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23Total number of buildings with more than 50,000 sf available for lease in Toronto East vs. 9 in Toronto North

The Toronto North market had a less-than-stellar result in the third quarter of 2016. This is not entirely surprising and is attributed to a combination of a growing development pipeline in the Vaughan node, and a number of large (class A) blocks returning to the North Yonge node. During the third quarter, occupancy levels declined 157,000 square feet (sf ) with class A buildings shouldering the bulk of the losses. Consequently, overall availability (9.9%, +100 basis points (bps)) and vacancy (9.3%, +110 bps) trended higher and are destined for double-digit territory. Year-over-year, availability and vacancy are 160 bps and 280 bps higher, respectively.

Corporate rightsizings and relocations continue to have an impact. In the third

quarter, Nestlé, Lowe’s, and the provincial government joined the list of large users (Deloitte and Capital One) that have recently returned space to the market, elevating availability and vacancy levels in North Yonge. Lowe’s is vacating 31,500 sf at 5160 Yonge St. – the result of inking a new deal for 68,000 sf in HOOPP’s new development (5150 Spectrum Way) in the Airport Corporate Centre – while a number of provincial government ministries will return four contiguous floors comprising almost 75,000 sf at 5255 Yonge St. Elsewhere, Nestlé Canada, a long-time tenant at 25 Sheppard Ave. W., has surrendered five floors (97,000 sf ), while renewing four floors (73,000 sf ). As a result, North Yonge’s class A availability (12%) and vacancy (10.3%) rates have surged to a decade high.

Market Overview

Third Quarter 2016 / Office Market Report

Toronto North & East

Market Facts

9.3%Overall availability rate for the Duncan

Mill node – lowest amongst Toronto East nodes

$35.83 psfTotal estimated direct gross

rental rate for class A space in Toronto North vs. $30.18 psf in Toronto East

337,473 sfOffice area under construction in

Vaughan, accounting for 42% of total area underway in GTA suburbs

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Photo by Paul Bica / CC 4.0

Toronto East Occupancy Costs - All Classes

Toronto North & East Third Quarter 2016 / Office Market Report

Toronto North Occupancy Costs - All Classes

6Consecutive quarters of

declining class A availability in Duncan Mill

6Number of buildings with

50,000+ sf available in North Yonge

9.3%Toronto North sublease space

as a proportion of total available space

Net Asking Rent (Avg. $psf) Additional Costs (Avg. $psf)Net Asking Rent (Avg. $psf) Additional Costs (Avg. $psf)

$0

$5

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Third Quarter 2016 / Office Market ReportToronto North & East

Transit-oriented development is taking hold and while Toronto West has long been a hotbed for new development,Toronto North (Vaughan) is now ahead and gaining interest with almost 427,000 sf under construction. On the heels of the recent completion of the KPMG Tower at Vaughan Metropolitan Centre (terminus of the TTC subway extension), SmartREIT secured PwC as lead tenant (75,000 sf ) for its adjacent 220,000-sf mixed-use development to be completed by year-end 2019. The Zzen Group also announced a 60,000-sf office building at 6260 Highway 7, scheduled for completion by mid-2017.

In contrast to Toronto North, occupancy levels in Toronto East have been rising consistently during the past year with a strong showing in the third quarter of 2016. Class A buildings captured most of the demand, while the Highway 404 and Highway 407, Highway 404 and Steeles and Don Mills and Eglinton nodes posted positive results. Toronto East’s overall vacancy fell 70 bps quarter-over-quarter to 11.9% and is down 100 bps year-over-year. Though down 90 bps from the same quarter one year earlier, availability across all building classes remained unchanged at 12.9% as leased space was countered by space returning to the market.

Triovest began marketing four contiguous floors (74,000 sf ) at 115 Gordon Baker Rd. in the Highway 404 and Steeles node, the result of the potential downsizing of Sony Canada. Meanwhile, at Atria II, Enbridge returned 19,800 sf and along with the former Rogers space, the building now offers a contiguous block of almost 83,000 sf of class A space in the Consumers Road node.

In all, Toronto East has 23 buildings with more than 50,000 sf available for lease, compared with nine in Toronto North. Of Toronto East’s seven nodes, availability decreased in Don Mills and Eglinton, Duncan Mill, Highway 404 and Highway 407 and Scarborough, and increased in Highway 404 and Steeles, Consumers Road and Pickering.

Following the completion of Aviva Insurance’s corporate head office at 7980 Birchmount Rd. earlier this year, development remained quiet during the third quarter. Nonetheless, nearly 2 million square feet remains on the drawing board. Meanwhile, lease transactions are being executed on all fronts, highlighted by Home Depot’s renewal and expansion (122,200 sf ) at 1 Concorde Gate in the Don Mills and Eglinton node – another example of a major corporate user solidifying its presence in the suburbs. Other deals on a smaller scale included Morneau Shepell at 7980 Birchmount Rd. (20,000 sf from 60 Columbia Way), Enercare at 8133 Warden Ave. (25,000 sf from 80 Allstate Pkwy. and 4000 Victoria Park Ave.), Illumiti at 123 Commerce Valley Dr. E. (23,000 sf from 45 Vogell Rd.), and Wilson Vukelich LLP renewing at 60 Columbia Way (17,000 sf ).

The quarter’s notable office building sales included private investors buying 100 Gough Rd. ($33 million) in Markham from Dream Office REIT (Dream) and 55 Town Centre Ct. ($34 million) in Scarborough from the Goldman Group. Also in Scarborough, Dream put its Aviva Corporate Campus at the northwest corner of Eglinton Ave. E. and Birchmount Rd. up for sale at the end of the quarter.

Corporate rightsizings and relocations continue

to have an impact.

Toronto North & East Overall Availability & Vacancy Trends

Toronto North & East Overall Absorption Trends

Toronto North & East Overall New Supply Trends

0

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2012 2013 2014 2015 YTDQ3'16

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ds)

North East

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© 2016 Avison Young Commercial Real Estate (Ontario) Inc., Brokerage

For more information, please contact:

E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young. Acknowledgment: Data for graphs, charts and tables used in this report are sourced from Avison Young and Altus InSite. Some of the data in this report has been gathered from third party sources and has not been independently verified by Avison Young. Avison Young makes no warranties or representations as to the completeness or accuracy thereof.

Bill ArgeropoulosPrincipal & Practice Leader, Research (Canada)416.673.4029bill.argeropoulos@avisonyoung.com

Brook StachelResearch Associate905.968.8004brook.stachel@avisonyoung.com

55 Commerce Valley Drive WestSuite 501, Mailbox #7Markham, ON L3T 7V9 905.474.1155

Toronto North & East Third Quarter 2016 / Office Market Report

Available Space Availability Rate

Office Space in Selected Nodes

Number of Buildings

Bldgs. with more than 50,000 sf

Bldgs. with largest contiguous available area

greater than 50,000 sf

Number of spaces between

4,000 sf and 8,000 sfDirect % Sublet % Total %

North Yonge 39 6 3 25 9.1 1.0 10.1

Richmond Hill 3 0 0 1 4.1 0.0 4.1

Vaughan 41 3 3 12 10.0 1.1 11.1

Comparison of Leasing Options for Tenants – Toronto North

Available Space Availability Rate

Office Space in Selected Nodes

Number of Buildings

Bldgs. with more than 50,000 sf

Bldgs. with largest contiguous available area

greater than 50,000 sf

Number of spaces between

4,000 sf and 8,000 sfDirect % Sublet % Total %

Hwy. 404 & Hwy. 407 111 6 2 36 10.3 1.7 12.0

Hwy. 404 & Steeles 60 3 2 28 10.4 0.5 10.9

Don Mills & Eglinton 29 4 1 17 10.0 2.1 12.1

Consumers Road 33 6 2 22 16.0 1.5 17.5

Duncan Mill 21 1 0 13 8.7 0.6 9.3

Pickering 13 0 0 4 9.4 0.9 10.3

Scarborough 38 3 1 16 14.8 1.5 16.3

Comparison of Leasing Options for Tenants – Toronto East

Toronto North and East Market Summary

Availability Trend Vacancy TrendChange in

Occupied Area(000's of sf)

New Supply(000's of sf)

12 Months Ago

3 MonthsAgo

Current Quarter

12 Months Ago

3 MonthsAgo

CurrentQuarter

CurrentQuarter

YTDYTD

CompletionsUnder

ConstructionPreleased

Toronto North 8.3% 8.9% 9.9% 6.5% 8.2% 9.3% -157 -188 308 427 39%

Toronto East 13.8% 12.9% 12.9% 12.9% 12.6% 11.9% 230 412 353 0 0%

Address District Tenant Size

1 Concorde Gate East / Don Mills & Eglinton Home Depot 122,200 sf

New Park Place North / Vaughan PwC 75,000 sf

25 Sheppard Avenue West North / North Yonge Nestlé Canada 73,000 sf

8133 Warden Avenue East / Hwy. 404 & Hwy. 407 Enercare 25,000 sf

7980 Birchmount Road East / Hwy. 404 & Hwy. 407 Morneau Shepell 20,000 sf

Toronto North and East Market Significant Transactions