jll commercial real estate market report toronto 2014

Note: indicates an increase indicates a decrease indicates status quo

Net new supply, net absorption and total vacancy

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.

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 pre-

leasing 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.

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.

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. .

.

Downtown Toronto sees lower market activity and

higher vacancy in anticipation of new developments

Office Insight Downtown Toronto. Q4 2013

0%

1%

2%

3%

4%

5%

6%

7%

8%

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2008 2009 2010 2011 2012 2013

sf Net new supply Net absorption total vacancy

Key market indicators

Supply

Supply 70,626,238 s.f.

Direct vacancy rate 4.7%

Total vacancy rate 6.5%

2013 space completion 746,898 s.f.

Dem

and 12 Mth % Change in Leased area -2.70%

2013 net absorption -667,859 s.f.

Pricing

12-month overall rent % change +2.58%

Class A overall asking rent $23.70 p.s.f

Class B overall asking rent $19.51 p.s.f

12-month forecast

Current Standing

* Leasing momentum equals change in occupied area as a percentage of all office building inventory

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2008 2009 2010 2011 2012 2013

North East West Core South King & Dufferin

Leasing Momentum *

Source: Altus Insite, RBC Economics Research, Scotiabank Economics Research, Statistics Canada

Class B overall asking rents Class A overall asking rents

Jones Lang LaSalle Americas Research • Greater Toronto Office Insight • Q4 2013 2

$0

$5

$10

$15

$20

$25

$30

$35

2008 2009 2010 2011 2012 2013

$ ps

f

Downtown East Downtown North Downtown SouthDowntown West Financial Core King & Dufferin

Class B blocks of available contiguous space

$0

$5

$10

$15

$20

$25

2008 2009 2010 2011 2012 2013

$ ps

f

Downtown East Downtown North Downtown South

Downtown West Financial Core King & Dufferin

Class A blocks of available contiguous space

0

50

100

150

200

250

300

350

400

450

10,000 -25,000 sf

25,000 -50,000 sf

50,000 -100,000 sf

100,000 -200,000 sf

200,000 sf +

King & Dufferin 4 4 0 0 0

Core 256 202 176 139 69

West 65 55 46 38 14

South 53 51 47 44 37

North 28 23 16 16 10

East 15 10 10 10 10

Num

ber

of b

lock

s

East North South West Core King & Dufferin

Source: AltusInsite

0

20

40

60

80

100

120

10,000 -25,000 sf

25,000 -50,000 sf

50,000 -100,000 sf

100,000 -200,000 sf

200,000 sf +

King & Dufferin 9 6 1 0 0

Core 38 12 0 0 0

West 24 7 0 0 0

South 1 1 1 0 0

North 28 16 10 10 0

East 0 0 0 0 0

Num

ber

of b

lock

s

East North South West Core King & Dufferin

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

2008 2009 2010 2011 2012 2013

sf



Sublease available space Available sublease space

* Includes all available sublease space on the market

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2008 2009 2010 2011 2012 2013

sf



Available direct space

* Includes all available direct space on the market

* Includes sublease space * Includes sublease space

Submarket 2013 2014 2015 2016

Core

Downtown (excluding Core)

Midtown

GTA North

GTA East

GTA West

GTA Submarket leverage – market condition and forecast

Jones Lang LaSalle Americas Research • Greater Toronto Office Insight • Q4 2013 3

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.

Property clock – current market conditions

Tenant leverage Land

lord

leve

rage

2014

2015 thru 2016

2017 thru 2018

2019 +

0 10 20 30 40 50 60 70 80

Q4 Completed lease transactions

Downtown sublease space by lease expiration year

55%

3%

9%

19%

11% 3%

Financial Core

Downtown East

Downtown North

Downtown West

Downtown South

King & Dufferin

Distribution of available sublease space

Source: AltusInsite

s.f.

Balanced

conditions

Tenant-favorable

conditions

Landlord-favorable

conditions

Peaking

market

Falling

market

Bottoming

market Rising

market

Downtown Toronto

Suburban Toronto

Toronto

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

Prepared by:

Taylor McCarten

Associate

Direct +1 416 238 5987

[email protected]

Jones Lang LaSalle

199 Bay Street

Suite 4610

Toronto, ON, M5L 1G3

For further information, please visit

our website,

http://www.joneslanglasalle.ca

©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.

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

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successful strategies and optimal real estate decisions.

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For more information, please contact:

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[email protected]

http://www.jll.com/

National Office Report • Q4 2013 Jones Lang LaSalle Canada Research 1

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

Q4 2013 Canadian Office Market Overview

Continued urbanization will drive

downtown office leasing in 2014

Brace for the

construction boom. In

2014, over 10.0 million

square feet will be

delivered to the national

office market.


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 non-

commodity 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.

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 bond-

buying 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.


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 tenant-

favourable conditions over the next three to four years.

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.


Canadian Office Property Clock Q4 2013

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

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.

Reading the clock

Ottawa

Edmonton

Rental growth

slowing

Rents

falling

Rental growth

accelerating

Rents

bottoming out

Winnipeg

Halifax

Calgary

Toronto Canada, Montréal

Vancouver, Québec City


Market Vacancy ( %) Absorption (s.f.) Net Asking Rate

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

Arrows represent change from prior quarter

Suburban

Market Vitals

• 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.

Calgary

Property Clock

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.

Betline

Downtown

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

Peaking

market

Falling

market

Bottoming

market Rising

market



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

• 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.

Ottawa-Gatineau

Recent Deals

Peaking

market

Falling

market

Bottoming

market Rising

market

Property Clock

Suburban East

Ottawa-Gatineau

Gatineau

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

Market Vitals


Downtown Submarket

Suburban West

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.


• 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.


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

• 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.

Montréal

Recent Deals

Peaking

market

Falling

market

Bottoming

market Rising

market

Property Clock


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

Market Vitals


West Island

South Shore

Downtown Core Midtown

East End

Downtown (excluding core)

Saint-Laurent (West Island)

Laval

Montréal

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.


• 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.


Property Clock


199 Bay Street Financial Core Stikeman Elliott LLP

199 Bay Street Financial Core Sentry Select 46,615

250 Yonge Street Downtown North LinkedIn

222 Bay Street Financial Core Microsoft 26,142

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.


• 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.

• 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.

Downtown Toronto

Recent Deals


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

Market Vitals


Peaking

market

Falling

market

Bottoming

market Rising

market

Financial Core

Downtown Toronto

Downtown West

Downtown East

Downtown North

Downtown South

King & Dufferin


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


Airport Area

Market Vitals


(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

• 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

Suburban Toronto

Recent Deals

Peaking

market

Falling

market

Bottoming

market Rising

market

Property Clock

North Yonge

Suburban Toronto

Meadowvale

Markham

Mississauga City Centre

Oakville/Burlington

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.


• 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.



(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

• 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.

Vancouver

Recent Deals

Peaking

market

Falling

market

Bottoming

market Rising

market

Property Clock

Downtown Vancouver

Broadway Corridor

Burnaby

Richmond

Surrey

North Shore


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

Market Vitals


New Westminster

Langley

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.


• 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 pre-

leased 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.


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.)

Quebec City 18,492,394 427,998 727,283 3.9% 6.4% $21.70 173,829

Downtown 'A' 2,309,170 4,551 26,357 1.4% 13.4% $26.90 0

Ottawa 44,859,518 100,011 428,189 1.0% 5.5% $31.22 1,446,595

Downtown 'A' 9,372,736 490 393,653 4.2% 3.5% $50.08 930,598

Calgary 63,784,522 1,290,511 -102,708 -0.2% 7.7% $45.21 7,024,021

Downtown 'A' 28,896,317 -68,664 65,941 0.2% 2.9% $55.44 5,131,839

Edmonton 23,228,350 90,522 167,850 0.7% 7.5% $33.84 338,926

Downtown ‘A’ 11,023,249 85,197 198,637 1.8% 6.1% $39.28 0

Vancouver 52,247,799 -513,873 -308,558 -0.6% 8.9% $38.03 4,248,557

Downtown 'A' 13,336,532 -179,706 -284,146 -2.1% 5.3% $55.76 1,937,977

Toronto 171,653,463 -252,192 -1,002,574 -0.6% 9.2% $29.48 7,084,489

Downtown 'A' 45,120,320 111,181 -297,699 -0.7% 6.5% $47.43 5,108,908

Winnipeg 10,642,786 12,498 86,144 0.81% 6.2% $23.71 85,000

Downtown 'A' 3,477,581 10,618 54,771 1.6% 3.5% $30.65 85,000

Montreal 92,619,056 23,979 248,815 0.3% 10.2% $26.55 2,750,545

Downtown 'A' 23,124,284 -185,934 -291,385 -1.3% 7.5% $40.57 1,226,923

Halifax 9,738,479 310,408 -91,444 -0.8% 8.7% $27.32 307,126

Downtown ‘A’ 1,375,075 114,955 -3,664 -0.3% 8.4% $34.14 280,126

Canadian major

market total 487,266,367 1,489,862 -1,226,221 0.0% 8.5% $31.80* 23,459,088

*Weighted Average

Source: Altus Insite, Jones Lang LaSalle Research


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