A Cushman amp Wakefield Research Publication

A Cushman amp Wakefield Research Publication

THE CHANGING LANDSCAPE OF CANADArsquoS COMMERCIAL REAL ESTATE MARKETS

OUTLOOK 2013

2 National

4 Vancouver

5 Calgary

7 Edmonton

8 Winnipeg

10 London

11 Waterloo

12 Toronto

14 Ottawa

16 Montreal

18 Saint John

19 Moncton

20 Fredericton

21 Halifax

22 St Johnrsquos

23 Contact

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

2

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(6000)

(4000)

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

NATIONAL STAbLE IN 2013 bETTER TIMES AHEAD

OFFICE

Global office market demand was hit with a one -two punch after the recession of 2008 but not so for Canadasup1s central markets In fact most major markets saw unprecedented expansionary demand growth beginning in the summer of 2009 particularly in downtown Toronto which posted record absorption levels Growth was boosted by recovering resource prices a buoyant engineering sector and healthy banking and professional services sectors mdash and fueled by low interest rates

At the same time more Canadians bought in to the idea of downtown living and businesses responded by moving closer to the growing pools of educated workers The consequence is that Canadasup1s overall central office vacancy nosedived to one of the lowest points in the past 30 years mdash 51 with class A

vacancy at 42 (as of Q3 2012) In some cases tenants migrating from suburban locations have shown a willingness to increase occupancy costs to be where the action is and gain access to the downtown talent pool Attracting and retaining a productive workforce is a priority for business today and this is driving greater investment in central market real estate in some cities

but there are always exceptions In Calgary both Imperial Oil and Canadian Pacific recently announced plans to relocate out of the downtown market to suburban locations as part of what appears to be cost-cutting strategies Whether other companies will follow is uncertain but the relocations will bring relief to the space squeeze in downtown Calgary market over the longer run

The popularity of new office buildings and the opportunity they present to create employee-driven workplaces remains a motivating force behind decisions to relocate Acquisitions and multiple-location consolidations are additional trends that are allowing tenants to densify and rethink their space in order to increase productivity

Resilient demand and rising rental rates have driven one of the most robust development cycles in Canadarsquos top office markets

OFFICE

CENTRAL AREA

Inventory

Q3 2012 2655 million sfQ4 2013 2668 million sf

Vacancy Rate Outlook

Q3 2012 51Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 1972 million sfQ4 2013 2011 million sf

Vacancy Rate Outlook

Q3 2012 98Q4 2013 104

Rental Rate Outlook

MARKETS AT A GLANCE

since the late 1980s even as global economic uncertainty continued to weigh down office markets around the world Even though demand appears to be easing the US is poised for a more robust recovery to take hold in the latter half of 2013 and into 2014 This should boost Canadian markets particularly suburban markets where activity is more closely tied to the US

After over two decades of little construction Vancouversup1s downtown is about to see more than 17 million square feet (msf) of new developments rise which includes the 465000-(sf) Telus Garden Tower Calgary Montreal Ottawa and Toronto are all seeing substantial new development activity a phenomenon

Resilient demand and rising rental rates have driven one of the most robust development cycles in Canadarsquos top office markets since the late 1980s

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

3

that extends to St Johnsup1s NL where over 545000 sf is going up of which 370000 sf is within the downtown area Torontosup1s downtown is undergoing yet another hot development cycle with over 35 msf announced and additional announcements expected in the coming quarters

OUTLOOK

Canadian markets are not only well-positioned to weather softer demand conditions over the first half of 2013 but tenants will welcome the slowdown which will mean more modest increases in rental rates in the near term While markets will remain extraordinarily tight most will not see any significant central market additions to new supply until 2014 through 2016 Positive demand conditions are expected to resume in the latter half of 2013 and some markets are likely to experience pent-up demand before the new buildings hit the market particularly in the tightest cities such as Vancouver Calgary and Toronto

A late-2013 central market upturn will be driven by a number of factors including sustained low interest rates the anticipated US economic recovery a stabilized euro zone and a slow drop in value of the Canadian dollar which will help revitalize manufacturing and export growth In markets such as Vancouver and Toronto central growth will continue to come from tenants who see advantages to being located in downtown markets over suburban locations

Central demand over 2013 will begin at very nominal levels as companies focus more on cost containment than future revenue

growth but as confidence is restored demand will once again shift into expansionary territory in the latter half of 2013 and into 2014 Very tight demand conditions will put upward pressure on rental rates over the near term a situation that will only change when enough tenants have relocated into new towers leaving behind competitive space within older buildings

Very constrained development activity has held overall vacancy rates fairly tight across suburban markets and this means that once they experience a more sustained level of expansionary growth upward pressure on rental rates will likely follow shortly after Canadasup1s suburban markets should grow more or less in step with the US recovery

The popularity of new office buildings and the opportunity they present to create employee-driven workplaces remains a motivating force behind decisions to relocate

Central area - ProjeCted new develoPments 2013-2016 - sf (millions)

0 1 2 3 4 5 6

Vancouver

Calgary

Winnipeg

Toronto

Ottawa

Montreal

Halifax

St Johnrsquos

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

4

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

VANCOUVER STRONG DEVELOPMENT CyCLE

ECONOMIC OUTLOOK

According to RbC Economicssup1 Provincial Forecast british Columbiasup1s growth prospects will receive a boost in 2013 from two major projects the federal governmentsup1s $8-billion order (over eight years) with Vancouver-based Seaspan Marine for seven non-combat ships and the $33-billion modernization of Rio Tinto Alcansup1s aluminum smelter in Kitimat Ramped-up investment on the projects will contribute to an expected re-acceleration of growth to 27 in 2013 up from an expected 23 in 2012

OVERVIEW

Vancouver office markets continued to be a hotbed of activity through 2012 marked by slow steady demand and record-low vacancy within some submarkets and asset classes This of course has propelled the most significant office development cycle to be seen in Vancouver in 20 years

With the softening of resource prices in the latter half of the year and because premium space has all but run out there was some softening in demand in central markets However overall vacancy tightened through the year falling to 73 by the third quarter of 2012

In the red-hot central market overall vacancy dipped to 41 with class A at a low of 28 While demand remained slow but positive in the central markets this was not the case in suburban markets where several new tenants entered the picture driving new construction and inventory growth

There are nine properties currently under construction in central Vancouver and another 11 in the suburban market with the total amount of new inventory coming on stream remaining balanced between the markets at 52 and 48 respectively Many of these projects have prelease commitments in place which makes it difficult to predict how new inventory will affect future occupancy rates and therefore lease rates Given the current state of the office leasing market we expect that it will slowly stabilize within the next few years

Downtown Vancouver will see about 17 msf rise between mid-2014 and the end of 2015 This will provide much-needed relief for larger tenants While central area class A vacancy is expected to reach about 124 at its peak in 2015 the new developments are adding an excitement in the market that has not been seen in more than 20 years All classes vacancy will reach just shy of 8 vacancy due to the tighter conditions in Class b and C markets

OFFICE

CENTRAL AREA

Inventory

Q3 2012 309 million sfQ4 2013 310 million sf

Vacancy Rate Outlook

Q3 2012 41Q4 2013 36

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 214 million sfQ4 2013 222 million sf

Vacancy Rate Outlook

Q3 2012 120Q4 2013 146

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

As we move through the latter half of 2013 and into 2014 with the anticipated recovery in the US economy and more stable global economic conditions mdash particularly in Asia mdash office demand in Vancouver should gain modest momentum in advance of the arrival of the new developments Looking forward we are likely to see weak demand over the first half of 2013 and strengthening fundamentals after that Key sectors such as gaming technology mining and engineering will continue to lead growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

5

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

CALGARy LOW VACANCy DRIVES NEW bUILD CyCLE

ECONOMIC OUTLOOK

A great deal of economic uncertainty was lifted with the approval of the China National Offshore Oil Corporationrsquos $151-billion acquisition of Nexen and Petronasrsquos $6-billion acquisition of Progress Energy Resources These massive deals sent a signal that the federal government is not closed to foreign investment in the energy sector despite tough restrictions which lessens Canadarsquos reliance on exporting heavy oil to the US This also demonstrates that both Canada and the investors understand the economic importance of developing and delivering heavy oil to Asian markets

Additionally $61 billion has recently been poured into exploration and development outside of the oil sands which should continue to drive investment in Liquefied Natural Gas light oil shale oil and shale gas This suggests that Canada will continue to entertain measured state-owned enterprise investment in these energy sector areas in the near future

Assuming that greater global stability is achieved Alberta will continue to be the envy of the country in 2013 with a stable unemployment rate in the 4 range and annual GDP growth in the order of 35 to 38

OVERVIEW

Acquisitions mergers and buyouts may be an accelerated driving force in Calgaryrsquos office markets in 2013 with significant takeovers in the gas sectors expected as companies position themselves in advance of a potential price rebound

Overall vacancy in central Calgary as of the third quarter of 2012 was 32 with downtown premium space scraping the bottom of the barrel at 06 or in other words non-existent The dynamic downtown marketrsquos all classes absorption has averaged 207000 sf per quarter or 828000 sf per year since 2000 Remarkably

OFFICE

CENTRAL AREA

Inventory

Q3 2012 453 million sfQ4 2013 459 million sf

Vacancy Rate Outlook

Q3 2012 32Q4 2013 38

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 161 million sfQ4 2013 168 million sf

Vacancy Rate Outlook

Q3 2012 113Q4 2013 103

Rental Rate Outlook

MARKETS AT A GLANCE

demand strength in 2011 averaged 717000 sf per quarter mdash or 286 msf for the year

While demand softened slightly in 2012 absorption spiked with the arrival and occupancy of HampRrsquos 19-msf bow tower which was fully leased by Cenovus Energy and Encana Corporation The lack of substantial new and available inventory has put a hard cap on absorption Current developments will bring relief to beleaguered tenants but that wonrsquot happen for two-and-a-half to five years Softening demand was attributable to weakening oil prices due to the global slowdown At the same time there was a notable increase in sublet space returned by the gas-weighted sector

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

6

feeling the effects of a persistently weak gas market As well the sense of urgency to complete transactions also eased as did competition for larger blocks of space

Four major office towers are currently in the works that could bring in excess of 17 msf to market Eighth Avenue Place West will add about 840000 sf to market and is fully preleased and Cadillac Fairview is aggressively marketing its 820000-sf tower Also in pursuit of a new development is Oxford Properties Although not announced Oxford is working hard to secure enough tenants to start construction on its 615000-sf complex brookfield is also at the table albeit for a late 2016 or early 2017 completion to develop Western Canadarsquos tallest office tower at 60 floors or 14 msf

OUTLOOK

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture In this suffocatingly tight office market very little breathing room will come from the shuffling of market players next year However Encanarsquos physical relocation into The bow in the fourth quarter of 2012 may bring up to 400000 sf to market

Looking forward the surprise announcements by Imperial Oil that it will be relocating to the suburban markets will translate into more than 12 msf being displaced downtown between 2014 and 2016 providing significant opportunities for larger space users Although common for engineering and the oil and gas service sector to locate in peripheral markets such as the beltline and the suburban markets the migration of an oil company into a suburban market is unheard of The subsequent announcement of CPrsquos long-term plan to construct its own office complex on its suburban site in the south can be viewed as adding credibility to the concept of suburban markets becoming an increasingly viable alternative to the core for major corporations and ldquobig oilrdquo Calgaryrsquos primary industry

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

7

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

(300)

(200)

(100)

0

100

200

300

08 09 10 11 12F 13F

CENTRAL AREA

EDMONTON RENTS MOVING UP

ECONOMIC OUTLOOK

Albertarsquos Capital is heavily influenced by the oil and gas sectors and for the central office markets by the space needs of the federal provincial and local governments Albertasup1s economy continues to lead the pack in Canada and solid growth will continue though it will taper off somewhat in 2013 Still unemployment will remain stable around 4 and GDP growth should be in the range of 35 to 38

OVERVIEW

With absorption expected to reach 400000 in 2012 Edmontonrsquos office market is set to chalk up its second strong year in a row In 2011 absorption was 558000 sf And therersquos no sign of let up The engineering and construction sectors are expanding rapidly and all levels of government are back in the market looking for space particularly the City which has an RFP out to downtown developers for up to 450000 sf

The most significant leasing transaction in 2012 was the huge expansion completed by Enbridge The energy leader leased an additional 240000 sf in four separate buildings in the downtown class A market significantly reducing competitive space in this asset class and driving some positive momentum in rental rates

In the third quarter of 2012 vacancy in Edmontonsup1s central office market made up of the Financial Core and Government District stood at 74 Although the suburban market saw positive absorption of almost 50000 sf vacancy increased slightly to 141 due to 95000 sf of new inventory added to the market

From a new development perspective the 55000-sf Cash Store Financial building opened on 156th Street and yellowhead Trail moving Cash Store out of West Gate business Park In addition a new 40000-sf building at Westlink Park will house Golder Associates who moved from Mayfield business Centre Although citywide absorption totaled 61570 sf this new inventory caused vacancy to nudge upward slightly from 99 to 100

The class b product in the Financial Core experienced the most change in Edmonton with positive absorption in the third quarter of close to 100700 sf Most of this absorption occurred in the First and Jasper redevelopment site in which Jacobs Engineering leased out the remaining 96000 sf left behind in the building when EPCOR relocated to the new EPCOR Tower Jacobs will displace similar space when it relocates however bringing a significant amount of class b space back to market within the Government District

OFFICE

CENTRAL AREA

Inventory

Q3 2012 156 million sfQ4 2013 156 million sf

Vacancy Rate Outlook

Q3 2012 74Q4 2013 69

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 99 million sfQ4 2013 104 million sf

Vacancy Rate Outlook

Q3 2012 141Q4 2013 148

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

Reflecting the citysup1s healthy and growing economic fundamentals net asking rents will continue to move upwards especially in the Financial Core With the Enbridge expansion in the downtown market and the First and Jasper redevelopment (the former EPCOR building) recently leasing its remaining 96000 sf to Jacobs Engineering most of the vacant space created from the opening of the new EPCOR Tower has been filled Given the low vacancy the number of large contiguous pockets of space has tightened As a result demand for suburban office space where rental rates are rising at a slower pace may increase for larger office requirements

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

8

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

5

8

10

(200)

0

200

400

600

800

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

WINNIPEG LOTS OF ACTION

ECONOMIC OUTLOOK

Western Canada will set the economic pace in this country this year and next benefiting the most from booming activity related to commodities and strong gains in agricultural sectors Overall growth in Manitoba in 2013 will see a growing contribution from manufacturing Further expected strengthening in construction spending will provide additional support for growth The net effect of these factors will be growth remaining little changed at 32 in 2013 Source RbC Research Provincial Outlook

OVERVIEW

Leasing activity was active across 2012 with some expansionary growth in central Winnipeg that pushed overall vacancy down to 64 from 77 one year ago As in other sectors of the country attracting and retaining staff is on the minds of Winnipeg businesses and to this end there is a strong interest in new or updated quality space and location

Densification and consolidation of multiple-premises operations has offset some of the expansionary growth in Winnipeg as tenants focus on cost containment and improving productivity Many occupiers are willing to relocate but are looking for new build-out incentives in order to densify and develop more collaborative workplace environments

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth CentreVenture Development Corporation is working with the city the province and other parties to invest in and revitalize the downtown area This $600-million multi-faceted program includes the new sports hospitality and entertainment district (SHED) encompassing an 11-block area downtown

The 200000-sf Centrepoint mixed-use tower (retail office hotel condo) to be completed in the third quarter of 2014 is the first significant new project under construction within the SHED and conceptual planning is being prepared for a second project to be

OFFICE

CENTRAL AREA

Inventory

Q3 2012 101 million sfQ4 2013 103 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 76

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 32 million sfQ4 2013 35 million sf

Vacancy Rate Outlook

Q3 2012 116Q4 2013 154

Rental Rate Outlook

MARKETS AT A GLANCE

situated on a nearby surface parking lot owned by Manitoba Public Insurance Corp

Office development activity is significant in both central and suburban markets with about 300000 sf of new developments currently being built in downtown Winnipeg and almost 320000 sf under construction within suburban markets

OUTLOOK

The new office developments will push vacancy rates up slightly in Winnipegsup1s central and suburban markets but continued modest

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

2

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(6000)

(4000)

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

NATIONAL STAbLE IN 2013 bETTER TIMES AHEAD

OFFICE

Global office market demand was hit with a one -two punch after the recession of 2008 but not so for Canadasup1s central markets In fact most major markets saw unprecedented expansionary demand growth beginning in the summer of 2009 particularly in downtown Toronto which posted record absorption levels Growth was boosted by recovering resource prices a buoyant engineering sector and healthy banking and professional services sectors mdash and fueled by low interest rates

At the same time more Canadians bought in to the idea of downtown living and businesses responded by moving closer to the growing pools of educated workers The consequence is that Canadasup1s overall central office vacancy nosedived to one of the lowest points in the past 30 years mdash 51 with class A

vacancy at 42 (as of Q3 2012) In some cases tenants migrating from suburban locations have shown a willingness to increase occupancy costs to be where the action is and gain access to the downtown talent pool Attracting and retaining a productive workforce is a priority for business today and this is driving greater investment in central market real estate in some cities

but there are always exceptions In Calgary both Imperial Oil and Canadian Pacific recently announced plans to relocate out of the downtown market to suburban locations as part of what appears to be cost-cutting strategies Whether other companies will follow is uncertain but the relocations will bring relief to the space squeeze in downtown Calgary market over the longer run

The popularity of new office buildings and the opportunity they present to create employee-driven workplaces remains a motivating force behind decisions to relocate Acquisitions and multiple-location consolidations are additional trends that are allowing tenants to densify and rethink their space in order to increase productivity

Resilient demand and rising rental rates have driven one of the most robust development cycles in Canadarsquos top office markets

OFFICE

CENTRAL AREA

Inventory

Q3 2012 2655 million sfQ4 2013 2668 million sf

Vacancy Rate Outlook

Q3 2012 51Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 1972 million sfQ4 2013 2011 million sf

Vacancy Rate Outlook

Q3 2012 98Q4 2013 104

Rental Rate Outlook

MARKETS AT A GLANCE

since the late 1980s even as global economic uncertainty continued to weigh down office markets around the world Even though demand appears to be easing the US is poised for a more robust recovery to take hold in the latter half of 2013 and into 2014 This should boost Canadian markets particularly suburban markets where activity is more closely tied to the US

After over two decades of little construction Vancouversup1s downtown is about to see more than 17 million square feet (msf) of new developments rise which includes the 465000-(sf) Telus Garden Tower Calgary Montreal Ottawa and Toronto are all seeing substantial new development activity a phenomenon

Resilient demand and rising rental rates have driven one of the most robust development cycles in Canadarsquos top office markets since the late 1980s

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

3

that extends to St Johnsup1s NL where over 545000 sf is going up of which 370000 sf is within the downtown area Torontosup1s downtown is undergoing yet another hot development cycle with over 35 msf announced and additional announcements expected in the coming quarters

OUTLOOK

Canadian markets are not only well-positioned to weather softer demand conditions over the first half of 2013 but tenants will welcome the slowdown which will mean more modest increases in rental rates in the near term While markets will remain extraordinarily tight most will not see any significant central market additions to new supply until 2014 through 2016 Positive demand conditions are expected to resume in the latter half of 2013 and some markets are likely to experience pent-up demand before the new buildings hit the market particularly in the tightest cities such as Vancouver Calgary and Toronto

A late-2013 central market upturn will be driven by a number of factors including sustained low interest rates the anticipated US economic recovery a stabilized euro zone and a slow drop in value of the Canadian dollar which will help revitalize manufacturing and export growth In markets such as Vancouver and Toronto central growth will continue to come from tenants who see advantages to being located in downtown markets over suburban locations

Central demand over 2013 will begin at very nominal levels as companies focus more on cost containment than future revenue

growth but as confidence is restored demand will once again shift into expansionary territory in the latter half of 2013 and into 2014 Very tight demand conditions will put upward pressure on rental rates over the near term a situation that will only change when enough tenants have relocated into new towers leaving behind competitive space within older buildings

Very constrained development activity has held overall vacancy rates fairly tight across suburban markets and this means that once they experience a more sustained level of expansionary growth upward pressure on rental rates will likely follow shortly after Canadasup1s suburban markets should grow more or less in step with the US recovery

The popularity of new office buildings and the opportunity they present to create employee-driven workplaces remains a motivating force behind decisions to relocate

Central area - ProjeCted new develoPments 2013-2016 - sf (millions)

0 1 2 3 4 5 6

Vancouver

Calgary

Winnipeg

Toronto

Ottawa

Montreal

Halifax

St Johnrsquos

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

4

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

VANCOUVER STRONG DEVELOPMENT CyCLE

ECONOMIC OUTLOOK

According to RbC Economicssup1 Provincial Forecast british Columbiasup1s growth prospects will receive a boost in 2013 from two major projects the federal governmentsup1s $8-billion order (over eight years) with Vancouver-based Seaspan Marine for seven non-combat ships and the $33-billion modernization of Rio Tinto Alcansup1s aluminum smelter in Kitimat Ramped-up investment on the projects will contribute to an expected re-acceleration of growth to 27 in 2013 up from an expected 23 in 2012

OVERVIEW

Vancouver office markets continued to be a hotbed of activity through 2012 marked by slow steady demand and record-low vacancy within some submarkets and asset classes This of course has propelled the most significant office development cycle to be seen in Vancouver in 20 years

With the softening of resource prices in the latter half of the year and because premium space has all but run out there was some softening in demand in central markets However overall vacancy tightened through the year falling to 73 by the third quarter of 2012

In the red-hot central market overall vacancy dipped to 41 with class A at a low of 28 While demand remained slow but positive in the central markets this was not the case in suburban markets where several new tenants entered the picture driving new construction and inventory growth

There are nine properties currently under construction in central Vancouver and another 11 in the suburban market with the total amount of new inventory coming on stream remaining balanced between the markets at 52 and 48 respectively Many of these projects have prelease commitments in place which makes it difficult to predict how new inventory will affect future occupancy rates and therefore lease rates Given the current state of the office leasing market we expect that it will slowly stabilize within the next few years

Downtown Vancouver will see about 17 msf rise between mid-2014 and the end of 2015 This will provide much-needed relief for larger tenants While central area class A vacancy is expected to reach about 124 at its peak in 2015 the new developments are adding an excitement in the market that has not been seen in more than 20 years All classes vacancy will reach just shy of 8 vacancy due to the tighter conditions in Class b and C markets

OFFICE

CENTRAL AREA

Inventory

Q3 2012 309 million sfQ4 2013 310 million sf

Vacancy Rate Outlook

Q3 2012 41Q4 2013 36

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 214 million sfQ4 2013 222 million sf

Vacancy Rate Outlook

Q3 2012 120Q4 2013 146

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

As we move through the latter half of 2013 and into 2014 with the anticipated recovery in the US economy and more stable global economic conditions mdash particularly in Asia mdash office demand in Vancouver should gain modest momentum in advance of the arrival of the new developments Looking forward we are likely to see weak demand over the first half of 2013 and strengthening fundamentals after that Key sectors such as gaming technology mining and engineering will continue to lead growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

5

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

CALGARy LOW VACANCy DRIVES NEW bUILD CyCLE

ECONOMIC OUTLOOK

A great deal of economic uncertainty was lifted with the approval of the China National Offshore Oil Corporationrsquos $151-billion acquisition of Nexen and Petronasrsquos $6-billion acquisition of Progress Energy Resources These massive deals sent a signal that the federal government is not closed to foreign investment in the energy sector despite tough restrictions which lessens Canadarsquos reliance on exporting heavy oil to the US This also demonstrates that both Canada and the investors understand the economic importance of developing and delivering heavy oil to Asian markets

Additionally $61 billion has recently been poured into exploration and development outside of the oil sands which should continue to drive investment in Liquefied Natural Gas light oil shale oil and shale gas This suggests that Canada will continue to entertain measured state-owned enterprise investment in these energy sector areas in the near future

Assuming that greater global stability is achieved Alberta will continue to be the envy of the country in 2013 with a stable unemployment rate in the 4 range and annual GDP growth in the order of 35 to 38

OVERVIEW

Acquisitions mergers and buyouts may be an accelerated driving force in Calgaryrsquos office markets in 2013 with significant takeovers in the gas sectors expected as companies position themselves in advance of a potential price rebound

Overall vacancy in central Calgary as of the third quarter of 2012 was 32 with downtown premium space scraping the bottom of the barrel at 06 or in other words non-existent The dynamic downtown marketrsquos all classes absorption has averaged 207000 sf per quarter or 828000 sf per year since 2000 Remarkably

OFFICE

CENTRAL AREA

Inventory

Q3 2012 453 million sfQ4 2013 459 million sf

Vacancy Rate Outlook

Q3 2012 32Q4 2013 38

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 161 million sfQ4 2013 168 million sf

Vacancy Rate Outlook

Q3 2012 113Q4 2013 103

Rental Rate Outlook

MARKETS AT A GLANCE

demand strength in 2011 averaged 717000 sf per quarter mdash or 286 msf for the year

While demand softened slightly in 2012 absorption spiked with the arrival and occupancy of HampRrsquos 19-msf bow tower which was fully leased by Cenovus Energy and Encana Corporation The lack of substantial new and available inventory has put a hard cap on absorption Current developments will bring relief to beleaguered tenants but that wonrsquot happen for two-and-a-half to five years Softening demand was attributable to weakening oil prices due to the global slowdown At the same time there was a notable increase in sublet space returned by the gas-weighted sector

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

6

feeling the effects of a persistently weak gas market As well the sense of urgency to complete transactions also eased as did competition for larger blocks of space

Four major office towers are currently in the works that could bring in excess of 17 msf to market Eighth Avenue Place West will add about 840000 sf to market and is fully preleased and Cadillac Fairview is aggressively marketing its 820000-sf tower Also in pursuit of a new development is Oxford Properties Although not announced Oxford is working hard to secure enough tenants to start construction on its 615000-sf complex brookfield is also at the table albeit for a late 2016 or early 2017 completion to develop Western Canadarsquos tallest office tower at 60 floors or 14 msf

OUTLOOK

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture In this suffocatingly tight office market very little breathing room will come from the shuffling of market players next year However Encanarsquos physical relocation into The bow in the fourth quarter of 2012 may bring up to 400000 sf to market

Looking forward the surprise announcements by Imperial Oil that it will be relocating to the suburban markets will translate into more than 12 msf being displaced downtown between 2014 and 2016 providing significant opportunities for larger space users Although common for engineering and the oil and gas service sector to locate in peripheral markets such as the beltline and the suburban markets the migration of an oil company into a suburban market is unheard of The subsequent announcement of CPrsquos long-term plan to construct its own office complex on its suburban site in the south can be viewed as adding credibility to the concept of suburban markets becoming an increasingly viable alternative to the core for major corporations and ldquobig oilrdquo Calgaryrsquos primary industry

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

7

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

(300)

(200)

(100)

0

100

200

300

08 09 10 11 12F 13F

CENTRAL AREA

EDMONTON RENTS MOVING UP

ECONOMIC OUTLOOK

Albertarsquos Capital is heavily influenced by the oil and gas sectors and for the central office markets by the space needs of the federal provincial and local governments Albertasup1s economy continues to lead the pack in Canada and solid growth will continue though it will taper off somewhat in 2013 Still unemployment will remain stable around 4 and GDP growth should be in the range of 35 to 38

OVERVIEW

With absorption expected to reach 400000 in 2012 Edmontonrsquos office market is set to chalk up its second strong year in a row In 2011 absorption was 558000 sf And therersquos no sign of let up The engineering and construction sectors are expanding rapidly and all levels of government are back in the market looking for space particularly the City which has an RFP out to downtown developers for up to 450000 sf

The most significant leasing transaction in 2012 was the huge expansion completed by Enbridge The energy leader leased an additional 240000 sf in four separate buildings in the downtown class A market significantly reducing competitive space in this asset class and driving some positive momentum in rental rates

In the third quarter of 2012 vacancy in Edmontonsup1s central office market made up of the Financial Core and Government District stood at 74 Although the suburban market saw positive absorption of almost 50000 sf vacancy increased slightly to 141 due to 95000 sf of new inventory added to the market

From a new development perspective the 55000-sf Cash Store Financial building opened on 156th Street and yellowhead Trail moving Cash Store out of West Gate business Park In addition a new 40000-sf building at Westlink Park will house Golder Associates who moved from Mayfield business Centre Although citywide absorption totaled 61570 sf this new inventory caused vacancy to nudge upward slightly from 99 to 100

The class b product in the Financial Core experienced the most change in Edmonton with positive absorption in the third quarter of close to 100700 sf Most of this absorption occurred in the First and Jasper redevelopment site in which Jacobs Engineering leased out the remaining 96000 sf left behind in the building when EPCOR relocated to the new EPCOR Tower Jacobs will displace similar space when it relocates however bringing a significant amount of class b space back to market within the Government District

OFFICE

CENTRAL AREA

Inventory

Q3 2012 156 million sfQ4 2013 156 million sf

Vacancy Rate Outlook

Q3 2012 74Q4 2013 69

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 99 million sfQ4 2013 104 million sf

Vacancy Rate Outlook

Q3 2012 141Q4 2013 148

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

Reflecting the citysup1s healthy and growing economic fundamentals net asking rents will continue to move upwards especially in the Financial Core With the Enbridge expansion in the downtown market and the First and Jasper redevelopment (the former EPCOR building) recently leasing its remaining 96000 sf to Jacobs Engineering most of the vacant space created from the opening of the new EPCOR Tower has been filled Given the low vacancy the number of large contiguous pockets of space has tightened As a result demand for suburban office space where rental rates are rising at a slower pace may increase for larger office requirements

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

8

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

5

8

10

(200)

0

200

400

600

800

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

WINNIPEG LOTS OF ACTION

ECONOMIC OUTLOOK

Western Canada will set the economic pace in this country this year and next benefiting the most from booming activity related to commodities and strong gains in agricultural sectors Overall growth in Manitoba in 2013 will see a growing contribution from manufacturing Further expected strengthening in construction spending will provide additional support for growth The net effect of these factors will be growth remaining little changed at 32 in 2013 Source RbC Research Provincial Outlook

OVERVIEW

Leasing activity was active across 2012 with some expansionary growth in central Winnipeg that pushed overall vacancy down to 64 from 77 one year ago As in other sectors of the country attracting and retaining staff is on the minds of Winnipeg businesses and to this end there is a strong interest in new or updated quality space and location

Densification and consolidation of multiple-premises operations has offset some of the expansionary growth in Winnipeg as tenants focus on cost containment and improving productivity Many occupiers are willing to relocate but are looking for new build-out incentives in order to densify and develop more collaborative workplace environments

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth CentreVenture Development Corporation is working with the city the province and other parties to invest in and revitalize the downtown area This $600-million multi-faceted program includes the new sports hospitality and entertainment district (SHED) encompassing an 11-block area downtown

The 200000-sf Centrepoint mixed-use tower (retail office hotel condo) to be completed in the third quarter of 2014 is the first significant new project under construction within the SHED and conceptual planning is being prepared for a second project to be

OFFICE

CENTRAL AREA

Inventory

Q3 2012 101 million sfQ4 2013 103 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 76

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 32 million sfQ4 2013 35 million sf

Vacancy Rate Outlook

Q3 2012 116Q4 2013 154

Rental Rate Outlook

MARKETS AT A GLANCE

situated on a nearby surface parking lot owned by Manitoba Public Insurance Corp

Office development activity is significant in both central and suburban markets with about 300000 sf of new developments currently being built in downtown Winnipeg and almost 320000 sf under construction within suburban markets

OUTLOOK

The new office developments will push vacancy rates up slightly in Winnipegsup1s central and suburban markets but continued modest

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

3

that extends to St Johnsup1s NL where over 545000 sf is going up of which 370000 sf is within the downtown area Torontosup1s downtown is undergoing yet another hot development cycle with over 35 msf announced and additional announcements expected in the coming quarters

OUTLOOK

Canadian markets are not only well-positioned to weather softer demand conditions over the first half of 2013 but tenants will welcome the slowdown which will mean more modest increases in rental rates in the near term While markets will remain extraordinarily tight most will not see any significant central market additions to new supply until 2014 through 2016 Positive demand conditions are expected to resume in the latter half of 2013 and some markets are likely to experience pent-up demand before the new buildings hit the market particularly in the tightest cities such as Vancouver Calgary and Toronto

A late-2013 central market upturn will be driven by a number of factors including sustained low interest rates the anticipated US economic recovery a stabilized euro zone and a slow drop in value of the Canadian dollar which will help revitalize manufacturing and export growth In markets such as Vancouver and Toronto central growth will continue to come from tenants who see advantages to being located in downtown markets over suburban locations

Central demand over 2013 will begin at very nominal levels as companies focus more on cost containment than future revenue

growth but as confidence is restored demand will once again shift into expansionary territory in the latter half of 2013 and into 2014 Very tight demand conditions will put upward pressure on rental rates over the near term a situation that will only change when enough tenants have relocated into new towers leaving behind competitive space within older buildings

Very constrained development activity has held overall vacancy rates fairly tight across suburban markets and this means that once they experience a more sustained level of expansionary growth upward pressure on rental rates will likely follow shortly after Canadasup1s suburban markets should grow more or less in step with the US recovery

The popularity of new office buildings and the opportunity they present to create employee-driven workplaces remains a motivating force behind decisions to relocate

Central area - ProjeCted new develoPments 2013-2016 - sf (millions)

0 1 2 3 4 5 6

Vancouver

Calgary

Winnipeg

Toronto

Ottawa

Montreal

Halifax

St Johnrsquos

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

4

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

VANCOUVER STRONG DEVELOPMENT CyCLE

ECONOMIC OUTLOOK

According to RbC Economicssup1 Provincial Forecast british Columbiasup1s growth prospects will receive a boost in 2013 from two major projects the federal governmentsup1s $8-billion order (over eight years) with Vancouver-based Seaspan Marine for seven non-combat ships and the $33-billion modernization of Rio Tinto Alcansup1s aluminum smelter in Kitimat Ramped-up investment on the projects will contribute to an expected re-acceleration of growth to 27 in 2013 up from an expected 23 in 2012

OVERVIEW

Vancouver office markets continued to be a hotbed of activity through 2012 marked by slow steady demand and record-low vacancy within some submarkets and asset classes This of course has propelled the most significant office development cycle to be seen in Vancouver in 20 years

With the softening of resource prices in the latter half of the year and because premium space has all but run out there was some softening in demand in central markets However overall vacancy tightened through the year falling to 73 by the third quarter of 2012

In the red-hot central market overall vacancy dipped to 41 with class A at a low of 28 While demand remained slow but positive in the central markets this was not the case in suburban markets where several new tenants entered the picture driving new construction and inventory growth

There are nine properties currently under construction in central Vancouver and another 11 in the suburban market with the total amount of new inventory coming on stream remaining balanced between the markets at 52 and 48 respectively Many of these projects have prelease commitments in place which makes it difficult to predict how new inventory will affect future occupancy rates and therefore lease rates Given the current state of the office leasing market we expect that it will slowly stabilize within the next few years

Downtown Vancouver will see about 17 msf rise between mid-2014 and the end of 2015 This will provide much-needed relief for larger tenants While central area class A vacancy is expected to reach about 124 at its peak in 2015 the new developments are adding an excitement in the market that has not been seen in more than 20 years All classes vacancy will reach just shy of 8 vacancy due to the tighter conditions in Class b and C markets

OFFICE

CENTRAL AREA

Inventory

Q3 2012 309 million sfQ4 2013 310 million sf

Vacancy Rate Outlook

Q3 2012 41Q4 2013 36

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 214 million sfQ4 2013 222 million sf

Vacancy Rate Outlook

Q3 2012 120Q4 2013 146

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

As we move through the latter half of 2013 and into 2014 with the anticipated recovery in the US economy and more stable global economic conditions mdash particularly in Asia mdash office demand in Vancouver should gain modest momentum in advance of the arrival of the new developments Looking forward we are likely to see weak demand over the first half of 2013 and strengthening fundamentals after that Key sectors such as gaming technology mining and engineering will continue to lead growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

5

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

CALGARy LOW VACANCy DRIVES NEW bUILD CyCLE

ECONOMIC OUTLOOK

A great deal of economic uncertainty was lifted with the approval of the China National Offshore Oil Corporationrsquos $151-billion acquisition of Nexen and Petronasrsquos $6-billion acquisition of Progress Energy Resources These massive deals sent a signal that the federal government is not closed to foreign investment in the energy sector despite tough restrictions which lessens Canadarsquos reliance on exporting heavy oil to the US This also demonstrates that both Canada and the investors understand the economic importance of developing and delivering heavy oil to Asian markets

Additionally $61 billion has recently been poured into exploration and development outside of the oil sands which should continue to drive investment in Liquefied Natural Gas light oil shale oil and shale gas This suggests that Canada will continue to entertain measured state-owned enterprise investment in these energy sector areas in the near future

Assuming that greater global stability is achieved Alberta will continue to be the envy of the country in 2013 with a stable unemployment rate in the 4 range and annual GDP growth in the order of 35 to 38

OVERVIEW

Acquisitions mergers and buyouts may be an accelerated driving force in Calgaryrsquos office markets in 2013 with significant takeovers in the gas sectors expected as companies position themselves in advance of a potential price rebound

Overall vacancy in central Calgary as of the third quarter of 2012 was 32 with downtown premium space scraping the bottom of the barrel at 06 or in other words non-existent The dynamic downtown marketrsquos all classes absorption has averaged 207000 sf per quarter or 828000 sf per year since 2000 Remarkably

OFFICE

CENTRAL AREA

Inventory

Q3 2012 453 million sfQ4 2013 459 million sf

Vacancy Rate Outlook

Q3 2012 32Q4 2013 38

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 161 million sfQ4 2013 168 million sf

Vacancy Rate Outlook

Q3 2012 113Q4 2013 103

Rental Rate Outlook

MARKETS AT A GLANCE

demand strength in 2011 averaged 717000 sf per quarter mdash or 286 msf for the year

While demand softened slightly in 2012 absorption spiked with the arrival and occupancy of HampRrsquos 19-msf bow tower which was fully leased by Cenovus Energy and Encana Corporation The lack of substantial new and available inventory has put a hard cap on absorption Current developments will bring relief to beleaguered tenants but that wonrsquot happen for two-and-a-half to five years Softening demand was attributable to weakening oil prices due to the global slowdown At the same time there was a notable increase in sublet space returned by the gas-weighted sector

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

6

feeling the effects of a persistently weak gas market As well the sense of urgency to complete transactions also eased as did competition for larger blocks of space

Four major office towers are currently in the works that could bring in excess of 17 msf to market Eighth Avenue Place West will add about 840000 sf to market and is fully preleased and Cadillac Fairview is aggressively marketing its 820000-sf tower Also in pursuit of a new development is Oxford Properties Although not announced Oxford is working hard to secure enough tenants to start construction on its 615000-sf complex brookfield is also at the table albeit for a late 2016 or early 2017 completion to develop Western Canadarsquos tallest office tower at 60 floors or 14 msf

OUTLOOK

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture In this suffocatingly tight office market very little breathing room will come from the shuffling of market players next year However Encanarsquos physical relocation into The bow in the fourth quarter of 2012 may bring up to 400000 sf to market

Looking forward the surprise announcements by Imperial Oil that it will be relocating to the suburban markets will translate into more than 12 msf being displaced downtown between 2014 and 2016 providing significant opportunities for larger space users Although common for engineering and the oil and gas service sector to locate in peripheral markets such as the beltline and the suburban markets the migration of an oil company into a suburban market is unheard of The subsequent announcement of CPrsquos long-term plan to construct its own office complex on its suburban site in the south can be viewed as adding credibility to the concept of suburban markets becoming an increasingly viable alternative to the core for major corporations and ldquobig oilrdquo Calgaryrsquos primary industry

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

7

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

(300)

(200)

(100)

0

100

200

300

08 09 10 11 12F 13F

CENTRAL AREA

EDMONTON RENTS MOVING UP

ECONOMIC OUTLOOK

Albertarsquos Capital is heavily influenced by the oil and gas sectors and for the central office markets by the space needs of the federal provincial and local governments Albertasup1s economy continues to lead the pack in Canada and solid growth will continue though it will taper off somewhat in 2013 Still unemployment will remain stable around 4 and GDP growth should be in the range of 35 to 38

OVERVIEW

With absorption expected to reach 400000 in 2012 Edmontonrsquos office market is set to chalk up its second strong year in a row In 2011 absorption was 558000 sf And therersquos no sign of let up The engineering and construction sectors are expanding rapidly and all levels of government are back in the market looking for space particularly the City which has an RFP out to downtown developers for up to 450000 sf

The most significant leasing transaction in 2012 was the huge expansion completed by Enbridge The energy leader leased an additional 240000 sf in four separate buildings in the downtown class A market significantly reducing competitive space in this asset class and driving some positive momentum in rental rates

In the third quarter of 2012 vacancy in Edmontonsup1s central office market made up of the Financial Core and Government District stood at 74 Although the suburban market saw positive absorption of almost 50000 sf vacancy increased slightly to 141 due to 95000 sf of new inventory added to the market

From a new development perspective the 55000-sf Cash Store Financial building opened on 156th Street and yellowhead Trail moving Cash Store out of West Gate business Park In addition a new 40000-sf building at Westlink Park will house Golder Associates who moved from Mayfield business Centre Although citywide absorption totaled 61570 sf this new inventory caused vacancy to nudge upward slightly from 99 to 100

The class b product in the Financial Core experienced the most change in Edmonton with positive absorption in the third quarter of close to 100700 sf Most of this absorption occurred in the First and Jasper redevelopment site in which Jacobs Engineering leased out the remaining 96000 sf left behind in the building when EPCOR relocated to the new EPCOR Tower Jacobs will displace similar space when it relocates however bringing a significant amount of class b space back to market within the Government District

OFFICE

CENTRAL AREA

Inventory

Q3 2012 156 million sfQ4 2013 156 million sf

Vacancy Rate Outlook

Q3 2012 74Q4 2013 69

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 99 million sfQ4 2013 104 million sf

Vacancy Rate Outlook

Q3 2012 141Q4 2013 148

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

Reflecting the citysup1s healthy and growing economic fundamentals net asking rents will continue to move upwards especially in the Financial Core With the Enbridge expansion in the downtown market and the First and Jasper redevelopment (the former EPCOR building) recently leasing its remaining 96000 sf to Jacobs Engineering most of the vacant space created from the opening of the new EPCOR Tower has been filled Given the low vacancy the number of large contiguous pockets of space has tightened As a result demand for suburban office space where rental rates are rising at a slower pace may increase for larger office requirements

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

8

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

5

8

10

(200)

0

200

400

600

800

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

WINNIPEG LOTS OF ACTION

ECONOMIC OUTLOOK

Western Canada will set the economic pace in this country this year and next benefiting the most from booming activity related to commodities and strong gains in agricultural sectors Overall growth in Manitoba in 2013 will see a growing contribution from manufacturing Further expected strengthening in construction spending will provide additional support for growth The net effect of these factors will be growth remaining little changed at 32 in 2013 Source RbC Research Provincial Outlook

OVERVIEW

Leasing activity was active across 2012 with some expansionary growth in central Winnipeg that pushed overall vacancy down to 64 from 77 one year ago As in other sectors of the country attracting and retaining staff is on the minds of Winnipeg businesses and to this end there is a strong interest in new or updated quality space and location

Densification and consolidation of multiple-premises operations has offset some of the expansionary growth in Winnipeg as tenants focus on cost containment and improving productivity Many occupiers are willing to relocate but are looking for new build-out incentives in order to densify and develop more collaborative workplace environments

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth CentreVenture Development Corporation is working with the city the province and other parties to invest in and revitalize the downtown area This $600-million multi-faceted program includes the new sports hospitality and entertainment district (SHED) encompassing an 11-block area downtown

The 200000-sf Centrepoint mixed-use tower (retail office hotel condo) to be completed in the third quarter of 2014 is the first significant new project under construction within the SHED and conceptual planning is being prepared for a second project to be

OFFICE

CENTRAL AREA

Inventory

Q3 2012 101 million sfQ4 2013 103 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 76

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 32 million sfQ4 2013 35 million sf

Vacancy Rate Outlook

Q3 2012 116Q4 2013 154

Rental Rate Outlook

MARKETS AT A GLANCE

situated on a nearby surface parking lot owned by Manitoba Public Insurance Corp

Office development activity is significant in both central and suburban markets with about 300000 sf of new developments currently being built in downtown Winnipeg and almost 320000 sf under construction within suburban markets

OUTLOOK

The new office developments will push vacancy rates up slightly in Winnipegsup1s central and suburban markets but continued modest

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

4

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

VANCOUVER STRONG DEVELOPMENT CyCLE

ECONOMIC OUTLOOK

According to RbC Economicssup1 Provincial Forecast british Columbiasup1s growth prospects will receive a boost in 2013 from two major projects the federal governmentsup1s $8-billion order (over eight years) with Vancouver-based Seaspan Marine for seven non-combat ships and the $33-billion modernization of Rio Tinto Alcansup1s aluminum smelter in Kitimat Ramped-up investment on the projects will contribute to an expected re-acceleration of growth to 27 in 2013 up from an expected 23 in 2012

OVERVIEW

Vancouver office markets continued to be a hotbed of activity through 2012 marked by slow steady demand and record-low vacancy within some submarkets and asset classes This of course has propelled the most significant office development cycle to be seen in Vancouver in 20 years

With the softening of resource prices in the latter half of the year and because premium space has all but run out there was some softening in demand in central markets However overall vacancy tightened through the year falling to 73 by the third quarter of 2012

In the red-hot central market overall vacancy dipped to 41 with class A at a low of 28 While demand remained slow but positive in the central markets this was not the case in suburban markets where several new tenants entered the picture driving new construction and inventory growth

There are nine properties currently under construction in central Vancouver and another 11 in the suburban market with the total amount of new inventory coming on stream remaining balanced between the markets at 52 and 48 respectively Many of these projects have prelease commitments in place which makes it difficult to predict how new inventory will affect future occupancy rates and therefore lease rates Given the current state of the office leasing market we expect that it will slowly stabilize within the next few years

Downtown Vancouver will see about 17 msf rise between mid-2014 and the end of 2015 This will provide much-needed relief for larger tenants While central area class A vacancy is expected to reach about 124 at its peak in 2015 the new developments are adding an excitement in the market that has not been seen in more than 20 years All classes vacancy will reach just shy of 8 vacancy due to the tighter conditions in Class b and C markets

OFFICE

CENTRAL AREA

Inventory

Q3 2012 309 million sfQ4 2013 310 million sf

Vacancy Rate Outlook

Q3 2012 41Q4 2013 36

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 214 million sfQ4 2013 222 million sf

Vacancy Rate Outlook

Q3 2012 120Q4 2013 146

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

As we move through the latter half of 2013 and into 2014 with the anticipated recovery in the US economy and more stable global economic conditions mdash particularly in Asia mdash office demand in Vancouver should gain modest momentum in advance of the arrival of the new developments Looking forward we are likely to see weak demand over the first half of 2013 and strengthening fundamentals after that Key sectors such as gaming technology mining and engineering will continue to lead growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

5

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

CALGARy LOW VACANCy DRIVES NEW bUILD CyCLE

ECONOMIC OUTLOOK

A great deal of economic uncertainty was lifted with the approval of the China National Offshore Oil Corporationrsquos $151-billion acquisition of Nexen and Petronasrsquos $6-billion acquisition of Progress Energy Resources These massive deals sent a signal that the federal government is not closed to foreign investment in the energy sector despite tough restrictions which lessens Canadarsquos reliance on exporting heavy oil to the US This also demonstrates that both Canada and the investors understand the economic importance of developing and delivering heavy oil to Asian markets

Additionally $61 billion has recently been poured into exploration and development outside of the oil sands which should continue to drive investment in Liquefied Natural Gas light oil shale oil and shale gas This suggests that Canada will continue to entertain measured state-owned enterprise investment in these energy sector areas in the near future

Assuming that greater global stability is achieved Alberta will continue to be the envy of the country in 2013 with a stable unemployment rate in the 4 range and annual GDP growth in the order of 35 to 38

OVERVIEW

Acquisitions mergers and buyouts may be an accelerated driving force in Calgaryrsquos office markets in 2013 with significant takeovers in the gas sectors expected as companies position themselves in advance of a potential price rebound

Overall vacancy in central Calgary as of the third quarter of 2012 was 32 with downtown premium space scraping the bottom of the barrel at 06 or in other words non-existent The dynamic downtown marketrsquos all classes absorption has averaged 207000 sf per quarter or 828000 sf per year since 2000 Remarkably

OFFICE

CENTRAL AREA

Inventory

Q3 2012 453 million sfQ4 2013 459 million sf

Vacancy Rate Outlook

Q3 2012 32Q4 2013 38

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 161 million sfQ4 2013 168 million sf

Vacancy Rate Outlook

Q3 2012 113Q4 2013 103

Rental Rate Outlook

MARKETS AT A GLANCE

demand strength in 2011 averaged 717000 sf per quarter mdash or 286 msf for the year

While demand softened slightly in 2012 absorption spiked with the arrival and occupancy of HampRrsquos 19-msf bow tower which was fully leased by Cenovus Energy and Encana Corporation The lack of substantial new and available inventory has put a hard cap on absorption Current developments will bring relief to beleaguered tenants but that wonrsquot happen for two-and-a-half to five years Softening demand was attributable to weakening oil prices due to the global slowdown At the same time there was a notable increase in sublet space returned by the gas-weighted sector

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

6

feeling the effects of a persistently weak gas market As well the sense of urgency to complete transactions also eased as did competition for larger blocks of space

Four major office towers are currently in the works that could bring in excess of 17 msf to market Eighth Avenue Place West will add about 840000 sf to market and is fully preleased and Cadillac Fairview is aggressively marketing its 820000-sf tower Also in pursuit of a new development is Oxford Properties Although not announced Oxford is working hard to secure enough tenants to start construction on its 615000-sf complex brookfield is also at the table albeit for a late 2016 or early 2017 completion to develop Western Canadarsquos tallest office tower at 60 floors or 14 msf

OUTLOOK

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture In this suffocatingly tight office market very little breathing room will come from the shuffling of market players next year However Encanarsquos physical relocation into The bow in the fourth quarter of 2012 may bring up to 400000 sf to market

Looking forward the surprise announcements by Imperial Oil that it will be relocating to the suburban markets will translate into more than 12 msf being displaced downtown between 2014 and 2016 providing significant opportunities for larger space users Although common for engineering and the oil and gas service sector to locate in peripheral markets such as the beltline and the suburban markets the migration of an oil company into a suburban market is unheard of The subsequent announcement of CPrsquos long-term plan to construct its own office complex on its suburban site in the south can be viewed as adding credibility to the concept of suburban markets becoming an increasingly viable alternative to the core for major corporations and ldquobig oilrdquo Calgaryrsquos primary industry

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

7

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

(300)

(200)

(100)

0

100

200

300

08 09 10 11 12F 13F

CENTRAL AREA

EDMONTON RENTS MOVING UP

ECONOMIC OUTLOOK

Albertarsquos Capital is heavily influenced by the oil and gas sectors and for the central office markets by the space needs of the federal provincial and local governments Albertasup1s economy continues to lead the pack in Canada and solid growth will continue though it will taper off somewhat in 2013 Still unemployment will remain stable around 4 and GDP growth should be in the range of 35 to 38

OVERVIEW

With absorption expected to reach 400000 in 2012 Edmontonrsquos office market is set to chalk up its second strong year in a row In 2011 absorption was 558000 sf And therersquos no sign of let up The engineering and construction sectors are expanding rapidly and all levels of government are back in the market looking for space particularly the City which has an RFP out to downtown developers for up to 450000 sf

The most significant leasing transaction in 2012 was the huge expansion completed by Enbridge The energy leader leased an additional 240000 sf in four separate buildings in the downtown class A market significantly reducing competitive space in this asset class and driving some positive momentum in rental rates

In the third quarter of 2012 vacancy in Edmontonsup1s central office market made up of the Financial Core and Government District stood at 74 Although the suburban market saw positive absorption of almost 50000 sf vacancy increased slightly to 141 due to 95000 sf of new inventory added to the market

From a new development perspective the 55000-sf Cash Store Financial building opened on 156th Street and yellowhead Trail moving Cash Store out of West Gate business Park In addition a new 40000-sf building at Westlink Park will house Golder Associates who moved from Mayfield business Centre Although citywide absorption totaled 61570 sf this new inventory caused vacancy to nudge upward slightly from 99 to 100

The class b product in the Financial Core experienced the most change in Edmonton with positive absorption in the third quarter of close to 100700 sf Most of this absorption occurred in the First and Jasper redevelopment site in which Jacobs Engineering leased out the remaining 96000 sf left behind in the building when EPCOR relocated to the new EPCOR Tower Jacobs will displace similar space when it relocates however bringing a significant amount of class b space back to market within the Government District

OFFICE

CENTRAL AREA

Inventory

Q3 2012 156 million sfQ4 2013 156 million sf

Vacancy Rate Outlook

Q3 2012 74Q4 2013 69

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 99 million sfQ4 2013 104 million sf

Vacancy Rate Outlook

Q3 2012 141Q4 2013 148

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

Reflecting the citysup1s healthy and growing economic fundamentals net asking rents will continue to move upwards especially in the Financial Core With the Enbridge expansion in the downtown market and the First and Jasper redevelopment (the former EPCOR building) recently leasing its remaining 96000 sf to Jacobs Engineering most of the vacant space created from the opening of the new EPCOR Tower has been filled Given the low vacancy the number of large contiguous pockets of space has tightened As a result demand for suburban office space where rental rates are rising at a slower pace may increase for larger office requirements

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

8

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

5

8

10

(200)

0

200

400

600

800

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

WINNIPEG LOTS OF ACTION

ECONOMIC OUTLOOK

Western Canada will set the economic pace in this country this year and next benefiting the most from booming activity related to commodities and strong gains in agricultural sectors Overall growth in Manitoba in 2013 will see a growing contribution from manufacturing Further expected strengthening in construction spending will provide additional support for growth The net effect of these factors will be growth remaining little changed at 32 in 2013 Source RbC Research Provincial Outlook

OVERVIEW

Leasing activity was active across 2012 with some expansionary growth in central Winnipeg that pushed overall vacancy down to 64 from 77 one year ago As in other sectors of the country attracting and retaining staff is on the minds of Winnipeg businesses and to this end there is a strong interest in new or updated quality space and location

Densification and consolidation of multiple-premises operations has offset some of the expansionary growth in Winnipeg as tenants focus on cost containment and improving productivity Many occupiers are willing to relocate but are looking for new build-out incentives in order to densify and develop more collaborative workplace environments

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth CentreVenture Development Corporation is working with the city the province and other parties to invest in and revitalize the downtown area This $600-million multi-faceted program includes the new sports hospitality and entertainment district (SHED) encompassing an 11-block area downtown

The 200000-sf Centrepoint mixed-use tower (retail office hotel condo) to be completed in the third quarter of 2014 is the first significant new project under construction within the SHED and conceptual planning is being prepared for a second project to be

OFFICE

CENTRAL AREA

Inventory

Q3 2012 101 million sfQ4 2013 103 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 76

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 32 million sfQ4 2013 35 million sf

Vacancy Rate Outlook

Q3 2012 116Q4 2013 154

Rental Rate Outlook

MARKETS AT A GLANCE

situated on a nearby surface parking lot owned by Manitoba Public Insurance Corp

Office development activity is significant in both central and suburban markets with about 300000 sf of new developments currently being built in downtown Winnipeg and almost 320000 sf under construction within suburban markets

OUTLOOK

The new office developments will push vacancy rates up slightly in Winnipegsup1s central and suburban markets but continued modest

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

5

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

CALGARy LOW VACANCy DRIVES NEW bUILD CyCLE

ECONOMIC OUTLOOK

A great deal of economic uncertainty was lifted with the approval of the China National Offshore Oil Corporationrsquos $151-billion acquisition of Nexen and Petronasrsquos $6-billion acquisition of Progress Energy Resources These massive deals sent a signal that the federal government is not closed to foreign investment in the energy sector despite tough restrictions which lessens Canadarsquos reliance on exporting heavy oil to the US This also demonstrates that both Canada and the investors understand the economic importance of developing and delivering heavy oil to Asian markets

Additionally $61 billion has recently been poured into exploration and development outside of the oil sands which should continue to drive investment in Liquefied Natural Gas light oil shale oil and shale gas This suggests that Canada will continue to entertain measured state-owned enterprise investment in these energy sector areas in the near future

Assuming that greater global stability is achieved Alberta will continue to be the envy of the country in 2013 with a stable unemployment rate in the 4 range and annual GDP growth in the order of 35 to 38

OVERVIEW

Acquisitions mergers and buyouts may be an accelerated driving force in Calgaryrsquos office markets in 2013 with significant takeovers in the gas sectors expected as companies position themselves in advance of a potential price rebound

Overall vacancy in central Calgary as of the third quarter of 2012 was 32 with downtown premium space scraping the bottom of the barrel at 06 or in other words non-existent The dynamic downtown marketrsquos all classes absorption has averaged 207000 sf per quarter or 828000 sf per year since 2000 Remarkably

OFFICE

CENTRAL AREA

Inventory

Q3 2012 453 million sfQ4 2013 459 million sf

Vacancy Rate Outlook

Q3 2012 32Q4 2013 38

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 161 million sfQ4 2013 168 million sf

Vacancy Rate Outlook

Q3 2012 113Q4 2013 103

Rental Rate Outlook

MARKETS AT A GLANCE

demand strength in 2011 averaged 717000 sf per quarter mdash or 286 msf for the year

While demand softened slightly in 2012 absorption spiked with the arrival and occupancy of HampRrsquos 19-msf bow tower which was fully leased by Cenovus Energy and Encana Corporation The lack of substantial new and available inventory has put a hard cap on absorption Current developments will bring relief to beleaguered tenants but that wonrsquot happen for two-and-a-half to five years Softening demand was attributable to weakening oil prices due to the global slowdown At the same time there was a notable increase in sublet space returned by the gas-weighted sector

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

6

feeling the effects of a persistently weak gas market As well the sense of urgency to complete transactions also eased as did competition for larger blocks of space

Four major office towers are currently in the works that could bring in excess of 17 msf to market Eighth Avenue Place West will add about 840000 sf to market and is fully preleased and Cadillac Fairview is aggressively marketing its 820000-sf tower Also in pursuit of a new development is Oxford Properties Although not announced Oxford is working hard to secure enough tenants to start construction on its 615000-sf complex brookfield is also at the table albeit for a late 2016 or early 2017 completion to develop Western Canadarsquos tallest office tower at 60 floors or 14 msf

OUTLOOK

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture In this suffocatingly tight office market very little breathing room will come from the shuffling of market players next year However Encanarsquos physical relocation into The bow in the fourth quarter of 2012 may bring up to 400000 sf to market

Looking forward the surprise announcements by Imperial Oil that it will be relocating to the suburban markets will translate into more than 12 msf being displaced downtown between 2014 and 2016 providing significant opportunities for larger space users Although common for engineering and the oil and gas service sector to locate in peripheral markets such as the beltline and the suburban markets the migration of an oil company into a suburban market is unheard of The subsequent announcement of CPrsquos long-term plan to construct its own office complex on its suburban site in the south can be viewed as adding credibility to the concept of suburban markets becoming an increasingly viable alternative to the core for major corporations and ldquobig oilrdquo Calgaryrsquos primary industry

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

7

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

(300)

(200)

(100)

0

100

200

300

08 09 10 11 12F 13F

CENTRAL AREA

EDMONTON RENTS MOVING UP

ECONOMIC OUTLOOK

Albertarsquos Capital is heavily influenced by the oil and gas sectors and for the central office markets by the space needs of the federal provincial and local governments Albertasup1s economy continues to lead the pack in Canada and solid growth will continue though it will taper off somewhat in 2013 Still unemployment will remain stable around 4 and GDP growth should be in the range of 35 to 38

OVERVIEW

With absorption expected to reach 400000 in 2012 Edmontonrsquos office market is set to chalk up its second strong year in a row In 2011 absorption was 558000 sf And therersquos no sign of let up The engineering and construction sectors are expanding rapidly and all levels of government are back in the market looking for space particularly the City which has an RFP out to downtown developers for up to 450000 sf

The most significant leasing transaction in 2012 was the huge expansion completed by Enbridge The energy leader leased an additional 240000 sf in four separate buildings in the downtown class A market significantly reducing competitive space in this asset class and driving some positive momentum in rental rates

In the third quarter of 2012 vacancy in Edmontonsup1s central office market made up of the Financial Core and Government District stood at 74 Although the suburban market saw positive absorption of almost 50000 sf vacancy increased slightly to 141 due to 95000 sf of new inventory added to the market

From a new development perspective the 55000-sf Cash Store Financial building opened on 156th Street and yellowhead Trail moving Cash Store out of West Gate business Park In addition a new 40000-sf building at Westlink Park will house Golder Associates who moved from Mayfield business Centre Although citywide absorption totaled 61570 sf this new inventory caused vacancy to nudge upward slightly from 99 to 100

The class b product in the Financial Core experienced the most change in Edmonton with positive absorption in the third quarter of close to 100700 sf Most of this absorption occurred in the First and Jasper redevelopment site in which Jacobs Engineering leased out the remaining 96000 sf left behind in the building when EPCOR relocated to the new EPCOR Tower Jacobs will displace similar space when it relocates however bringing a significant amount of class b space back to market within the Government District

OFFICE

CENTRAL AREA

Inventory

Q3 2012 156 million sfQ4 2013 156 million sf

Vacancy Rate Outlook

Q3 2012 74Q4 2013 69

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 99 million sfQ4 2013 104 million sf

Vacancy Rate Outlook

Q3 2012 141Q4 2013 148

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

Reflecting the citysup1s healthy and growing economic fundamentals net asking rents will continue to move upwards especially in the Financial Core With the Enbridge expansion in the downtown market and the First and Jasper redevelopment (the former EPCOR building) recently leasing its remaining 96000 sf to Jacobs Engineering most of the vacant space created from the opening of the new EPCOR Tower has been filled Given the low vacancy the number of large contiguous pockets of space has tightened As a result demand for suburban office space where rental rates are rising at a slower pace may increase for larger office requirements

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

8

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

5

8

10

(200)

0

200

400

600

800

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

WINNIPEG LOTS OF ACTION

ECONOMIC OUTLOOK

Western Canada will set the economic pace in this country this year and next benefiting the most from booming activity related to commodities and strong gains in agricultural sectors Overall growth in Manitoba in 2013 will see a growing contribution from manufacturing Further expected strengthening in construction spending will provide additional support for growth The net effect of these factors will be growth remaining little changed at 32 in 2013 Source RbC Research Provincial Outlook

OVERVIEW

Leasing activity was active across 2012 with some expansionary growth in central Winnipeg that pushed overall vacancy down to 64 from 77 one year ago As in other sectors of the country attracting and retaining staff is on the minds of Winnipeg businesses and to this end there is a strong interest in new or updated quality space and location

Densification and consolidation of multiple-premises operations has offset some of the expansionary growth in Winnipeg as tenants focus on cost containment and improving productivity Many occupiers are willing to relocate but are looking for new build-out incentives in order to densify and develop more collaborative workplace environments

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth CentreVenture Development Corporation is working with the city the province and other parties to invest in and revitalize the downtown area This $600-million multi-faceted program includes the new sports hospitality and entertainment district (SHED) encompassing an 11-block area downtown

The 200000-sf Centrepoint mixed-use tower (retail office hotel condo) to be completed in the third quarter of 2014 is the first significant new project under construction within the SHED and conceptual planning is being prepared for a second project to be

OFFICE

CENTRAL AREA

Inventory

Q3 2012 101 million sfQ4 2013 103 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 76

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 32 million sfQ4 2013 35 million sf

Vacancy Rate Outlook

Q3 2012 116Q4 2013 154

Rental Rate Outlook

MARKETS AT A GLANCE

situated on a nearby surface parking lot owned by Manitoba Public Insurance Corp

Office development activity is significant in both central and suburban markets with about 300000 sf of new developments currently being built in downtown Winnipeg and almost 320000 sf under construction within suburban markets

OUTLOOK

The new office developments will push vacancy rates up slightly in Winnipegsup1s central and suburban markets but continued modest

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

6

feeling the effects of a persistently weak gas market As well the sense of urgency to complete transactions also eased as did competition for larger blocks of space

Four major office towers are currently in the works that could bring in excess of 17 msf to market Eighth Avenue Place West will add about 840000 sf to market and is fully preleased and Cadillac Fairview is aggressively marketing its 820000-sf tower Also in pursuit of a new development is Oxford Properties Although not announced Oxford is working hard to secure enough tenants to start construction on its 615000-sf complex brookfield is also at the table albeit for a late 2016 or early 2017 completion to develop Western Canadarsquos tallest office tower at 60 floors or 14 msf

OUTLOOK

As always Calgaryrsquos fortunes and that of its office market will rise and fall with the health of the global energy industry With so many projects in the pipeline however any slowdown is likely to be incidental in the big picture In this suffocatingly tight office market very little breathing room will come from the shuffling of market players next year However Encanarsquos physical relocation into The bow in the fourth quarter of 2012 may bring up to 400000 sf to market

Looking forward the surprise announcements by Imperial Oil that it will be relocating to the suburban markets will translate into more than 12 msf being displaced downtown between 2014 and 2016 providing significant opportunities for larger space users Although common for engineering and the oil and gas service sector to locate in peripheral markets such as the beltline and the suburban markets the migration of an oil company into a suburban market is unheard of The subsequent announcement of CPrsquos long-term plan to construct its own office complex on its suburban site in the south can be viewed as adding credibility to the concept of suburban markets becoming an increasingly viable alternative to the core for major corporations and ldquobig oilrdquo Calgaryrsquos primary industry

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

7

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

(300)

(200)

(100)

0

100

200

300

08 09 10 11 12F 13F

CENTRAL AREA

EDMONTON RENTS MOVING UP

ECONOMIC OUTLOOK

Albertarsquos Capital is heavily influenced by the oil and gas sectors and for the central office markets by the space needs of the federal provincial and local governments Albertasup1s economy continues to lead the pack in Canada and solid growth will continue though it will taper off somewhat in 2013 Still unemployment will remain stable around 4 and GDP growth should be in the range of 35 to 38

OVERVIEW

With absorption expected to reach 400000 in 2012 Edmontonrsquos office market is set to chalk up its second strong year in a row In 2011 absorption was 558000 sf And therersquos no sign of let up The engineering and construction sectors are expanding rapidly and all levels of government are back in the market looking for space particularly the City which has an RFP out to downtown developers for up to 450000 sf

The most significant leasing transaction in 2012 was the huge expansion completed by Enbridge The energy leader leased an additional 240000 sf in four separate buildings in the downtown class A market significantly reducing competitive space in this asset class and driving some positive momentum in rental rates

In the third quarter of 2012 vacancy in Edmontonsup1s central office market made up of the Financial Core and Government District stood at 74 Although the suburban market saw positive absorption of almost 50000 sf vacancy increased slightly to 141 due to 95000 sf of new inventory added to the market

From a new development perspective the 55000-sf Cash Store Financial building opened on 156th Street and yellowhead Trail moving Cash Store out of West Gate business Park In addition a new 40000-sf building at Westlink Park will house Golder Associates who moved from Mayfield business Centre Although citywide absorption totaled 61570 sf this new inventory caused vacancy to nudge upward slightly from 99 to 100

The class b product in the Financial Core experienced the most change in Edmonton with positive absorption in the third quarter of close to 100700 sf Most of this absorption occurred in the First and Jasper redevelopment site in which Jacobs Engineering leased out the remaining 96000 sf left behind in the building when EPCOR relocated to the new EPCOR Tower Jacobs will displace similar space when it relocates however bringing a significant amount of class b space back to market within the Government District

OFFICE

CENTRAL AREA

Inventory

Q3 2012 156 million sfQ4 2013 156 million sf

Vacancy Rate Outlook

Q3 2012 74Q4 2013 69

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 99 million sfQ4 2013 104 million sf

Vacancy Rate Outlook

Q3 2012 141Q4 2013 148

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

Reflecting the citysup1s healthy and growing economic fundamentals net asking rents will continue to move upwards especially in the Financial Core With the Enbridge expansion in the downtown market and the First and Jasper redevelopment (the former EPCOR building) recently leasing its remaining 96000 sf to Jacobs Engineering most of the vacant space created from the opening of the new EPCOR Tower has been filled Given the low vacancy the number of large contiguous pockets of space has tightened As a result demand for suburban office space where rental rates are rising at a slower pace may increase for larger office requirements

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

8

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

5

8

10

(200)

0

200

400

600

800

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

WINNIPEG LOTS OF ACTION

ECONOMIC OUTLOOK

Western Canada will set the economic pace in this country this year and next benefiting the most from booming activity related to commodities and strong gains in agricultural sectors Overall growth in Manitoba in 2013 will see a growing contribution from manufacturing Further expected strengthening in construction spending will provide additional support for growth The net effect of these factors will be growth remaining little changed at 32 in 2013 Source RbC Research Provincial Outlook

OVERVIEW

Leasing activity was active across 2012 with some expansionary growth in central Winnipeg that pushed overall vacancy down to 64 from 77 one year ago As in other sectors of the country attracting and retaining staff is on the minds of Winnipeg businesses and to this end there is a strong interest in new or updated quality space and location

Densification and consolidation of multiple-premises operations has offset some of the expansionary growth in Winnipeg as tenants focus on cost containment and improving productivity Many occupiers are willing to relocate but are looking for new build-out incentives in order to densify and develop more collaborative workplace environments

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth CentreVenture Development Corporation is working with the city the province and other parties to invest in and revitalize the downtown area This $600-million multi-faceted program includes the new sports hospitality and entertainment district (SHED) encompassing an 11-block area downtown

The 200000-sf Centrepoint mixed-use tower (retail office hotel condo) to be completed in the third quarter of 2014 is the first significant new project under construction within the SHED and conceptual planning is being prepared for a second project to be

OFFICE

CENTRAL AREA

Inventory

Q3 2012 101 million sfQ4 2013 103 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 76

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 32 million sfQ4 2013 35 million sf

Vacancy Rate Outlook

Q3 2012 116Q4 2013 154

Rental Rate Outlook

MARKETS AT A GLANCE

situated on a nearby surface parking lot owned by Manitoba Public Insurance Corp

Office development activity is significant in both central and suburban markets with about 300000 sf of new developments currently being built in downtown Winnipeg and almost 320000 sf under construction within suburban markets

OUTLOOK

The new office developments will push vacancy rates up slightly in Winnipegsup1s central and suburban markets but continued modest

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

7

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

(300)

(200)

(100)

0

100

200

300

08 09 10 11 12F 13F

CENTRAL AREA

EDMONTON RENTS MOVING UP

ECONOMIC OUTLOOK

Albertarsquos Capital is heavily influenced by the oil and gas sectors and for the central office markets by the space needs of the federal provincial and local governments Albertasup1s economy continues to lead the pack in Canada and solid growth will continue though it will taper off somewhat in 2013 Still unemployment will remain stable around 4 and GDP growth should be in the range of 35 to 38

OVERVIEW

With absorption expected to reach 400000 in 2012 Edmontonrsquos office market is set to chalk up its second strong year in a row In 2011 absorption was 558000 sf And therersquos no sign of let up The engineering and construction sectors are expanding rapidly and all levels of government are back in the market looking for space particularly the City which has an RFP out to downtown developers for up to 450000 sf

The most significant leasing transaction in 2012 was the huge expansion completed by Enbridge The energy leader leased an additional 240000 sf in four separate buildings in the downtown class A market significantly reducing competitive space in this asset class and driving some positive momentum in rental rates

In the third quarter of 2012 vacancy in Edmontonsup1s central office market made up of the Financial Core and Government District stood at 74 Although the suburban market saw positive absorption of almost 50000 sf vacancy increased slightly to 141 due to 95000 sf of new inventory added to the market

From a new development perspective the 55000-sf Cash Store Financial building opened on 156th Street and yellowhead Trail moving Cash Store out of West Gate business Park In addition a new 40000-sf building at Westlink Park will house Golder Associates who moved from Mayfield business Centre Although citywide absorption totaled 61570 sf this new inventory caused vacancy to nudge upward slightly from 99 to 100

The class b product in the Financial Core experienced the most change in Edmonton with positive absorption in the third quarter of close to 100700 sf Most of this absorption occurred in the First and Jasper redevelopment site in which Jacobs Engineering leased out the remaining 96000 sf left behind in the building when EPCOR relocated to the new EPCOR Tower Jacobs will displace similar space when it relocates however bringing a significant amount of class b space back to market within the Government District

OFFICE

CENTRAL AREA

Inventory

Q3 2012 156 million sfQ4 2013 156 million sf

Vacancy Rate Outlook

Q3 2012 74Q4 2013 69

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 99 million sfQ4 2013 104 million sf

Vacancy Rate Outlook

Q3 2012 141Q4 2013 148

Rental Rate Outlook

MARKETS AT A GLANCE

OUTLOOK

Reflecting the citysup1s healthy and growing economic fundamentals net asking rents will continue to move upwards especially in the Financial Core With the Enbridge expansion in the downtown market and the First and Jasper redevelopment (the former EPCOR building) recently leasing its remaining 96000 sf to Jacobs Engineering most of the vacant space created from the opening of the new EPCOR Tower has been filled Given the low vacancy the number of large contiguous pockets of space has tightened As a result demand for suburban office space where rental rates are rising at a slower pace may increase for larger office requirements

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

8

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

5

8

10

(200)

0

200

400

600

800

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

WINNIPEG LOTS OF ACTION

ECONOMIC OUTLOOK

Western Canada will set the economic pace in this country this year and next benefiting the most from booming activity related to commodities and strong gains in agricultural sectors Overall growth in Manitoba in 2013 will see a growing contribution from manufacturing Further expected strengthening in construction spending will provide additional support for growth The net effect of these factors will be growth remaining little changed at 32 in 2013 Source RbC Research Provincial Outlook

OVERVIEW

Leasing activity was active across 2012 with some expansionary growth in central Winnipeg that pushed overall vacancy down to 64 from 77 one year ago As in other sectors of the country attracting and retaining staff is on the minds of Winnipeg businesses and to this end there is a strong interest in new or updated quality space and location

Densification and consolidation of multiple-premises operations has offset some of the expansionary growth in Winnipeg as tenants focus on cost containment and improving productivity Many occupiers are willing to relocate but are looking for new build-out incentives in order to densify and develop more collaborative workplace environments

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth CentreVenture Development Corporation is working with the city the province and other parties to invest in and revitalize the downtown area This $600-million multi-faceted program includes the new sports hospitality and entertainment district (SHED) encompassing an 11-block area downtown

The 200000-sf Centrepoint mixed-use tower (retail office hotel condo) to be completed in the third quarter of 2014 is the first significant new project under construction within the SHED and conceptual planning is being prepared for a second project to be

OFFICE

CENTRAL AREA

Inventory

Q3 2012 101 million sfQ4 2013 103 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 76

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 32 million sfQ4 2013 35 million sf

Vacancy Rate Outlook

Q3 2012 116Q4 2013 154

Rental Rate Outlook

MARKETS AT A GLANCE

situated on a nearby surface parking lot owned by Manitoba Public Insurance Corp

Office development activity is significant in both central and suburban markets with about 300000 sf of new developments currently being built in downtown Winnipeg and almost 320000 sf under construction within suburban markets

OUTLOOK

The new office developments will push vacancy rates up slightly in Winnipegsup1s central and suburban markets but continued modest

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

8

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

5

8

10

(200)

0

200

400

600

800

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

WINNIPEG LOTS OF ACTION

ECONOMIC OUTLOOK

Western Canada will set the economic pace in this country this year and next benefiting the most from booming activity related to commodities and strong gains in agricultural sectors Overall growth in Manitoba in 2013 will see a growing contribution from manufacturing Further expected strengthening in construction spending will provide additional support for growth The net effect of these factors will be growth remaining little changed at 32 in 2013 Source RbC Research Provincial Outlook

OVERVIEW

Leasing activity was active across 2012 with some expansionary growth in central Winnipeg that pushed overall vacancy down to 64 from 77 one year ago As in other sectors of the country attracting and retaining staff is on the minds of Winnipeg businesses and to this end there is a strong interest in new or updated quality space and location

Densification and consolidation of multiple-premises operations has offset some of the expansionary growth in Winnipeg as tenants focus on cost containment and improving productivity Many occupiers are willing to relocate but are looking for new build-out incentives in order to densify and develop more collaborative workplace environments

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth CentreVenture Development Corporation is working with the city the province and other parties to invest in and revitalize the downtown area This $600-million multi-faceted program includes the new sports hospitality and entertainment district (SHED) encompassing an 11-block area downtown

The 200000-sf Centrepoint mixed-use tower (retail office hotel condo) to be completed in the third quarter of 2014 is the first significant new project under construction within the SHED and conceptual planning is being prepared for a second project to be

OFFICE

CENTRAL AREA

Inventory

Q3 2012 101 million sfQ4 2013 103 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 76

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 32 million sfQ4 2013 35 million sf

Vacancy Rate Outlook

Q3 2012 116Q4 2013 154

Rental Rate Outlook

MARKETS AT A GLANCE

situated on a nearby surface parking lot owned by Manitoba Public Insurance Corp

Office development activity is significant in both central and suburban markets with about 300000 sf of new developments currently being built in downtown Winnipeg and almost 320000 sf under construction within suburban markets

OUTLOOK

The new office developments will push vacancy rates up slightly in Winnipegsup1s central and suburban markets but continued modest

Downtown Winnipeg is undergoing a major revitalization program that is already transforming the area and will have a significant impact on the cityrsquos long-term business and office growth

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

9

expansionary demand in both central and suburban markets will keep them at a reasonable level Vacancy in central Winnipeg will rise to around 76 by end of 2013 and is expected to peak around 81 later in 2014

Suburban vacancy which currently stands at 116 will rise to 154 by the end of 2013 due to the 317000 sf of new developments coming to market and as a result of the movement of tenants to the downtown market As we progress through 2014 vacancy will begin to decline based on modest to moderate absorption assumptions

Tenants will continue to see best value and prime location as key to attracting and retaining a talented workforce The continued revitalization of Winnipegsup1s downtown an initiative welcomed by business and residents alike is expected to drive increasingly stronger office demand

Rental rate pressure should continue to inch upwards in both central and suburban markets due to tight markets new development and continued modest expansionary demand

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

10

OFFICE

CENTRAL AREA

Inventory

Q3 2012 39 million sfQ4 2013 39 million sf

Vacancy Rate Outlook

Q3 2012 159Q4 2013 158

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCELONDON TURNING A CORNER

OFFICE

London with one of the highest office vacancy rates in Canada appears to be turning the corner as all local organic absorption is consuming historically stubborn vacancy A number of major tenants took occupancy in 2012 bringing overall downtown availability to 158 the lowest itrsquos been in over 10 years

In 2013 the office market in London will again be supported by large occupiers such at TD Canada Trust London Life Canada Life bell Citibank and the City of London Any flux in these local user strategies would have a profound effect on recent gains The coming year will also see more approved lands for office construction in the suburbs The vast majority of new suburban projects in 2011-2012 were build-to-suits for the medical sector but this may begin to change Londonrsquos history of protecting the downtown office market (80 of the stock) at the expense of suburban growth may be changing

OUTLOOK

Downtown class A vacancy is forecast to decline from the current 9 to a historic 88 Overall downtownrsquos 2012 rate of 159 should also decline marginally However downtown class b buildings will continue to struggle with those that control onsite parking faring the best Vacancy in this asset class will remain stagnant at 21

Large floorplate users (new and renewal) in London will face increasingly intransigent landlords whose newfound confidence will be reflected in higher face rates and lower inducements We expect downtown class A rents in the $13 to $21 psf range class b from $10 to $12 psf and suburban rates to range from $11 to $13 psf Operating costs in London top out at $16 psf

With the former Galleria Mall (now CitiPlaza) firmly entrenched as an office facility and suburban Westmount Mall evolving in the same direction it may be some time before a major new non-medical office project will be seen in London These retrofits depressed larger floorplate rates and construction for many years and have remaining potential to convert retail premises to cheap office on short notice

Should the City elect to build a new City Hall in 2013 its eventual completion in two or three years will have an effect on the class b market in London but until then expect plodding but noticeable absorption and some higher altitude in rents through 2013

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

11

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 198Q4 2013 161

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 41 million sfQ4 2013 42 million sf

Vacancy Rate Outlook

Q3 2012 138Q4 2013 127

Rental Rate Outlook

MARKETS AT A GLANCEWATERLOO REGION SLOW AND STEADy

OVERVIEW

Waterloo Region has a long and proud history of manufacturing and innovation especially in the technology sector The region is made up of three cities Waterloo Kitchener and Cambridge as well as the Townships of Woolwich Wellesley Wilmot and North Dumfries It is rapidly growing and moving forward with development plans to accommodate accelerated population growth A Rapid Transit System which includes a light rail transit line to be completed by 2017 and multi-modal transit hub is already driving development in the downtown cores of both Kitchener and Waterloo

The City of Waterloo was named the Intelligent Community of the year in 2007 and is home to Wilfred Laurier University and the University of Waterloo as well as numerous tech companies and incubators The region has seen a tremendous increase in technology start-ups international tech companies and innovation in the last few years

OUTLOOK

RIM Google OpenText and Desire2Learn are some of the well-known large technology companies located in the region Waterloo also continues to benefit from a large presence of traditional employers such as Manulife Sun Life Financial and the universities The city consistently has the lowest vacancy in the region

The Uptown Waterloo core market has achieved critical mass with a low vacancy rate of 65 Most of the financial services offices are located in the core which continues to command premium rents with limited supply The Waterloo suburban market saw an increase in vacancy to 9 It is still considered stable but larger transactions have slowed RIM occupies substantial suburban office space and its occupancy needs remain unknown as it continues to find its way in an intensely competitive industry

Kitchener has experienced its own technology revitalization in the last few years with the redevelopment of old industrial spaces into chic brick-and-beam office space mdash almost 500000 sf has been converted since 2009 While positive for Kitchener the core market continues to be affected by tired availabilities Vacancy was at a high 206 in the third quarter of 2012 a slight decrease from 22 seen earlier in the year Overall vacancy for suburban Kitchener is 111 with the lowest rate of 15 found in the Gateway Node located on the HWy 401 Strong demand exists here for class A amp b buildings with easy access to transportation corridors parking and amenities New supply is expected to meet this demand

Cambridge has experienced persistently high vacancy at 30 in the Downtown Core and 185 in the suburban market Primarily an industrial market it has been affected by speculative construction and municipal office supply coming to the market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

12

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

0

2000

4000

6000

8000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO GTA OFFICE

TORONTO MORE RObUST DEVELOPMENT

ECONOMIC OUTLOOK

Stronger economic conditions particularly in the US are expected to take hold by the latter half of 2013 which will have spin-off benefits for Ontario and ultimately Torontorsquos office markets Canadarsquos economic expansion is expected to be constrained at about 2 and the unemployment rate will remain above 7 through 2013 according to TD Economics

OVERVIEW

Downtown Torontosup1s office market performance has been a shining light in North America In the wake of the last recession when 45 msf of new developments were slated to flood the market between 2009 and 2011 many saw vacancy soaring into the mid-teens Instead 99 of this space is now occupied and by the end of 2012 downtown vacancy was a tight 43 Demand was strongest in late 2010 and through 2011 and eased somewhat in 2012 dragged down by persistent global economic uncertainty However although some tenants have returned space to the market and decisions are taking longer about 190000 sf of positive absorption took place in the third quarter of 2012 still above-average performance

Given the recent buoyancy in demand tight markets and upward pressure on rental rates itsup1s no surprise that new downtown development announcements were a repeat story in 2012 About 35 msf of new office space is slated to further transform Torontosup1s skyline between 2014 and 2017 Until the latter half of 2014 when the first two developments bring relief the market will remain very tight and additional rate increases are inevitable in what has become a landlordsup1s market

Torontosup1s suburban markets which are far more exposed to US and global economic upheaval in general have had a tough time since 2008 Multiple-premises consolidations densification and contractions continue to displace space though in the third quarter of 2012 green sprouts of positive growth emerged in the GTA West market A number of new developments opened their

OFFICE

CENTRAL AREA

Inventory

Q3 2012 849 million sfQ4 2013 850 million sf

Vacancy Rate Outlook

Q3 2012 46Q4 2013 48

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 846 million sfQ4 2013 852 million sf

Vacancy Rate Outlook

Q3 2012 89Q4 2013 89

Rental Rate Outlook

MARKETS AT A GLANCE

doors in GTA West and tenants relocating into these buildings pushed absorption to 180000 sf Demand in the GTA East market remained weak and vacancy held relatively flat Vacancy rates in the GTA East and West were 92 and 104 respectively while the GTA North remained extremely tight at 47

OUTLOOK

The outlook for downtown Toronto demand remains optimistic even in the face of easing demand conditions which will likely reduce the rate of absorption in the coming quarters Demand from the citysup1s mighty banking sector which continued to absorb

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

13

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(2000)

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO CENTRAL OFFICE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

3

6

9

12

(1000)

0

1000

2000

3000

4000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

TORONTO SUBURBAN OFFICE

space in the third quarter of 2012 is expected to soften over 2013 as institutions focus on cost containment alongside revenue growth Rental rates will continue to see upward pressure over the near term given limited options in a tight market

The migration of tenants into the downtown market from midtown and suburban markets will contribute to expansionary demand in downtown Toronto as companies continue to move closer to concentrated educated workforce pools As well the new high-quality office stock coming on stream will be very attractive to tenants looking to achieve efficiencies through updated occupancy strategies

Notably of the 39 msf of new construction Menkesrsquo One york is the only building to move forward without a lead tenant or pre-commitment mdash a sign of confidence that this seasoned developer has in the quality of its buildings and long-term viability of the downtown Toronto market We also expect to see a growing willingness among tenants to expand into the downtown fringe markets including south east and west markets which have the greatest development potential

Suburban markets will continue to be held back by weak economic conditions and are likely to experience weak overall demand through the first half of 2013 As our largest trading partner emerges from the doldrums later in the year demand should see a significant boost The key factors limiting growth are a continued cycle of densification and the consolidation of multiple-location operations Drivers of growth will continue to include engineering the healthcare and pharmaceutical sector insurance technology and professional services

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

14

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

8

(500)

(250)

0

250

500

750

1000

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

OTTAWA bALANCING ACT

OVERVIEW

The health of Ottawarsquos office market is closely tied to demand growth from the federal government Since the government is in cost-containment mode demand for office space was weak through most of 2012 While vacancy increased slightly in the past two years downtown Ottawa remained relatively tight with a central area vacancy rate of only 57 The Capitalrsquos vacancy is historically one of the most stable in the country with very little volatility in rental rates

The federal government will have to address its aging stock of buildings over the coming years and this will create demand for space as tenancies relocate into longer-term swing space in order to buy time until major retrofits are completed For instance the bank of Canada leased the majority of the space at the old EDC building but the space it vacated at 234 Wellington is owned by the federal government and will not return to market before receiving a major retrofit

As the government consolidates or realigns its occupancies across Ottawa some space will be returned to market Health Canada and The Status of Women Canada for instance will relocate into other existing Health Canada controlled space in 2013 adding about 110000 sf of available space at 123 Slater Street In addition the Department of Defense and Canadian Armed Forces will be relocating many of their offices into the 22-msf Carling Campus (former home of Nortel Networks) and will displace space from a number of its current locations across Ottawa

While some of these buildings are owned and others leased the relocations will occur over a period of years and much of this space will be used as swing space DND and Canadian Armed Forces have 42 office locations in Ottawa and Gatineau The intent is to relocate up to 10000 employees into the campus Even though the departments own many of the buildings they currently occupy some space will return to market in Ottawa increasing availabilities

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market GWLrsquos 90 Elgin at bank and Laurier will come to market

OFFICE

CENTRAL AREA

Inventory

Q3 2012 179 million sfQ4 2013 179 million sf

Vacancy Rate Outlook

Q3 2012 57Q4 2013 53

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 195 million sfQ4 2013 200 million sf

Vacancy Rate Outlook

Q3 2012 87Q4 2013 101

Rental Rate Outlook

MARKETS AT A GLANCE

in Q4 2014 This build-to-suit federal government building will be occupied by the Treasury board and Department of Finance which are coming out of Esplanade Laurier This existing building will be going through a major retrofit The second significant building under construction is Morguardrsquos 150 Elgin a 350000-sf multipurpose tower slated for delivery in the first quarter of 2014 The Canada Council for the Arts has leased around 85000 sf and is moving out of 350 Albert St

Suburban markets were stable over 2012 with relatively tight vacancy at 87 in the third quarter Though market demand has been modest high-tech tenancies located in the Nortel Campus

Ottawa is active on the development front with five buildings under construction two of which are located in the downtown market

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

15

have mostly completed transactions to relocate to Kanata creating positive absorption in the market and tightening vacancy Three new developments are rising in the suburban markets that will add 490000 sf The market is active with tenants who are revisiting their occupancy decisions but this is not translating into expansionary demand

OUTLOOK

Ottawarsquos central area vacancy rate is expected to rise to 69 (all classes) and 79 for class A by the first quarter of 2014 Rental rates will remain stable in downtown and suburban markets Ottawa will see modest demand from non-government business drivers and this will gain some momentum into 2014

The market will remain relatively balanced although some additional softening may occur as the government begins to occupy the Carling Campus because of the timeframe for this relocation and due to the need for swing space to address the need to upgrade many existing locations it is uncertain how much total space will be displaced Space returning to market will be partially offset by moderate demand anticipated to come from the public sector as the aging space challenges are addressed

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

16

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

5

10

15

(1500)

(1000)

(500)

0

500

1000

1500

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

MONTREAL ExCITING TIMES

OVERVIEW

Montreal is seeing its first significant non-subsidized office development go up in over 20 years Thatrsquos big news for this vibrant city and its downtown office market which has been quiet for many years Now sitting at near historic low office vacancy rates there is a sense that business optimism has regained a strong foothold and that a cycle of expansionary growth has begun In the near term Montreal will see some softening of demand however as weakening global economic conditions reach into the boardrooms and companies put occupancy decisions on hold but not to worry growth is expected to roar back in the latter half of 2013

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the global recession shifting to positive absorption midway through 2010 Healthy demand and tightening vacancy followed with the central class A falling below the key 6 barrier across all asset classes

Montrealrsquos downtown revitalization is being fuelled by a growing condominium sector that has attracted a diversified and educated workforce This trend was punctuated with the kick-off in early 2012 of the Tour des Canadiens condo project a 48-storey tower with 520 units and the LrsquoAvenue project a 590000-sf mixed-use project of residential condos office and retail both projects are being built adjacent to the bell Centre

The real turning point in the overall health of Montrealrsquos office market came in 2011 Since then steady moderate expansionary demand has chipped away at the vacancy rate until it reached respectable new lows Central class A now stands at 59 and class b is a tight 67

While demand eased in 2012 companies continued to grow and the market tightened Then Kevricrsquos Altoria project started a 35-storey mixed-use building that includes 10 floors or 240000 sf of office space thus bringing to an end a 20-year non-subsidized office construction deadlock In addition Cadillac Fairview

OFFICE

CENTRAL AREA

Inventory

Q3 2012 480 million sfQ4 2013 480 million sf

Vacancy Rate Outlook

Q3 2012 61Q4 2013 63

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 348 million sfQ4 2013 349 million sf

Vacancy Rate Outlook

Q3 2012 97Q4 2013 97

Rental Rate Outlook

MARKETS AT A GLANCE

came forward with a huge vote of confidence in the market with its 2012 announcement that it would build a 520000-sf LEED Platinum tower with Deloitte as the lead tenant (The Deloitte Tower) Currently larger tenants have very few options in downtown Montreal and these new developments will bring welcome relief

Montrealrsquos suburban markets were hit relatively hard by the recession but they too bounced back faster than expected posting positive growth by the final quarter of 2010 In fact 2011 saw about 100000 sf per quarter of positive absorption and average absorption has been 85000 per quarter over the

because Montreal office markets languished with vacancy hovering within the 10 to 12 range for so many years prior to 2008 it surprised many when it recovered so quickly from the recession

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

17

past two years Although there has been very little speculative construction some design-build activity has taken place Overall vacancy remains at historically low levels below 10 primarily because of prudent construction

OUTLOOK

While the first half of 2013 may see some easing of expansionary demand as companies grapple with global economic uncertainty growth is expected to resume in Montrealrsquos downtown and suburban markets in the latter half of 2013 and into 2014

Vacancy rates in downtown Montreal will edge upward with the coming of the Kevric tower rising to about 64 and will increase further with the introduction of the Deloitte tower reaching about 7 by mid-2015 Overall the market will remain healthy and relatively tight with some modest upward pressure on rental rates along the way

The development cycle will pick up steam in 2013 and beyond Along with redevelopment plans for existing obsolete sites it is public knowledge that Canderel plans to build two office towers totaling over one million sf adjacent to the Complex Desjardins in the vibrant Quartier des Spectacles All thatrsquos needed is a big tenant to kick off the development

Meanwhile Ivanhoeacute Cambridge has announced that it will build a 100000-sf office tower completely on speculative basis in Laval What a sign of confidence The new developments are expected to be well received as pent-up demand is building among companies that are looking to expand and at the same time create modern workplaces in new sustainable buildings The success of these new towers will provide incentive to continue building in downtown Montreal and surrounding markets

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

18

SAINT JOHN STILL SLOW bUT RAyS OF HOPE

OVERVIEW

Despite the economic uncertainty presented in 2012 for New brunswick according to the RbC Provincial Outlook 2013 is expected to brighten Potash production is expected to increase with the completed expansion of the Sussex mine and export sales of electricity are expected to rise as Point Lepreau returns online after a four-year refurbishment Modest gains in the spring for forestry exports reflect an improving US housing market and as the economy continues to strengthen south of the border further advances are expected The lift in overall exports should keep overall economic growth at a modest pace of 18 in 2013

The greater Saint John region is an energy and marine transportation natural geographic gateway and strategic distribution hub At 24 msf the citysup1s office market has always been heavily dependent on Irving and bell Aliant Irving is the marketsup1s largest employer largest tenant and largest landlord hence its capital projects and employment levels have an enormous impact on the office market health bell Aliant a descendant of New brunswick Tel has dramatically reduced its occupancy over the past five years

In 2012 office market vacancy climbed to high teens as a result of the closure of contact centre space and justice-related tenants relocating from third-party space to a new provincial government building Saint John overshot demand during the period 2006-2008 when the second refinery an expanded LePreau nuclear plant and Long Wharf Irving headquarters were all on the books There was widespread speculation that the construction boom would replicate the frigate building program of the rsquo80s and rsquo90s where thousands of well-paid project employees rented commercial and residential spaces As these projects were each cancelled or deferred the office leasing residential leasing and residential resale markets re-priced themselves and remain at lower prices or with material vacancy

OUTLOOK

For 2013 the rays of opportunity are presented by an accelerating US recovery possible route changes to the xL pipeline redirecting it from west to east rather than Alberta to the US and spin-off business potential presented by the $25-billion dollar shipbuilding contract won by Irving Shipbuilding in Halifax

OFFICE

CENTRAL AREA

Inventory

Q3 2012 23 million sfQ4 2013 23 million sf

Vacancy Rate Outlook

Q3 2012 99Q4 2013 153

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(100) (80) (60) (40) (20)

0 20 40 60 80

100

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

19

MONCTON SLOW GROWTHMoncton has long been nicknamed the ldquoHub Cityrdquo because of its central location in the Maritimes and proximity to US markets which has made it a gateway railway and transportation centre In addition to transportation and logistics other office demand drivers include education healthcare information technology financial legal insurance and retail businesses The cityrsquos strategic location and diversified economy ensure steady growth As the only fully bilingual area outside of Quebec Moncton has also become an attractive location for call centres and other global businesses At the Universiteacute de Moncton a new open-air stadium now hosts world track-and-field competitions and one CFL game per year ndash another selling point for this growing city

OVERVIEW

Activity in Monctonrsquos office market remains brisk marked by a growing number of small-to-average-sized tenants that are exploring occupancy options such as flex industrial space or converting former residential assets into office space or sharing space with other tenants to achieve new efficiencies Office rent has remained steady at $13 to $14 psf Monctonrsquos overall vacancy rate is 64 with class A at 53

The opening of the new justice building had a significant impact on the market in 2012 as it initially attracted tenants from Assumption Place and left scattered vacancy in other downtown-core buildings However the market quietly normalized and the blue Cross Centre Assumption Place and Commerce Place are all back to expected or higher occupancy levels Overall modest absorption in 2012 reflected positive growth

The most significant project on the drafting table is a new municipal asset the Metro Centre which if it goes forward may house a revitalized Highfield Square Mall a new rink and convention centre acting as a major attraction to the downtown core As well the former CN head office owned by Crombie REIT was taken off the market in order to complete a massive revitalization program to convert it into a class A office building

FORECAST

Monctonrsquos office market will remain neutral or see some slow growth in 2013 Rental rates are expected to remain flat through to 2014 as they have for more than three years The flight to quality will continue and footprints will become increasingly compressed as businesses pursue more efficient collaborative workspace strategies that increase density and reduce costs

OFFICE

CENTRAL AREA

Inventory

Q3 2012 27 million sfQ4 2013 27 million sf

Vacancy Rate Outlook

Q3 2012 64Q4 2013 60

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

7

11

14

(80)

(40)

0

40

80

120

160

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

20

FREDERICTON CHALLENGES AHEAD

OVERVIEW

A centre for higher education Fredericton is home to many universities plus a variety of training colleges and institutes Named one of the worldrsquos top seven intelligent communities by the global Intelligent Community Forum Fredericton is home to more than 70 of the provincesup1s knowledge industry some 60 RampD organizations and Canadasup1s largest per-capita engineering cluster An established lsquosmart cityrsquo Fredericton was Canadasup1s first wireless city and is also earning international attention for its sustainability initiatives

As the provincial capital and home to the provincesup1s largest university with a renowned engineering program Fredericton continues to attract and generate intellectual economic development to its extensive business park network known as RUN WAy

Frederictonsup1s 19-msf office market concentrated mainly in the downtown core is home to three levels of government and the professional services that support them In 2012 office vacancy moved upward slightly due to the downsizing of some outsource operations as well as the addition of a new Knowledge Park building However overall vacancy was still tight at 48 as of the third quarter of 2012 and Fredericton posted the highest net-asking rents in the province averaging $1422 psf

OUTLOOK

With provincial government finances under review which could result in downsizing and consolidation in this government-based city along with the 2013 closure of the xstrata mine in bathurst which relied on its suppliers and professional services 2013 may present some challenges for Fredericton

OFFICE

CENTRAL AREA

Inventory

Q3 2012 19 million sfQ4 2013 19 million sf

Vacancy Rate Outlook

Q3 2012 48Q4 2013 43

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

(60)

(40)

(20)

0

20

40

60

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

21

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(200)

(150)

(100)

(50)

0

50

100

150

200

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

HALIFAx LOOKING UP

ECONOMIC OUTLOOK

Nova Scotiasup1s economy is going to feel some wind in its sails next year as the Deep Panuke project sees its first full year of operation substantially boosting natural gas production Real GDP growth is forecast to be 23 compared to 13 in 2012 Stronger growth will be further supported by paper production resuming at the NewPage mill as well as the beginning of Shellsup1s $971-million oil exploration work Spending related to first phase of the $25-billion 30-year shipbuilding contract will also begin to ramp up in 2013 along with capital spending on the Donkin Coal mine These developments will significantly improve growth prospects next year for Halifax and Nova Scotia

OVERVIEW

Overall office demand was weak across 2012 in Halifax with the central market vacancy rate rising to 120 and the overall rate reaching 103 In the third quarter of 2012 vacancy in the central business district rose 11 percentage points quarter over quarter while the bedford area vacancy increased by 62 percentage points which was mainly attributed to the addition of a new office building

With new developments rising in central Halifax older properties will be under greater pressure to renovate and retrofit in order to compete In recent years tenants have been forced to relocate out of the downtown area in order to find available quality product However the conversion and expansion of the former bay department store on Chebucto Road by Eurofax Properties Inc and Rank Inc will bring an additional 85000 sf to market While most of this space has already been earmarked by the CbC an additional 35000 sf will be available for lease

Other major projects include the $60-million redevelopment of the Citadel Hotel site and a commitment by Rank Inc to build the Nova Centre which includes space for a convention centre a hotel and office tower that will cover two city blocks and bring an additional 200000 sf to market in the second quarter of 2016

OUTLOOK

Halifaxsup1s office market is likely to remain stable from a demand perspective through 2013 though suburban markets will see the bulk of relocating tenants until additional new product is added to the downtown market In the longer term projects relating to the execution of the massive $25-billion shipbuilding contract should strengthen the overall economy and this will lead to modest

OFFICE

CENTRAL AREA

Inventory

Q3 2012 46 million sfQ4 2013 47 million sf

Vacancy Rate Outlook

Q3 2012 120Q4 2013 139

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 60 million sfQ4 2013 63 million sf

Vacancy Rate Outlook

Q3 2012 90Q4 2013 116

Rental Rate Outlook

MARKETS AT A GLANCE

expansionary demand growth in the office sector

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

22

OFFICE

CENTRAL AREA

Inventory

Q3 2012 13 million sfQ4 2013 15 million sf

Vacancy Rate Outlook

Q3 2012 23Q4 2013 66

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 16 million sfQ4 2013 18 million sf

Vacancy Rate Outlook

Q3 2012 45Q4 2013 81

Rental Rate Outlook

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

6

12

18

24

(60)

(40)

(20)

0

20

40

60

80

100

120

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

ST JOHNrsquoS HEALTHy GROWTH

ECONOMIC OUTLOOK

Newfoundland and Labrador is in the midst of an unprecedented energy-related boom With some $43-billion worth of major projects underway supply of sufficient skilled labour is an ongoing challenge Valesup1s $28-billion nickel processing facility at Long Harbour will be a showcase for hydrometallurgy refining technology when the plant is completed by 2013 The facility will process 50000 tons of nickel per year from the Voiseysup1s bay concentrate deposit in Labrador

The Hebron project another mega offshore oil project includes the future development of the Hebron oil field in the Jeanne Dsup1Arc basin Located 340 kilometers offshore of St Johnsup1s Hebron is estimated to have 400 to 700-million barrels of recoverable crude oil resources As well Newfoundlandsup1s Crown Energy Corporation Nalcor has reached a deal with Nova Scotiasup1s private power utility Emera to finalize details of the Muskrat Falls hydroelectric project in Labrador

OVERVIEW

The easing of oil prices has not cooled strong growth in the province or St Johnsup1s office market Small and vibrant it is now one of the tightest markets in the country with a central area vacancy of 23

Thanks to a booming provincial economy brisk office demand has pushed rental rates into the low $20s for good quality existing product and into the low $30s for new product with allowances However rental rates which had increased every quarter since Q3 2008 flattened in Q3 2012 partially due to softening demand in engineering services and project management sectors

because of Newfoundlandsup1s smaller market size and the low appetite for development risk by outside companies there has been very little new office construction in St Johnsup1s since the mid-1980s In order to meet the early upswing in demand some industrial and retail buildings had been converted into office buildings As well plans are in the works to decommission and

retrofit the existing 82000-sf Fortis building once the balance of the tenants vacate by the second quarter of 2014

Given its low vacancy it comes as no surprise that St Johnsup1s has turned a corner and now boasts a very active development market Five new office buildings are under construction that will add 546000 sf to the citysup1s inventory Over 370000 sf of that will rise downtown split between the 165000-sf office tower at 351 Water Street and the 145000 sf Fortis Place which has tenancy commitments from Fortis and Deloitte These two buildings will arrive in late 2013 and early 2014 respectively Generally the high-level of preleasing activity experienced by the new buildings

Given its low vacancy it comes as no surprise that St Johnsup1s has turned a corner and now boasts a very active development market Five new office buildings are under construction that will add 546000 sf to the citysup1s inventory

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

23

speaks to the pent-up demand for quality space and the health of the overall economy It is likely that this space will be absorbed within the next six years

OUTLOOK

St Johnsup1s is currently in the most active development cycle since the mid-1980s with 546000 sf of new office space under construction This underscores the high level of confidence in the local economy which is being bolstered by huge energy and infrastructure projects With the pullback in energy prices and engineering project hiring completed office demand is expected to level off somewhat in the near term However with so many major projects gearing up or underway St Johnsup1s is expected to remain a going concern for years to come

Looking forward while vacancies will rise with the new developments coming to market office growth will likely be spurred on by support services such as professional financial accounting and legal As is the case in most markets owners who did not engage in major retrofits to upgrade the quality of their space will have a tougher time competing with high-quality new space coming to market We expect modest to moderate office growth for this vibrant market in 2013

Cushman amp Wakefield is the worldrsquos largest privately held commercial real estate services firm The company advises and represents clients on all aspects of property occupancy and investment and has established a preeminent position in the worldrsquos major markets as evidenced by its frequent involvement in many of the most significant property leases sales and assignments Founded in 1917 it has 253 offices in 60 countries and more than 14000 employees It offers a complete range of services for all property types including leasing sales and acquisitions equity debt and structured finance corporate finance and investment banking corporate services property management facilities management project management consulting and appraisal The firm has more than $4 billion in assets under management globally A recognized leader in local and global real estate research the firm publishes its market information and studies online at wwwcushmanwakefieldcomknowledge

copy 2012 Cushman amp Wakefield Inc All rights reserved

Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9

For more information about CampW Research contact

Stuart BarronNational Research Director Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9 (416) 359-2652 stuartbarroncacushwakecom

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

20

FREDERICTON CHALLENGES AHEAD

OVERVIEW

A centre for higher education Fredericton is home to many universities plus a variety of training colleges and institutes Named one of the worldrsquos top seven intelligent communities by the global Intelligent Community Forum Fredericton is home to more than 70 of the provincesup1s knowledge industry some 60 RampD organizations and Canadasup1s largest per-capita engineering cluster An established lsquosmart cityrsquo Fredericton was Canadasup1s first wireless city and is also earning international attention for its sustainability initiatives

As the provincial capital and home to the provincesup1s largest university with a renowned engineering program Fredericton continues to attract and generate intellectual economic development to its extensive business park network known as RUN WAy

Frederictonsup1s 19-msf office market concentrated mainly in the downtown core is home to three levels of government and the professional services that support them In 2012 office vacancy moved upward slightly due to the downsizing of some outsource operations as well as the addition of a new Knowledge Park building However overall vacancy was still tight at 48 as of the third quarter of 2012 and Fredericton posted the highest net-asking rents in the province averaging $1422 psf

OUTLOOK

With provincial government finances under review which could result in downsizing and consolidation in this government-based city along with the 2013 closure of the xstrata mine in bathurst which relied on its suppliers and professional services 2013 may present some challenges for Fredericton

OFFICE

CENTRAL AREA

Inventory

Q3 2012 19 million sfQ4 2013 19 million sf

Vacancy Rate Outlook

Q3 2012 48Q4 2013 43

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 naQ4 2013 na

Vacancy Rate Outlook

Q3 2012 naQ4 2013 na

Rental Rate Outlook na

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

2

4

6

(60)

(40)

(20)

0

20

40

60

06 07 08 09 10 11 12F 13F

CENTRAL AREA

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

21

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(200)

(150)

(100)

(50)

0

50

100

150

200

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

HALIFAx LOOKING UP

ECONOMIC OUTLOOK

Nova Scotiasup1s economy is going to feel some wind in its sails next year as the Deep Panuke project sees its first full year of operation substantially boosting natural gas production Real GDP growth is forecast to be 23 compared to 13 in 2012 Stronger growth will be further supported by paper production resuming at the NewPage mill as well as the beginning of Shellsup1s $971-million oil exploration work Spending related to first phase of the $25-billion 30-year shipbuilding contract will also begin to ramp up in 2013 along with capital spending on the Donkin Coal mine These developments will significantly improve growth prospects next year for Halifax and Nova Scotia

OVERVIEW

Overall office demand was weak across 2012 in Halifax with the central market vacancy rate rising to 120 and the overall rate reaching 103 In the third quarter of 2012 vacancy in the central business district rose 11 percentage points quarter over quarter while the bedford area vacancy increased by 62 percentage points which was mainly attributed to the addition of a new office building

With new developments rising in central Halifax older properties will be under greater pressure to renovate and retrofit in order to compete In recent years tenants have been forced to relocate out of the downtown area in order to find available quality product However the conversion and expansion of the former bay department store on Chebucto Road by Eurofax Properties Inc and Rank Inc will bring an additional 85000 sf to market While most of this space has already been earmarked by the CbC an additional 35000 sf will be available for lease

Other major projects include the $60-million redevelopment of the Citadel Hotel site and a commitment by Rank Inc to build the Nova Centre which includes space for a convention centre a hotel and office tower that will cover two city blocks and bring an additional 200000 sf to market in the second quarter of 2016

OUTLOOK

Halifaxsup1s office market is likely to remain stable from a demand perspective through 2013 though suburban markets will see the bulk of relocating tenants until additional new product is added to the downtown market In the longer term projects relating to the execution of the massive $25-billion shipbuilding contract should strengthen the overall economy and this will lead to modest

OFFICE

CENTRAL AREA

Inventory

Q3 2012 46 million sfQ4 2013 47 million sf

Vacancy Rate Outlook

Q3 2012 120Q4 2013 139

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 60 million sfQ4 2013 63 million sf

Vacancy Rate Outlook

Q3 2012 90Q4 2013 116

Rental Rate Outlook

MARKETS AT A GLANCE

expansionary demand growth in the office sector

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

22

OFFICE

CENTRAL AREA

Inventory

Q3 2012 13 million sfQ4 2013 15 million sf

Vacancy Rate Outlook

Q3 2012 23Q4 2013 66

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 16 million sfQ4 2013 18 million sf

Vacancy Rate Outlook

Q3 2012 45Q4 2013 81

Rental Rate Outlook

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

6

12

18

24

(60)

(40)

(20)

0

20

40

60

80

100

120

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

ST JOHNrsquoS HEALTHy GROWTH

ECONOMIC OUTLOOK

Newfoundland and Labrador is in the midst of an unprecedented energy-related boom With some $43-billion worth of major projects underway supply of sufficient skilled labour is an ongoing challenge Valesup1s $28-billion nickel processing facility at Long Harbour will be a showcase for hydrometallurgy refining technology when the plant is completed by 2013 The facility will process 50000 tons of nickel per year from the Voiseysup1s bay concentrate deposit in Labrador

The Hebron project another mega offshore oil project includes the future development of the Hebron oil field in the Jeanne Dsup1Arc basin Located 340 kilometers offshore of St Johnsup1s Hebron is estimated to have 400 to 700-million barrels of recoverable crude oil resources As well Newfoundlandsup1s Crown Energy Corporation Nalcor has reached a deal with Nova Scotiasup1s private power utility Emera to finalize details of the Muskrat Falls hydroelectric project in Labrador

OVERVIEW

The easing of oil prices has not cooled strong growth in the province or St Johnsup1s office market Small and vibrant it is now one of the tightest markets in the country with a central area vacancy of 23

Thanks to a booming provincial economy brisk office demand has pushed rental rates into the low $20s for good quality existing product and into the low $30s for new product with allowances However rental rates which had increased every quarter since Q3 2008 flattened in Q3 2012 partially due to softening demand in engineering services and project management sectors

because of Newfoundlandsup1s smaller market size and the low appetite for development risk by outside companies there has been very little new office construction in St Johnsup1s since the mid-1980s In order to meet the early upswing in demand some industrial and retail buildings had been converted into office buildings As well plans are in the works to decommission and

retrofit the existing 82000-sf Fortis building once the balance of the tenants vacate by the second quarter of 2014

Given its low vacancy it comes as no surprise that St Johnsup1s has turned a corner and now boasts a very active development market Five new office buildings are under construction that will add 546000 sf to the citysup1s inventory Over 370000 sf of that will rise downtown split between the 165000-sf office tower at 351 Water Street and the 145000 sf Fortis Place which has tenancy commitments from Fortis and Deloitte These two buildings will arrive in late 2013 and early 2014 respectively Generally the high-level of preleasing activity experienced by the new buildings

Given its low vacancy it comes as no surprise that St Johnsup1s has turned a corner and now boasts a very active development market Five new office buildings are under construction that will add 546000 sf to the citysup1s inventory

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

23

speaks to the pent-up demand for quality space and the health of the overall economy It is likely that this space will be absorbed within the next six years

OUTLOOK

St Johnsup1s is currently in the most active development cycle since the mid-1980s with 546000 sf of new office space under construction This underscores the high level of confidence in the local economy which is being bolstered by huge energy and infrastructure projects With the pullback in energy prices and engineering project hiring completed office demand is expected to level off somewhat in the near term However with so many major projects gearing up or underway St Johnsup1s is expected to remain a going concern for years to come

Looking forward while vacancies will rise with the new developments coming to market office growth will likely be spurred on by support services such as professional financial accounting and legal As is the case in most markets owners who did not engage in major retrofits to upgrade the quality of their space will have a tougher time competing with high-quality new space coming to market We expect modest to moderate office growth for this vibrant market in 2013

Cushman amp Wakefield is the worldrsquos largest privately held commercial real estate services firm The company advises and represents clients on all aspects of property occupancy and investment and has established a preeminent position in the worldrsquos major markets as evidenced by its frequent involvement in many of the most significant property leases sales and assignments Founded in 1917 it has 253 offices in 60 countries and more than 14000 employees It offers a complete range of services for all property types including leasing sales and acquisitions equity debt and structured finance corporate finance and investment banking corporate services property management facilities management project management consulting and appraisal The firm has more than $4 billion in assets under management globally A recognized leader in local and global real estate research the firm publishes its market information and studies online at wwwcushmanwakefieldcomknowledge

copy 2012 Cushman amp Wakefield Inc All rights reserved

Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9

For more information about CampW Research contact

Stuart BarronNational Research Director Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9 (416) 359-2652 stuartbarroncacushwakecom

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

21

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

4

8

12

16

(200)

(150)

(100)

(50)

0

50

100

150

200

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

HALIFAx LOOKING UP

ECONOMIC OUTLOOK

Nova Scotiasup1s economy is going to feel some wind in its sails next year as the Deep Panuke project sees its first full year of operation substantially boosting natural gas production Real GDP growth is forecast to be 23 compared to 13 in 2012 Stronger growth will be further supported by paper production resuming at the NewPage mill as well as the beginning of Shellsup1s $971-million oil exploration work Spending related to first phase of the $25-billion 30-year shipbuilding contract will also begin to ramp up in 2013 along with capital spending on the Donkin Coal mine These developments will significantly improve growth prospects next year for Halifax and Nova Scotia

OVERVIEW

Overall office demand was weak across 2012 in Halifax with the central market vacancy rate rising to 120 and the overall rate reaching 103 In the third quarter of 2012 vacancy in the central business district rose 11 percentage points quarter over quarter while the bedford area vacancy increased by 62 percentage points which was mainly attributed to the addition of a new office building

With new developments rising in central Halifax older properties will be under greater pressure to renovate and retrofit in order to compete In recent years tenants have been forced to relocate out of the downtown area in order to find available quality product However the conversion and expansion of the former bay department store on Chebucto Road by Eurofax Properties Inc and Rank Inc will bring an additional 85000 sf to market While most of this space has already been earmarked by the CbC an additional 35000 sf will be available for lease

Other major projects include the $60-million redevelopment of the Citadel Hotel site and a commitment by Rank Inc to build the Nova Centre which includes space for a convention centre a hotel and office tower that will cover two city blocks and bring an additional 200000 sf to market in the second quarter of 2016

OUTLOOK

Halifaxsup1s office market is likely to remain stable from a demand perspective through 2013 though suburban markets will see the bulk of relocating tenants until additional new product is added to the downtown market In the longer term projects relating to the execution of the massive $25-billion shipbuilding contract should strengthen the overall economy and this will lead to modest

OFFICE

CENTRAL AREA

Inventory

Q3 2012 46 million sfQ4 2013 47 million sf

Vacancy Rate Outlook

Q3 2012 120Q4 2013 139

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 60 million sfQ4 2013 63 million sf

Vacancy Rate Outlook

Q3 2012 90Q4 2013 116

Rental Rate Outlook

MARKETS AT A GLANCE

expansionary demand growth in the office sector

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

22

OFFICE

CENTRAL AREA

Inventory

Q3 2012 13 million sfQ4 2013 15 million sf

Vacancy Rate Outlook

Q3 2012 23Q4 2013 66

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 16 million sfQ4 2013 18 million sf

Vacancy Rate Outlook

Q3 2012 45Q4 2013 81

Rental Rate Outlook

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

6

12

18

24

(60)

(40)

(20)

0

20

40

60

80

100

120

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

ST JOHNrsquoS HEALTHy GROWTH

ECONOMIC OUTLOOK

Newfoundland and Labrador is in the midst of an unprecedented energy-related boom With some $43-billion worth of major projects underway supply of sufficient skilled labour is an ongoing challenge Valesup1s $28-billion nickel processing facility at Long Harbour will be a showcase for hydrometallurgy refining technology when the plant is completed by 2013 The facility will process 50000 tons of nickel per year from the Voiseysup1s bay concentrate deposit in Labrador

The Hebron project another mega offshore oil project includes the future development of the Hebron oil field in the Jeanne Dsup1Arc basin Located 340 kilometers offshore of St Johnsup1s Hebron is estimated to have 400 to 700-million barrels of recoverable crude oil resources As well Newfoundlandsup1s Crown Energy Corporation Nalcor has reached a deal with Nova Scotiasup1s private power utility Emera to finalize details of the Muskrat Falls hydroelectric project in Labrador

OVERVIEW

The easing of oil prices has not cooled strong growth in the province or St Johnsup1s office market Small and vibrant it is now one of the tightest markets in the country with a central area vacancy of 23

Thanks to a booming provincial economy brisk office demand has pushed rental rates into the low $20s for good quality existing product and into the low $30s for new product with allowances However rental rates which had increased every quarter since Q3 2008 flattened in Q3 2012 partially due to softening demand in engineering services and project management sectors

because of Newfoundlandsup1s smaller market size and the low appetite for development risk by outside companies there has been very little new office construction in St Johnsup1s since the mid-1980s In order to meet the early upswing in demand some industrial and retail buildings had been converted into office buildings As well plans are in the works to decommission and

retrofit the existing 82000-sf Fortis building once the balance of the tenants vacate by the second quarter of 2014

Given its low vacancy it comes as no surprise that St Johnsup1s has turned a corner and now boasts a very active development market Five new office buildings are under construction that will add 546000 sf to the citysup1s inventory Over 370000 sf of that will rise downtown split between the 165000-sf office tower at 351 Water Street and the 145000 sf Fortis Place which has tenancy commitments from Fortis and Deloitte These two buildings will arrive in late 2013 and early 2014 respectively Generally the high-level of preleasing activity experienced by the new buildings

Given its low vacancy it comes as no surprise that St Johnsup1s has turned a corner and now boasts a very active development market Five new office buildings are under construction that will add 546000 sf to the citysup1s inventory

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

23

speaks to the pent-up demand for quality space and the health of the overall economy It is likely that this space will be absorbed within the next six years

OUTLOOK

St Johnsup1s is currently in the most active development cycle since the mid-1980s with 546000 sf of new office space under construction This underscores the high level of confidence in the local economy which is being bolstered by huge energy and infrastructure projects With the pullback in energy prices and engineering project hiring completed office demand is expected to level off somewhat in the near term However with so many major projects gearing up or underway St Johnsup1s is expected to remain a going concern for years to come

Looking forward while vacancies will rise with the new developments coming to market office growth will likely be spurred on by support services such as professional financial accounting and legal As is the case in most markets owners who did not engage in major retrofits to upgrade the quality of their space will have a tougher time competing with high-quality new space coming to market We expect modest to moderate office growth for this vibrant market in 2013

Cushman amp Wakefield is the worldrsquos largest privately held commercial real estate services firm The company advises and represents clients on all aspects of property occupancy and investment and has established a preeminent position in the worldrsquos major markets as evidenced by its frequent involvement in many of the most significant property leases sales and assignments Founded in 1917 it has 253 offices in 60 countries and more than 14000 employees It offers a complete range of services for all property types including leasing sales and acquisitions equity debt and structured finance corporate finance and investment banking corporate services property management facilities management project management consulting and appraisal The firm has more than $4 billion in assets under management globally A recognized leader in local and global real estate research the firm publishes its market information and studies online at wwwcushmanwakefieldcomknowledge

copy 2012 Cushman amp Wakefield Inc All rights reserved

Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9

For more information about CampW Research contact

Stuart BarronNational Research Director Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9 (416) 359-2652 stuartbarroncacushwakecom

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

22

OFFICE

CENTRAL AREA

Inventory

Q3 2012 13 million sfQ4 2013 15 million sf

Vacancy Rate Outlook

Q3 2012 23Q4 2013 66

Rental Rate Outlook

SUbURbAN

Inventory

Q3 2012 16 million sfQ4 2013 18 million sf

Vacancy Rate Outlook

Q3 2012 45Q4 2013 81

Rental Rate Outlook

MARKETS AT A GLANCE

OFFICE

ABSORPTION OVERALL VACANCY RATE

Abs

orpt

ion

(sf

thou

sand

s)

Vaca

ncy

rate

0

6

12

18

24

(60)

(40)

(20)

0

20

40

60

80

100

120

00 01 02 03 04 05 06 07 08 09 10 11 12F 13F

CENTRAL AREA

ST JOHNrsquoS HEALTHy GROWTH

ECONOMIC OUTLOOK

Newfoundland and Labrador is in the midst of an unprecedented energy-related boom With some $43-billion worth of major projects underway supply of sufficient skilled labour is an ongoing challenge Valesup1s $28-billion nickel processing facility at Long Harbour will be a showcase for hydrometallurgy refining technology when the plant is completed by 2013 The facility will process 50000 tons of nickel per year from the Voiseysup1s bay concentrate deposit in Labrador

The Hebron project another mega offshore oil project includes the future development of the Hebron oil field in the Jeanne Dsup1Arc basin Located 340 kilometers offshore of St Johnsup1s Hebron is estimated to have 400 to 700-million barrels of recoverable crude oil resources As well Newfoundlandsup1s Crown Energy Corporation Nalcor has reached a deal with Nova Scotiasup1s private power utility Emera to finalize details of the Muskrat Falls hydroelectric project in Labrador

OVERVIEW

The easing of oil prices has not cooled strong growth in the province or St Johnsup1s office market Small and vibrant it is now one of the tightest markets in the country with a central area vacancy of 23

Thanks to a booming provincial economy brisk office demand has pushed rental rates into the low $20s for good quality existing product and into the low $30s for new product with allowances However rental rates which had increased every quarter since Q3 2008 flattened in Q3 2012 partially due to softening demand in engineering services and project management sectors

because of Newfoundlandsup1s smaller market size and the low appetite for development risk by outside companies there has been very little new office construction in St Johnsup1s since the mid-1980s In order to meet the early upswing in demand some industrial and retail buildings had been converted into office buildings As well plans are in the works to decommission and

retrofit the existing 82000-sf Fortis building once the balance of the tenants vacate by the second quarter of 2014

Given its low vacancy it comes as no surprise that St Johnsup1s has turned a corner and now boasts a very active development market Five new office buildings are under construction that will add 546000 sf to the citysup1s inventory Over 370000 sf of that will rise downtown split between the 165000-sf office tower at 351 Water Street and the 145000 sf Fortis Place which has tenancy commitments from Fortis and Deloitte These two buildings will arrive in late 2013 and early 2014 respectively Generally the high-level of preleasing activity experienced by the new buildings

Given its low vacancy it comes as no surprise that St Johnsup1s has turned a corner and now boasts a very active development market Five new office buildings are under construction that will add 546000 sf to the citysup1s inventory

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

23

speaks to the pent-up demand for quality space and the health of the overall economy It is likely that this space will be absorbed within the next six years

OUTLOOK

St Johnsup1s is currently in the most active development cycle since the mid-1980s with 546000 sf of new office space under construction This underscores the high level of confidence in the local economy which is being bolstered by huge energy and infrastructure projects With the pullback in energy prices and engineering project hiring completed office demand is expected to level off somewhat in the near term However with so many major projects gearing up or underway St Johnsup1s is expected to remain a going concern for years to come

Looking forward while vacancies will rise with the new developments coming to market office growth will likely be spurred on by support services such as professional financial accounting and legal As is the case in most markets owners who did not engage in major retrofits to upgrade the quality of their space will have a tougher time competing with high-quality new space coming to market We expect modest to moderate office growth for this vibrant market in 2013

Cushman amp Wakefield is the worldrsquos largest privately held commercial real estate services firm The company advises and represents clients on all aspects of property occupancy and investment and has established a preeminent position in the worldrsquos major markets as evidenced by its frequent involvement in many of the most significant property leases sales and assignments Founded in 1917 it has 253 offices in 60 countries and more than 14000 employees It offers a complete range of services for all property types including leasing sales and acquisitions equity debt and structured finance corporate finance and investment banking corporate services property management facilities management project management consulting and appraisal The firm has more than $4 billion in assets under management globally A recognized leader in local and global real estate research the firm publishes its market information and studies online at wwwcushmanwakefieldcomknowledge

copy 2012 Cushman amp Wakefield Inc All rights reserved

Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9

For more information about CampW Research contact

Stuart BarronNational Research Director Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9 (416) 359-2652 stuartbarroncacushwakecom

A Cushman amp Wakefield Research Publication

OUTLOOK 2013

23

speaks to the pent-up demand for quality space and the health of the overall economy It is likely that this space will be absorbed within the next six years

OUTLOOK

St Johnsup1s is currently in the most active development cycle since the mid-1980s with 546000 sf of new office space under construction This underscores the high level of confidence in the local economy which is being bolstered by huge energy and infrastructure projects With the pullback in energy prices and engineering project hiring completed office demand is expected to level off somewhat in the near term However with so many major projects gearing up or underway St Johnsup1s is expected to remain a going concern for years to come

Looking forward while vacancies will rise with the new developments coming to market office growth will likely be spurred on by support services such as professional financial accounting and legal As is the case in most markets owners who did not engage in major retrofits to upgrade the quality of their space will have a tougher time competing with high-quality new space coming to market We expect modest to moderate office growth for this vibrant market in 2013

Cushman amp Wakefield is the worldrsquos largest privately held commercial real estate services firm The company advises and represents clients on all aspects of property occupancy and investment and has established a preeminent position in the worldrsquos major markets as evidenced by its frequent involvement in many of the most significant property leases sales and assignments Founded in 1917 it has 253 offices in 60 countries and more than 14000 employees It offers a complete range of services for all property types including leasing sales and acquisitions equity debt and structured finance corporate finance and investment banking corporate services property management facilities management project management consulting and appraisal The firm has more than $4 billion in assets under management globally A recognized leader in local and global real estate research the firm publishes its market information and studies online at wwwcushmanwakefieldcomknowledge

copy 2012 Cushman amp Wakefield Inc All rights reserved

Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9

For more information about CampW Research contact

Stuart BarronNational Research Director Cushman amp Wakefield Ltd 33 yonge Street Suite 1000 Toronto ON MSE 1S9 (416) 359-2652 stuartbarroncacushwakecom