Toronto office market report q1 2014

Accelerating success.

GTAOffice MarketReportFIRST QUARTER 2014

HISTORICAL PERFORMANCE AND FORECAST

2013 Q4 2014 Q1 TREND

Office Inventory* (SF) 186,679,594 186,930,084

Net Absorption (SF) 301,755 271,230

Vacancy Rate 6.0% 5.8%

Availability Rate 9.5% 9.6%

Average Asking Net Rent** $18.48 $18.60

Average Additional Rent $16.54 $16.94

Average Asking Gross Rent** $35.02 $35.54

*There are 2,101 office buildings surveyed in the GTA ** Average Rents are calculated using a weighted average.

CURRENT TENANT DEMAND

Tenant demand for space remains strong in the GTA with the big three drivers of demand being Financial Services, Insurance and Technology. The Midtown market continues to show reduced demand for space with few deals taking place and large block opportunities remaining vacant. Technology, Software and Internet companies are looking for space mostly in the GTA West or within the Downtown West and South markets.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

(1,000,000)

(500,000)

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

Net Absorption New Supply Vacancy Rate

MARKET OVERVIEW

Demand for a great location over size of office space, particularly in the Downtown market, has become a leading trend within the GTA office market this quarter. This has resulted in a shift to smaller parcels of space being leased. This trend, in conjunction with the 5.4 million square feet of office space currently under construction, may result in higher vacancy rates in the coming years. With the increase in availability of office space, new industries located in the Suburban markets may choose to relocate Downtown. Central markets are continuing to hold relatively steady with minor increases in vacancy and availability across all submarkets. Vacancy rates are starting to increase in the Suburban market – likely the result of non-traditional tenants migrating to the core. INVESTMENT MARKET

The Toronto investment market is expected to gain momentum throughout the remainder of 2014, but is unlikely to set any records in terms of deal volume. Q1 began fairly slowly with a limited number of listings being offered. The supply of true ‘institutional quality’ assets on the market is minimal. This trend is likely to remain as owners are hesitant to sell quality assets because opportunities to redeploy capital are negligible. As a result, we could see more joint ventures and off-market opportunities. REITs are demonstrating a similar trend in both the office and industrial markets. Growth strategies are continuing to display a discreet trimming of portfolios by replacing less desirable product with higher quality assets.

This quarter has shown a focus on investment in urban retail within the Downtown market. This is the result of the continued urbanization of the Downtown Core, stemming from a growing residential population. Development proposals are shifting to a mixed-use application, as illustrated by the likely redevelopment plans at the Honest Ed’s site (Bathurst Street and Bloor Street) and the Globe and Mail site (Spadina Avenue and Front Street). Many of these projects involve the co-operation of multiple, specialized investors in order to create a successful mixed use development.

MARCH 20143,655,000 Square Feet

Financial Services

Insurance

Technology/Software/Internet

Retail Trade

Architectural, Engineering, & Related Services

Institutional

* Other includes Accounting, Education, Real Estate, Insurance, Health Services, Logistics, Entertainment & Leisure, Government, Professional Services, Childcare and Food Services

25%

19%

18%

10%

7%

5%

4%

3%

9%

CommunicationsAccounting

Other*

OFFICE MARKET SUMMARY

GTA MARKET OVERVIEW

MARKET SUMMARIES

Downtown 1

Midtown 2

Central North 3

Central East 4

GTA East 5

GTA North 6

GTA West 7

GLOSSARY 8

FORECAST ASSUMPTIONS 8

TABLE OF

CONTENTS

FIRST QUARTER 2014

Notable Lease

TRENDS

College St

Dundas St

Queen St

King St

Spad

ina

Ave

Uni

vers

ity A

ve

Yong

e St

Parli

amen

t St

Duffe

rin S

t

Bloor St

Gardiner Expwy

123

Union

Dundas

Bloor / YongeBayDufferinCastlefrank

Wellesley

Queen’s Park

Lake Ontario

NOTABLE LEASE TRANSACTIONS

TENANT TYPE ADDRESS APPROX. SIZE (SF)

1. Hyndai Finance Headlease 123 Front Street 17,000

2. Entertainment One Headlease 134 Peter Street 70000

3. Workplace One Headlease 901 King Street 15,000


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

Net Absorption New Supply Vacancy Rate %

New supply, demand for new and more efficient space, and a continuing trend of tenants decreasing their footprint make the slight decline in vacancy this quarter to 3.8 percent negligible for 2014. Vacancy will start to rise as new supply comes onto the market. However, if current trends continue, the new supply will have more of an impact in the suburbs than downtown as companies continue to break the mold and migrate from the suburbs to the core.

◊ The Financial Core has seen a rise in available space in AAA and B class buildings since the last quarter, confirming tenants’ desire to upgrade and relocate to the new buildings in the pipeline.

◊ Downtown West experienced the largest decline in vacancy from 3.6 percent to 2.0 percent. The location of several modern corporate buildings in this submarket offers the added benefit of a hub with a young and higly skilled labour force. Entertainment One capitalized on the appeal of this submarket and leased 70,000 square feet at 134 Peter Street.


DOWNTOWN

2013 Q4 2014 Q1 TREND








*There are 494 office buildings surveyed in the GTA ** Average Rents are calculated using a weighted average.

2


MIDTOWN

Notable Lease

TRENDS

Bloor St

Dundas St

Queen St

Eglinton Ave

Lans

dow

ne A

ve

Yong

e St

Bayv

iew

Ave

Duffe

rin S

t

Lawrence Ave

Gardiner Expwy

13

2



1. Omnicom Renewal 2 Bloor Street 60,000

2. Ultimate Software Headlease 144 Bloor Street 16,000

3. BBDO Renewal 2 Bloor Street East 50,000


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

-100,000

-50,000

0

50,000

100,000

150,000

200,000

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1


The Midtown office market supplied tenants with sizeable space requirements, resulting in the absorption of 100,000 square feet. Market activity this quarter was fairly quiet with minor variances in vacancy and availability trending down from last quarter. This trend may continue as tenants stay put instead of relocating. This is the result of high moving costs and landlords offering incentives to existing tenants in order to renew.

◊ Availability in the Yonge-Eglinton submarket continues to grow as a result of a number of new listings on the market (direct and sublet). This availability will likely turn into vacancy throughout 2014.

◊ Regions surrounding the transit lines continue to have high demand due to accessibility, particularly the Yonge and Bloor Submarket where 90,000 square feet was absorbed in Q1.

2013 Q4 2014 Q1 TREND









FIRST QUARTER 2014

Notable Lease


CENTRAL NORTH

TRENDS


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

-250,000

-200,000

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1


Sheppard Ave

Highway 401

Lawrence Ave

Finch Ave

Hig

hway

400

Yong

e St

Bayv

iew

Ave

Keel

e St

Steeles Ave

Eglinton Ave

Jane

St

Bath

urst

St

Old Cummer

Oriole

York University

WestonLawrence

Sheppard

Finch

Downsview

Lawrence West

Eglinton West Eglinton

The Central North market is the smallest of the Central Toronto markets, with just over 11 million square feet of total inventory. Large portions of this market are serviced by the subway as well as Highway 401, allowing for the region to appeal to a large number of tenants.

◊ The market will continue at a steady pace. Although availability is on the incline, vacancy has dropped, indicating a steady flow of demand in this market.

◊ Availability of A class units in this market is on the incline as predominantly internationally-owned firms have recently undergone restructuring to reduce their footprint.

2013 Q4 2014 Q1 TREND

Office Inventory 11,259,315 11,040,099

Net Absorption (23,521) 34,920



Average Asking Net Rent $17.69 $16.76


Average Asking Gross Rent $36.18 $36.07


4


CENTRAL EAST

Notable Lease

TRENDS



1. G4S Cash Solutions (Canada) Ltd. Headlease 150 Ferrand Drive 16,661

2. AG Simpson Headlease 200 Yorkland Boulevard 14,707


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

400,000

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1


Highway 407

Eglinton Ave

Finch Ave

Hig

hway

404

Yong

e St

Vict

oria

Par

k Av

e

Kenn

edy

Ave

Sheppard Ave

Steeles Ave

Highway 401

Mar

kham

Rd

Keel

e St

1

3 2Finch

Kennedy

Union

Lake Ontario

GTA East has the highest availability rate in the Central GTA markets. With the increase of available office space to more than 100,000 square feet and absorption on the decline, vacancy rates will continue to rise in this market.

◊ The saturation of availability has resulted in low average net asking rentals rates of approximately $13.26 – the second lowest in the GTA, falling just behind the GTA East market.

2013 Q4 2014 Q1 TREND


Net Absorption (SF) (34,445) (84,275)







FIRST QUARTER 2014

Notable Lease


GTA EAST

TRENDS



1. Toronto Police Association Headlease 2075 Kennedy Road 17,372

2. Dell Renewal 155 Gordon Baker Road 50,000


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1


Taunton Rd

Kingston Rd

Highway 407

Broc

k Rd

Harm

ony Rd

Sheppard Ave

Steeles Ave

Highway 401

York

& D

urha

m L

ine

Finch

ScarboroughTown Centre

Stouffville

Pickering Oshawa

Markham

12

Lake Ontario

Vacancy and availability decreased in the GTA East. With a concerted effort by the Durham Workforce Authority to attract new business, vacancy and availability may hold steady in 2014 in the Pickering and Oshawa submarket. The Scarborough Town Centre Submarket is holding strong with vacancy almost at half of where it stood in Q1 2013; currently 7.3 percent was 14.3 percent in 2013.

◊ Decline in availability over the last year from 11.8 percent to 8.0 percent, which has been the result of changes of availability primarily within the Class B market.

◊ In conjunction with the decline in availability, there has been a subsequent increase in Asking Net Rental Rates from $10.38 to $11.65.

2013 Q4 2014 Q1 TREND


Net Absorption (SF) (6,563) 10,402







FIRST QUARTER 2014

Notable Lease


GTA NORTH

TRENDS


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1


Highway 407

Wellington St

Hig

hway

404Yo

nge

St

Stouffville Rd

War

den

Ave

Hig

hway

400

Steeles Ave

King Rd

McC

owan

Rd

Hig

hway

27

Davis DrNewmarket

Stouffville

RichmondHill

King City

GTA North market experienced steady activity. 126,000 square feet of new supply was added to inventory in the Vaughan submarket.

◊ Availability and vacancy are on the incline, currently sitting at 11 percent and 7.1 percent respectively. The North market has risen from 8.5 percent to 11.0 percent over the last year.

◊ Rental rates are holding steady and will continue on this trend in the short term

2013 Q4 2014 Q1 TREND


Net Absorption (SF) (40,441) (117,270)







FIRST QUARTER 2014

Notable Lease


GTA WEST

TRENDS



1. Worley Parsons Canada Headlease 7100 West Credit

Avenue 95,868

2. Active Network Inc. Headlease 6925 Century Avenue 25,846

3. Actavis Headlease 6733 Mississauga Road 26,778


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

Net Absorption New Supply Vacancy Rate

QEW

Highway 407

Highway

403

Highw

ay 427

Highway 10

Highway 401

Highway 6

13 2

Kipling

Georgetown

Milton

Burlington

Lake Ontario

The West market is the second largest office market after the Downtown, and makes up 67.9 percent of the suburban office market. Slightly over 227,000 square feet was added in new supply. The sale of Mississauga Executive Centre to Desjardins Financial Security Life Assurance Company for $120 million was a strong signal that Mississauga is vibrant hub for office activity.

◊ Slight variances in the availability and vacancy rate confirm that supply and demand are in sync and this market will continue to grow steadily.

◊ Rental rates will continue to hover in the high $20-range for 2014.

2013 Q4 2014 Q1 TREND

Office Inventory 47,497,341 47,807,532

Net Absorption (148,146) 99,062



Average Asking Net Rent $14.88 $14.58


Average Asking Gross Rent $27.37 $27.44


8

Weighted Average Asking Net Rent: The dollar amount requested by landlords for direct available space, not including subleases, expressed in dollars per square foot per year.

Availability: The amount of available space and available space to be delivered to the market within six months, divided by the market’s inventory base including those future deliveries. Available space is space that is available for lease, and may or may not be vacant.

Net Absorption: The net change in physically occupied space between the current measurement period, and the last measurement period. It can be either positive or negative.

Vacancy: The amount of vacant space divided by the building inventory base. Vacant space is physically unoccupied, and it may or may not be available for lease or sublease. This is physical vacancy. It is not determined whether a tenant is paying rent on the space.


GLOSSARY


FORECAST ASSUMPTIONS

Absorption was calculated using moving averages of historical absorption data and supplemented with incoming new speculative and build-to-suit developments.

COLLIERS INTERNATIONAL | TORONTO One Queen Street East, Suite 2200

Toronto, ON M5C 2Z2TEL +1 416 777 2200FAX +1 416 777 2277

www.collierscanada.com

John ArnoldiExecutive Managing Director | Toronto Brokerage

DIRECT: +1 416 643 3733 [email protected]

Kimberlee West Market Intelligence Team Leader | Toronto

DIRECT: +1 416 643 3776 [email protected]

Sarah GouldingAnalyst | Toronto

DIRECT: +1 (416) 643-3765 [email protected]

This document/email has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and /or its licensor(s). © 2014. All rights reserved. This communication is not intended to cause or induce breach of an existing listing agreement. Colliers Macaulay Nicolls (Ontario) Inc., Brokerage