Mid Year Outlook 2010
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Mid Year Outlook 2010



A mid year outlook at the major Canadian Real Estate Markets for 2010.

A mid year outlook at the major Canadian Real Estate Markets for 2010.



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Mid Year Outlook 2010 Document Transcript

  • 1. CONTENTS  NATIONAL  VANCOUVER  CALGARY  EDMONTON MID-YEAR OFFICE & INDUSTRIAL  WINNIPEG  TORONTO REAL ESTATE OUTLOOK  OTTAWA  MONTREAL  SAINT JOHN  MONCTON  FREDERICTON  HALIFAX  ST. JOHN’S For further information, please contact: Stuart Barron, National Research Director Cushman & Wakefield Ltd. 33 Yonge Street, Suite 1000 Toronto, ON MSE 1S9 (416) 359-2652 stuart.barron@ca.cushwake.com A C U S H M A N & WA K EF I EL D P U B L I C AT I O N
  • 2. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK NATIONAL MARKETS AT A GLANCE CONTENTS Canada¹s major office and industrial real estate markets stood up remarkably well OFFIC E  NATIONAL during the global recession and continue Central Area  VANCOUVER to recover faster than many markets in the Inventory  CALGARY United States and Europe. Q1 2010: 256.1 million sf  EDMONTON Q1 2011: 258.1 million sf Canada and the United States have one of the  WINNIPEG world’s largest and most comprehensive trading Vacancy Rate Outlook:  TORONTO relationships – with $1.4 million worth of goods Q1 2010: 7.4%  OTTAWA and services crossing the border every minute. Q1 2011: 9.0% →  MONTREAL While two-way trade is unquestionably a vital Rental Rate Outlook:  SAINT JOHN driver of the Canadian economy, the resilience  MONCTON shown by Canadian office and industrial markets Suburban  FREDERICTON through this extraordinary global recessionary Inventory  HALIFAX cycle is another indicator of the country’s Q1 2010: 191.3 million sf  ST. JOHN’S singular identity and independence. Q1 2011: 193.1 million sf Canadian housing markets avoided the Vacancy Rate Outlook: problems seen in other countries, its financial Q1 2010: 10.7% system—recognized as one of the strongest in Q1 2011: 12.3% ↘ the world—expanded over the recession, and it boasted the lowest debt among all advanced Rental Rate Outlook: industrialized countries. INDUSTRIAL While the Canadian economy—and Q1 2010: 1.44 billion sf commercial real estate by extension—continue Q1 2011: 1.45 billion sf to be buffeted by global economic forces, including the European currency crisis, its Vacancy Rate Outlook: office and industrial markets are on the path Q1 2010: 6.4% to recovery and even expansion in some cases. Q1 2011: 5.9% → This is thanks in no small part to prudent Rental Rate Outlook landlord and tenant decisions. CENTRAL OFFICE MARKET HIGHLIGHTS impact on office and industrial markets, even As Cushman & Wakefield’s 2010 Mid- though the downturn’s magnitude didn’t come Year Outlook underscores, most Canadian close to that of the most recent global recession. office and industrial real estate markets Calgary’s office market experienced the outperformed expectations during this greatest turbulence in the country. Propelled recession and are recovering or poised for by record natural gas prices in 2005, alongside growth. However, as our report also shows, buoyant oil prices, explosive office demand there are still areas of strain, particularly squeezed the downtown core vacancy to 0.1%. involving those businesses and markets tied What followed was a frenetic development closest to slowly recovering or still struggling cycle that will see about 7.5 million square feet sectors in the United States and Europe. added to Calgary’s downtown office inventory. Surprisingly, however, the fallout from the Fast forward to 2010 and many of these 2000 high-tech meltdown had a far worse developments are just coming to completion at  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | NATIONAL
  • 3. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK NATIONAL CONTENTS a time when recovery from the recession has themes: Central area markets were impacted  NATIONAL barely taken hold. When The Bow’s 1.9-million- quite heavily during the first two quarters of  VANCOUVER square-foot office tower opens in early 2012, 2009, but started stabilizing much faster than  CALGARY Calgary’s central office market may see vacancy expected, as the bleeding of space slowed and  EDMONTON approach 20%. demand re-entered the picture. Sublet space However, there are silver linings: Calgary’s peaked at more moderate levels compared to  WINNIPEG business fundamentals remain strong and layoffs the 2001 contraction, and the fall in rental rates,  TORONTO were surprisingly limited, indicating long-term while it happened quite quickly, has stabilized in  OTTAWA business confidence. most central markets.  MONTREAL Toronto was the second Canadian city that  SAINT JOHN had a significant pipeline of new developments SUBURBAN OFFICE MARKET  MONCTON underway in its Central Area when the HIGHLIGHTS  FREDERICTON recession hit. Buildings such as 25 York Street, During this recessionary cycle, suburban office  HALIFAX RBC Centre, and Bay Adelaide Centre will markets, such as Toronto and Vancouver,  ST. JOHN’S bring a total of 4.5 million square feet of which tend to be more closely connected to new space to the city. The final tower to US business activities, were hit much harder arrive will be 18 York, a 657,000-square-foot than central markets. Many US companies development to be completed in Q3 2011. simply ceased operations in Canada, or While initially the optics of significant new downsized significantly. More recently, supply coming on stream in the midst of the acquisitions and consolidations of multiple- worst recession since The Great Depression premises operations have driven a significant conjured up visions of record vacancy rates and amount of space back to market. a tenants’ market for years to come, the worst An advantage is that most suburban markets simply didn’t materialize. Instead, demand have seen little development activity, which has rebounded after two very weak quarters, and prevented vacancy rates from rising too high and more recently, approached expansionary levels will support faster recovery. Some exceptions – thanks largely to Canada’s banking sector, include submarkets such as Burnaby, where a which is firing on all cylinders. significant pipeline of activity was underway Across the country, there are common when the recession hit. OFFICE INDUSTRIAL Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 14,000 14% 32,000 8% 12,000 12% 28,000 7% 10,000 10% 24,000 6% 8,000 8% 20,000 5% 6,000 6% 16,000 4% 4,000 4% 12,000 3% 2,000 2% 8,000 2% 0 0% 4,000 1% (2,000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F -2% 0 0% (4,000) -4% (4,000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F -1% (6,000) Absorption Overall Vacancy Rate -6% Absorption Overall Vacancy Rate  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | NATIONAL
  • 4. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK NATIONAL CONTENTS INDUSTRIAL MARKET HIGHLIGHTS There are bright spots such as Winnipeg,  NATIONAL At the mercy of forces such as the still struggling where a strong economy and little development  VANCOUVER US economy, European financial crisis and dollar activity has vacancy at decade-low levels.  CALGARY value, Canada’s manufacturers are recovering This is expected to spur some much needed  EDMONTON slowly and making cautious real estate moves. development by the end of the year. Moncton, Meanwhile, large retailers and other users of which has also been reaping the benefits of a  WINNIPEG distribution & warehouse space are actively healthy economy, given its proximity to major  TORONTO upgrading and even expanding, as they seek to markets in Atlantic Canada and the United  OTTAWA take advantage of low-rent conditions while the States, has attracted significant interest from the  MONTREAL getting is good. investment community.  SAINT JOHN Generally, across Canada, limited development St. John’s industrial market also fared well  MONCTON activity has helped to hold down vacancy through the recession. Rental rates showed  FREDERICTON rates and will hasten recovery, especially as healthy growth during the last year, and  HALIFAX high demand exhausts quality asset supplies in continued strong demand is expected from  ST. JOHN’S markets such as the GTA. Rental rates in this service companies that are lined up to support recovering environment have weakened but a the huge infrastructure projects underway in the return to positive absorption has stabilized rates province. Construction activity is also robust. in most markets. In Canada’s largest industrial market, the GTA, Continued global economic strains will recovery is taking hold. The downward pressure suppress recovery. However, forecasted on rental rates is leveling off in most sub- rebounds in commodity prices and improving markets and will climb slowly upwards by the retail activity will positively impact industrial first or second quarter of 2011. While sale prices markets across the country. Industrial sales as continue to drop in some markets, they are well remain steady; in tight markets where there holding firm in the central region. Demand will is little stock available, product sells quickly remain healthy for warehouse and distribution without a significant increase in yield. Land buildings in a consumer-driven economy, prices, particularly in markets like Vancouver, although manufacturing will continue to struggle. where availability is limited due to natural barriers, lost some value through the recession, but are recovering quickly.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | NATIONAL
  • 5. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK VANCOUVER MARKETS AT A GLANCE CONTENTS ECONOMY British Columbia’s economy is expected to OFFIC E  NATIONAL expand by 3.8% in 2010, fuelled by a one-time Central Area  VANCOUVER Olympics boost and recovery in the forestry, Inventory  CALGARY manufacturing and construction sectors, Q1 2010: 29.0 million sf  EDMONTON Q1 2011: 29.0 million sf according to The Conference Board of Canada’s  WINNIPEG Provincial Outlook – Spring 2010. However, with Vacancy Rate Outlook:  TORONTO the Olympics out of the way and growth in the Q1 2010: 4.8%  OTTAWA housing market expected to ease, the province’s Q1 2011: 4.8% ↗  MONTREAL GDP growth will moderate to 2.8% in 2011. Rental Rate Outlook:  SAINT JOHN  MONCTON OFFICE OVERVIEW Suburban  FREDERICTON The first quarter of 2010 set the stage in Inventory  HALIFAX Vancouver for the rest of the year: a stabilized- Q1 2010: 19.8 million sf  ST. JOHN’S to-tight Central Business District and continued Q1 2011: 20.2 million sf struggles in suburban markets. Very much a tale Vacancy Rate Outlook: of two markets, Vancouver’s CBD office market Q1 2010: 12.4% survived the recession better than expected, Q1 2011: 14.1% ↘ while the suburban markets buckled under stagnated US activity, which resulted in the Rental Rate Outlook: contraction and retreat of some companies. INDUSTRIAL With just 60,000 square feet of new supply Q1 2010: 186.6 million sf expected downtown in the next year, vacancy Q1 2011: 186.6 million sf rates will tighten and contribute to higher rental rates and a stable market for the Vacancy Rate Outlook: foreseeable future. Q1 2010: 4.6% Market indicators outside of the CBD, Q1 2011: 3.7% → however, remain uncertain, marked by increased Rental Rate Outlook vacancy as new supply comes to market and negative absorption. Vancouver’s overall suburban vacancy rate rose to 12.4% in Q1 2010, up from 11.7% in the previous quarter. vacancy extremely tight at under 5%. Sublet Struggling with new supply and low demand, space is being quickly absorbed, with just Burnaby vacancy climbed to just over 10.1% in 300,000 square feet available as of Q1 2010. Q1 2010, a situation that will be compounded Rental rates have stabilized or increased on any as more supply enters the market in the coming “view space” that comes available. Rates for quarters. Richmond, as well, has come to a smaller commodity space, which have been flat virtual standstill. Historically, growth has come or softer, are also starting to shift upward again. from US expansion into Canada, which has been contracting or nonexistent since the recession OFFICE OUTLOOK took hold in 2008. From an investment As Vancouver’s CBD tightens, and the price perspective, minimal transaction activity of being located downtown increases, the occurred, particularly when compared to 2009. suburban markets may benefit from the Downtown, leasing activity is brisk, with movement of some tenants to buildings offering  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | VANCOUVER
  • 6. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK VANCOUVER CONTENTS excellent parking and public transit alternatives. groups that desire downtown profiles.  NATIONAL Financial institutions have moved some back- In such a tight market, Class A CBD “view  VANCOUVER office operations to the suburbs but activity space” has climbed back to peak-of-the-market  CALGARY remains limited. With little new supply expected face rates of about $38-$40 per square feet.  EDMONTON downtown until 2015, the options for larger Non-view rates in the same building have users requiring more than 15,000 square feet reached about $25 per square foot, which is still  WINNIPEG are rapidly disappearing. Most of the leasing down from peak rates, but will continue climbing.  TORONTO activity last year and at the beginning of this With premium space running out and tenants  OTTAWA year related to companies taking advantage of faced with $7 to $10 per square foot renewal  MONTREAL subleasing opportunities, the last window for increases, the expectation is that some businesses  SAINT JOHN 40,000 to 90,000 square foot deals. will explore lower-cost options in the suburbs.  MONCTON As the US economy stabilizes, suburban Being more central, Burnaby will recover  FREDERICTON inventory will be absorbed slowly. Some US much faster than Richmond. At 9 million  HALIFAX businesses that retreated or closed down due square feet, Burnaby is bigger than Broadway  ST. JOHN’S to the recession and higher Canadian dollar and is now Vancouver’s second largest office value are unlikely to make a come back soon market. Serviced by two transit sky train – and concern exists about sources of future lines, it is well positioned. To help offset office-using demand. Rental rate growth will be low demand and new supply, landlords are tempered in the short term, as tenants are given providing competitive rates, turnkey space and more options for quality space. other inducements to attract tenants. Rents Demand downtown is being driven by are expected to stabilize by 2012. professional services and also engineering firms engaged in long-term infrastructure projects such INDUSTRIAL OVERVIEW as the Port Mann Bridge, Highway No. 1 expansion At 4.6%, vacancy in Vancouver’s industrial real and port expansion. Along with their stock values, estate sector is higher than historical norms of natural resource companies have also recovered 1.5% to 3%. When sublease space is factored and are faced with increased space needs. The in, real vacancy would come closer to 7%. exploration side has long been a big driver of Larger bulk space has been sitting dormant in demand, including both small- and medium-sized the wake of the global downturn, which, among OFFICE INDUSTRIAL Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 2,500 15% 4,000 6% 2,000 12% 3,500 5% 3,000 1,500 9% 4% 2,500 1,000 6% 2,000 3% 500 3% 1,500 2% 0 0% 1,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 1% (500) -3% 500 (1,000) -6% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (1,500) Absorption Overall Vacancy Rate -9% Absorption Overall Vacancy Rate  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | VANCOUVER
  • 7. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK VANCOUVER CONTENTS other things, has caused third party logistics INDUSTRIAL OUTLOOK  NATIONAL companies to contract in size. However, even Activity is starting to pick up. Options for larger  VANCOUVER though leasing activity remains quieter than users requiring 100,000 square feet or more are  CALGARY usual, local companies and owners/users quickly running out. Land prices have stabilized  EDMONTON continue to show a high-level of interest and are expected to increase, as options remain in buying existing buildings and strata units limited. With fewer opportunities to grow,  WINNIPEG whenever they become available. industrial real estate values will recover faster  TORONTO In Q1 2010, positive absorption was seen in the and remain a desirable asset class.  OTTAWA Langley submarket for the first time in several Pressure on the Vancouver industrial market  MONTREAL quarters. Vacancy in the Richmond submarket, is likely to further ease in the short to medium-  SAINT JOHN which is the largest in the Greater Vancouver term as new developments are brought to  MONCTON Area, barely budged from 5.5% in the first market. While vacancy may increase, rental rates  FREDERICTON quarter, partially due to intense city-side focus on are expected to remain steady and trend slowly  HALIFAX the Winter Olympic Games in February. upwards. Because the city’s manufacturing  ST. JOHN’S Over 650,000 square feet of new industrial sector is heavily dominated by resource- supply flooded the market in the first quarter, based companies, predictions for rebounding which lead to negative absorption of 230,000 commodity prices into 2011 will be reflected square feet – down from 2.9 million square favourably in the performance of the industrial feet of positive absorption in the last quarter real estate market. Vancouver’s position as of 2009. Another 440,000 square feet of new the dominant Pacific Rim Port for Canada will supply is scheduled to open in Burnaby and also aid recovery as the world economy gains Delta, most of which is speculative development. strength and momentum in the coming years. More sales closed in Q1 2010 than in all 2009. Demand is high but product limited, resulting in compressing cap rates and higher prices. While institutional investors, who bought when rental rates were at their highest, are trying to preserve face rates, private owners, who are more focused on cash flow, are more willing to close deals below market rates. Overall, industrial rental rates, presently averaging $8 to $9 per square foot, are down from peak rates of $10 to $12.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | VANCOUVER
  • 8. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK CALGARY MARKETS AT A GLANCE CONTENTS ECONOMIC RBC Economics forecasts that Alberta’s OFFIC E  NATIONAL economy will grow by 2.5% in 2010, falling Central Area  VANCOUVER short of the national average due mainly Inventory  CALGARY to the continued slump in the natural gas Q1 2010: 41.3 million sf  EDMONTON Q1 2011: 42.3 million sf industry. However, economic activity will  WINNIPEG gain momentum through 2010, with renewed Vacancy Rate Outlook:  TORONTO spending on capital projects, continued low Q1 2010: 12.1%  OTTAWA interest rates and an anticipated improvement Q1 2011: 16.2% ↓  MONTREAL in natural gas markets. By next year, growth is Rental Rate Outlook:  SAINT JOHN expected to surge by 4.4%.  MONCTON Suburban  FREDERICTON OFFICE OVERVIEW Inventory  HALIFAX Calgary’s story is one of significant new Q1 2010: 15.1 million sf  ST. JOHN’S supply arriving at a time when demand has Q1 2011: 15.4 million sf been undermined by market forces. Still with Vacancy Rate Outlook: surprisingly few layoffs, existing companies are Q1 2010: 16.9% holding their own – a positive sign of confidence Q1 2011: 18.5% ↘ and good things to come. Almost 2.5 million square feet of office inventory was added to Rental Rate Outlook: Calgary’s CBD in Q1 2010. The 10.8% vacancy INDUSTRIAL rate downtown was misleading, as many tenants Q1 2010: 104.8 million sf were still caught between moves. Vacancy will Q1 2011: 105.1 million sf go up once backfill spaces are vacated. The same goes for Calgary’s high positive absorption, Vacancy Rate Outlook: which will drop once moves are completed and Q1 2010: 5.9% vacated space is returned to market. Q1 2011: 4.6% → Setting aside the impact of new supply, the Rental Rate Outlook first quarter numbers were somewhat flat – an indication that Calgary business is standing quite strong in the wake of the global recession and low gas prices. Lower than expected job loss attractive inducement packages and competitive among office using employers is a strong indicator rates in what’s become a tenants’ market. that companies remain optimistic about the Average Class A CBD asking rental rates have energy sector and the general economy. dropped by more than 30% in the past two While continued slow recovery in office years – from low-to-mid $40s to high $20s per demand is forecasted, the pace of demand is not square foot. expected to absorb the vast amounts of new With so much movement into new buildings, inventory completed or coming to market, with it is not surprising that almost half of Calgary’s Eighth Avenue Place and The Bow adding 2.9 downtown office vacancy is made up of sublet million square feet alone. As a result, CBD office space, which, in many cases, offers long-term vacancy will rise significantly through to the leases with high-quality buildouts. This trend completion of The Bow in 2012. will continue until new supply is completed Landlords are stepping up to the plate with and demand improves. Until then, sublet rental  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | CALGARY
  • 9. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK CALGARY CONTENTS rates will remain highly competitive, as landlords With very little new supply coming on stream,  NATIONAL compete aggressively with headlease space. vacancy should remain relatively stable.  VANCOUVER  CALGARY OFFICE OUTLOOK INDUSTRIAL OVERVIEW  EDMONTON The Calgary office market remained relatively Calgary’s industrial real estate market has stable through the global recession, however managed through the recession better than  WINNIPEG a flood of new supply will outstrip demand expected. While it did not reach equilibrium  TORONTO until at least 2012. This will continue to exert as of Q1 2010, it never went “off the charts”  OTTAWA downward pressure on net rental rates. one way or the other. When brought to  MONTREAL CBD vacancy is expected to reach almost market, industrial product continues to sell  SAINT JOHN 20% before the tide begins to turn in late quickly without a significant increase in yield.  MONCTON 2012. All eyes are on gas prices, which must Land prices, as well, have not lost as much  FREDERICTON rise significantly from the current $4 range value as expected although the velocity of land  HALIFAX per MMBtu to support sustained growth in transactions has slowed significantly.  ST. JOHN’S occupied space. At the peak of the market in 2007, gas prices hit $12 per MMBtu and INDUSTRIAL OUTLOOK demand surged. 2010 is a new year with a much more positive The sublease market will dominate leasing outlook. The first quarter saw vacancy drop in activity throughout 2010, holding rental rates Calgary’s industrial real estate market for the at bay as landlords and sublandlords compete first time since the end of 2007. Vacancy now to attract and retain new tenants. In recent stands at 5.9%. Sizeable positive absorption months an easing in the amount of sublet space combined with increased leasing activity point to returning to market offers solace that the a turnaround for the industrial market, adding to market is stabilizing. However, more merger and a sense of optimism that began late in 2009. acquisition activity resulting in the right-sizing Considering the positive outlook for both of tenants may lead to a further reduction of the Calgary and Alberta economies, continued occupied space in the coming months. recovery in the industrial market is projected. Calgary’s suburban markets have seen little This should lead to stronger leasing activity and activity with vacancy sitting at around 17%. positive absorption during upcoming quarters. OFFICE INDUSTRIAL Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 3,000 18% 4,000 8% 2,500 15% 3,000 6% 2,000 12% 1,500 9% 2,000 4% 1,000 6% 500 3% 1,000 2% 0 0% 0 0% (500) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F -3% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (1,000) -6% (1,000) -2% (1,500) -9% (2,000) -4% (2,000) Absorption Overall Vacancy Rate -12% Absorption Overall Vacancy Rate  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | CALGARY
  • 10. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK CALGARY CONTENTS Continued positive absorption, combined  NATIONAL with the fact that there is little speculative  VANCOUVER development underway, will continue to push  CALGARY vacancy down. Rental rates declined slightly  EDMONTON during Q1 2010 and were off by almost 20% from the highs reached in 2008. Rates are  WINNIPEG expected to stabilize as vacancy slowly drops.  TORONTO The overall market stabilization is leading to  OTTAWA a balanced industrial market where both the  MONTREAL tenant and landlord are on equal footing in the  SAINT JOHN negotiation process. The industrial market may  MONCTON see signs of speculative development ramping up  FREDERICTON in the near future.  HALIFAX  ST. JOHN’S  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | CALGARY
  • 11. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK EDMONTON MARKETS AT A GLANCE CONTENTS ECONOMY After shrinking for the first time since 1991 OFFIC E  NATIONAL last year, Edmonton’s economy is expected to Central Area  VANCOUVER turnaround in 2010 by growing 3.2%, according to Inventory  CALGARY the Conference Board of Canada’s Metropolitan Q1 2010: 15.2 million sf  EDMONTON Q1 2011: 15.2 million sf Outlook. Looking forward, the board says the  WINNIPEG Edmonton region’s gross domestic product Vacancy Rate Outlook:  TORONTO will grow an average of just over 4% annually Q1 2010: 5.9%  OTTAWA between 2011 and 2014. Last year, the city’s Q1 2011: 6.9% ↘  MONTREAL GDP fell an estimated two per cent – the biggest Rental Rate Outlook:  SAINT JOHN drop on record. The report predicts Edmonton’s  MONCTON job market will remain soft this year, with Suburban  FREDERICTON unemployment at about 7.5%. Retail sales, home Inventory  HALIFAX resales and the construction sector are expected Q1 2010: 9.4 million sf  ST. JOHN’S to also show moderate gains. Q1 2011: 9.4 million sf Vacancy Rate Outlook: OFFICE OVERVIEW Q1 2010: 15.0% The government—provincial, civic and federal Q1 2011: 15.5% ↘ —is the primary driver of office demand in this provincial capital city, occupying some Rental Rate Outlook: 35% of Class A space in the CBD. Faced with a reduced revenue stream and high deficit due largely to low natural gas prices and the fallout Tower, significant pockets may be left behind in from last year’s global recession, the provincial the Bank of Montreal Building (55,800 square government is not expected to allocate any feet), TD Tower (68,500 square feet) and resources to office space requirements over Manulife Place (23,000 square feet). The new the near term. EPCOR Tower itself still has 174,000 square This comes at a time when, for the first time feet remaining for prelease, while the company’s in more than two decades, new development existing location at the 1974 vintage EPCOR is entering the Edmonton picture. When Centre is projected to be 100% vacant by late completed, the EPCOR Tower, scheduled 2011 with 19 full floors or 192,000 square feet to open in late 2011, will bring 28 floors and available for lease. 614,000 square feet to the CBD market. Some Edmonton is no stranger to demand 440,000 square feet was preleased to EPCOR challenges. The city was hard hit in late 1980s and a second major tenant, the Federal Justice when the government consolidated space, and Department. Both will move out of existing it took 20 years for the office market to recover. CBD locations to consolidate in the new At the peak of the market in early 2009, with building, leaving significant space in their wake. downtown Class A vacancy scratching the With Edmonton grappling with slow business surface at 2.1%, space commanded $36 net and job growth, along with constrained rental rates. That has shrunk to ranges between government activity, new supply and low $20 and $26 in the face of slowing demand absorption will drive up office vacancy and exert and new supply, which will drive vacancy over downward pressure on rental rates. Once the 10% with the opening of the EPCOR Tower if dust settles on moves into the new EPCOR absorption, particularly related to government  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | EDMONTON
  • 12. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK EDMONTON CONTENTS leasing, remains stagnant.  NATIONAL OUTLOOK  VANCOUVER Edmonton is braced for a difficult period as new  CALGARY supply comes on stream and demand remains  EDMONTON weak due to stagnated government activity and slow economic growth. Alberta remains a  WINNIPEG commodity-based province, without diversified  TORONTO sources of demand. However, this situation  OTTAWA could turn around quickly given the world’s  MONTREAL interest (China, US) in oil sands development  SAINT JOHN around Fort McMurray. The potential for  MONCTON continued long-term strong demand for safe  FREDERICTON supplies of gas and oil offers the entire province  HALIFAX hope for recovery and growth. Meanwhile,  ST. JOHN’S Edmonton will remain a tenants’ market for some time to come.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | EDMONTON
  • 13. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK WINNIPEG MARKETS AT A GLANCE CONTENTS ECONOMY The resilient Manitoba economy sidestepped OFFIC E  NATIONAL the worst of the economic turmoil of 2009 Central Area  VANCOUVER and stands to perform relatively well through Inventory  CALGARY 2010/11. The province’s growth contracted Q1 2010: 10.1 million sf  EDMONTON Q1 2011: 10.3 million sf by only 0.3% in 2009 – compared to national  WINNIPEG average of 2.6%. BMO Capital Markets forecasts Vacancy Rate Outlook:  TORONTO Manitoba’s GDP to grow by 3% this year. Q1 2010: 7.8%  OTTAWA Population growth above the national average Q1 2011: 7.1% →  MONTREAL and a strong job market fuelled by several Rental Rate Outlook:  SAINT JOHN large capital projects will support long-term  MONCTON economic stability. In addition to the James Suburban  FREDERICTON Armstrong Richardson International Airport and Inventory  HALIFAX the Canadian Museum for Human Rights, the Q1 2010: 2.9 million sf  ST. JOHN’S province is investing $1.8 billion in infrastructure Q1 2011: 3.0 million sf and capital renewal in fiscal year 2010/11. Vacancy Rate Outlook: Manufacturing and trade numbers Q1 2010: 14.6% strengthened in Q1 2010 despite a high Q1 2011: 14.6% ↗ Canadian dollar. The expansion of the University of Winnipeg Campus and Red River Rental Rate Outlook: Campus downtown, along with new office projects in the Central Business District have added to the sense of optimism about the city’s 5.6% to 6.2%. This increase was mainly due to long-term prospects. CanWest Global returning some 30,000 square feet to 201 Portage Avenue. At 360 Main Street, OFFICE OVERVIEW Microsoft Canada leased about 10,000 square Office market activity started to pick up in Q1 feet, reducing the direct vacancy rate at that 2010, with a number of tenants who hadn’t building to approximately 1%. budged for years suddenly looking to expand Class B office vacancy in the CBD is or upgrade outdated premises. Firms emerging hovering around 10.8% due to some extent from the recession with strong balance sheets to the customer contact industry’s continuing are poised for growth and taking a long-term contraction, which resulted in Inspyre Solutions view with respect to their real estate needs. vacating about 30,000 square feet at 363 They are finding opportunities created by the Broadway in Q1. At the same time, Statistics convergence of low interest rates, increased Canada leased some 12,000 square feet at 330 vacancy in the CBD and the hangover of a Portage Avenue. fragile 2009 leasing market. As well, the cost differential between upgrading existing premises OFFICE OUTLOOK versus relocating to new premises has closed Thanks to a stable economy and the significantly, making relocation an increasingly enhancements added by major projects, attractive option. including a skywalk system expansion, Winnipeg The Class A market saw moderate activity in is experiencing a downtown renaissance that the first quarter of 2010 as the overall vacancy has caught the attention of businesses, and put nudged up by 0.6 percentage points, from the brakes on the number of tenants migrating  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | WINNIPEG
  • 14. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK WINNIPEG CONTENTS to suburban markets. Increased movement developers. That gap is starting to close as  NATIONAL between buildings and building classes is tenants facing renewals are finding out.  VANCOUVER expected to continue as opportunistic tenants The market is in a period of flux and will  CALGARY seize attractive lease deals and sublet offerings. likely see both an increase in net rates on both  EDMONTON Although lease rates will remain unchanged, renewals and vacancies coupled with some new NERs are expected to shrink as landlords developments. Still, when compared to other  WINNIPEG aggressively pursue tenants to fill vacancy. As real estate markets, the Winnipeg industrial  TORONTO well, overall office vacancy rates are expected landscape offers terrific value, especially when  OTTAWA to creep slightly up as shadow vacancy grows you factor in the geographical and economic  MONTREAL and more sublet space is returned to market. benefits of the city’s location.  SAINT JOHN This, however, will not be enough to dampen an  MONCTON otherwise healthy market. INDUSTRIAL OUTLOOK  FREDERICTON Winnipeg did not suffer the precipitous declines  HALIFAX INDUSTRIAL OVERVIEW experienced by other markets and is therefore  ST. JOHN’S There are many interpretations of statistics expected to make a faster recovery. The for overall vacancy rates for the industrial industrial market is expected to continue to leasing market in Winnipeg. Ranging anywhere reflect elevated activity levels in an already tight from 2% to 5%, one thing is certain: vacancy market, which may spur some much needed continues to reflect decade-low levels. The new development by the end of the year. Winnipeg market has never been over-built Companies in good positions to take advantage with speculative development and as a result of the strengthening economy will, in many tenants do not have an abundance of choices. cases, need additional space, which may not However, the market velocity hasn’t quite be available. The gap in rental rates will start reached levels to drive rates high enough or to close as landlords realize they can charge quickly enough on the older inventory to spur more on renewals without the risk of losing new development. There is a gap between their tenants to competing space. Vacancy will net lease rates on the predominantly older continue to tighten further unless new inventory inventory and the near double-digit rates is brought on stream. required to make new construction work for The development of an inland port near OFFICE Absorption (sf, thousands) Vacancy Rate (%) 1,000 10% 800 8% 600 5% 400 3% 200 0% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (200) -3% (400) Absorption Overall Vacancy Rate -5%  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | WINNIPEG
  • 15. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK WINNIPEG CONTENTS the new airport, CentrePort Canada Inc., has  NATIONAL heightened interest among companies from  VANCOUVER around the world with global supply chain  CALGARY needs. The city’s central geographic location as  EDMONTON the northern gateway along the Mid-Continent Trade Corridor has enabled CentrePort Canada  WINNIPEG to forge strategic alliances with other North  TORONTO American inland port operations, which will  OTTAWA maximize its value to exporters, distributors  MONTREAL and manufacturers. As well, CentrePort Canada  SAINT JOHN is working to enhance its presence along the  MONCTON Asia-Pacific Gateway by teaming up with Cuntan  FREDERICTON Bonded Port Zone in Chongqing, China on  HALIFAX a cooperation agreement that will see the  ST. JOHN’S two inland ports work together on common priorities and new business opportunities.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | WINNIPEG
  • 16. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK TORONTO MARKETS AT A GLANCE CONTENTS ECONOMY There is increased evidence that the economic OFFIC E  NATIONAL recovery is taking hold in Canada. The Bank of Central Area  VANCOUVER Canada’s April 2010 Business Outlook Survey Inventory  CALGARY showed that over 50% of respondent firms Q1 2010: 83.1 million sf  EDMONTON Q1 2011: 83.8 million sf expect to increase their payroll, while only  WINNIPEG 12% expect a reduction in their payroll. While Vacancy Rate Outlook:  TORONTO Ontario’s economy may outpace the rest of the Q1 2010: 6.7%  OTTAWA country this year, the strong Canadian dollar Q1 2011: 9.1% →  MONTREAL will dampen strengthening demand south of Rental Rate Outlook:  SAINT JOHN the border. Growth will be further affected  MONCTON as government stimulus packages are reduced Suburban  FREDERICTON and interest rates rise. As well, fallout from Inventory  HALIFAX the European financial crisis will impact US and Q1 2010: 83.7 million sf  ST. JOHN’S Canadian recovery. All these factors could slow Q1 2011: 84.4 million sf acceleration in demand for office space as we Vacancy Rate Outlook: enter a long, slow expansionary cycle. Q1 2010: 9.2% Q1 2011: 11.2% ↘ OFFICE OVERVIEW Toronto’s office real estate market is one Rental Rate Outlook: of the most reliable indicators of the city’s INDUSTRIAL viability and long-term economic health. Q1 2010: 841.2 million sf Leasing activity, whether organizations expand, Q1 2011: 843.7 million sf contract or consolidate, offers tremendous insight into long-term business confidence Vacancy Rate Outlook: levels and Toronto’s growth potential. Through Q1 2010: 6.2% the recession and into recovery, Toronto’s Q1 2011: 5.6% → office demand performance has exceeded Rental Rate Outlook expectations, showcasing the city’s unique characteristics, including the cool heads of tenants and landlords alike. The market’s resilience also speaks to the enormous quarter for 11 painful quarters. Interestingly, significance of Toronto’s financial services while the impact on office markets was cluster, which is well supported by related severe, the downturn itself only lasted one sectors, including business services, information, quarter – and while Class A vacancy soared communications, and computer services. to 11.3% in downtown Toronto, new supply When the global recession struck in 2008, hadn’t been a factor for a number of years. many thought that the city’s office markets This speaks to the irrational exuberance of would be lambasted as least as hard as they companies that jumped on the high-tech were during the 2001-2003 office downturn, bandwagon, leasing up space based on wildly which was precipitated by the high-tech unsustainable growth projections. meltdown. Back then, absorption (change in Most recently, the worst recession since occupied space) in all office buildings classes The Great Depression strangled economies averaged negative 350,000 square feet per around the world for three full quarters. The  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | TORONTO
  • 17. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK TORONTO CONTENTS combination of low demand and 4.5 million sorts—marked by neutral absorption.  NATIONAL square feet of new space coming to market Sublet space nudged above one million square  VANCOUVER between 2009 and 2011 had many worried that feet, far off the heights of 2001 when it peaked  CALGARY vacancy would soar to levels not seen since at 1.6 million square feet. And the nature of the  EDMONTON 1993 and, with a slow recovery in demand sublets was strikingly different. During 2001 anticipated, a tenants’ market would be created there were many high-quality long-term sublets,  WINNIPEG for years to come. as over valued high-tech companies went under  TORONTO What Happened: The recession’s initial impact or downsized dramatically, returning hundreds  OTTAWA on downtown Toronto office markets hit hard, of thousands of square feet of space to market  MONTREAL as expected. Negative absorption during the during the cycle’s first six quarters. Most of the  SAINT JOHN first half of 2009 paralleled 2001 numbers, sublets during this recession have little remaining  MONCTON averaging negative 350,000 square feet per term and lower quality of build-outs.  FREDERICTON quarter. However, by the third quarter of 2009, By Q3 2009, downtown demand had already  HALIFAX the tide began to reverse, with central markets shifted into a neutral “phase” as tenants paused  ST. JOHN’S experiencing unexpected strength—a revival of to get a better sense of where profitability was TORONTO GTA - OFFICE GTA - INDUSTRIAL Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 8,000 12% 12,000 9% 6,000 9% 8,000 6% 4,000 6% 4,000 3% 2,000 3% 0 0% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (2,000) Absorption Overall Vacancy Rate -3% (4,000) -3% Absorption Overall Vacancy Rate TORONTO CENTRAL - OFFICE TORONTO SUBURBAN - OFFICE Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 4,000 12% 4,000 12% 3,000 9% 3,000 9% 2,000 6% 2,000 6% 1,000 3% 1,000 3% 0 0% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (1,000) -3% (1,000) -3% (2,000) -6% (2,000) Absorption Overall Vacancy Rate -6% Absorption Overall Vacancy Rate  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | TORONTO
  • 18. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK TORONTO CONTENTS going. While few companies were motivated made prudent sense. Still, reflecting persistent  NATIONAL to relocate, those that did remained focused economic strain, growth is not across all  VANCOUVER on cash flow savings and minimizing capital industry sectors, and tenants continue to focus  CALGARY expenditures, while landlord’s focused on on reducing occupancy costs and cash flow  EDMONTON retaining tenants and strong covenants to savings. Toronto’s trump card, however, is that it protect asset value. is Canada’s financial capital and Canada’s banks  WINNIPEG By Q4 2009, central demand surprised market are among the most secure and successful in the  TORONTO watchers even more by showing real gains. It world. They continue to expand and create jobs.  OTTAWA became evident that the banking sector was While demand has surpassed expectations by  MONTREAL not only healthy, but growing. Demand growth showing moderate strength in a fragile economy  SAINT JOHN also came from professional services, other – some 2.5 million square feet of larger blocks  MONCTON financial services, health and government. Rental of space are projected to return to market prior  FREDERICTON rates, which had fallen substantially by Q3 2009, to 2012 end. This will cause downtown vacancy  HALIFAX plateaued and began to strengthen. A market rates to rise over the balance 2010 and into  ST. JOHN’S characterized by spot pricing based on building 2011 even with moderate positive absorption. vacancy and tenant covenant began to stabilize, Continuing global economic stress will slow benefiting both landlords and tenants. During the demand, which will temper growth for the next first half of 2010 opportunities were at their peak year. Rental rates have stabilized but in some for tenants negotiating occupancy decisions. instances are both rising and falling depending The success of Toronto’s new office towers on the building, the covenant, and availabilities also speaks volumes about the strength and in a particular size range. With an abundance of depth of business activity. During the downturn space yet to return to market, any upward climb of 2001, with no significant development activity, in rental rates will be offset, likely keeping rates premium space vacancy rose to 4.1 million neutral for some time. square feet, reaching a 10.7% vacancy rate. This time around, in the midst of an unprecedented SUBURBAN OVERVIEW global recession, 4.5 million square feet of new During the 2001 to 2003 downturn, demand space came to market. One could say build in Toronto’s suburban markets weakened, it and they will come, because that’s what yet remained quite strong. The GTA West happened. Tenants have more than revealed for instance averaged positive absorption of their interest in new buildings. Now substantially 160,000 per quarter throughout the 2001 to leased, the new towers, including 25 York, 2003 contraction. What drove up the vacancy RBC Centre and Bay Adelaide Centre, are rate for premium space in the suburban markets shining testaments to design focused on helping during that downturn was not weak demand, business attract and retain talent, control costs, but a significant pipeline of new supply that and achieve new space efficiencies. came to market. Between 2001 and 2002 in the GTA West alone, over 4.7 million square feet OFFICE OUTLOOK of new space was added to the market. This Since Q4 2009, demand in downtown Toronto helped push Class A vacancy rate to 16.3%. has been fast approaching expansionary Largely because of the closer ties to US levels. The banking sector is a juggernaut of demand and ownership, the suburban markets demand strength, with other financial and were hit much harder during the recession of professional services companies remaining 2008/2009. Numerous US subsidiaries or satellite neutral or securing expansion space where it offices simply ceased operations in Canada and/or  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | TORONTO
  • 19. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK TORONTO CONTENTS downsized significantly. Rental rates also softened, It was followed by strong activity in Bolton and  NATIONAL even in the face of relatively tight markets and Vaughan markets, respectably.  VANCOUVER very little in the way of new developments. North York also experienced a significant  CALGARY Construction activity has been on hold for decrease of some 839,900 square feet, whereas  EDMONTON two reasons: access to credit and concern about Brampton posted the highest increase in demand and tenant willingness to relocate into available space, growing by some 465,700  WINNIPEG new, higher rental rate buildings. square feet from the previous quarter.  TORONTO The overall average asking net rental rate  OTTAWA SUBURBAN OUTLOOK remained flat at $4.87 per square foot. The  MONTREAL Looking forward, the GTA West will see more highest rate was posted in the old city of  SAINT JOHN than 700,000 square feet of new space come to Toronto at $6.75 per square foot, followed by  MONCTON market over the second quarter. Markham at $6.03 per square foot. The lowest  FREDERICTON While substantial space has returned to average asking rate of $3.74 per square foot net  HALIFAX market, vacancy should stabilize and reach a was in Oshawa, followed by Etobicoke at $3.53  ST. JOHN’S peak in Q3 2010. After that, moderate positive per square foot. demand strength is anticipated, driven in part by Sublease transactions accounted for 4.6% of a recovering US manufacturing sector. This will all lease transactions in Q1 2010, compared to slowly chip away at the vacancy rate as we head 6.6% during the previous quarter. Sale activity into the next expansionary cycle. Rental rates was led by Mississauga, which captured a 19.3% have softened far more than vacancy would market share, followed by Scarborough with suggest, in part because of the continued focus 17.1%. The overall weighted average asking on cost savings. sale price per square foot in the GTA dropped to $74.81 per square foot from the previous INDUSTRIAL OVERVIEW quarter’s $77.93 per square foot. Tenants who shelved expansion plans to get through the recession are now moving INDUSTRIAL OUTLOOK quickly to optimize their positions in the GTA’s The downward pressure on lease rates will level industrial markets. A significant flight to quality off in most markets as the flight to quality by is taking place with large tenants gobbling up the tenants continues to exhaust quality buildings remaining blocks of quality new speculative space, in some GTA industrial markets. In fact, very built within the last three years, leaving only a recent leasing activity of new development couple of larger buildings. Users with pent-up space in Bolton has resulted about 1.3 million demand are taking advantage of favourable tenant square feet being absorbed, leaving just over conditions before lease rates begin to recover 400,000 square feet (of the original 1.8 million from near-record lows. This activity is causing square feet) still available. Relocations will displacement in lower-grade space. dominate the scene as users exercise pent-up Overall GTA industrial market vacancy demand and seek to lock into low rates and dropped significantly in Q1 2010 to 6.2% from newer space offering enhanced trailer parking, the previous quarter’s 6.9%. This represented more doors, high ceiling heights and better an overall decrease of almost 5.6 million square locations to support just-in-time deliveries. feet from the previous quarter. Mississauga, Quality and location will continue to drive which accounts for 39.1% of the GTA’s industrial leasing and sales activity. market, saw the largest drop in vacancy, Sale prices dropped in some markets in Q1 shrinking by more than 1.5 million square feet. but held firm in the Central region, another sign  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | TORONTO
  • 20. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK TORONTO CONTENTS that industrial real estate is in full recovery mode.  NATIONAL Accelerated leasing activity and positive  VANCOUVER absorption will characterize GTA’s industrial  CALGARY markets at least until the end of the year,  EDMONTON although sublet space is likely to spike given the displacement of lower grade space and lack of  WINNIPEG demand for this asset class.  TORONTO With the supply of larger buildings and  OTTAWA distribution centres—200,000 square feet and  MONTREAL up—being exhausted, slow, modest rental  SAINT JOHN increases are expected. Overall average rates  MONCTON may reach $5.00, but, for the most part, will  FREDERICTON remain flat. As quality space is absorbed,  HALIFAX some users might start to consider build-to-  ST. JOHN’S suit construction. Demand will remain healthy for warehouse and distribution buildings in a consumer-driven economy. Manufacturing, on the other hand, will continue to feel the squeeze of many factors including a slowly recovering US economy, high Canadian dollar and European financial crisis. As manufacturers regroup they are improving their facilities in order to operate more efficiently and are working to comply with new environmental legislation by taking advantage of provincial incentive programs that offset costs for energy efficient systems.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | TORONTO
  • 21. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK OTTAWA MARKETS AT A GLANCE CONTENTS ECONOMY Although Ottawa-Gatineau’s economy is OFFIC E  NATIONAL expected to grow by 2.8% this year, the Central Area  VANCOUVER Conference Board of Canada predicts that Inventory  CALGARY cuts to government spending will slow the Q1 2010: 17.4 million sf  EDMONTON Q1 2011: 17.4 million sf area’s economic growth to 2.1% in 2011. This  WINNIPEG reflects the federal government’s decision to Vacancy Rate Outlook:  TORONTO freeze departmental operating budgets for the Q1 2010: 4.0%  OTTAWA next three years, limiting employee salaries Q1 2011: 6.1% ↘  MONTREAL and restraining growth in the public service. Rental Rate Outlook:  SAINT JOHN The board predicts continued slow growth for  MONCTON the region, at 2.4% from 2012 to 2014, which Suburban  FREDERICTON compares to a national annual average outlook Inventory  HALIFAX of 2.9% over the same period. Q1 2010: 19.4 million sf Q1 2011: 19.4 million sf  ST. JOHN’S OFFICE OVERVIEW Vacancy Rate Outlook: As the nation’s capital, Ottawa is a government Q1 2010: 8.5% town and in that sense will always be a stable Q1 2011: 11.6% ↘ office market. Even with spending freezes, the federal government, which owns or leases Rental Rate Outlook: about 50% of the market, provides a safety net INDUSTRIAL that prevents dramatic vacancy swings. In Q1 Q1 2010: 22.1 million sf 2010, Ottawa’s overall office market picked Q1 2011: 22.3 million sf up with vacancy declining slightly to 6.4%. With stable conditions in both the Central Vacancy Rate Outlook: and Suburban East markets, this small drop Q1 2010: 5.3% was due primarily to improving conditions Q1 2011: 5.8% → in the Suburban West market. However, Rental Rate Outlook Ottawa’s western submarkets still account for about 1.5 million square feet of the city’s 2.35 million square feet of available space. Overall absorption levels also rebounded in Q1 translates directly into positive absorption as from the previous quarter, reaching 195,000 it is new construction and there is no space square feet, again, concentrated mainly in the becoming available. Suburban West markets. Leasing activity in Ottawa began the year With little action from both the private and on a high note with more than 546,000 public sectors, overall office demand in the square feet transacted. Of this, the western Central Area is expected to remain fairly flat. submarkets accounted for close to 327,000 To illustrate the point, first quarter absorption square feet. The submarket of Kanata led accounted for only 8,500 square feet. Were the way. Approximately 180,000 square feet it not for the leasing activity at 180 Kent, the were leased, with 104,000 square feet of that recently completed downtown office tower, courtesy of the transaction between Hewlett absorption would have been negative 54,000 Packard and Kanata Research Park at 2500 square feet. Leasing activity in this building Solandt Road.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | OTTAWA
  • 22. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK OTTAWA CONTENTS OFFICE OUTLOOK replace or retrofit its aging inventory.  NATIONAL Although Q1 2010 data painted a rosy picture This retrofit process has been and is expected  VANCOUVER of the Ottawa office market, it will most likely to continue be a significant influence on the  CALGARY be the only quarter in 2010 to show a drop in Ottawa office market in the coming years.  EDMONTON vacancy and positive absorption. In the next Currently there are several outdated office six months, more than 725,000 square feet of buildings that the federal government needs to  WINNIPEG space will be returned to the market and by vacate. Approximately four out of every ten  TORONTO the end of 2010 the space available downtown square feet of Class A office space occupied  OTTAWA is expected to grow by an additional 350,000 by the federal government in Ottawa is more  MONTREAL square feet. With activity from private sector than 30 years old. As these properties age  SAINT JOHN sources expected to remain slow and the public they become more expensive and difficult to  MONCTON sector facing departmental spending freezes, maintain and in some cases will no longer meet  FREDERICTON Ottawa’s CBD vacancy could come close to 6% government leasing standards. While these  HALIFAX over the next year. This is expected to create refurbishments take place the government will  ST. JOHN’S more competition among landlords and we may likely require significant amounts of swing space see softening rental rates in the downtown core, to house their displaced public servants. particularly in the Class A market, with average Increased activity in suburban submarkets such asking rental rates currently sitting at close to as Kanata will continue to support stability and $26 per square foot. growth. Lower NERs, between $7 to $10 per In addition, the Economic Development square feet, along with free parking, are strong Corporation (EDC) will open and occupy a attractions. In fact, in a recent transaction, new 475,000 square foot office tower at 150 Research in Motion has contracted to sublease Slater Street in late 2011. EDC will vacate some 146,000 square feet from Dell at their vacant 321,000 square feet at 234 Laurier and about call centre building located at 1001 Farrar Road. 55,000 square feet in 251 Laurier to consolidate This will result in Kanata’s vacancy rate falling its operations at the new location. This space by roughly three percentage points. Another should return to market by Q4 2011 and will development that could have a significant likely be of interest to various government impact on the entire office market in 2010 is departments as the feds continue to work to Nortel’s 2.2-million-square-foot campus. With OFFICE INDUSTRIAL Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 2,500 10% 1,200 6% 2,000 8% 1,000 5% 800 4% 1,500 6% 600 3% 1,000 4% 400 2% 500 2% 200 1% 0 0% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (200) -1% (500) -2% (400) -2% (1,000) Absorption Overall Vacancy Rate -4% (600) Absorption Overall Vacancy Rate -3%  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | OTTAWA
  • 23. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK OTTAWA CONTENTS this property now on the auction block all eyes INDUSTRIAL OUTLOOK  NATIONAL are on the federal government as it is the most Although vacancy has edged up in recent  VANCOUVER likely suitor to lease or buy this property, which quarters, the majority of industrial vacancy is  CALGARY is over 50% vacant. comprised of larger pockets of over 10,000  EDMONTON Overall, the outlook for Ottawa, while square feet. With much of the local demand for affected by government cutbacks, remains industrial space generated from small contractors  WINNIPEG positive. The city is a destination of choice and businesses that require a showroom  TORONTO for domestic and international tourists, with component, and since these companies are  OTTAWA festivals, the parliament buildings and many generally looking for space under 10,000 square  MONTREAL other attractions. As well, a new convention feet and/or space that fits a specific requirement  SAINT JOHN centre slated to open in 2011 will attract more such as ceiling height or loading requirements,  MONCTON business to the city. these factors have resulted in a tight market.  FREDERICTON As these market conditions are not expected  HALIFAX INDUSTRIAL OVERVIEW to change, there are numerous projects in various  ST. JOHN’S Industrial real estate in Ottawa’s relatively small stages of the approval process that once built market remains for the most part healthy, with will help alleviate this demand. Currently there vacancy sitting at around 5% and rental rates is a new industrial build being marketed totaling ranging $7 to $10 per square foot. While the 130,000 square feet that will be constructed in western submarkets have had historically higher two stages. Pre-leasing is already underway in vacancy rates than the eastern submarkets, the first phase of 75,000 square feet. In addition the gap has almost disappeared. As of Q1, the there are already plans for a second phase being Suburban West market had only 74,000 more constructed at 1100 Polytek totaling 122,500 square feet of available office space than the square feet. Finally a local developer is marketing Suburban East market. That’s compared to the small industrial and office units to businesses who start of 2009 when the difference between the would like to own their own space. two markets was 474,000 square feet. Activity continues to be fairly evenly split between the two markets. The majority of the Q1 activity in Suburban West took place in Kanata.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | OTTAWA
  • 24. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK MONTREAL MARKETS AT A GLANCE CONTENTS ECONOMY According to the Conference Board of Canada, OFFIC E  NATIONAL Quebec’s economic recovery is stronger than Central Area  VANCOUVER previously anticipated, with real GDP expected Inventory  CALGARY to advance by 2.6% in 2010. Montreal’s GDP Q1 2010: 47.7 million sf  EDMONTON Q1 2011: 47.7 million sf will rebound by 2.3% this year. The domestic  WINNIPEG economy is also improving, as Quebecers are Vacancy Rate Outlook:  TORONTO back in shopping malls and rushing to buy houses. Q1 2010: 8.1%  OTTAWA Q1 2011: 8.0% →  MONTREAL OFFICE OVERVIEW Rental Rate Outlook:  SAINT JOHN Montreal’s office market, which has languished  MONCTON for a number of years, appears to be turning a Suburban  FREDERICTON corner. With a CBD vacancy rate of only 8.1%, Inventory  HALIFAX a diverse range of companies are exploring Q1 2010: 34.4 million sf  ST. JOHN’S their options to acquire added space to Q1 2011: 34.5 million sf accommodate expansion plans. Growth sectors Vacancy Rate Outlook: include financial, software, accounting, legal, Q1 2010: 10.5% telecommunications and government. Q1 2011: 11.0% ↘ As Class A space becomes more scarce, tenants will be faced with increasingly fewer Rental Rate Outlook: options for larger blocks of contiguous space, INDUSTRIAL and lack of supply will ultimately put upward Q1 2010: 277.9 million sf pressure on rental rates. At the bottom of the Q1 2011: 278.2 million sf cycle, Class A rates, which fell to $20 to $24 per square foot, are back to about $22 to $26 Vacancy Rate Outlook: per square foot. The consensus is that rates Q1 2010: 8.6% will remain flat in 2010 and, as supply is further Q1 2011: 9.0% → pressured, rates begin to move upwards in 2011 Rental Rate Outlook in what will become a landlords’ market. In the first quarter of 2010, the city’s overall vacancy rate was 9.1% and sublet space, which is falling rapidly, decreased by 7%, to about gathering steam. Negative absorption is easing 735,000 square feet. As a whole, the suburban and sublet space, which peaked in Q3 2009, is sub-markets saw 130,000 square feet of negative quickly diminishing and should return to normal absorption during the quarter, with vacancy levels in about two years. reaching 10.5%. All of the submarkets, with the Positive absorption will be a growing trend in exception of East End (West), experienced Montreal’s office markets as demand for space either slightly flat positive or negative absorption. starts to take hold. Shifting demand patterns will have a stabilizing effect on net rental OFFICE OUTLOOK pricing going forward. With space continuing to Montreal’s office market is recovering faster tighten and demand picking up, a new private from 18 months of corporate cutbacks and sector office development has become a real restructuring than many expected, with possibility. This would be big news for Montreal, interest in and demand for more space which hasn’t seen such a tower go up since  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | MONTREAL
  • 25. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK MONTREAL CONTENTS the early nineties. Should conditions remain landlords and tenants remain cautious. In order to  NATIONAL positive and rental rates reach a level that justify close deals, tenants are making greater demands,  VANCOUVER construction, the city could see a new building but landlords are still negotiating with prudence  CALGARY of about 400,000 square feet by 2014 and/or and resisting pressure to lower rental rates.  EDMONTON a smaller one by 2013. Meanwhile, tenants will continue to watch the market to ensure that INDUSTRIAL OUTLOOK  WINNIPEG they are able to take advantage of the best In the months to come, most leasing deals will  TORONTO opportunities available. likely vary between 5,000 and 10,000 square  OTTAWA feet, and tenants looking to lease 50,000 square  MONTREAL INDUSTRIAL OVERVIEW feet or more will have more options and the  SAINT JOHN The vacancy rate in the Montreal Suburban better end of the stick when negotiating a  MONCTON industrial market was 8.6% as of Q1 2010, deal. On the selling side, Montreal’s industrial  FREDERICTON reflecting weak leasing activity and negative real estate remains a fair market for both the  HALIFAX absorption of 207,900 square feet. The average seller and buyer, even though it is becoming  ST. JOHN’S asking rental rate is about $4.80 per square foot increasingly difficult for buyers to find buildings and the average building sale price has remained that suit their needs in a limited inventory. Build- stable, ranging between $35 per square foot and to-suit remains a good option but serviced land $65 per square foot, depending on location, size is becoming very hard to find in prime locations. and land available for expansion. Any new construction will be concentrated Montreal’s industrial real estate market is still off-island, in markets such as Laval, North-Shore feeling the aftershocks of the global recession and the South-Shore. and recovering US economy. On the leasing side OFFICE INDUSTRIAL Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 2,500 15% 8,000 12% 2,000 12% 6,000 9% 1,500 9% 4,000 6% 1,000 6% 2,000 3% 500 3% 0 0% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 0% (2,000) -3% (500) (1,000) -3% (4,000) -6% (1,500) Absorption Overall Vacancy Rate -6% (6,000) Absorption Overall Vacancy Rate -9%  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | MONTREAL
  • 26. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK SAINT JOHN MARKETS AT A GLANCE CONTENTS ECONOMY The New Brunswick government continues its OFFIC E  NATIONAL aggressive attempt to spark the local economy Central Area  VANCOUVER with tax cuts and a major infrastructure Inventory  CALGARY program that will inject $1.6 billion into the Q1 2010: 2.1 million sf  EDMONTON Q1 2011: 2.1 million sf economy in two years. Real GDP declined by  WINNIPEG 0.3% in 2009, is forecasted to grow by 2.4% Vacancy Rate Outlook:  TORONTO in 2010, followed by 3.3% in 2011. Export Q1 2010: 7.7%  OTTAWA Development Canada has projected New Q1 2011: 6.5% ↗  MONTREAL Brunswick to lead the country with a significant Rental Rate Outlook:  SAINT JOHN 19% export growth in 2010, driven mainly by  MONCTON energy exports, which will increase by 28%. INDUSTRIAL  FREDERICTON Q1 2010: 190.1 thousand sf  HALIFAX OFFICE OVERVIEW Q1 2011: 190.1 thousand sf  ST. JOHN’S Saint John started off the year by posting negative absorption of 9,129 square feet, bringing Vacancy Rate Outlook: its overall vacancy rate up to 7.7%. Net asking Q1 2010: 5.7% Q1 2011: 5.4% rental rates stood at $11.46 per square foot. → The market is unlikely to have major demand or Rental Rate Outlook supply changes in the coming quarters. OFFICE OUTLOOK The double whammy in 2009 of the cancellation of both the second Irving Oil refinery and the Irving Long Wharf office project took the wind completely out of the sails of the Saint John market, both commercially and residentially. The market is extremely dependent on the Irving family, as a tenant and, most recently, as the OFFICE Absorption (sf, thousands) Vacancy Rate (%) 90 9% 60 6% 30 3% 0 0% 2006 2007 2008 2009 2010F 2011F (30) Absorption Overall Vacancy Rate -3%  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | SAINT JOHN
  • 27. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK SAINT JOHN CONTENTS city’s dominant landlord. As Bell Aliant reduces  NATIONAL its footprint in the market, a new sector or  VANCOUVER company will need to step up to create positive  CALGARY absorption going forward. Rents will be stable,  EDMONTON with slight increases. Despite a static or declining tenant base, the lack of supply options will  WINNIPEG maintain a landlord-favored market.  TORONTO  OTTAWA INDUSTRIAL OVERVIEW  MONTREAL New Brunswick started 2010 on a strong  SAINT JOHN footing – in Q1 2010, it outpaced the rest of  MONCTON Atlantic Canada, as well as the national average,  FREDERICTON by posting a 6.8% increase in manufacturing  HALIFAX sales. This showcases the province’s resilience  ST. JOHN’S in the face of a strong Canadian dollar and weak US economy. Saint John’s industrial market started the year on an even keel, with vacancy remaining flat in Q1 2010 at 5.7%, the lowest in the province. Weighted-average rental rates showed very little fluctuation. The market remains undersized for leasable space, given its large amount of owner- occupied buildings. INDUSTRIAL OUTLOOK Going forward, pent-up demand for leasable industrial space will be met through the re- positioning of assets, such as making use of retail space in low-demand areas made obsolete by big box retailers. Demand generally will be slack until such time as capital projects reappear.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | SAINT JOHN
  • 28. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK MONCTON MARKETS AT A GLANCE CONTENTS OFFICE OVERVIEW Moncton benefits from a stable office OFFIC E  NATIONAL market thanks to its location as an east Central Area  VANCOUVER coast gateway, large bilingual population and Inventory  CALGARY diversified business base, including call centres, Q1 2010: 2.7 million sf  EDMONTON Q1 2011: 2.7 million sf trucking/logistics firms, technology firms,  WINNIPEG manufacturing, and the regional headquarters Vacancy Rate Outlook:  TORONTO for Atlantic Lotto. Many of these companies Q1 2010: 11.4%  OTTAWA are in growth mode. Q1 2011: 9.5% ↗  MONTREAL Known as an entrepreneurial city, Moncton Rental Rate Outlook:  SAINT JOHN once relied heavily on shipping and rail  MONCTON industries. In the early 1980s when these INDUSTRIAL  FREDERICTON industries began to die out, then Premier Frank Q1 2010: 2.2 million sf  HALIFAX McKenna brought the call centre industry to Q1 2011: 2.2 million sf  ST. JOHN’S New Brunswick. The province and city were blanketed with fibre optics, creating a superior Vacancy Rate Outlook: telephone system, which not only attracted Q1 2010: 16.1% Q1 2011: 14.5% call centres, but also many spin-off businesses → including IT training schools, which in turn Rental Rate Outlook produced a steady pool of skilled labour. Also home to one of best flight training colleges in Canada, the city recently signed a multi-million contract to train Chinese pilots. INDUSTRIAL OVERVIEW Although Moncton’s call centre sector was Moncton’s geographical advantage as the centre hit relatively hard by the global recession as US of the Maritimes bodes well for the industrial companies downsized, its bilingual labour force market. With a larger population within two remains a strong differentiating feature that hours of Moncton than Halifax enjoys, the helps maintain stability and support recovery. market serves as a transportation and materials Mega-projects underway, including a $90-million distribution hub. casino and $50-million courthouse, are also An interesting succession is occurring in the hastening Moncton’s economic recovery. Moncton Industrial market as new, higher ceiling Net effective office rental rates are very stable buildings in the Dieppe Industrial Park are with Class A at $15 per square foot and Class B replacing legacy buildings in the west end and sitting at about $9.50 per square foot. central neighborhoods. There is a pronounced flight to quality, with older buildings forced to OFFICE OUTLOOK drop rents to retain and attract tenants, often With Moncton also benefiting from a growing losing the signature tenants they had for several population as people move to the city from cycles. Changes in the automotive business have rural areas, it offers a deep labour pool of young liberated large assets for new uses, however, people that also attracts and enables business restrictions in functionality have made re-leasing to grow in a variety of sectors. Rural-urban a challenge. migration has also helped to create a strong residential market, which feeds into a positive INDUSTRIAL OUTLOOK outlook for the office market. With a 2% Harmonized Sales Tax increase  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | MONCTON
  • 29. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK MONCTON CONTENTS in Nova Scotia to go into effect July 1, 2010,  NATIONAL Moncton stands to benefit in retail sales,  VANCOUVER which could positively impact warehousing and  CALGARY distribution. With the sale of NB Power no  EDMONTON longer going forward and a pending provincial election, New Brunswick is expected to come  WINNIPEG up with creative ways to stimulate the economy  TORONTO over and above the contributions of venerable  OTTAWA companies such as Irving and McCain. There has  MONTREAL been significant interest in the Moncton market  SAINT JOHN from the investment community in 2010, as the  MONCTON area had gone unnoticed for some time. The  FREDERICTON absence of a significant retraction during the  HALIFAX dark days of 2008-2009 was of keen interest to  ST. JOHN’S many. Expect continued supply growth, largely driven by owner-occupiers. OFFICE Absorption (sf, thousands) Vacancy Rate (%) 150 15% 125 13% 100 10% 75 8% 50 5% 25 3% 0 0% 2006 2007 2008 2009 2010F 2011F (25) -3% (50) -5% (75) Absorption Overall Vacancy Rate -8%  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | MONCTON
  • 30. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK FREDERICTON MARKETS AT A GLANCE CONTENTS ECONOMY A centre for higher education, Fredericton is OFFIC E  NATIONAL home to six universities plus a variety of training Central Area  VANCOUVER colleges and institutes. The provincial capital Inventory  CALGARY city is continuing its efforts to attract economic Q1 2010: 1.9 million sf  EDMONTON Q1 2011: 1.9 million sf development by improving its extensive business  WINNIPEG park network known as the RUNWAY. Vacancy Rate Outlook:  TORONTO As “One of the World’s Top Seven Intelligent Q1 2010: 5.5%  OTTAWA Communities” (ICF), Fredericton is home to Q1 2011: 4.9% →  MONTREAL more than 70% of the province’s knowledge Rental Rate Outlook:  SAINT JOHN industry, some 60 R&D organizations and  MONCTON Canada’s largest per capita engineering INDUSTRIAL  FREDERICTON cluster. An established smart city, Fredericton Q1 2010: 397.5 thousand sf  HALIFAX was Canada’s first free, wireless city and is Q1 2011: 397.5 thousand sf  ST. JOHN’S also earning international attention for its sustainability initiatives. Vacancy Rate Outlook: Q1 2010: 9.8% Q1 2011: 8.6% OFFICE OVERVIEW → Steady demand for office space has driven the Rental Rate Outlook vacancy rate down and has solidified net rental rates in recent years, making Fredericton a landlords’ market. A new 170,000-square-foot office tower and convention centre development will open at the end of 2010. While this new building is of a smaller scale, it will be more efficient, and replace the temporarily decommissioned Centennial Building – and, as such, will do little to relieve supply issues. Inventory and usable OFFICE Absorption (sf, thousands) Vacancy Rate (%) 60 6% 40 4% 20 2% 0 0% 2006 2007 2008 2009 2010F 2011F (20) -2% (40) -4% (60) Absorption Overall Vacancy Rate -6%  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | FREDERICTON
  • 31. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK FREDERICTON CONTENTS space remains approximately the same.  NATIONAL The Knowledge Park developed on University  VANCOUVER of New Brunswick lands has also been a source  CALGARY of ongoing demand and growth. Because of the  EDMONTON university, computer, bio- and high-tech firms are attracted to the supportive like-minded cluster  WINNIPEG offered by the park’s infrastructure. Government,  TORONTO as well, offers attractive incentives and tax breaks  OTTAWA supporting innovation and occupancy.  MONTREAL  SAINT JOHN OFFICE OUTLOOK  MONCTON Continued demand from knowledge industries  FREDERICTON and a low vacancy rate will maintain what’s  HALIFAX become a tight landlords’ market, with rental  ST. JOHN’S rates for all classes pushing $20 per square foot. While basic statistics may create the appearance of a market in need of investment, the small size of Fredericton’s market and lack of net new absorption make new construction a risky proposition. Any significant supply shock would quickly swing the pendulum to the tenant side, increasing vacancy, and forcing rental rates to drop. The proximity to Moncton and Saint John also creates a situation that is more competitive than complimentary among the markets.  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | FREDERICTON
  • 32. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK HALIFAX MARKETS AT A GLANCE CONTENTS ECONOMY RBC Economics Research, in its Provincial OFFIC E  NATIONAL Outlook, March 2010, forecasted that Nova Central Area  VANCOUVER Scotia’s GDP would grow by 2.2% this year and Inventory  CALGARY climb to 2.9% in 2011. Retail sales are expected Q1 2010: 4.3 million sf  EDMONTON Q1 2011: 4.3 million sf to surge by 4.5% this year. Some of this stability  WINNIPEG can be attributed to the provincial government, Vacancy Rate Outlook:  TORONTO which contributed $800 million to infrastructure Q1 2010: 6.5%  OTTAWA investment, helping to offset the impact of the Q1 2011: 5.3% →  MONTREAL 2009 recession. Rental Rate Outlook:  SAINT JOHN  MONCTON OFFICE OVERVIEW Suburban  FREDERICTON Halifax, the provincial capital of Nova Scotia, Inventory  HALIFAX is considered a key strategic North American Q1 2010: 5.2 million sf  ST. JOHN’S location. The regional municipality, comprised Q1 2011: 5.2 million sf of the former cities of Halifax and Dartmouth Vacancy Rate Outlook: and the former town of Bedford, is the largest Q1 2010: 11.0% centre of economic activity and government Q1 2011: 10.1% ↘ administration in Eastern Canada. It has seven degree-granting institutions and the world’s Rental Rate Outlook: largest natural deepwater ice free harbour. INDUSTRIAL Significant employers include the Port of Q1 2010: 6.5 million sf Halifax, all levels of government, IT, tourism, Q1 2011: 6.5 million sf agriculture, fishing, mining forestry and offshore gas exploration. Vacancy Rate Outlook: Halifax’s Central office market totaling some Q1 2010: 8.1% 4.3 million square feet continues to tighten as Q1 2011: 7.5% → employers gain confidence in the strengthening Rental Rate Outlook economy. Q1 overall vacancy stood at 6.5% and OFFICE INDUSTRIAL Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 400 16% 400 10% 300 12% 300 8% 200 8% 100 4% 200 5% 0 0% 100 3% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (100) -4% 0 0% (200) -8% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (300) Absorption Overall Vacancy Rate -12% (100) Absorption Overall Vacancy Rate -3%  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | HALIFAX
  • 33. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK HALIFAX CONTENTS positive absorption in the quarter totalled almost square feet of positive absorption in Atlantic  NATIONAL 15,000 square feet. Acres. Burnside experienced significant tenant  VANCOUVER In the suburbs, demand was particularly movement, which balanced out to result in a  CALGARY strong in the Dartmouth area, although vacancy negative absorption of 3,163 square feet. Bayers  EDMONTON remains high at over 12%. Meanwhile, Bedford’s Lake remained stagnant over the first quarter, office vacancy of 8% continues to tighten. and the Greater Halifax Area experienced the  WINNIPEG Typically, Halifax does not see much growth highest negative absorption, at 5,715 square  TORONTO in occupancy in its quieter suburban markets. feet. The overall vacancy rate was 8.1%. This is  OTTAWA Overall, Class B space still has the lowest almost two percentage points lower than the  MONTREAL vacancy. Rental rates have begun to nudge vacancy rate in the first quarter of 2009, which  SAINT JOHN upwards and inducements are being removed was 9.9%, and could be indicative of the Halifax  MONCTON from the table – offering more signs of a market industrial market’s resilience in the face of  FREDERICTON shifting to the landlords’ favour. widespread economic strain.  HALIFAX  ST. JOHN’S OFFICE OUTLOOK INDUSTRIAL OUTLOOK Halifax’s downtown core is set for a decade The steady recovery of the US economy of significant development for the first time in should help expand exports, increase three decades. output in the energy sector and kick-start Developments that will breathe new vitality the forestry industry. Demand is expected into the city include Armour Group’s Waterside to remain modestly strong, driven by retail Centre, Nova Centre, and the expansion of and/or distribution. The area has very little the TD Building, which is expected to begin manufacturing, with 25% to 30% of the market without a preleasing threshold. The Waterside made up of office/retail mixed-use industrial development is more complex due to older buildings. The other half is comprised of existing buildings. distribution facilities that serve eastern Canada. There is a certain element of pent-up demand The facilities in Halifax tend to be on the smaller in Halifax but tenants are generally holding side—up to 20,000 square feet—and have tight until the timing of new space is confirmed. reduced cash requirements. Some tenants that need to move soon may be Employment is forecasted to grow by 0.9% forced to migrate to suburban markets. Demand in 2010 and another 2.2% in 2011, which overall is expected to continue showing modest should lead to increased consumer spending positive growth. and residential home activity. Home starts are forecasted to rebound by 11.5% this year and by INDUSTRIAL OVERVIEW an additional 7.9% in 2011. In Q1, the Halifax industrial market posted positive absorption for the fourth consecutive quarter. This was solely the result of 10,500  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | HALIFAX
  • 34. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK ST. JOHN’S MARKETS AT A GLANCE CONTENTS ECONOMY Atlantic Canada is forecasted to experience OFFIC E  NATIONAL significant growth in the coming year, as Central Area  VANCOUVER the recession moves out of the picture and Inventory  CALGARY economic factors continue to strengthen. Q1 2010: 1.3 million sf  EDMONTON Q1 2011: 1.3 million sf Detrimental effects on the Newfoundland  WINNIPEG & Labrador job market were felt in 2009, as Vacancy Rate Outlook:  TORONTO the fishing industry experienced low demand, Q1 2010: 3.3%  OTTAWA low prices, and a high Canadian dollar. Q1 2011: 2.6% ↗  MONTREAL Correspondingly oil production and mining Rental Rate Outlook:  SAINT JOHN exports decreased. This being said, overall the  MONCTON domestic economy fared surprisingly well in Suburban  FREDERICTON 2009. This year, the province is expected to Inventory  HALIFAX exceed projected GDP growth rates thanks to Q1 2010: 1.4 million sf  ST. JOHN’S the increased production of crude oil and an Q1 2011: 1.5 million sf influx of capital spending. As the demand for Vacancy Rate Outlook: Newfoundland & Labrador’s natural resources Q1 2010: 5.7% grows, the province should see a subsequent Q1 2011: 5.3% ↘ improvement in the labor market conditions. Rental Rate Outlook: OFFICE OVERVIEW INDUSTRIAL At 3.3% in Q1, vacancy rates in St. John’s Q1 2010: 2.8 million sf downtown/central office market remained Q1 2011: 2.8 million sf extremely tight in Class A and Class B buildings, with Class C offering the only sizeable options Vacancy Rate Outlook: for companies requiring a downtown location. Q1 2010: 7.3% Any Class A or B space that comes available Q1 2011: 6.5% → in the downtown market is quickly leased. Rental Rate Outlook This is making companies planning for future OFFICE INDUSTRIAL Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%) 200 20% 200 14% 150 11% 150 15% 100 7% 100 10% 50 4% 50 5% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 0 0% (50) -4% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F (50) Absorption Overall Vacancy Rate -5% (100) Absorption Overall Vacancy Rate -7%  PREVIOUS N E X T  A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | ST. JOHN’S
  • 35. OUTLOOK 2010 MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK ST. JOHN’S CONTENTS expansions or relocations nervous about INDUSTRIAL OUTLOOK  NATIONAL whether or not their space requirements will Continued strong demand is expected from  VANCOUVER be met. Rental rates have continued to rise, service companies that will support the huge  CALGARY with the market seeing a 10% increase in gross infrastructure projects underway in the St.  EDMONTON rates from 2009. John’s Area. The market continues to suffer In the suburban market, rental rates in all from a serious shortage of sufficient Class A  WINNIPEG classes have been growing since the fourth industrial space. Construction activity is very  TORONTO quarter of 2008, as vacancy decreases and robust, with land in the Paradise Industrial Park  OTTAWA demand increases. This is exemplified by the being rapidly developed. Most new buildings  MONTREAL Class C net rates, which increased 14% during currently under construction will be owner-  SAINT JOHN the last year and are now on par with Class B. occupied. A shortage of new buildings larger  MONCTON than 10,000 square feet will continue to pose a  FREDERICTON OFFICE OUTLOOK problem. While high construction and land costs  HALIFAX St. John’s is currently experiencing a landlords’ and a lack of industrially zoned land has acted as  ST. JOHN’S market, which puts pressure on tenants to enter a barrier for new development, high demand is into early lease renewals, as decreases in rental attracting outside builders to the area. Pressure rates are improbable. on rental rates is forecasted to rise in the short term; however, rates should stabilize over the INDUSTRIAL OVERVIEW coming year as new product comes on stream. St. John’s industrial real estate vacancy reached 7.3% in the first quarter of 2010. The market has been experiencing a growing demand for high-grade industrial space, which is quickly absorbed when vacancies occur. Rental rates have continued to steadily increase since the first quarter of 2009, showing a 6% increase year-over-year. For further information, please contact: This report contains information available to the public and has been relied upon Stuart Barron, National Research Director by Cushman & Wakefield on the basis that it is accurate and complete. Cushman Cushman & Wakefield Ltd. & Wakefield accepts no responsibility if this should prove not to be the case. 33 Yonge Street, Suite 1000 No warranty or representation, express or implied, is made to the accuracy or Toronto, ON MSE 1S9 completeness of the information contained herein, and same is submitted subject (416) 359-2652 to errors, omissions, change of price, rental or other conditions. ©2010 Cushman & Wakefield Ltd. All rights reserved. stuart.barron@ca.cushwake.com  PREVIOUS A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | ST. JOHN’S