real estate outlook: a focus on the calgary market...6 includes company own-use properties. suburban...

Confidential. Not for Further Distribution. For Canadian Institutional Investors Only.

Real Estate Outlook: A Focus

on the Calgary Market

CFA Quebec Conference

March 11, 2015

Peter McDonald

Vice President, Managing Director

Canadian Real Estate Asset Management

Manulife Real Estate

2 | Confidential. Not for Further Distribution. For Canadian Institutional Investors Only.

Note: Data in Canadian dollars as of December 31, 2014. 1 Excludes committed property development investments. 2 Excludes ~$590M of newly committed acquisition in Hong Kong. 3 Location of signed and committed investment in Hong Kong, but not included in current assets under management. 4 Other includes land and ground Rent. 5 Geographic and property type break outs for the Canadian portfolio only. Totals may not sum due to rounding. 6 Includes company own-use properties.

$4.9B AUM Canada1

$7.3B AUM U.S.

$0.3B AUM Asia2

Manulife Real Estate: Global Portfolio

By Property Type5

52%

15%

16%

9%

8%

Other

Office

Downtown6

Office

Suburban

Residential

Industrial

By Geography5

Halifax

Toronto

Ottawa

Montreal

Calgary

Vancouver

Kitchener/Waterloo

Edmonton

Canada $4.9 B AUM: Portfolio Diversification

57%

8%

9%

10%

6% 5% 3%

1%


Hot Topic: Correlation of Low Oil

to the Real Estate Market


• The price of oil has been the

dominant economic story and will

remain a key factor in 2015.

• High production levels have led to an

oversupply of oil, driving prices

downward by more than 50% in 2014.

Macro Overview:

Oil & Gas Industry and Ripple Impact


• Major oil & gas companies such as Suncor, CNRL, Crescent

Point, MEG Energy, Husky, Penn West & Whitecap Resources

are also cutting capital spending for 2015.

• Occupancy and rental rates are shown to have a direct

correlation with capital expenditure cuts.

• With Cap EX cuts of $28 billion announced in January 2015,

vacancy is expected to rise to 14-16% in 2015/2016.

• Several layoff announcements were also made in January

from major corporations including Suncor, Shell and Nexen.

• Prediction is for oil to return to $80 by end of 2016.

Macro Overview:


Source: CBRE


• Although the oil and gas industry accounts for only 6% of

Canadian GDP, the sector’s multiplier is much broader.

• One such consequence of softer oil prices is that the

Canadian dollar (CAD) has drifted to its lowest level

since 2009.

• To some extent this is good news for Canada’s

manufacturing competitiveness.

• This is good news for Eastern Canada.

Questions to ask yourself:

• How long does oil stay low?

• What is the impact on Real Estate?

Macro Overview:



Major Oil Corrections Since 1980

Date Event

% Decrease in

Oil Price

(WTI)

Length

(Trading Days)

% Increase in

Oil Price

1 Year Post-Low

1986 Saudi Market Share War -67% 82 79%

1988 Oil Glut -44% 295 58%

1991 Global Recession / End of Gulf War -57% 90 5%

1998 Asian Crisis -60% 484 135%

2001 Global Recession -53% 290 46%

2008 Great Recession -78% 119 135%

AVERAGE -60% 227 76%

2015 Saudi Vs. US Shale War -57% 141 ?

Source: Bloomberg, Brompton Oil Split Corp.


Where do oil prices impact

the most?


• Currently 960,000 sf available in buildings under construction with 1.5

million of future headlease/sublease space coming on the market • The Bow - Cenovus sublease

• Bow Valley Square – progress space

• Centennial East - MEG space

• Encana

• 5th Ave West- balance of Imperial space

• 600,000 sf of current headlease vacancies and 400,000 sf of current

sublease vacancies • Bankers Hall- Talisman space

• Barclay Center

• Bow Valley - Long view, Conoco, Athabasca

• Calgary Place - Harvest Energy

Totals 3.4 million square feet about to be on the

market in a low price environment

Calgary Office Market: What’s Ahead


Calgary Office Market: What’s Ahead

-7%

-4%

-1%

2%

5%

8%

11%

14%

-2 000

-1 500

-1 000

-500

0

500

1 000

1 500

2 000

2 500

3 000

Va

ca

ncy R

ate

Co

mp

leti

on

s a

nd

Ab

so

rpti

on

(00

0's

)

Absorption (000's) New Supply (000's) Vacancy Rate

Source: CBRE: Canadian Market Outlook 2015

Year Inventory Projected Absorption Vacancy

Rate SF Vacant New Supply Buildings Delivered

2014 39,291,230 519,000 9.8 % 3,845,944 841,000 EAP West

2015F 40,111,230 -400,000 12.6 % 5,065,944 820,000 Calgary City Centre

2016F 40,726,230 250,000 13.3 % 5,430,944 615,000 Eau Claire Tower

2017F 41,290,230 660,000 12.9 % 5,334,944 564,000 Manulife Place

2018F 43,140,230 860,000 14.7 % 6,324,944 1,850,000 BrookField Place, Telus Sky


• Energy market uncertainty: tenants who can stall and/or

reign in growth will

• Increasing sublease supply with aggressive sublandlords and

nervous landlords

• Impact of large blocks of older “A” class headlease

• Fourth quarter absorption within Calgary’s suburbs was

positive but negative in the core business district

Calgary Office Market: Impact


Client: Manulife Real Estate

Site: 707 Fifth (Calgary)

• Lead tenant – National Energy Sector -

did not take their option space – reigning

in their growth

• Current RFPs have reduced their asking

space

• For example: 250,000 SF reduced to

50,000 SF

• A few have put their decision on hold

• We consider today a “tenant’s market” –

highly competitive

Case Study: How We Invest


Client: Manulife Canadian

Property Portfolio

Site: 180 Wellington (Toronto)

• Strong diversification of asset type,

geography as well as tenant base

• Existing portfolios with a high

occupancy rate and long term

tenants will sustain through

downturn

• Well maintained buildings with a

long term outlook as an investment

Case Study: How We Invest


Disclaimer

The information contained herein has been prepared by the Manulife Asset Management Private Markets unit of Manulife Financial (Manulife), is

intended solely for informational purposes, may be subject to change, is not complete, and is not an offer to buy or sell or a solicitation of an offer

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discussion of specific trades or strategies is intended for illustrative purposes only. Any decision to purchase securities in a fund should be based on a

review of the Confidential Offering Memorandum for the fund, which will contain material information not contained herein, including final terms and

risk factors, and to which prospective purchasers will be referred. Any decision to engage an entity within the Manulife Asset Management Private

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investment objectives, policies and guidelines that apply under the terms of such agreement. Any decision to invest should be made solely in reliance

upon such Confidential Offering Memorandum or on such agreement, as the case may be. The strategies described herein have not been authorized, or

otherwise recognized or approved by any securities regulatory authority and are not intended for the general public.

The information herein is confidential. It may not be transmitted, reproduced or used in whole or in part for any other purpose, nor may it

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otherwise indicated herein, the information provided herein is based on matters as they exist as of December 31, 2014 and not as of any future date,

and will not be updated or otherwise revised.

The private asset management activities described herein are conducted by various entities within the Manulife group, including regulated insurance

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illustrative purposes.

Certain information contained in this presentation constitutes forward-looking statements, which may be identified by use of terms such as “may”,

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regarding future events and any related discussion is highly speculative and represents Manulife’s opinion, which may change.

real estate outlook: a focus on the calgary market...6 includes company own-use properties. suburban...

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