positive growth by the final quarter of 2010. In fact,of office space, thus bringing to an end a 20-year non-subsidized 2011 saw about 100,000 sf per quarter of positive absorptionoffice construction deadlock. In addition, Cadillac Fairview and average absorption has been 85,000 per quarter over the 16
  17. 17. OUTLOOK 2013A Cushman & Wakefield Research Publicationpast two years. Although there has been very little speculativeconstruction, some design-build activity has taken place. Overallvacancy remains at historically low levels, below 10%, primarilybecause of prudent construction.OutlookWhile the first half of 2013 may see some easing of expansionarydemand as companies grapple with global economic uncertainty,growth is expected to resume in Montreal’s downtown andsuburban markets in the latter half of 2013 and into 2014.Vacancy rates in downtown Montreal will edge upward with thecoming of the Kevric tower, rising to about 6.4%, and will increasefurther with the introduction of the Deloitte tower, reachingabout 7% by mid-2015. Overall, the market will remain healthyand relatively tight, with some modest upward pressure on rentalrates along the way.The development cycle will pick up steam in 2013 and beyond.Along with redevelopment plans for existing obsolete sites, it ispublic knowledge that Canderel plans to build two office towerstotaling over one million sf adjacent to the Complex Desjardinsin the vibrant Quartier des Spectacles. All that’s needed is a bigtenant to kick off the development.Meanwhile, Ivanhoé Cambridge has announced that it will builda 100,000-sf office tower completely on speculative basis inLaval. What a sign of confidence! The new developments areexpected to be well received, as pent-up demand is buildingamong companies that are looking to expand and, at the sametime, create modern workplaces in new sustainable buildings. Thesuccess of these new towers will provide incentive to continuebuilding in downtown Montreal and surrounding markets. 17
  18. 18. OUTLOOK 2013A Cushman & Wakefield Research PublicationSAINT JOHN: MARKETS AT A GLANCESTILL SLOW BUT RAYS OF HOPE OFFICE Central AreaOVERVIEW Inventory: Q3 2012: 2.3 million sfDespite the economic uncertainty presented in 2012 for New Q4 2013: 2.3 million sfBrunswick, according to the RBC Provincial Outlook, 2013 isexpected to brighten. Potash production is expected to increase Vacancy Rate Outlook:with the completed expansion of the Sussex mine, and export Q3 2012: 9.9%sales of electricity are expected to rise as Point Lepreau returns Q4 2013: 15.3%online after a four-year refurbishment. Modest gains in the spring Rental Rate Outlook:for forestry exports reflect an improving U.S. housing market,and, as the economy continues to strengthen south of the border, Suburbanfurther advances are expected. The lift in overall exports should Inventory:keep overall economic growth at a modest pace of 1.8% in 2013. CENTRAL AREA OFFICE Q3 2012: n/aThe greater Saint John region is an energy and marine Q4 2013: n/a 100 16%transportation natural geographic gateway and strategic 80 Vacancy Rate Outlook: 12%distribution hub. At 2.4 msf, the city¹s office market has always 60 Q3 2012: n/a Absorption (sf, thousands) 8%been heavily dependent on Irving and Bell Aliant. Irving is the 40 Q4 2013: n/a 4% Vacancy rate 20market¹s largest employer, largest tenant and largest landlord, 0 0%hence its capital projects and employment levels have an Rental Rate Outlook: n/a (20)enormous impact on the office market health. Bell Aliant, a (40)descendant of New Brunswick Tel, has dramatically reduced its (60) (80)occupancy over the past five years. (100) 06 07 08 09 10 11 12F 13FIn 2012, office market vacancy climbed to high teens as a result of ABSORPTION OVERALL VACANCY RATEthe closure of contact centre space, and justice-related tenantsrelocating from third-party space to a new provincial governmentbuilding. Saint John overshot demand during the period 2006-2008when the second refinery, an expanded LePreau nuclear plant,and Long Wharf Irving headquarters were all on the books. Therewas widespread speculation that the construction boom wouldreplicate the frigate building program of the ’80s and ’90s wherethousands of well-paid project employees rented commercialand residential spaces. As these projects were each cancelledor deferred, the office leasing, residential leasing and residentialresale markets re-priced themselves and remain at lower prices,or with material vacancy.OutlookFor 2013, the rays of opportunity are presented by an acceleratingU.S. recovery, possible route changes to the XL pipeline,redirecting it from west to east rather than Alberta to the U.S.,and spin-off business potential presented by the $25-billion dollarshipbuilding contract won by Irving Shipbuilding in Halifax. 18
  19. 19. OUTLOOK 2013A Cushman & Wakefield Research PublicationMONCTON: MARKETS AT A GLANCEslow growth OFFICE Central AreaMoncton has long been nicknamed the “Hub City” because of itscentral location in the Maritimes and proximity to U.S. markets, Inventory:which has made it a gateway railway and transportation centre. Q3 2012: 2.7 million sfIn addition to transportation and logistics, other office demand Q4 2013: 2.7 million sfdrivers include education, healthcare, information technology, Vacancy Rate Outlook:financial, legal, insurance and retail businesses. The city’s strategic Q3 2012: 6.4%location and diversified economy ensure steady growth. As the Q4 2013: 6.0%only fully bilingual area outside of Quebec, Moncton has alsobecome an attractive location for call centres and other global Rental Rate Outlook:businesses. At the Université de Moncton, a new open-air stadium Suburbannow hosts world track-and-field competitions and one CFL game Inventory:per year – another selling point for this growing city. CENTRAL AREA OFFICE Q3 2012: n/a Q4 2013: n/a 160 14%Overview Vacancy Rate Outlook: 120 11%Activity in Moncton’s office market remains brisk, marked by Q3 2012: n/a Absorption (sf, thousands)a growing number of small-to-average-sized tenants that are 80 Q4 2013: n/a 7% Vacancy rateexploring occupancy options such as flex industrial space or 40 4%converting former residential assets into office space or sharing Rental Rate Outlook: n/aspace with other tenants to achieve new efficiencies. Office rent 0 0%has remained steady at $13 to $14 psf. Moncton’s overall vacancy (40)rate is 6.4%, with class A at 5.3%.    (80) 06 07 08 09 10 11 12F 13FThe opening of the new justice building had a significant impact ABSORPTION OVERALL VACANCY RATEon the market in 2012, as it initially attracted tenants fromAssumption Place and left scattered vacancy in other downtown-core buildings. However, the market quietly normalized and theBlue Cross Centre, Assumption Place and Commerce Place areall back to expected or higher occupancy levels. Overall, modestabsorption in 2012 reflected positive growth.The most significant project on the drafting table is a newmunicipal asset, the Metro Centre, which, if it goes forward,may house a revitalized Highfield Square Mall, a new rink andconvention centre, acting as a major attraction to the downtowncore. As well, the former CN head office, owned by CrombieREIT, was taken off the market in order to complete a massiverevitalization program to convert it into a class A office building. ForecastMoncton’s office market will remain neutral or see some slowgrowth in 2013. Rental rates are expected to remain flat throughto 2014, as they have for more than three years. The flight toquality will continue and footprints will become increasinglycompressed as businesses pursue more efficient collaborativeworkspace strategies that increase density and reduce costs. 19
  20. 20. OUTLOOK 2013A Cushman & Wakefield Research PublicationFREDERICTON: MARKETS AT A GLANCEChallenges ahead OFFICE Central AreaOVERVIEW Inventory: Q3 2012: 1.9 million sfA centre for higher education, Fredericton is home to many Q4 2013: 1.9 million sfuniversities plus a variety of training colleges and institutes.Named one of the world’s top seven intelligent communities by Vacancy Rate Outlook:the global Intelligent Community Forum, Fredericton is home to Q3 2012: 4.8%more than 70% of the province¹s knowledge industry, some 60 Q4 2013: 4.3%R&D organizations and Canada¹s largest per-capita engineering Rental Rate Outlook:cluster. An established ‘smart city’, Fredericton was Canada¹s firstwireless city, and is also earning international attention for its Suburbansustainability initiatives. Inventory: CENTRAL AREA OFFICEAs the provincial capital, and home to the province¹s largest Q3 2012: n/auniversity with a renowned engineering program, Fredericton Q4 2013: n/a 60 6%continues to attract and generate intellectual economic Vacancy Rate Outlook: 40 4%development to its extensive business park network known as Q3 2012: n/a Absorption (sf, thousands)RUN WAY. 20 Q4 2013: n/a 2% Vacancy rateFredericton¹s 1.9-msf office market, concentrated mainly in the 0 0% Rental Rate Outlook: n/adowntown core, is home to three levels of government and the (20)professional services that support them. In 2012, office vacancy (40)moved upward slightly due to the downsizing of some outsourceoperations, as well as the addition of a new Knowledge Park (60) 06 07 08 09 10 11 12F 13Fbuilding. However, overall vacancy was still tight at 4.8% as of the ABSORPTION OVERALL VACANCY RATEthird quarter of 2012, and Fredericton posted the highest net-asking rents in the province, averaging $14.22 psf.OutlookWith provincial government finances under review, which couldresult in downsizing and consolidation in this government-basedcity, along with the 2013 closure of the Xstrata mine in Bathurst,which relied on its suppliers and professional services, 2013 maypresent some challenges for Fredericton. 20

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