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    Jll canada high-tech outlook_2013 Jll canada high-tech outlook_2013 Document Transcript

    • High-technology Office Outlook Canada 2013 Clustering continues in downtown submarkets, often in unconventional spaces which support collaboration, innovation and creativity. In 2012, venture capital investment in the Canadian high-tech sector totalled $719.0 million.
    • Existing high-technology clusters and the emergence of new clusters will drive continued economic growth while also reshaping the commercial office landscape.
    • Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 3 Table of contents Table of contents  3 In this report  4 High-technology office markets vs. Canada average  5 The high-technology economy  6 Venture capital, acquisitions and IPO activity  7 Local markets  8 Vancouver  9 Calgary  11 Montréal  13 Ottawa  15 Toronto  17
    • 4 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 In this report Jones Lang LaSalle’s inaugural Canadian High-Technology Office Outlook is a comprehensive study of one of the most dynamic and innovative industries in Canada. Recent news has been focused on the future of Canada’s once dominating cell phone producer, BlackBerry Limited, but often overlooks businesses on the rise. There is still a growing high-technology industry presence in Canada, with many established companies in Toronto and Ottawa and a range of industries such as gaming, multimedia and service oriented companies in Calgary, Montréal and Vancouver. Today, location plays an important role in the success of a hightechnology company. Whether it’s a start-up capitalizing on the proximity of venture capitalists, a company in search of the best and brightest, or an established brand continuing to expand, operating in the right market with the right office space is paramount to future growth, success and sustainability. In this report we take a closer look at high-technology clusters in the markets of Toronto, Ottawa, Montréal, Calgary and Vancouver, analysing their diverse nature, occupancy patterns and future outlook.
    • Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 5 High-technology office markets vs. Canada average High-tech companies in Canada are constantly seeking out the most talented and innovative employees to grow their business. This results in companies locating in downtown markets that possess high-quality amenities appealing to the younger workforce. In turn, these locations are usually dynamic real estate markets as the amenities are attractive to a number of industries looking to benefit and expand their businesses. 6.3% 7.7% ...Canada overall s ate lr Rents in core tech markets are soaring... asking 16.5% more than the overall Canada office market. .5% 6 Core tech markets: $18.88 Canada overall: $16.20 1 Due to desirability, Canada’s core high-tech markets demanded asking rental rates 16.5 percent higher than the national average in the second quarter, at $18.88 per square foot compared to $16.20 per square foot. Additionally, rental rates in the core high-tech markets increased 5.6 percent from a year earlier, while the average Canadian asking rate increased only 1.9 percent over this period. High demand for space in the core markets also led to a vacancy rate of 6.3 percent in the second quarter, more than 1.0 percentage point lower than the national average. Core tech markets... Re nta Over 5.0 million square feet of development is underway in both the downtown Toronto and Calgary markets, and over half of all construction in the country is taking place in core high-tech markets. As the amount of construction in the downtown markets across the country increases, forward-thinking high-tech companies are taking advantage of the opportunity to influence developers. By designing their office spaces to foster creativity and productivity from the onset they can further their recruitment initiatives. New developments are looking to increase building system efficiencies while offering an environmentally-friendly product, characteristics desired by many office industries but especially relevant to companies reliant on technology. Vacanc y rate Rent growth Asking rents increased in core tech markets by 5.6% in the past 12 months vs. the Canada office overall increasing by just 1.9% 5.6% Construction /2 Core tech markets comprise more than 1 of all new office construction under way in Canada
    • 6 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 The high-technology economy Patents While not on the same scale as the global technology leaders, Canada’s high-tech market is continuing to experience growth and innovation. In 2012, 20,927 patents were granted in Canada, a 5.8 percent increase from a year earlier. While the mechanical/civil sector was responsible for generating the greatest amount of patents, 3,045, or 14.6 percent of all patents, were computer-related. Canadian companies were issued 2,369 of the patents granted in Canada, while the remainders were generated by foreign companies. In 2012, Canadian companies were issued 15.0 percent more patents by the United States Patent and Trademark Office than in 2011, and 75.0 percent more than five years earlier. The lack of major high-technology firms headquartered in Canada may be offered as an explanation for the disparity in patents granted compared to the world leaders, as large companies develop the sector’s infrastructure, attract highly-talented employees, draw on the capabilities of other local companies, and ultimately generate the greatest amount of patents. Research in Motion, now BlackBerry Ltd., was granted the most patents of any company in Canada in 2012, obtaining 372 patents. However, it was the only Canadian company among the top ten patentees in the country, a list which was dominated by foreign natural resource and manufacturing companies. With the uncertain future of BlackBerry Ltd. questions about the growth potential of Canadian technology sector have been raised. patents 2012 2011 5.8% INCREASE 19,713 patents granted in Canada 14.6% 20,927 patents granted in Canada of all patents in 2012 were computer-related Source: Canadian Intellectual Property Office, Statistics Canada Immigration The government of Canada places a strong emphasis on promoting and facilitating entrepreneurship to generate increased economic activity and job growth, as small businesses employ 48.0 percent of the country’s total labour force. Many of these companies are start-ups, and roughly 5.0 percent of these rapidly expanding small businesses contribute up to 45.0 percent of new jobs created in the country. In order to take advantage of these businesses that grow at such a quick rate, the Canadian government is actively looking to attract immigrant entrepreneurs to contribute to the economic and innovative growth of the country. Canadian immigration minister Jason Kenney has announced that a new immigration visa will be available, aimed at attracting technology-savvy immigrants. This new visa will offer permanent residency to individuals who secure funding from Canadian venture capital firms, and will be more flexible than H-1B visas in the United States. Through the implementation of this visa, Canada hopes to better compete with the growing number of countries looking to attract foreign talent and expand their high-technology industry. Canada’s immigration policies have already prompted technology companies such as Microsoft and Amazon to expand their Canadian presence in order to capture a more diverse workforce.
    • Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 7 Venture capital, Acquisitions and IPO activity Acquisitions Canada has a trend of unsustainability when it comes to high-tech start-ups. Over the past five years, 75.0 percent of Canadian start-ups that have been acquired have been bought by foreign companies. Five out of six of the top acquiring companies over this period were U.S. companies, with the only Canadian company on this list being Blackberry Ltd. In addition to largely being acquired by foreign companies, Canadian high-tech companies are often sold at a relatively young age, limiting their average exit valuation; the average exit valuation for a Canadian high-tech acquisition was $US100.0 million, compared with a US company valuation of $US384 million in 2012. In 2012, total venture capital investment activity in Canada was $1.5 billion, approximately the same amount as 2011, with a slight increase to the number of innovative companies obtaining funding. Canadian venture capital investment was led by the information technology sector. Two hundred fourteen technology-sector businesses obtained a total of $719.0 million, which is up 6.0 percent from the $678.0 million invested in 2011. Software and internet-focused firms, which took $345.0 million and $179.0 million respectively, were the most heavily invested in technology subsectors. Information technology related activity made up 49.0 percent of all venture capital investment in 2012. IPO Technology sector initial public offerings have been rare since 2002 as potential returns have not been deemed to be significant. Many investors have been discouraged since the technology stock bust in 2000, the bankruptcy of Nortel Networks Corp., and the recent struggles of BlackBerry Ltd. However, after ending 2012 as the top performing sector on the Toronto Stock Exchange, technology investment trends could be changing. With falling commodity prices and less confidence in the country’s resource sectors, investors are looking more closely at high-tech companies. This can be seen through the technology sector market value increasing 20.0 percent to $54.0 billion in 2013. The IPO of Halogen Software in May marked the first Canadian technology IPO since Avigilon Corporation went public in November 2011. acquisitions venture capital Venture capital Although Canada possesses a highly-skilled labour force and many innovative entrepreneurial companies, it lacks the level of investment seen in the United States. In 2012, Canadian innovative firms captured only 44.0 percent of the venture capital invested in American innovative firms, a share that has remained steady over the past few years. This makes it difficult for Canadian firms to compete on an international level and realize their full potential, and in turn often leads to start-ups being bought out by foreign companies. The federal government has announced that it will contribute $400.0 million into Canadian venture capital in an attempt to address this issue. 2012 6% Kitchener’s Desire2Learn Inc. INCREASE In venture capital activity in Canada totalled venture capital obtained by techology firms in BILLION was a total of (Investors: New Enterprise Associates, OMERS Ventures) 214 technology firms obtained venture capital in for a total of $1.5 2011 $678.0 MILLION Vancouver’s D-Wave System Inc. 2012 (Investors: In-Q-Tel, Bezos Expeditions) 49% $719.0 MILLION LightSpeed Retail Inc. (Investors: Accel Partners) 5 YEARS 75% of Canadian high-tech start-ups have been acquired by foreign companies 1 2 5 6 FIVE out of SIX of the top acquiring companies over this period were U.S companies $35M FINANCING $31M SecureKey Technologies Inc. (Investors: Intel Capital, Visa, MasterCard, Discover Financial Services, Rogers Venture Partners, TELUS Corporation) $30M FINANCING Top acquiring companies 3 4 FINANCING FINANCING of all venture capital investment in 2012 was made up of Information technology related activity Over the past $80M (and total acquired in 2012) (6) (5) (4) (4) (3) (3) Source: CVCA, Statistics Canada MaRS Market Intelligence
    • 8 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013
    • 10 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Vancouver Vancouver Stabilizing Q: What types of high-tech companies are you seeing in your market? A: The high-tech landscape isn’t dominated by any particular segment of the industry. There is a strong presence of film production, ecommerce, software, information and communications technology, gaming, and electronic product and equipment manufacturing companies throughout Greater Vancouver. Q: Has incubator, accelerator, or co-working space helped in facilitating start-up growth in your market? A: Yes, and both venture capitalists and entrepreneurs have noticed the benefits. Aside from established programs like the government- and industry-sponsored Wavefront and privately-financed Growlab, all major post-secondary schools in the region have an incubator that is aligned with their respective programs, students and alumni. Q: When did high-tech become a truly emerging or growing industry in your market? A: Vancouver’s high-tech roots can be traced as far back as MacDonald, Dettwiler and Associates and EA Sports being founded in 1969 and 1982, respectively. More recently, leading companies such as Global Relay, Sierra Systems, Vision Critical, Elastic Path Software, Absolute Software, Avigilon and Hootsuite have helped the industry grow and gain prominence in Vancouver. Q: What does the future of high-tech look like in your market? A: The future of the high-tech industry in Vancouver is very promising as the majority of successful local companies are stable or expanding and several prominent international companies have entered the market in recent years. It is not uncommon for these companies to expand quickly once they establish a presence in Vancouver and we expect that trend to continue. The gaming industry has taken a step backwards recently as some established companies have moved their operations to Quebec and Ontario due to more generous tax incentives in those provinces, but overall the local high-tech industry is very strong. High-tech services vs. office-using employment High-Tech Services 40,000 High Tech Services Employment Office Employment Less High Tech $112.0 M 13.0% High-Tech VC funding 2012 Source: Statistics Canada, CVCA, Thomson Reuters, 2013. ce: Statistics Canada, CVCA, Thomson Reuters, 2013. Share of Canada High-Tech VC funding 30.7% 60 Population 25+ with Bachelors degree or higher Number of STEM-related secondary educational programs $112.00 $112.00 $110.30 $111.00 $110.00 $109.00 $107.75 $108.00 $107.00 $106.00 $105.00 2010 2011 2012 Computer/Electronic Product Manufacturing 17% 17% 140,000 Electrical Equipment Manufacturing E-Retailers 9% 12% 4% 2% 150,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Annual job growth 2012 $113.00 200,000 160,000 32,000 High-tech manufacturing and services jobs Office-Using 170,000 34,000 +3.3% High-tech employment composition 180,000 36,000 52,369 VC funding Information Technology Sector ($ CAD millions)* 190,000 38,000 30,000 Jobs Growing early stage Economic scorecard Venture capital Contracting Education Growing late stage 39% Computer Systems Design & Related Srvcs. Data Processing, Hosting & Related Srvcs. Other Information Srvcs. Software Publishers
    • 11 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Vancouver Vancouver Q: How are landlords meeting the demands of high-tech companies interested in flexible lease terms and space? A: Landlords realize the cyclical nature and uncertain growth patterns of high-tech companies so they have demonstrated a willingness to offer shorter and more flexible terms in order to keep high-tech tenants within their portfolios. Q: Where do high-tech companies prefer to be located in your market? Why? A: High-tech companies can be found in clusters throughout Greater Vancouver but are highly concentrated in the downtown submarkets of Gastown and Yaletown. These neighboring nodes have long been desirable locations for high-tech companies due to the vibrant nature, character brick and beam office buildings, proximity to the CBD, access to rapid transit and the abundance of residential developments in the immediate area. Cost $33.05 Overall average office rental rate Supply Q: Do recent high-tech lease transactions represent growth, or are companies mostly staying the same size? A: Most companies with an established Vancouver presence are stable or expanding. Companies that have recently entered the market such as Amazon, Salesforce and Facebook have started with relatively large footprints and some have already expanded, indicating that Vancouver has proved to be a successful location for them. Office scorecard Overall office vacancy Total office under construction 0.6% Overall net absorption (12 months) Net absorption (% of inventory) 10.7% High-tech services jobs as share of office jobs 22 Select high-tech submarkets Downtown Core SAP Address: 910 Mainland Street Yaletown 200,000 s.f. 180 months Rent: Annual growth: Vacancy: Past 12-months net absorption: Coal Harbour 3 520 West Georgia Street Downtown Core Confidential Confidential Rent: West Pender Street $43.00 1555 Downtown Core Vacancy: 18% 18,500 s.f. 12-month 24 months net absorption: 1.2 m.s.f. $40.29 +3.0% 4.4% -196,300 s.f. Yaletown Amazon 33 Palo Alto Facebook Annual rent growth 7.6% 3.6m s.f. Top three recent lease transactions 11 +3.1% 308k s.f. Demand Q: What amenities and attributes make your market appealing to hightech companies? A: The lifestyle and natural surroundings, schools such as VFS and BCIT that produce world class talent, a strong local economy, the sharing of a time zone with other western high-tech hubs and the relatively easy commute to Silicon Valley are just a few reasons why high-tech companies gravitate to Vancouver. Gastown 2 Yaletown 1 Rent: Annual growth: Vacancy: Past 12-months net absorption: $38.61 +4.2% 4.0% -20,300 s.f. Gastown Rent: Annual growth: Vacancy: Past 12-months net absorption: $29.68 +7.6% 2.7% 40,200 s.f.
    • 12 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Calgary Calgary Contracting Growing early stage Stabilizing Economic scorecard Q: Have you seen an increase in employee migration to your market as a result of new high-tech jobs? A: This trend has not been observed in the greater Calgary market. The vast majority of employee migration in Calgary is related to oil & gas companies, specifically oil field services companies and professional fields such as engineers, geologists and geophysicists Q: Do recent high-tech lease transactions represent growth, or are companies mostly staying the same size? A: In May 2013 Smart Technologies conducted a sale and leaseback of its Calgary corporate headquarters. The building was sold for $77.0 million to HOOPP Realty Inc and Smart subsequently signed a 20 year lease with HOOPP. Overall, in Calgary, the high-tech sector remains stable in terms of tenant demand. Education Q: What types of high-tech companies are you seeing in your market? Is there a particular specialty? A: The most prominent high-tech company in Calgary is Smart Technologies whose office is in the Research Park at the University of Calgary. Smart develops interactive and collaborative education software programs used throughout the world in schools, colleges, and universities. In Calgary, they have 4,695 employees, making them the largest high-tech employer in the city. Another noteworthy company is Harris Canada. Harris is a high-tech firm that focuses on communication equipment and telecom networks servings businesses. They are the second largest high-tech employer with 840 employees. Venture capital Jobs Growing late stage 18,488 +11.3% High-tech manufacturing and services jobs Annual job growth 2012 $57.0 M 6.6% High-tech VC funding 2012 Share of Canada VC funding 53.0% 38 Population 25+ with Bachelors degree or higher Number of STEM-related secondary educational programs VC funding Information Technology Sector ($ CAD millions)* $57.00 $60.00 $50.00 $40.00 $30.00 $20.00 $11.60 $10.06 2010 2011 $10.00 $0.00 High-tech services vs. office-using employment High-Tech Services 25,000 High-Tech Services Employment Office Employment less High-Tech High-tech employment composition 15,000 10,000 5,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Statistics Canada, CVCA, Thomson Reuters, 2013. Computer/Electronic Product Manufacturing Office-Using 20,000 - 2012 230,000 220,000 210,000 200,000 190,000 180,000 170,000 160,000 150,000 13% 12% Electrical Equipment Manufacturing E-Retailers Computer Systems Design & Related Srvcs. Data Processing, Hosting & Related Srvcs. 75% Other Information Srvcs. Software Publishers
    • 13 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Calgary Calgary Q: How are landlords meeting the demands of high-tech companies interested in flexible lease terms and space? A: Many fast-growing companies are undertaking short-term trials at furnished office spaces such as Regus. Regus business centers house many smaller high-tech companies who need office space but do not have the financial covenant to take on a lease. Regus business centers are located in the Beltline, Suburban South, and Suburban North in Calgary. Cost Office scorecard $37.08 Overall average office rental rate Supply Q: Is there an anchor tenant in your market that other high-tech companies have clustered near? A: This is not the case in Calgary. High-tech firms occupy downtown space, suburban space, and flex space but are not centered in one district or sub-market in the Calgary region. +5.2% Annual rent growth 6.4% 4.9m s.f. Demand Overall office vacancy Total office under construction 385k s.f. Q: What amenities and attributes make your market appealing to hightech companies? A: Calgary is no different than other Canadian markets in this regard. High-tech companies often employ many young persons who definitively want to be near restaurants and coffee shops. 0.6% Overall net absorption (12 months) Net absorption (% of inventory) 7.0% High-tech services jobs as share of office jobs Top three recent lease transactions 11 Select high-tech submarkets Downtown Smart Technologies 3636 Research Rd NW Suburban North 204,869 s.f. 240 months 22 Online Enterprise Inc. Suburban North SAS Canada Rent: $43.00 517-10th Ave. SW Vacancy: 18% Beltline 12-month 19,297 s.f. 60 months m.s.f. net absorption: 1.2 $40.01 +18.6% 3.6% 160,279 s.f. Beltline 1 Rent: Annual growth: Vacancy: Past 12-months net absorption: 639-5th Ave. SW Downtown West 8,150 s.f. 120 months 33 Palo Alto Rent: Annual growth: Vacancy: Past 12-months net absorption: 2 3 Downtown Beltline $30.99 7.6% 10.5% -227,598 s.f. Suburban North Rent: Annual growth: Vacancy: Past 12-months net absorption: $31.75 12.5% 10.6% -111,318 s.f.
    • 14 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Montréal Montréal Contracting Growing early stage Stabilizing Q: Have you seen an increase in employee migration to your market as a result of new high-tech jobs? A: In the last 10 years, we have seen a significant increase in high-tech employment across the Montréal market. In fact, the GDP resulting from this sector’s activities has increased by nearly 25 percent over the last decade. The industry currently represents nearly $9 billion and accounts for roughly 10 percent of Montréal’s total GDP. Q: What does the future of high-tech look like in your market? A: The future of the high-tech industry in Montréal is still precarious. Aside from large multinational organizations who are well established in the city, smaller organizations still rely heavily on municipal and provincial tax incentives. On the bright side, the provincial government has recently announced a 10-year extension to the Development of EBusiness tax credits. High-tech services vs. office-using employment High-tech services employment Office-Using Employment, Less high-tech 55,000 50,000 45,000 2001 2003 2005 2007 2009 97,141 +2.3% High-tech manufacturing and services jobs Annual job growth 2012 $92.2 M 10.7% High-tech VC funding 2012 Share of Canadian High-tech VC funding 17.1% 28 Number of STEM-related secondary educational programs Population 25+ with Bachelors degree or higher VC funding Information Technology Sector ($ CAD millions)* $167.09 $180.00 $160.00 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $0.00 $104.80 $92.20 2010 2011 2012 High-tech employment composition 60,000 40,000 Venture capital Q: What types of professionals are drawn to Montréal? Why? A: The high-tech job market in Montréal benefits from well educated workers driven by a large amount of post-secondary STEM-related programs. Since 1999, Montréal has invested the most money in university research programs in Canada. The vast majority of professionals in the high-tech sector in Montréal are information systems analysts and consultants, electrical and electronics engineers, and user support technicians. Education Q: What types of high-tech companies are located in your market? A: The high-tech sector in Montréal is comprised mostly of companies in five complementary fields: IT services, manufacturing, multimedia, and software. High-Tech Services 65,000 Economic scorecard Jobs Growing late stage 2011 Source: Statistics Canada, CVCA, Thomson Reuters, 2013. Computer/Electronic Product Manufacturing Office-Using 380,000 375,000 370,000 365,000 360,000 355,000 350,000 345,000 340,000 20% Electrical Equipment Manufacturing 19% E-Retailers 3% 2% 14% 2% 40% Computer Systems Design & Related Srvcs. Data Processing, Hosting & Related Srvcs. Other Information Srvcs. Software Publishers
    • 15 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Montréal Montréal Q: What amenities and attributes make your market appealing to hightech companies? A: Montréal has a favorable Research and Development environment with advantageous tax incentives making the city competitive in terms of total tax burdens in comparison to other major North American cities. Cost Office scorecard Q: Do recent high-tech lease transactions represent growth, or are companies mostly staying the same size? A: Recent high-tech lease transactions have been characterized by companies staying in the same location without taking on additional office space. Furthermore, we are currently seeing a large amount of available sublease in the downtown market coming from companies in the high-tech industry. $27.02 Supply Overall average office rental rate Q: Is there an anchor tenant in your market that other high-tech companies have clustered near? A: There are no anchor tenants around which other high-tech companies have clustered in Montréal. The city is comprised of smaller high-tech firms who have clustered around new office developments in two different sectors of downtown. Furthermore, Montréal is home to foreign subsidiaries including IBM, Ubisoft, Electronic Arts, SAP, Ericsson, and Nokia. 9.3% 2.5m s.f. Overall office vacancy Demand Overall net absorption (12 months) Select high-tech submarkets Downtown 75 Queen Downtown 21,081 s.f. 60 months Rent: Annual growth: Vacancy: Past 12-months net absorption: 15 Midtown Ubisoft 2 520 West End 720 $31.34 +0.7% 6.8% -679,463 s.f. Midtown 3 Downtown 5505 Saint-Laurent Midtown 248,821 s.f. 120 months Toon Boom Animation Rent: 4200 Saint-Laurent $43.00 Midtown Vacancy: 18% 12,000 s.f. 12-month 60 months net absorption: 1.2 m.s.f. Net absorption (% of inventory) High-tech services jobs as share of office jobs Compuware 33 Palo Alto Total office under construction 16.4% Top three recent lease transactions 22 Annual rent growth -175k s.f. -0.2% Q: Where do high-tech companies prefer to office in your market? Why? A: High-tech tenants have traditionally clustered themselves around Technoparc Montréal, located in the West End and downtown in the Multimedia City and E-Commerce buildings. In recent years, we have also seen some companies looking for more affordable office space relocate to the Midtown market. 11 +0.3% 1 Rent: Annual growth: Vacancy: Past 12-months net absorption: $23.00 +1.5% 12.2% 465,882 s.f. West End Rent: Annual growth: Vacancy: Past 12-months net absorption: $24.24 +3.8% 14.1% -150,152 s.f.
    • 16 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Ottawa-Gatineau Ottawa-Gatineau Stabilizing Q: What types of high-tech companies are you seeing in your market? A: The strength of Ottawa’s economy lies in the diversity of its industries, particularly the high-tech industry. Knowledge-based support services sector is Ottawa's largest with 570 companies, followed by the software sector with a total of 363 companies. IBM is now Ottawa’s largest employer outside of the public sector. Q: When did high-tech become a truly emerging or growing industry in your market? A: The emergence of Ottawa’s high-tech sector began with National Research Council (NRC) research into telecommunications technologies in the 1950s and 1960s. AT&T disposal of Canadian assets in 1961 to Bell Canada led to the creation of Northern Telecom, which eventually became known as Nortel when purchased by Bell Northern Research (BLR), a spin-off of NRC. Nortel became the anchor for an entire cluster of high-tech telecommunications firms and government labs until its collapse and liquidation in 2003. Q: What does the future of high-tech look like in your market? A: The future of high-tech in Ottawa and Canada as a whole is not too optimistic for several reasons. Angel investors are looking towards assets that will provide greater returns and lower risks, and have subsequently turned to the oil sand developments in Canada’s western regions. There has also been a trend of exploitation and acquisition of Ottawa’s high-tech companies with patents and knowledge-based resources by U.S companies, inhibiting the growth of high-tech companies in the National Capital Region. Jobs Growing early stage Economic scorecard Venture capital Contracting Education Growing late stage 36,330 -1.9% High-tech manufacturing and services jobs Annual job growth 2012 $115.1 M 13.4% High-tech VC funding 2012 Share of Canadian High-tech VC funding 38.3% 19 Population 25+ with Bachelors degree or higher Number of STEM-related secondary educational programs VC funding Information Technology Sector ($ CAD millions)* $140.00 $115.10 $120.00 $97.41 $100.00 $72.60 $80.00 $60.00 $40.00 $20.00 $0.00 High-tech services vs. office-using employment High-Tech Services 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 High-Tech Services Employment Office Employment less High-Tech 2010 2011 2012 High-tech employment composition Computer/Electronic Product Manufacturing Office-Using 185,000 5% 6% 18% Electrical Equipment Manufacturing 180,000 E-Retailers 175,000 Computer Systems Design & Related Srvcs. 170,000 Data Processing, Hosting & Related Srvcs. 165,000 2003 2005 2007 2009 2011 Source: Statistics Canada, CVCA, Thomson Reuters, 2013. 160,000 71% Other Information Srvcs. Software Publishers
    • 17 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Ottawa-Gatineau Ottawa-Gatineau Q: Is creative space in high demand, and if so, how has it out-performed the traditional office sector? A: Flex space, which eliminates operational silos allowing for collaboration and knowledge exchange among employees, is a trend on the rise in all industries, but particularly among start-up high-tech companies. These companies look to reduce costs and drive innovation by adopting a flex workspace. A key player that has implemented this trend is Ottawa-based company, Shopify Inc., a powerful ecommerce website solution that allows businesses to sell online by providing the resources to create an online store. Cost $31.11 Overall average office rental rate Total office under construction 295k s.f. 0.7% Overall net absorption (12 months) Net absorption (% of inventory) 8.3% High-tech services jobs as share of office jobs Select high-tech submarkets 5 Blackberry Kanata 450 March Road Kanata 72,684 s.f. 72 months 22 Annual rent growth Overall office vacancy Top three recent lease transactions 11 +1.9% 5.4% 2.3 m s.f. Supply Q: Where do high-tech companies prefer to office in your market? Why? A: Historically, most high-tech companies have located in Ottawa’s Kanata submarket. Due to increased entrepreneurship in Ottawa, there has been a trend of locating start-up high-tech companies in unique spaces in Ottawa’s downtown submarket. More specially, these companies are locating in the Byward area, Ottawa’s entertainment district. This trend is due to the ease of accessibility and appeal of this submarket in attracting young talent. Office scorecard Demand Q: Is there an anchor tenant in your market that other high-tech companies have clustered near? A: At the time of expansion for Ottawa’s high-tech sector in the mid 1970s, emerging companies clustered around Nortel located in Ottawa’s Kanata submarket. This submarket soon earned the nickname “Silicon Valley of the North.” Even after the liquidation of Nortel, established hightech companies continued to occupy the Kanata region. Most notable tenants include BlackBerry Ltd., formerly Research in Motion and; Mitel Networks Corporation, founded by former Nortel employees Michael Copland and Terry Matthews. Downtown Rent: Annual growth: Vacancy: Past 12-months net absorption: $24.43 +1.5% 12.8% 107,114 s.f. Pleora Technologies 390 March Road Kanata 19,667 s.f. 60 months 33 Palo Alto Halogen Rent: $43.00 40 Hines Kanata Vacancy: 18% 27,037 s.f. 12-month 52 months net absorption: 1.2 m.s.f. Downtown 3 1 2 417 Rent: Annual growth: Vacancy: Past 12-months net absorption: $39.02 +3.0% 4.4% 317,137 s.f.
    • 18 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Toronto Toronto Stabilizing Q: What types of high-tech companies are you seeing in your market? Is there a particular specialty? A: Innovation in Toronto’s high-tech market is derived from the collaboration of a wide variety of subsectors. Service companies comprise approximately 95 percent of total high-tech firms, with computers, and electronics making up the remainder of the industry. Q: Has Incubator, accelerator, or co-working space helped in facilitating start-up growth in your market? A: Yes, educational institutions and incubators can be found throughout the Greater Toronto Area (GTA), helping new firms and technology subsectors build on clusters of established communications, software, manufacturing, and broadcasting businesses. The Ontario Network of Excellence, a government-funded program, provides a wide variety of services to assist young entrepreneurs and small businesses. Q: What does the future of high-tech look like in your market? A: Government initiatives such as the Ontario Emerging Technologies Fund, as well as increased angel financing are helping entrepreneurs to meet the needs of early-stage businesses. Software companies and communications and networking companies are receiving the most consistent investments while electronics, computer hardware, and medical equipment have been harder pressed to obtain funding. Q: What types of professionals are drawn to your market? Why? A: The GTA high-tech market has a young workforce, with over 60 percent of workers being under the age of 45. The vibrant and diverse entrepreneurial culture of Toronto makes it an attractive market for both high-tech companies and highly educated individuals looking to establish a business or career. 154,670 +11.7% Jobs Growing early stage Economic scorecard High-tech manufacturing and services jobs Annual job growth 2012 $280.0 M 32.6% Venture capital Contracting High-Tech VC funding 2012 Share of Canada High-Tech VC funding 36.0% 61 Population 25+ with Bachelors degree or higher Education Growing late stage Number of STEM-related secondary educational programs VC funding Information Technology Sector ($ CAD millions)* $300.00 $280.40 $248.50 $250.00 $233.17 $200.00 $150.00 $100.00 $50.00 $0.00 High-tech services vs. office-using employment High-Tech Services Office-Using 110,000 100,000 90,000 80,000 70,000 2007 2008 2009 2010 2011 2012 Source: Statistics Canada, CVCA, Thomson Reuters, 2013. ce: Statistics Canada, CVCA, Thomson Reuters, 2013. 2011 2012 High-tech employment composition High-Tech Services Employment Office Employment less High-Tech 120,000 2010 525,000 520,000 515,000 510,000 505,000 500,000 495,000 490,000 485,000 1% 2% 5% Computer/Electronic Product Manufacturing 17% Electrical Equipment Manufacturing 7% 7% 61% E-Retailers Computer Systems Design & Related Srvcs. Data Processing, Hosting & Related Srvcs. Other Information Srvcs. Software Publishers
    • 19 Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 Jones Lang LaSalle • United States • High-Technology Office Outlook • 2013 Toronto Toronto Q: What amenities and attributes make your market appealing to hightech companies? A: Toronto’s high quality amenities, characteristic of a large metropolis, draw talented individuals whom high-tech companies look to attract. Toronto’s educational institutions actively partner with high-tech employers. The city has also established a history of digital media leadership, tax incentives, and government investment in research and development. Cost $29.87 Overall average office rental rate Supply Q: How are landlords meeting the demands of high-tech companies interested in flexible lease terms and space? A: Landlords are looking to increase desirability towards high-tech firms through increased efficiencies in areas such as cooling, sustainability, and other building strategies. Most new buildings are either LEED Gold or Platinum as environmental consciousness increases. Landlords are willing to give flexible lease terms – especially to the first tenant. Landlords are also willing to invest in building upgrades to meet hightech tenants needs in exchange for longer leases and higher rates. Office scorecard +1.8% Annual rent growth 8.6% 7.1m s.f. Overall office vacancy Total office under construction 213k s.f. Demand Q: Do recent high-tech lease transactions represent growth, or are companies mostly staying the same size? A: Yes. Most recent leasing transactions show growth of high-tech firms. Current examples are Cisco and Apple. Cisco recently signed a 100,000-square-foot lease at 88 Queens Quay West for 10 years, and Apple will occupy 50,000 square feet at 120 Bremner in the downtown south market. 0.1% Overall net absorption (12 months) Net absorption (% of inventory) 17.0% High-tech services jobs as share of office jobs Top three recent lease transactions 11 Cisco Select high-tech submarkets Markham 400 407 88 Queens Quay West Downtown South 100,000 s.f. 120 months 22 120 Bremner Blvd. Downtown South 50,000 s.f. 120 months 33 Palo Alto Deluxe Entertainment Rent: 427 Apple Canada $43.00 901 King Street West Vacancy:King&Dufferin 18% 60,000 s.f. 12-month 240 months net absorption: 1.2 m.s.f. 401 2 1 3 Downtown Downtown Rent: Annual growth: Vacancy: Past 12-months net absorption: $37.65 +4.8% 5.4% 164,678 s.f. Markham Rent: Annual growth: Vacancy: Past 12-months net absorption: $25.59 -0.8% 10.2% -120,111 s.f. Mississauga Rent: Annual growth: Vacancy: Past 12-months net absorption: $26.41 -1.5% 12.1% 75,005 s.f.
    • Jones Lang LaSalle • Canada High-technology Office Outlook • 2013 9 Technologies of today will inevitably be replaced by technologies of tomorrow and markets that can adapt and reinvent will remain at the forefront of each crest.
    • About Jones Lang LaSalle Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.7 billion of real estate assets under management. For further information, visit www.joneslanglasalle.ca. About Jones Lang LaSalle Research Jones Lang LaSalle’s research team delivers intelligence, analysis, and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our 300 professional researchers track and analyze economic and property trends and forecast future conditions in over 70 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. For further information please contact: Thomas Forr National Research Coordinator Thomas.Forr@am.jll.com tel +1 416 304 6047 www.joneslanglasalle.ca/research © 2013 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.