Office Markets Across Canada Which markets face challenges and what - - PowerPoint PPT Presentation

Office Markets Across Canada

Presented by Michael Caplice

Senior Managing Director, Market Leader Cushman & Wakefield GTA

Which markets face challenges and what are the key factors impacting demand?

Economic Climate

Conditions impacting major Canadian office markets

Sustained oil price declines and four year commodity slide China’s factory activity shrinks through 2015 Weakening global growth expected contrasts with strong GDP growth in U.S. Recent U.S. job growth success increases likelihood of rate hikes A technical recession in Canada spurs interest rate declines Strong U.S. demand drives growth for Canadian products Lower energy costs drives consumer demand

9.1% 11.2% 4.1% 7.5% 8.6%

• 9%
• 6%
• 3%

0% 3% 6% 9% 12%

• 1,500
• 1,000
• 500

500 1,000 1,500 2,000 3Q 98 3Q 99 3Q 00 3Q 01 3Q 02 3Q 03 3Q 04 3Q 05 3Q 06 3Q 07 3Q 08 3Q 09 3Q 10 3Q 11 3Q 12 3Q 13 3Q 14 3Q 15 Average Absorption Vacancy Rate (000’s sf)

Vacancy rate vs. rolling average absorption (CBD all classes)

Bird’s Eye View

CBD national office market faces softening demand

4

8.1% 12.9% 7.8% 11.1% 12.2%

• 4.0%

0.0% 4.0% 8.0% 12.0% 16.0%

• 500

500 1,000 1,500 2,000 3Q 00 3Q 01 3Q 02 3Q 03 3Q 04 3Q 05 3Q 06 3Q 07 3Q 08 3Q 09 3Q 10 3Q 11 3Q 12 3Q 13 3Q 14 3Q 15 Absorption Vacancy Rate

Bird’s Eye View

Overall national suburban office markets

Vacancy rate vs. rolling average absorption (suburban all classes)

(000’s sf)

1.3 12.8 12.7

12.0 10.9 7.5 7.2 6.3 4.9 3.6 3.2 2.8 2.5 2.5 1.9 1.7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Active Markets in North America

New completions and under development (2009-2019)

Canadian Markets U.S. Markets

MSF

Where Availabilities Stand

2.0% 5.7% 9.5%

[VALUE] [VALUE]

10.1% 7.0% 8.6% 6.9% 4.8% 5.3% 4.9% 5.9% 9.8% 10.8% 5.8% 6.6% 6.2%

Calgary Edmonton Montreal Toronto Vancouver 4.0% 3.5% 7.2% 5.9% 7.5% 3.8%

Q2 12 Q3 14 Q3 15

National conditions soften but Toronto remains strong (CBD premium)

15-year average

Ottawa

Factoring in New Supply

Impact of current development cycle (2014-2019)

2.3 M 4.7 M 1.7 M 1.6 M 7.0 M 839K

Vancouver Calgary Edmonton Montreal Toronto Ottawa Completed Under construction/preleasing underway

Premium inventory growth

19.5% 16.0% 16.5% 5.9% 15.5% 9.3%

Gauging the Impact of Future Space

3.0 7.7 10.3 17.3 8.6 6.9

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 Ottawa Montreal Toronto Edmonton Calgary Vancouver

2.3 7.2 1.8 4.3 3.0

QTRLY ABSORPTION ASSUMPTIONS 15 YEAR AVG. HEATED DEMAND

130 35 60 25 350 120 310 130 115 35

A look at two demand scenarios against total expected supply

50 100 0.8

Challenging Office Outlook

20.4% 18.6% 12.3% 9.2% 13.0% 6.4% 0% 3% 6% 9% 12% 15% 18% 21%

1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 1Q 17 3Q 17 1Q 18 3Q 18 1Q 19 3Q 19 Calgary Edmonton Vancouver Toronto Montreal Ottawa

Markets brace for rising availabilities against mixed demand

Availability Rate

National Investment Snapshot

National office transaction volumes significantly down from 2014 levels

Source: Real Capital Analytics, Realnet, Realtrack, Cushman & Wakefield, transactions over $5MM

Billions $ 1 2 3 4 5 6 7 8 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

National Investment Snapshot

National office capitalization rates

Source: AltusInsite, Bank of Canada

1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Q1 2006 Q3 2007 Q1 2009 Q3 2010 Q1 2012 Q3 2013 Q1 2015

Toronto Vancouver Calgary Montreal Edmonton Ottawa 10 Year GOC

4.5% 5.0% 5.5% 6.0% 6.5% Q1 2013 Q3 2014

Toronto Vancouver Calgary Montreal Edmonton Ottawa

CAP rates remain at a significant spread to 10-yr GOCS, but with growing geographic disparity

National Investment Snapshot

2015 participant profiles

Vendors Purchasers

Source: Real Capital Analytics, Realnet, Realtrack, Cushman & Wakefield, transactions over $25MM Foreign 2% Fund Advisor 34% Pension Fund / Lifeco 48% Private Investor 3% REIT / REOC 7% User 6% Foreign 10% Fund Advisor 40% Pension Fund / Lifeco 47% Private Investor 3%

Growing trend of Canadian corporates monetizing assets, increasing foreign investment, but a lack of REIT buying activity