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Jll commercial real estate market report toronto 2014

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    Jll   commercial real estate market report toronto 2014 Jll commercial real estate market report toronto 2014 Document Transcript

    • Office Insight Downtown Toronto. Q4 2013 Surprisingly, despite the increase in vacancy in the fourth quarter, average Class A and Class B prices showed small increases to $23.70 p.s.f. and $19.42 p.s.f., respectively. Through 2014 these rates are expected to decrease as landlords seek to attract tenants in a diverse and high supply market. Tenants could also see significant benefits in the form of cash allowances and free rent periods. Downtown Toronto did experience positive absorption of 55,000 square feet in the fourth quarter, however this did little to offset the annual negative absorption which ended the year at negative 667,859 square feet. In comparison, total absorption for 2012 was a positive 537,516 square feet. As tenants await the best possible market conditions leasing activity is expected to decline. Over time, lower rates in the core will present more and more tempting relocation options for companies in the suburbs looking to consolidate and secure a downtown location. An influx of new companies into Downtown Toronto could mean competition for tenants already here. Additionally, the positive economic outlook with ideal leasing conditions will make Toronto an attractive location for companies interested in entering Canada. 6.5% 2013 space completion 746,898 s.f. 12 Mth % Change in Leased area -2.70% 2013 net absorption -667,859 s.f. 12-month overall rent % change +2.58% Class A overall asking rent $23.70 p.s.f Class B overall asking rent Pricing The Mars Discovery Centre Phase II was completed and added to the downtown inventory in the fourth quarter, the only construction completed in 2013. This sciences targeted development at 661 University Avenue added 750,000 square feet of space to the Downtown Toronto inventory and served as a large contributor to the 90 basis point increase in vacancy over the quarter with 400,000 square feet of space still available in the building. Vacancy rates, as the new developments come to market, are expected to continue to increase. In the Class A market, vacancy rates surged 130 basis points over the quarter to match downtown Toronto`s overall 6.5 percent rate. In the Class B market, rates increased a modest 30 basis points to 5.7 percent. 4.7% Total vacancy rate Note: 70,626,238 s.f. Direct vacancy rate Demand Market conditions Conditions in the downtown core will soon see the effects of the 5.0 million square feet of new class A office space currently under construction. Eight developments are scheduled for completion with dates ranging through late 2014 – 2017. All submarkets with the exception of Downtown North have at least one development in the pipeline with the Financial Core and Downtown South receiving two and three projects respectively. Tenants in these new buildings include RBC, Deloitte and Ernst & Young. There are an additional ten preleasing developments in Downtown Toronto whose developers are now struggling to find suitable anchor tenants. Few, if any, are expected to move forward in the near future. Supply Supply Economy Ontario’s economy is expected to accelerate over the next two years. RBC Economics predicts a GDP growth of 2.6 percent in 2014 and 2.9 percent in 2015, citing a stronger manufacturing sector and the recovering U.S. economy as catalysts. The 2013 GDP growth of 1.3 percent was largely attributable to the vibrant service sector and limited by the weakness of the manufacturing sector. The provincial unemployment rate is expected to drop 40 basis points to 7.1 percent by the end of 2014 and a further 20 basis points to 6.9 percent by 2015. 12-month forecast Current Standing Key market indicators $19.51 p.s.f indicates an increase indicates a decrease indicates status quo Net new supply, net absorption and total vacancy Net new supply sf Downtown Toronto sees lower market activity and higher vacancy in anticipation of new developments Net absorption total vacancy 4,000,000 8% 3,500,000 7% 3,000,000 6% 2,500,000 2,000,000 5% 1,500,000 4% 1,000,000 3% 500,000 2% 0 1% -500,000 -1,000,000 0% 2008 2009 2010 2011 2012 2013 Leasing Momentum * 30.00% North East West Core South King & Dufferin 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% 2008 2009 2010 2011 2012 2013 . * Leasing momentum equals change in occupied area as a percentage of all office building inventory . Source: Altus Insite, RBC Economics Research, Scotiabank Economics Research, Statistics Canada
    • Jones Lang LaSalle Americas Research • Greater Toronto Office Insight • Q4 2013 2 Available available Sublease sublease space Downtown East Downtown West sf 4,000,000 Downtown North Financial Core Downtown South King & Dufferin Downtown East Downtown West 900,000 sf Available direct space Downtown North Financial Core Downtown South King & Dufferin 800,000 3,500,000 700,000 3,000,000 600,000 2,500,000 500,000 2,000,000 400,000 1,500,000 300,000 1,000,000 200,000 500,000 100,000 0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 Class B overall asking rents $35 Downtown East Downtown West Downtown North Financial Core Downtown South King & Dufferin $ psf Class A overall asking rents 2013 * Includes all available sublease space on the market $ psf * Includes all available direct space on the market 2012 $30 Downtown East Downtown West $25 Downtown North Financial Core Downtown South King & Dufferin $20 $25 $15 $20 $15 $10 $10 $5 $5 $0 $0 2008 2009 2010 2011 2012 2008 2013 East 400 North South West Core 2011 2012 2013 East North South West Core King & Dufferin 100 Number of blocks Number of blocks 120 King & Dufferin 350 300 250 200 150 80 60 40 100 20 50 0 2010 Class B blocks of available contiguous space Class A blocks of available contiguous space 450 2009 10,000 25,000 sf King & Dufferin 25,000 50,000 sf 50,000 100,000 sf 100,000 200,000 sf 0 200,000 sf + 10,000 25,000 sf 25,000 50,000 sf 50,000 100,000 sf 100,000 200,000 sf 200,000 sf + 4 4 0 0 0 King & Dufferin 9 6 1 0 0 Core 256 202 176 139 69 Core 38 12 0 0 0 West 65 55 46 38 14 West 24 7 0 0 0 South 53 51 47 44 37 South 1 1 1 0 0 North 28 23 16 16 10 North 28 16 10 10 0 East 15 10 10 10 10 East 0 0 0 0 0 * Includes sublease space * Includes sublease space Source: AltusInsite
    • Jones Lang LaSalle Americas Research • Greater Toronto Office Insight • Q4 2013 3 GTA Submarket leverage – market condition and forecast Property clock – current market conditions Submarket Peaking market Rising market 2013 2014 2015 2016 Core Tenant leverage Landlord leverage Downtown Toronto Toronto Falling market Bottoming market Downtown (excluding Core) Midtown GTA North GTA East GTA West Landlord-favorable conditions Suburban Toronto Balanced conditions Tenant-favorable conditions Q4 Completed lease transactions Tenant Address Submarket s.f. Type Sentry Select 199 Bay Street Financial Core 46,000 New LinkedIn 250 Yonge Street Downtown North 37,000 New Microsoft 222 Bay Street Financial Core 26,142 Renewal Oberfeld Snowcap Inc. 330 Bay Street Financial Core 10,275 Sublease Downtown Sublease Space Market Downtown Toronto added a total of 522,618 square feet of sublease space to the market ending the fourth quarter with almost 1.5 million square feet of available sublease space. A total of 193,214 square feet was subleased in the fourth quarter at an average space size of 6,700 square feet. This places sublease absorption over the quarter at 328,954 negative square feet. The Financial Core remains the most active sublease market, containing more than half of all current sublease listings. The Downtown South submarket, however, has the highest rate of sublease availability at 3.6 percent, with subleases making up 73.0 percent of all available space. The largest sublease availabilities in the market are Allstream Canada’s seven year, 140,000 square feet seven floor sublease at 200 Wellington Street West and Manulife Financial’s eight year, 140,000 square feet seven floor sublease at 2 Queen Street East. Sublease space is expected to increase in the long term as tenants seek to upgrade in the favorable market conditions brought on by the 5.0 million square feet of new office space coming to market through 2014 – 2017. Downtown sublease space by lease expiration year Distribution of available sublease space 11% 2019 + 3% Financial Core 2017 thru 2018 Downtown East Downtown North 19% Downtown West Downtown South 2015 thru 2016 King & Dufferin 2014 9% 0 10 20 30 40 50 60 70 80 s.f. 55% 3% Source: AltusInsite
    • 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 $46.3 billion of real estate assets under management. For further information, visit www.jll.com. 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. Prepared by: For more information, please contact: Taylor McCarten Associate Direct +1 416 238 5987 Taylor.mccarten@am.jll.com Eamonn Murphy Managing Director Direct +1 416 209 8920 eamonn.murphy@am.jll.com Jones Lang LaSalle 199 Bay Street Suite 4610 Toronto, ON, M5L 1G3 For further information, please visit our website, http://www.joneslanglasalle.ca Jones Lang LaSalle Real Estate Services, Inc. Real Estate Agency. ©2013 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
    • Brace for the construction boom. In 2014, over 10.0 million square feet will be delivered to the national office market. Q4 2013 Canadian Office Market Overview Continued urbanization will drive downtown office leasing in 2014 23.0 million square feet under construction across the country Full year 400,000 square feet of negative absorption nationally National vacancy at 8.5 percent in the fourth quarter National Office Report • Q4 2013 Jones Lang LaSalle Canada Research 1
    • Canadian economy Global and national economic conditions Global economic activity was stronger leading into the end of 2013, showing signs of growth and confidence that are expected to carry into 2014. The United States posted stronger than expected employment and income gains in the third quarter of 2013; consequently, the Federal Reserve trimmed its bondbuying program by $10.0 billion a month, from $85.0 billion to $75.0 billion. U.S. GDP growth is expected to accelerate into 2014; forecasts have improved, projected at 1.8 percent for 2013 and 2.5 percent for 2014. The unemployment rate stands at 6.7 percent following a dismal December, as lower than expected job growth numbers were reported for the month. The positive outlook for the U.S. in 2014 will be driven by the upturn in private consumption, residential construction and private investment; both neighboring countries, Canada and Mexico, are expected to benefit from these improved market conditions. Excluding Brazil, the Eurozone was the weakest part of the global economy in the third quarter, growing only 0.1 percent quarter-over-quarter. Forecasts for the Eurozone’s GDP growth in 2014 and 2015, however, remain encouraging, at 0.9 percent and 1.6 percent respectively. The European Central Bank has set the interest rate at a record-low benchmark of 0.25 percent in order to stimulate the economy as downward pressure continues on the current 0.8 percent inflation rate, which stands 120 basis points below the 2.0 percent target rate. The Bank of Canada’s (BoC) governor, Stephen Poloz, continued to hold the target overnight rate at 1.0 percent. This policy will remain in place if inflation remains muted and imbalances in the household sector continue to improve. CPI inflation rose 1.0 percent year-over-year for November, missing the target rate of 2.0 percent by 100 basis points. With inflation expectations well anchored, both core and total CPI inflation are expected to slowly return to the 2.0 percent rate. National Office Report • Q4 2013 Employment gains in 2013 were disappointing as Canada had the slowest December year-over-year growth rate since 2009, adding a merely 102,000 jobs or 0.6 percent over 12 months. Employment fell by 46,000 jobs in the month of December, increasing the unemployment rate by 0.3 percent to 7.2 percent. The Canadian GDP growth rate for 2013 has been adjusted to 1.8 percent and forecasts for 2014 have increased to 2.4 percent. Canadian growth in 2014 will be determined by the approval of key export pipeline projects. The oil and gas sector currently accounts for 25.0 percent of Canadian exports, and could expand if Canada gains access to the Asian market through the proposed pipeline projects along the West Coast and Atlantic Canada. The Canadian economy is anticipated to benefit from the positive outlook on the United States in 2014. The cyclical recovery of the U.S and a possible softening of the Canadian dollar will allow Canada to benefit through exports. The Canadian dollar will likely fluctuate around the low- to mid-90¢ (U.S) range; this is expected to increase foreign demand for Canadian exports and reduce Canada’s $120.0 billion noncommodity trade deficit. U.S housing starts jumped to 1.1 million units annualized in November and is expected to increase to 1.4 million units by 2015. Construction starts for the Canadian housing market cooled down in 2013, slowing to 188,200 units. The outlook for 2014 shows housing starts further declining to 180,000 units; as several developers pull back projects to allow demand to catch up with supply. Jones Lang LaSalle Canada Research 2
    • Office market overview National market conditions The Canadian office market, stretching from Halifax in the east to Vancouver in the west, saw an uptick of leasing velocity in the last three months of the year after posting negative net absorption in three consecutive quarters. Quarter over quarter, net absorption totalled 200,000 square feet which while positive, was not enough to offset the three previous quarters, bringing 2013 net absorption to negative 400,000 square feet. Looking back, we have not registered a full year with total negative net absorption since the 2008 and 2009 recession when the market shed close to 1.2 million square feet. In Canada, overall leasing activity was notably stronger in the suburban landscape while several downtown markets were in the red for most of the year. Full year net absorption numbers for the five largest office markets (Vancouver, Calgary, Montréal, Ottawa and Toronto) were negative 1.7 million square feet in downtown and positive 280,000 square feet in the suburbs. Leasing activity is expected to pick up in 2014, particularly in downtown markets as economic conditions and the labour market improves. In addition, we expect certain suburban markets to perform well, particularly markets with a significant presence of U.S. companies and markets with superior transit connectivity. Despite overall positive absorption in the fourth quarter, the national office vacancy rate increased for the sixth quarter in a row to 8.5 percent, up 60 basis points quarter over quarter and 120 basis points year over year. Vacancy remains highest in suburban markets, with the five largest office markets ending the year with an overall vacancy rate of 11.7 percent while the downtown rate was 6.1 percent. The overall vacancy rate increase was primarily due to the completion of 26 office projects in the fourth quarter, adding 3.3 million square feet of which 2.5 million square feet were in suburban markets. National Office Report • Q4 2013 We expect this trend to continue over the next few years as the current office development cycle enters its completion phase. Nationally, there is 23.0 million square feet in the pipeline, or 4.7 percent of the total inventory, all slated for completion through 2014 – 2018. Approximately 75.0 percent of that space is downtown developments, while 25.0 percent is suburban developments. To put this in perspective, in the markets of Toronto, Calgary and Vancouver city wide stock will increase by 5.0 to 11.0 percent. Another noticeable increase over the past 12 months is the amount of available sublease space. Nationally, the sublet availability rate sits at 1.9 percent representing an increase of 2.8 million square feet year over year. The sublet availability rate is particularly high in downtown markets. For example, in downtown Calgary and Toronto the rate has almost doubled in the past 12 months. This increase, coupled with development completions and tenant movements to said completions is creating large blocks of direct vacant space. These blocks are putting pressure on landlords to either lower their net asking rents or be more liberal with their concessions. Nationally, overall rents are close to peaking or at the peak for this cycle, thus shifting the office market from landlord-favourable to a more neutral market. At the end of the fourth quarter national average asking net rents were $16.14 per square foot, up from $16.03 year over year, but slightly down when compared with the previous quarter. As shown in the JLL market clock on the following page, several markets have passed the 12 o’clock mark and ventured into the falling quadrant. We expect this trend to continue as rents gradually decrease leading to more tenantfavourable conditions over the next three to four years. Jones Lang LaSalle Canada Research 3
    • Canadian Office Property Clock Q4 2013 Canada, Montréal Toronto Vancouver, Québec City Calgary Edmonton Winnipeg Ottawa Rental growth slowing Rents falling Rental growth accelerating Halifax Rents bottoming out Reading the clock Jones Lang LaSalle’s office clock demonstrates where each market sits within its real estate cycle. Markets typically move clockwise around the clock and markets on the left are generally landlord-favourable, while those on the right side of the clock tend to be tenant-favourable. At the end of 2013, three major markets had crossed the 12 o’clock position, signaling that they had shifted from a rising to a falling market. While Toronto and Calgary are still considered landlord-favourable, we believe conditions will convert to neutral and/or tenant-favourable over the next three to four years. This anticipated shift is in large part the result of new office National Office Report • Q4 2013 developments, available sublet space and large blocks of vacant space. Canada as a whole has transitioned from the 2:30 position in 2009, 5:30 position at the end of 2010 and the 8:00 position in 2011 to the 11:45 position in Q4 2013. JLL expects the office markets in Montréal and Quebec City to peak during the first quarter of 2014, pushing the national office market to the falling rent quadrant. It should be noted that positive economic conditions and labour market outlook could keep Canada at or close to peak for some time. Jones Lang LaSalle Canada Research 4
    • Calgary • The overall vacancy rate increased 50 basis points to 7.7 percent quarter-over-quarter. • Available sublet space accounted for over 40.0 percent of all available space in Calgary, an increase of 1.6 million square feet year-over-year. • 7.0 million square feet of new office space is in the pipeline with delivery dates through 2014 – 2018. The majority, 73.0 percent, is being built in Downtown Calgary. Economy • Alberta’s employment is expected to have grown by 2.8 percent in 2013 and come in at 2.4 percent in 2014. • Calgary’s unemployment rate saw a slight uptick in December, up 10 basis points to 4.7 percent. Still among the lowest unemployment rates in the country. • According to forecasts by RBC economics, Alberta will lead the country in real GDP with expected growth of 3.9 percent in 2014 and 3.5 percent in 2015. Trends in Review and Outlook • After three consecutive quarters of negative net absorption, the Calgary office market finally crept back to positive territory with close to 400,000 square feet of net absorption in the fourth quarter. While positive, it was not enough to offset the three previous quarters bringing the total net absorption for the year to negative 702,296 square feet. • Despite Calgary’s overall positive net absorption, the total vacancy rate increased 50 basis points to 7.7 percent quarter-over-quarter. The increase in vacancy was primarily driven by the completion of seven new buildings, adding close to 900,000 square feet to the inventory and 150,000 square feet of available space, all in suburban markets. • With approximately 3.3 million square feet of forward leasing activity through Q4 2013 and spilling over into the New Year, our view is that the downtown market in 2017/2018 could be well poised to realize vacancy rates considerably below equilibrium. • However, our near term forecast suggests that tenants looking for space are facing the most favorable market conditions witnessed in the last 10 years. • At the end of the fourth quarter, available sublet space accounted for over 40.0 percent of all available space in Calgary, an increase of 1.6 million square feet year-over-year. • 7.0 million square feet of new Class A office space is under construction, and assuming completion on time, will add over 11.0 percent to the citywide stock over the next five years. This represents an unique opportunity for tenants to upgrade their current office space to highly-efficient and modern spaces in both Downtown and suburban Calgary. As of the fourth quarter 34.0 percent or 2.3 million square feet of the new construction was still available for lease. • In the near term, growing inventory and weaker market conditions are placing downward pressure on rents, thus pushing the Calgary wide office market towards more tenant-favourable conditions. • Downtown Calgary, however, could be experiencing the beginnings of a potentially rapid swing from a “Falling Market” to a “Rising Market” on our property clock. National Office Report • Q4 2013 Property Clock Betline Calgary Downtown Suburban Peaking market Falling market Rising market Bottoming market Market Vacancy ( %) Absorption (s.f.) Betline 13.7% 135,359 $17.05 Downtown 4.6% -125,684 $28.55 North Calgary 9.6% 615,943 $17.50 South Calgary 15.1% 664,893 $19.20 Market Vitals Net Asking Rate Arrows represent change from prior quarter Recent Deals Address Node Tenant Area (s.f.) Brookfield Place Downtown Cenovus 1,000,000 Western Canadian Place Downtown Husky 800,000 Nexen Tower Downtown Nexen 600,000 Eighth Avenue Place West Downtown Pembina Pipeline 305,000 707 – 5th Avenue SW Downtown Brion Energy (Dover) 250,000 Scotia Centre Downtown Harvest Energy Trust 142,000 Jones Lang LaSalle Canada Research 5
    • Ottawa-Gatineau • The Ottawa-Gatineau market is increasingly tenant-favourable and can offer great value to new users of office space. • Landlords are reacting to trends of increasing vacancy rates and federal government downsizing by offering attractive incentives to existing and potential tenants. • Tepid growth is expected in the next year as the tech sector slowly rebounds and major government investments in infrastructure begin to ramp up. • The overall vacancy rate decreased to 5.5 percent and there was 100,011 square feet of net new space leased by tenants in quarter four. Economy • Federal government employment has shrunk to 141,600 employees from 163,100 employees a year earlier. Employment in this sector is expected to decrease by another 1.4 percent in 2014. This was counterbalanced by an improvement in tech sector employment. It raised to 56,200 employees from 40,200 a year ago. • The overall unemployment rate is expected to have risen from 6.4 percent to 6.5 percent by the end of the fourth quarter. • Although there are many big construction projects in the city such as the Confederation Line LRT, rehabilitation of the center block at Parliament Hill and four major investments in retail, construction values decreased by 40.0 percent in December from a year earlier. • Residential construction has slowed down due to an oversupply of condominium units and a negative outlook for employment in the area. The average sale price increased by 1.6 percent in 2013 but the number of sales decreased by 3.3 percent • Real GDP is expected to lag behind other major metropolitan cities in 2014 and is expected to be roughly 1.8 percent. Trends in Review and Outlook • The fourth quarter continued to show emerging trends in the Ottawa-Gatineau market. • The downtown market has been experiencing some of the highest vacancies in the past 10 years. The main factor is considered to be the government and private business not leasing additional space, but right-sizing their office area. • Attractive incentives in the Downtown Core have had a negative impact on older B and C buildings in the Core and in Centretown. Vacancy rates are high for these buildings and should produce a very tenant-favourable market for users looking for this type of space. • Ottawa East and Gatineau remained relatively strong in quarter four. New purpose built buildings in each node built for the government may produce vacancies in the future as the government consolidates their workforce in these new buildings. • The technology-centric Ottawa West has seen some improvement in the fourth quarter. As technology employment numbers improve, companies are growing into new spaces. This, plus some very aggressive incentives offered by landlords, have brought down the vacancy rate in these suburban nodes. Expect balanced conditions if employment continues to improve at this same pace. National Office Report • Q4 2013 Property Clock Suburban East Downtown Submarket Gatineau Peaking market Rising market Falling market Ottawa-Gatineau Suburban West Bottoming market Market Vitals Market Vacancy (%) Absorption (s.f.) Net Asking Rate Ottawa 5.5% 101,011 $15.34 Downtown 5.1% -77,003 $19.02 Suburban East 4.0% 14,030 $13.96 Suburban West 7.6% 147,001 $13.30 Gatineau 1.8% 15,983 $13.50 Arrows represent change from prior quarter Recent Deals Address Node Tenant Area (s.f.) 150 Elgin Street Downtown Core Shopify 100,000 350 Legget Drive Ottawa West Conversant/Mossaid 43,000 275 Slater Street Downtown Core MBM 12,000 55 Metcalfe Street Downtown Core Mercer 10,000 Jones Lang LaSalle Canada Research 6
    • Montréal • • • • • The GMA ended 2013 with a quarter of weak leasing momentum, adding only 23,979 square feet in total occupied area. New supply caused the total vacancy rate across the GMA to push over 10.0 percent. Total vacancy in the Downtown submarket inched above 7.0 percent for the first time in over two years. Midtown experienced negative net absorption (118,948 square feet) for the first time this year. Although the fourth quarter brought good news, the suburban submarket’s performance remained polarized in 2013. Economy • Improvements to Montreal’s labour market remained modest this year with the GMA adding only 42,300 new jobs. • Although employment grew by roughly 2.1 percent during this period, unemployment increased by 20.0 basis points to reach 8.3 percent. • The increase in unemployment was a result of the active population growing by 52,200 people, outpacing employment growth by nearly 9,900 workers. • However, during the same period the GMA’s office employment sector faired significantly better with total employment growing by approximately 2.8 percent and adding 11,600 jobs. Trends in Review and Outlook • The GMA ended 2013 with another quarter of weak leasing momentum, adding a meager 23,979 square feet in total occupied area, bringing total YTD net absorption to 248,815 square feet. • Leasing activity resulted in a 0.26 percent increase in total occupied area in 2013, which is significantly lower then the 1.0 percent and 1.3 percent growth rates experienced respectively over the last two years. • Market conditions Downtown continue to lag in relation to the rest of the GMA. Similar to five out of the six previous quarters, Downtown experienced negative absorption in the fourth quarter of 2013. • Net absorption for the quarter amounted to negative 164,689 square feet, helping vacancy inch above 7.0 percent for the first time in over two years. • Weak leasing activity for 2013 has caused total occupied area Downtown to compress by nearly 0.9 percent or negative 440,911 square feet. • The Midtown market was, for the first time in 2013, the worst performing submarket across the GMA during the quarter with net absorption amounting to negative 118,948 square feet. • However this year, the Midtown market remained the best performing submarket adding nearly 518,338 square feet of additional occupied area, representing a 2.4 percent growth from 2012. • Weak market conditions and new supply this quarter have caused total vacancy to inch up another 2.1 percent, bringing the total increase this year to 4.4 percent. Total vacancy in the Midtown market currently stands at 14.1 percent. • Suburban submarkets performance remained polarized in 2013. On one side, the South Shore saw a 5.1 percent growth in total occupied area and bringing total vacancy down to 9.5 percent. • On the other hand, the East End ended the year with negative 74,361 square feet of net absorption, a 3.1 percent compression in total occupied area, causing total vacancy to approach 15.0 percent. • The two remaining suburban submarkets, Laval and West Island, saw little real growth in 2013 and continue to display high vacancy rates at 13.3 percent and 16.5 percent respectively. National Office Report • Q4 2013 Property Clock Montréal Midtown Laval South Shore Peaking market Rising market Downtown (excluding core) Downtown Core Falling market East End Bottoming market Saint-Laurent (West Island) West Island Market Vitals Market Vacancy (%) Absorption (s.f.) Net Asking Rate Downtown 7.0% -164,689 $15.34 Midtown 14.1% -118,948 $12.08 Laval 13.3% 20,584 $13.71 South Shore 9.5% 72,940 $13.29 East End 15.0% 14,570 $12.80 West Island 16.5% 199,522 $12.03 Arrows represent change from prior quarter Recent Deals Address Node Tenant Area (s.f.) 1155 René-Lévesque W. Downtown Core Ultramar 45,043 1501 McGill College Downtown Core Bank of Montreal 43,427 1002 Sherbrooke W. Downtown Core BCA Research 21,754 1050 Beaver Hall Downtown Core Alphanumeric Systems 15,841 Jones Lang LaSalle Canada Research 7
    • Downtown Toronto • Forecasts for Ontario’s economy anticipate GDP growth of 2.6 percent in 2014 and 2.9 percent in 2015 with a recovering U.S. economy and a stronger manufacturing sector. • Downtown Toronto vacancy increased 0.9 percent from last quarter, ending the year at 6.5 percent. • Leasing activity continued to remain subdued as tenants wait in anticipation for the arrival of new office developments. Thus far, 750,000 square feet of new space has entered the market in Toronto’s office growth boom. Economy • Ontario’s economy is expected to accelerate over the next two years, with RBC Economics predicting GDP growth of 2.6 percent in 2014 and 2.9 percent in 2015, citing a stronger manufacturing sector and U.S. economy as catalysts. • The 2013 GDP growth of 1.3 percent was largely attributable to the vibrant service sector and limited by the weakness of the manufacturing sector. • The provincial unemployment rate is expected to drop 40 basis points to 7.1 percent by the end of 2014 and a further 20 basis points to 6.9 percent by 2015. Trends in Review and Outlook • Conditions in the downtown core will soon see the effects of the 5.0 million square feet of new Class A office space currently under construction. Eight developments are scheduled for completion with dates ranging from late 2014 through 2017. • The Mars Discovery Centre Phase II was completed and added to the downtown inventory in the fourth quarter, the only construction completed in 2013. This sciences-targeted development at 661 University Avenue added 750,000 square feet of space to the Downtown Toronto supply and served as a large contributor to the 90 basis point increase in vacancy over the quarter with 400,000 square feet of space still available in the building. • Vacancy rates, as the new developments come to market, are expected to continue to increase. In the Class A market, rates surged 130 basis points over the quarter to match downtown Toronto`s overall 6.5 percent rate. In the Class B market, rates increased a modest 30 basis points to 5.7 percent. • Surprisingly, despite the increase in vacancy in quarter four, average Class A and B rents showed small increases to $23.70 and $19.42 per square foot respectively. Through 2014 these rates are expected to decrease as landlords seek to attract tenants in a diverse and high supply market. Tenants could also see significant benefits in the form of cash allowances and free rent periods. • Downtown Toronto did experience positive absorption of 55,000 square feet in quarter four however this did little to offset the annual negative absorption total of 667,859 square feet. In comparison, total absorption for 2012 was positive 537,516 square feet. • As the market moves towards more tenant-favorable conditions, activity is expected to decline while some tenants wait to secure the best possible rates. Lower rates in the Core will present tempting relocation options for companies in the suburbs looking to consolidate and secure a downtown location. An influx of new companies into Downtown Toronto could mean competition for tenants already here and the positive economic outlook with ideal leasing conditions will make Toronto an attractive location for companies interested in entering Canada. National Office Report • Q4 2013 Property Clock Downtown South Downtown West King & Dufferin Peaking market Rising market Downtown Toronto Financial Core Falling market Bottoming market Downtown East Downtown North Market Vitals Market Vacancy (%) Absorption (s.f.) Net Asking Rate Downtown East 7.4% -17,474 $19.02 Downtown North 9.1% 144,430 $17.59 Downtown South 4.4% -55,619 $19.55 Downtown West 6.1% -172,389 $19.29 Financial Core 5.5% 138,458 $22.45 King & Dufferin 9.2% 18,406 $18.02 Arrows represent change from prior quarter Recent Deals Address Node Tenant 199 Bay Street Financial Core Stikeman Elliott LLP 199 Bay Street Financial Core Sentry Select 250 Yonge Street Downtown North LinkedIn 222 Bay Street Financial Core Microsoft Area (s.f.) 46,615 26,142 Jones Lang LaSalle Canada Research 8
    • Suburban Toronto • In quarter four, the vacancy rate was 13.6 percent in Toronto West, 7.6 percent in Toronto North and 11.7 percent in Toronto East • Toronto East saw 257,753 square feet of negative net absorption, followed by Toronto North with negative 87,315 square feet and Toronto West with 79,564 square feet. • Don Mills & Eglinton was the weakest submarket with 361,2709 square feet of negative net absorption Economy • Ontario’s economy is expected to accelerate over the next two years. RBC Economics predicts GDP growth of 2.6 percent in 2014 and 2.9 percent in 2015, citing a stronger manufacturing sector and U.S. economy as catalysts. • Ontario’s unemployment rate is expected to drop 40 basis points to 7.1 percent by the end of 2014 and a further 20 basis points to 6.9 percent by 2015. • The 2013 GDP growth of 1.3 percent was largely attributable to the vibrant service sector and limited by the weakness of the manufacturing sector. Trends in Review and Outlook • Vacancy in the Greater Toronto Area (GTA) suburban market continued to trend upwards reaching 12.0 percent in the fourth quarter of 2013. From 2009 to 2012 vacancy in the suburban market has ranged from 10.0 percent and 11.0 percent, which was up from the low of 7.8 percent in 2008. • The Airport Area was another weak submarket with 230,580 square feet of negative net absorption, the majority of which came from the Airport Corporate Centre. • Toronto West leads the suburbs with 1.2 million square feet of available sublet space, followed by the East with 0.5 million square feet and the North with 0.3 million square feet. • Meadowvale was the strongest submarket with almost 200,000 square feet of positive absorption. • Although North Yonge remained one of the tightest suburban markets in terms of vacancy, the vacancy rate jumped 170 basis points to 7.4 percent in quarter four. • GTA West currently has 1.6 million square feet of office space currently under construction, of which 661,536 square feet, or 42.2 percent, is available for lease. • The vacancy rate in the GTA North increased by 130 basis points in quarter four to 7.6 percent, which is the highest rate since Q1 2010. This vacancy increase was primarily due to the completion of the two new buildings in Vaughan, which totaled 105,000 square feet of new office space. • The P&G building at 4711 Yonge Street is one of the largest and newest subleases to hit the market with approximately 100,000 square feet over five non-contiguous floors. • The GTA West is the dominant sublease market with 53.0 percent of sublease availabilities, followed by the GTA East with 31.0 percent and the GTA North with 16.0 percent. • Net rent remained relatively steady, with an net asking rate of $14.75 per square foot in the GTA West, $16.43 in the GTA North and $12.64 in the GTA East. National Office Report • Q4 2013 Property Clock North Yonge Markham Peaking market Rising market Falling market Bottoming market Oakville/Burlington Meadowvale Airport Area Mississauga City Centre Suburban Toronto Market Vitals Market Vacancy ( %) Absorption (s.f.) Net Asking Rate Meadowvale 10.1% 199,088 $15.95 Airport Area 18.8% -230,580 $13.52 Mississauga City Centre 15.5% -20,146 $16.44 North Yonge 7.4% -140,791 $18.20 Markham 10.1% -87,520 $14.91 Oakville/Burlington 15.7% 135,149 $16.48 Arrows represent change from prior quarter Recent Deals Address Node Tenant Area (s.f.) 2920 Matheson Blvd E Airport Corporate Centre Bayer 134,000 7100 West Credit Ave. Meadowvale WorleyParsons 95,800 3450-3470 Superior Crt Oakville Amerisource Bergen 60,000 75 Courtney Park Dr W Heartland KAO Group 38,000 Jones Lang LaSalle Canada Research 9
    • Vancouver • Metro Vancouver office vacancy increased by 170 basis points over the previous quarter to 8.9 percent. • The Suburban market experienced its fifth consecutive quarter with negative net absorption, increasing the vacancy rate to 12.8 percent. • Downtown sublease availability increased from 1.8 percent to 2.4 percent, which is significantly higher than the 10 year average availability rate of 1.3 percent. • In comparison to other major markets, there continues to be limited options for multi-floor tenants in the Downtown Core looking for Class A office space. Economy • British Columbia’s GDP growth is expected to be 2.7 percent in 2014, followed by one of the highest in Canada in 2015 at 3.1 percent. • The unemployment rate in Vancouver has dropped 40 basis points over the previous year to 6.3 percent. This trend is on pace to continue as real wage gains supported by low inflation and federal shipbuilding contracts are expected to boost consumer spending and job creation. • Improving economic conditions in the United States combined with strong international demand for B.C.’s natural resource industries should increase consumer and business confidence moving into 2014. Trends in Review and Outlook • Demand for office space throughout Metro Vancouver remained relatively slow during the fourth quarter. • Metro Vancouver experienced year-to-date negative net absorption for the first time since 2009, with approximately 300,000 square feet of negative net absorption in the fourth quarter alone. • As several larger Class A tenants in the Downtown Core prepare to move into new buildings upon completion, significant backfill opportunities remain available. • Seven new Downtown office developments totaling approximately 2.7 million square feet are currently 43.0 percent pre-leased. • The 445,000 square foot TELUS Garden is now 93.0 percent preleased following a significant pre-lease to a technology company. • Law firm Miller Thomson became the first tenant to commit to Cadillac Fairview’s redevelopment at 725 Granville and will take 48,000 square feet of a 75,000 square foot floor plate upon completion. • Credit Suisse building 369,000 square foot LEED Platinum Standard tower on Howe Street despite 0.0 percent pre-leased. • Cadillac Fairview announced a new 350,000 square feet waterfront office tower on their site next to The Station on West Cordova Street. • Richmond vacancy increased by 60 basis points to 14.2 percent during the fourth quarter, and the submarket is currently responsible for 33.7 percent of all sublease space available in the suburban market. • Notable transactions in the fourth quarter include the Arts and Crafts Building on Seymour Street for $15,200,000 ($434 p.s.f.) and 1770 West 7th Avenue in the Broadway Corridor for $32,625,000 ($436 p.s.f.) • The Vancouver Periphery experienced limited volatility during the fourth quarter of 2013. Year-to-date total net absorption was positive 6,757 square feet and office space availability only marginally increased from 7.4 percent to 7.8 percent during the year. There was 72,527 square feet of new office supply added to the market during the year, 100 percent of which has been fully leased. National Office Report • Q4 2013 Property Clock Downtown Vancouver Broadway Corridor Peaking market Burnaby New Westminster Falling market Surrey North Shore Bottoming market Rising market Richmond Langley Market Vitals Market Vacancy (%) Absorption (s.f.) Net Asking Rate Downtown 6.0% -202,576 $23.58 Broadway Corridor 6.9% -25,182 $20.88 Burnaby 9.1% -181,453 $16.90 Richmond 14.2% 36,785 $14.59 Surrey 25.5% -120,121 $16.13 North Shore 7.1% -6,610 $19.67 New Westminster 7.5% -8,216 $16.76 Langley 20.5% 24,641 $17.87 Arrows represent change from prior quarter Recent Deals Address Node Tenant Area (s.f.) 520 West Georgia Street Downtown Confidential Tenant 156,000 550 Burrard Street Downtown Teekay Corporation 52,900 1700 West 75th Avenue Broadway Corridor Canfor 50,000 10271 Shellbridge Way Richmond Top Producer 48,600 Jones Lang LaSalle Canada Research 10
    • Canadian Office Market Statistics Key Office Markets Fourth Quarter 2013 Inventory (s.f.) Quarterly total net absorption (s.f., including subleases) YTD total net absorption (s.f., including subleases) YTD total net absorption ( % of inventory) Total Vacancy ( %) Average Gross marketed rent ($ PSF) Under Construction and Committed (s.f.) 18,492,394 427,998 727,283 3.9% 6.4% $21.70 173,829 2,309,170 4,551 26,357 1.4% 13.4% $26.90 0 44,859,518 100,011 428,189 1.0% 5.5% $31.22 1,446,595 9,372,736 490 393,653 4.2% 3.5% $50.08 930,598 63,784,522 1,290,511 -102,708 -0.2% 7.7% $45.21 7,024,021 28,896,317 -68,664 65,941 0.2% 2.9% $55.44 5,131,839 23,228,350 90,522 167,850 0.7% 7.5% $33.84 338,926 11,023,249 85,197 198,637 1.8% 6.1% $39.28 0 52,247,799 -513,873 -308,558 -0.6% 8.9% $38.03 4,248,557 13,336,532 -179,706 -284,146 -2.1% 5.3% $55.76 1,937,977 171,653,463 -252,192 -1,002,574 -0.6% 9.2% $29.48 7,084,489 45,120,320 111,181 -297,699 -0.7% 6.5% $47.43 5,108,908 10,642,786 12,498 86,144 0.81% 6.2% $23.71 85,000 3,477,581 10,618 54,771 1.6% 3.5% $30.65 85,000 92,619,056 23,979 248,815 0.3% 10.2% $26.55 2,750,545 23,124,284 -185,934 -291,385 -1.3% 7.5% $40.57 1,226,923 9,738,479 310,408 -91,444 -0.8% 8.7% $27.32 307,126 1,375,075 114,955 -3,664 -0.3% 8.4% $34.14 280,126 487,266,367 1,489,862 -1,226,221 0.0% 8.5% $31.80* 23,459,088 Quebec City Downtown 'A' Ottawa Downtown 'A' Calgary Downtown 'A' Edmonton Downtown ‘A’ Vancouver Downtown 'A' Toronto Downtown 'A' Winnipeg Downtown 'A' Montreal Downtown 'A' Halifax Downtown ‘A’ Canadian major market total *Weighted Average Source: Altus Insite, Jones Lang LaSalle Research National Office Report • Q4 2013 Jones Lang LaSalle Canada Research 11
    • 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 $47.7 billion of real estate assets under management. For further information, visit www.jll.com. 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 400 professional researchers track and analyze economic and property trends and forecast future conditions in over 60 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. TORONTO 199 Bay Street, Suite 4610 Toronto, Ontario M5L 1G3 Tel: +1 416 304 6000 Fax: +1 416 304 6001 MISSISSAUGA 110 Matheson Blvd W, Suite 107 Mississauga, ON L5R 4G7 Tel +1 905 502 6116 Fax +1 905 502 5466 MONTRÉAL 1, Place Ville Marie, Suite 2121 Montréal, QC H3B 2C6 Tel +1 514 849 8849 Fax +1 514 849 6919 OTTAWA 275 Slater Street, Suite 933 Ottawa, ON K1P 5H9 Tel +1 613 288 2272 Fax +1 613 688 3010 OFFICE LOCATIONS CALGARY 300, 129 – 8th Avenue SW Calgary , AB T2P 1B4 Tel +1 403 456 2104 Fax +1 587 880 9966 VANCOUVER 21st Floor, 400 Burrard Street Vancouver, BC V6C 3A6 Tel +1 604 998 6001 Fax +1 604 998 6018 For more information please contact: Thomas Forr National Research Coordinator +1 416 304 6047 thomas.forr@am.jll.com www.joneslanglasalle.ca/research www.joneslanglasalle.ca © 2014 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. National Office Report • Q4 2013 Jones Lang LaSalle Canada Research 12