Mid Year Outlook 2010

CONTENTS
 NATIONAL
 VANCOUVER
 CALGARY
 EDMONTON MID-YEAR OFFICE & INDUSTRIAL
 WINNIPEG
 TORONTO REAL ESTATE OUTLOOK
 OTTAWA
 MONTREAL
 SAINT JOHN
 MONCTON
 FREDERICTON
 HALIFAX
 ST. JOHN’S

For further information, please contact:
Stuart Barron, National Research Director
Cushman & Wakefield Ltd.
33 Yonge Street, Suite 1000
Toronto, ON MSE 1S9
(416) 359-2652
stuart.barron@ca.cushwake.com

A C U S H M A N & WA K EF I EL D P U B L I C AT I O N

OUTLOOK 2010
MID-YEAR OFFICE & INDUSTRIAL REAL ESTATE OUTLOOK

NATIONAL MARKETS AT A GLANCE
CONTENTS
Canada¹s major office and industrial real
estate markets stood up remarkably well OFFIC E
 NATIONAL
during the global recession and continue Central Area
 VANCOUVER
to recover faster than many markets in the Inventory
 CALGARY
United States and Europe. Q1 2010: 256.1 million sf
 EDMONTON Q1 2011: 258.1 million sf
Canada and the United States have one of the
 WINNIPEG
world’s largest and most comprehensive trading Vacancy Rate Outlook:
 TORONTO
relationships – with $1.4 million worth of goods Q1 2010: 7.4%
 OTTAWA and services crossing the border every minute. Q1 2011: 9.0%

→
 MONTREAL While two-way trade is unquestionably a vital
Rental Rate Outlook:
 SAINT JOHN driver of the Canadian economy, the resilience
 MONCTON shown by Canadian office and industrial markets Suburban
 FREDERICTON through this extraordinary global recessionary Inventory
 HALIFAX cycle is another indicator of the country’s Q1 2010: 191.3 million sf
 ST. JOHN’S singular identity and independence. Q1 2011: 193.1 million sf
Canadian housing markets avoided the Vacancy Rate Outlook:
problems seen in other countries, its financial Q1 2010: 10.7%
system—recognized as one of the strongest in Q1 2011: 12.3%

↘
the world—expanded over the recession, and
it boasted the lowest debt among all advanced Rental Rate Outlook:

industrialized countries.
INDUSTRIAL
While the Canadian economy—and
Q1 2010: 1.44 billion sf
commercial real estate by extension—continue
Q1 2011: 1.45 billion sf
to be buffeted by global economic forces,
including the European currency crisis, its Vacancy Rate Outlook:
office and industrial markets are on the path Q1 2010: 6.4%
to recovery and even expansion in some cases. Q1 2011: 5.9%

→
This is thanks in no small part to prudent
Rental Rate Outlook
landlord and tenant decisions.

CENTRAL OFFICE MARKET
HIGHLIGHTS impact on office and industrial markets, even
As Cushman & Wakefield’s 2010 Mid- though the downturn’s magnitude didn’t come
Year Outlook underscores, most Canadian close to that of the most recent global recession.
office and industrial real estate markets Calgary’s office market experienced the
outperformed expectations during this greatest turbulence in the country. Propelled
recession and are recovering or poised for by record natural gas prices in 2005, alongside
growth. However, as our report also shows, buoyant oil prices, explosive office demand
there are still areas of strain, particularly squeezed the downtown core vacancy to 0.1%.
involving those businesses and markets tied What followed was a frenetic development
closest to slowly recovering or still struggling cycle that will see about 7.5 million square feet
sectors in the United States and Europe. added to Calgary’s downtown office inventory.
Surprisingly, however, the fallout from the Fast forward to 2010 and many of these
2000 high-tech meltdown had a far worse developments are just coming to completion at

 PREVIOUS N E X T 

A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | NATIONAL

OUTLOOK 2010

NATIONAL
CONTENTS
a time when recovery from the recession has themes: Central area markets were impacted
 NATIONAL barely taken hold. When The Bow’s 1.9-million- quite heavily during the first two quarters of
 VANCOUVER square-foot office tower opens in early 2012, 2009, but started stabilizing much faster than
 CALGARY Calgary’s central office market may see vacancy expected, as the bleeding of space slowed and
 EDMONTON
approach 20%. demand re-entered the picture. Sublet space
However, there are silver linings: Calgary’s peaked at more moderate levels compared to
 WINNIPEG
business fundamentals remain strong and layoffs the 2001 contraction, and the fall in rental rates,
 TORONTO
were surprisingly limited, indicating long-term while it happened quite quickly, has stabilized in
 OTTAWA business confidence. most central markets.
 MONTREAL Toronto was the second Canadian city that
 SAINT JOHN had a significant pipeline of new developments SUBURBAN OFFICE MARKET
 MONCTON underway in its Central Area when the HIGHLIGHTS
 FREDERICTON recession hit. Buildings such as 25 York Street, During this recessionary cycle, suburban office
 HALIFAX RBC Centre, and Bay Adelaide Centre will markets, such as Toronto and Vancouver,
 ST. JOHN’S bring a total of 4.5 million square feet of which tend to be more closely connected to
new space to the city. The final tower to US business activities, were hit much harder
arrive will be 18 York, a 657,000-square-foot than central markets. Many US companies
development to be completed in Q3 2011. simply ceased operations in Canada, or
While initially the optics of significant new downsized significantly. More recently,
supply coming on stream in the midst of the acquisitions and consolidations of multiple-
worst recession since The Great Depression premises operations have driven a significant
conjured up visions of record vacancy rates and amount of space back to market.
a tenants’ market for years to come, the worst An advantage is that most suburban markets
simply didn’t materialize. Instead, demand have seen little development activity, which has
rebounded after two very weak quarters, and prevented vacancy rates from rising too high and
more recently, approached expansionary levels will support faster recovery. Some exceptions
– thanks largely to Canada’s banking sector, include submarkets such as Burnaby, where a
which is firing on all cylinders. significant pipeline of activity was underway
Across the country, there are common when the recession hit.

OFFICE INDUSTRIAL

Absorption (sf, thousands) Vacancy Rate (%) Absorption (sf, thousands) Vacancy Rate (%)

14,000 14% 32,000 8%
12,000 12% 28,000 7%
10,000 10% 24,000 6%
8,000 8%
20,000 5%
6,000 6%
16,000 4%
4,000 4%
12,000 3%
2,000 2%
8,000 2%
0 0%
4,000 1%
(2,000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F -2%
0 0%
(4,000) -4%
(4,000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F -1%
(6,000) Absorption Overall Vacancy Rate -6% Absorption Overall Vacancy Rate



OUTLOOK 2010

NATIONAL
CONTENTS
INDUSTRIAL MARKET HIGHLIGHTS There are bright spots such as Winnipeg,
 NATIONAL At the mercy of forces such as the still struggling where a strong economy and little development
 VANCOUVER US economy, European financial crisis and dollar activity has vacancy at decade-low levels.
 CALGARY value, Canada’s manufacturers are recovering This is expected to spur some much needed
 EDMONTON
slowly and making cautious real estate moves. development by the end of the year. Moncton,
Meanwhile, large retailers and other users of which has also been reaping the benefits of a
 WINNIPEG
distribution & warehouse space are actively healthy economy, given its proximity to major
 TORONTO
upgrading and even expanding, as they seek to markets in Atlantic Canada and the United
 OTTAWA take advantage of low-rent conditions while the States, has attracted significant interest from the
 MONTREAL getting is good. investment community.
 SAINT JOHN Generally, across Canada, limited development St. John’s industrial market also fared well
 MONCTON activity has helped to hold down vacancy through the recession. Rental rates showed
 FREDERICTON rates and will hasten recovery, especially as healthy growth during the last year, and
 HALIFAX high demand exhausts quality asset supplies in continued strong demand is expected from
 ST. JOHN’S markets such as the GTA. Rental rates in this service companies that are lined up to support
recovering environment have weakened but a the huge infrastructure projects underway in the
return to positive absorption has stabilized rates province. Construction activity is also robust.
in most markets. In Canada’s largest industrial market, the GTA,
Continued global economic strains will recovery is taking hold. The downward pressure
suppress recovery. However, forecasted on rental rates is leveling off in most sub-
rebounds in commodity prices and improving markets and will climb slowly upwards by the
retail activity will positively impact industrial first or second quarter of 2011. While sale prices
markets across the country. Industrial sales as continue to drop in some markets, they are
well remain steady; in tight markets where there holding firm in the central region. Demand will
is little stock available, product sells quickly remain healthy for warehouse and distribution
without a significant increase in yield. Land buildings in a consumer-driven economy,
prices, particularly in markets like Vancouver, although manufacturing will continue to struggle.
where availability is limited due to natural
barriers, lost some value through the recession,
but are recovering quickly.



OUTLOOK 2010

VANCOUVER MARKETS AT A GLANCE
CONTENTS
ECONOMY
British Columbia’s economy is expected to OFFIC E
 NATIONAL
expand by 3.8% in 2010, fuelled by a one-time Central Area
 VANCOUVER
Olympics boost and recovery in the forestry, Inventory
 CALGARY
manufacturing and construction sectors, Q1 2010: 29.0 million sf
according to The Conference Board of Canada’s
 WINNIPEG
Provincial Outlook – Spring 2010. However, with Vacancy Rate Outlook:
 TORONTO
the Olympics out of the way and growth in the Q1 2010: 4.8%
 OTTAWA housing market expected to ease, the province’s Q1 2011: 4.8%

↗
 MONTREAL GDP growth will moderate to 2.8% in 2011.
 SAINT JOHN
 MONCTON OFFICE OVERVIEW Suburban
 FREDERICTON The first quarter of 2010 set the stage in Inventory
 HALIFAX Vancouver for the rest of the year: a stabilized- Q1 2010: 19.8 million sf
 ST. JOHN’S to-tight Central Business District and continued Q1 2011: 20.2 million sf
struggles in suburban markets. Very much a tale Vacancy Rate Outlook:
of two markets, Vancouver’s CBD office market Q1 2010: 12.4%
survived the recession better than expected, Q1 2011: 14.1%

↘
while the suburban markets buckled under
stagnated US activity, which resulted in the Rental Rate Outlook:

contraction and retreat of some companies.
INDUSTRIAL
With just 60,000 square feet of new supply
Q1 2010: 186.6 million sf
expected downtown in the next year, vacancy
rates will tighten and contribute to higher
rental rates and a stable market for the Vacancy Rate Outlook:
foreseeable future. Q1 2010: 4.6%
Market indicators outside of the CBD, Q1 2011: 3.7%

→
however, remain uncertain, marked by increased
Rental Rate Outlook
vacancy as new supply comes to market and
negative absorption. Vancouver’s overall
suburban vacancy rate rose to 12.4% in Q1
2010, up from 11.7% in the previous quarter. vacancy extremely tight at under 5%. Sublet
Struggling with new supply and low demand, space is being quickly absorbed, with just
Burnaby vacancy climbed to just over 10.1% in 300,000 square feet available as of Q1 2010.
Q1 2010, a situation that will be compounded Rental rates have stabilized or increased on any
as more supply enters the market in the coming “view space” that comes available. Rates for
quarters. Richmond, as well, has come to a smaller commodity space, which have been flat
virtual standstill. Historically, growth has come or softer, are also starting to shift upward again.
from US expansion into Canada, which has been
contracting or nonexistent since the recession OFFICE OUTLOOK
took hold in 2008. From an investment As Vancouver’s CBD tightens, and the price
perspective, minimal transaction activity of being located downtown increases, the
occurred, particularly when compared to 2009. suburban markets may benefit from the
Downtown, leasing activity is brisk, with movement of some tenants to buildings offering


A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | VANCOUVER

OUTLOOK 2010

VANCOUVER
CONTENTS
excellent parking and public transit alternatives. groups that desire downtown profiles.
 NATIONAL Financial institutions have moved some back- In such a tight market, Class A CBD “view
 VANCOUVER office operations to the suburbs but activity space” has climbed back to peak-of-the-market
 CALGARY remains limited. With little new supply expected face rates of about $38-$40 per square feet.
 EDMONTON
downtown until 2015, the options for larger Non-view rates in the same building have
users requiring more than 15,000 square feet reached about $25 per square foot, which is still
 WINNIPEG
are rapidly disappearing. Most of the leasing down from peak rates, but will continue climbing.
 TORONTO
activity last year and at the beginning of this With premium space running out and tenants
 OTTAWA year related to companies taking advantage of faced with $7 to $10 per square foot renewal
 MONTREAL subleasing opportunities, the last window for increases, the expectation is that some businesses
 SAINT JOHN 40,000 to 90,000 square foot deals. will explore lower-cost options in the suburbs.
 MONCTON As the US economy stabilizes, suburban Being more central, Burnaby will recover
 FREDERICTON inventory will be absorbed slowly. Some US much faster than Richmond. At 9 million
 HALIFAX businesses that retreated or closed down due square feet, Burnaby is bigger than Broadway
 ST. JOHN’S to the recession and higher Canadian dollar and is now Vancouver’s second largest office
value are unlikely to make a come back soon market. Serviced by two transit sky train
– and concern exists about sources of future lines, it is well positioned. To help offset
office-using demand. Rental rate growth will be low demand and new supply, landlords are
tempered in the short term, as tenants are given providing competitive rates, turnkey space and
more options for quality space. other inducements to attract tenants. Rents
Demand downtown is being driven by are expected to stabilize by 2012.
professional services and also engineering firms
engaged in long-term infrastructure projects such INDUSTRIAL OVERVIEW
as the Port Mann Bridge, Highway No. 1 expansion At 4.6%, vacancy in Vancouver’s industrial real
and port expansion. Along with their stock values, estate sector is higher than historical norms of
natural resource companies have also recovered 1.5% to 3%. When sublease space is factored
and are faced with increased space needs. The in, real vacancy would come closer to 7%.
exploration side has long been a big driver of Larger bulk space has been sitting dormant in
demand, including both small- and medium-sized the wake of the global downturn, which, among

OFFICE INDUSTRIAL


2,500 15% 4,000 6%

2,000 12% 3,500
5%
3,000
1,500 9%
4%
2,500
1,000 6%
2,000 3%
500 3%
1,500
2%
0 0% 1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F 1%
(500) -3% 500

(1,000) -6% 0 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F



OUTLOOK 2010

VANCOUVER
CONTENTS
other things, has caused third party logistics INDUSTRIAL OUTLOOK
 NATIONAL companies to contract in size. However, even Activity is starting to pick up. Options for larger
 VANCOUVER though leasing activity remains quieter than users requiring 100,000 square feet or more are
 CALGARY usual, local companies and owners/users quickly running out. Land prices have stabilized
 EDMONTON
continue to show a high-level of interest and are expected to increase, as options remain
in buying existing buildings and strata units limited. With fewer opportunities to grow,
 WINNIPEG
whenever they become available. industrial real estate values will recover faster
 TORONTO
In Q1 2010, positive absorption was seen in the and remain a desirable asset class.
 OTTAWA Langley submarket for the first time in several Pressure on the Vancouver industrial market
 MONTREAL quarters. Vacancy in the Richmond submarket, is likely to further ease in the short to medium-
 SAINT JOHN which is the largest in the Greater Vancouver term as new developments are brought to
 MONCTON Area, barely budged from 5.5% in the first market. While vacancy may increase, rental rates
 FREDERICTON quarter, partially due to intense city-side focus on are expected to remain steady and trend slowly
 HALIFAX the Winter Olympic Games in February. upwards. Because the city’s manufacturing
 ST. JOHN’S Over 650,000 square feet of new industrial sector is heavily dominated by resource-
supply flooded the market in the first quarter, based companies, predictions for rebounding
which lead to negative absorption of 230,000 commodity prices into 2011 will be reflected
square feet – down from 2.9 million square favourably in the performance of the industrial
feet of positive absorption in the last quarter real estate market. Vancouver’s position as
of 2009. Another 440,000 square feet of new the dominant Pacific Rim Port for Canada will
supply is scheduled to open in Burnaby and also aid recovery as the world economy gains
Delta, most of which is speculative development. strength and momentum in the coming years.
More sales closed in Q1 2010 than in all 2009.
Demand is high but product limited, resulting in
compressing cap rates and higher prices. While
institutional investors, who bought when rental
rates were at their highest, are trying to preserve
face rates, private owners, who are more focused
on cash flow, are more willing to close deals
below market rates. Overall, industrial rental
rates, presently averaging $8 to $9 per square
foot, are down from peak rates of $10 to $12.



OUTLOOK 2010

CALGARY MARKETS AT A GLANCE
CONTENTS
ECONOMIC
RBC Economics forecasts that Alberta’s OFFIC E
 NATIONAL
economy will grow by 2.5% in 2010, falling Central Area
 VANCOUVER
short of the national average due mainly Inventory
 CALGARY
to the continued slump in the natural gas Q1 2010: 41.3 million sf
industry. However, economic activity will
 WINNIPEG
gain momentum through 2010, with renewed Vacancy Rate Outlook:
 TORONTO
spending on capital projects, continued low Q1 2010: 12.1%
 OTTAWA interest rates and an anticipated improvement Q1 2011: 16.2%

↓
 MONTREAL in natural gas markets. By next year, growth is
 SAINT JOHN expected to surge by 4.4%.
 MONCTON Suburban
 FREDERICTON OFFICE OVERVIEW Inventory
 HALIFAX Calgary’s story is one of significant new Q1 2010: 15.1 million sf
 ST. JOHN’S supply arriving at a time when demand has Q1 2011: 15.4 million sf
been undermined by market forces. Still with Vacancy Rate Outlook:
surprisingly few layoffs, existing companies are Q1 2010: 16.9%
holding their own – a positive sign of confidence Q1 2011: 18.5%

↘
and good things to come. Almost 2.5 million
square feet of office inventory was added to Rental Rate Outlook:

Calgary’s CBD in Q1 2010. The 10.8% vacancy
INDUSTRIAL
rate downtown was misleading, as many tenants
were still caught between moves. Vacancy will
go up once backfill spaces are vacated. The
same goes for Calgary’s high positive absorption, Vacancy Rate Outlook:
which will drop once moves are completed and Q1 2010: 5.9%
vacated space is returned to market. Q1 2011: 4.6%

→
Setting aside the impact of new supply, the
Rental Rate Outlook
first quarter numbers were somewhat flat – an
indication that Calgary business is standing quite
strong in the wake of the global recession and
low gas prices. Lower than expected job loss attractive inducement packages and competitive
among office using employers is a strong indicator rates in what’s become a tenants’ market.
that companies remain optimistic about the Average Class A CBD asking rental rates have
energy sector and the general economy. dropped by more than 30% in the past two
While continued slow recovery in office years – from low-to-mid $40s to high $20s per
demand is forecasted, the pace of demand is not square foot.
expected to absorb the vast amounts of new With so much movement into new buildings,
inventory completed or coming to market, with it is not surprising that almost half of Calgary’s
Eighth Avenue Place and The Bow adding 2.9 downtown office vacancy is made up of sublet
million square feet alone. As a result, CBD office space, which, in many cases, offers long-term
vacancy will rise significantly through to the leases with high-quality buildouts. This trend
completion of The Bow in 2012. will continue until new supply is completed
Landlords are stepping up to the plate with and demand improves. Until then, sublet rental


A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | CALGARY

OUTLOOK 2010

CALGARY
CONTENTS
rates will remain highly competitive, as landlords With very little new supply coming on stream,
 NATIONAL compete aggressively with headlease space. vacancy should remain relatively stable.
 VANCOUVER
 CALGARY OFFICE OUTLOOK INDUSTRIAL OVERVIEW
 EDMONTON
The Calgary office market remained relatively Calgary’s industrial real estate market has
stable through the global recession, however managed through the recession better than
 WINNIPEG
a flood of new supply will outstrip demand expected. While it did not reach equilibrium
 TORONTO
until at least 2012. This will continue to exert as of Q1 2010, it never went “off the charts”
 OTTAWA downward pressure on net rental rates. one way or the other. When brought to
 MONTREAL CBD vacancy is expected to reach almost market, industrial product continues to sell
 SAINT JOHN 20% before the tide begins to turn in late quickly without a significant increase in yield.
 MONCTON 2012. All eyes are on gas prices, which must Land prices, as well, have not lost as much
 FREDERICTON rise significantly from the current $4 range value as expected although the velocity of land
 HALIFAX per MMBtu to support sustained growth in transactions has slowed significantly.
 ST. JOHN’S occupied space. At the peak of the market
in 2007, gas prices hit $12 per MMBtu and INDUSTRIAL OUTLOOK
demand surged. 2010 is a new year with a much more positive
The sublease market will dominate leasing outlook. The first quarter saw vacancy drop in
activity throughout 2010, holding rental rates Calgary’s industrial real estate market for the
at bay as landlords and sublandlords compete first time since the end of 2007. Vacancy now
to attract and retain new tenants. In recent stands at 5.9%. Sizeable positive absorption
months an easing in the amount of sublet space combined with increased leasing activity point to
returning to market offers solace that the a turnaround for the industrial market, adding to
market is stabilizing. However, more merger and a sense of optimism that began late in 2009.
acquisition activity resulting in the right-sizing Considering the positive outlook for both
of tenants may lead to a further reduction of the Calgary and Alberta economies, continued
occupied space in the coming months. recovery in the industrial market is projected.
Calgary’s suburban markets have seen little This should lead to stronger leasing activity and
activity with vacancy sitting at around 17%. positive absorption during upcoming quarters.

OFFICE INDUSTRIAL


3,000 18% 4,000 8%
2,500 15%
3,000 6%
2,000 12%
1,500 9% 2,000 4%
1,000 6%
500 3% 1,000 2%

0 0%
0 0%
(500) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F -3%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
(1,000) -6% (1,000) -2%
(1,500) -9%
(2,000) -4%



OUTLOOK 2010

CALGARY
CONTENTS
Continued positive absorption, combined
 NATIONAL with the fact that there is little speculative
 VANCOUVER development underway, will continue to push
 CALGARY vacancy down. Rental rates declined slightly
 EDMONTON
during Q1 2010 and were off by almost 20%
from the highs reached in 2008. Rates are
 WINNIPEG
expected to stabilize as vacancy slowly drops.
 TORONTO
The overall market stabilization is leading to
 OTTAWA a balanced industrial market where both the
 MONTREAL tenant and landlord are on equal footing in the
 SAINT JOHN negotiation process. The industrial market may
 MONCTON see signs of speculative development ramping up
 FREDERICTON in the near future.
 HALIFAX
 ST. JOHN’S



OUTLOOK 2010

EDMONTON MARKETS AT A GLANCE
CONTENTS
ECONOMY
After shrinking for the first time since 1991 OFFIC E
 NATIONAL
last year, Edmonton’s economy is expected to Central Area
 VANCOUVER
turnaround in 2010 by growing 3.2%, according to Inventory
 CALGARY
the Conference Board of Canada’s Metropolitan Q1 2010: 15.2 million sf
Outlook. Looking forward, the board says the
 WINNIPEG
Edmonton region’s gross domestic product Vacancy Rate Outlook:
 TORONTO
will grow an average of just over 4% annually Q1 2010: 5.9%
 OTTAWA between 2011 and 2014. Last year, the city’s Q1 2011: 6.9%

↘
 MONTREAL GDP fell an estimated two per cent – the biggest
 SAINT JOHN drop on record. The report predicts Edmonton’s
 MONCTON job market will remain soft this year, with Suburban
 FREDERICTON unemployment at about 7.5%. Retail sales, home Inventory
 HALIFAX resales and the construction sector are expected Q1 2010: 9.4 million sf
 ST. JOHN’S to also show moderate gains. Q1 2011: 9.4 million sf

Vacancy Rate Outlook:
OFFICE OVERVIEW Q1 2010: 15.0%
The government—provincial, civic and federal Q1 2011: 15.5%

↘
—is the primary driver of office demand in
this provincial capital city, occupying some Rental Rate Outlook:

35% of Class A space in the CBD. Faced with
a reduced revenue stream and high deficit due
largely to low natural gas prices and the fallout Tower, significant pockets may be left behind in
from last year’s global recession, the provincial the Bank of Montreal Building (55,800 square
government is not expected to allocate any feet), TD Tower (68,500 square feet) and
resources to office space requirements over Manulife Place (23,000 square feet). The new
the near term. EPCOR Tower itself still has 174,000 square
This comes at a time when, for the first time feet remaining for prelease, while the company’s
in more than two decades, new development existing location at the 1974 vintage EPCOR
is entering the Edmonton picture. When Centre is projected to be 100% vacant by late
completed, the EPCOR Tower, scheduled 2011 with 19 full floors or 192,000 square feet
to open in late 2011, will bring 28 floors and available for lease.
614,000 square feet to the CBD market. Some Edmonton is no stranger to demand
440,000 square feet was preleased to EPCOR challenges. The city was hard hit in late 1980s
and a second major tenant, the Federal Justice when the government consolidated space, and
Department. Both will move out of existing it took 20 years for the office market to recover.
CBD locations to consolidate in the new At the peak of the market in early 2009, with
building, leaving significant space in their wake. downtown Class A vacancy scratching the
With Edmonton grappling with slow business surface at 2.1%, space commanded $36 net
and job growth, along with constrained rental rates. That has shrunk to ranges between
government activity, new supply and low $20 and $26 in the face of slowing demand
absorption will drive up office vacancy and exert and new supply, which will drive vacancy over
downward pressure on rental rates. Once the 10% with the opening of the EPCOR Tower if
dust settles on moves into the new EPCOR absorption, particularly related to government


A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | EDMONTON

OUTLOOK 2010

EDMONTON
CONTENTS
leasing, remains stagnant.
 NATIONAL OUTLOOK
 VANCOUVER Edmonton is braced for a difficult period as new
 CALGARY supply comes on stream and demand remains
 EDMONTON
weak due to stagnated government activity
and slow economic growth. Alberta remains a
 WINNIPEG
commodity-based province, without diversified
 TORONTO
sources of demand. However, this situation
 OTTAWA could turn around quickly given the world’s
 MONTREAL interest (China, US) in oil sands development
 SAINT JOHN around Fort McMurray. The potential for
 MONCTON continued long-term strong demand for safe
 FREDERICTON supplies of gas and oil offers the entire province
 HALIFAX hope for recovery and growth. Meanwhile,
 ST. JOHN’S Edmonton will remain a tenants’ market for
some time to come.


A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | EDMONTON

OUTLOOK 2010

WINNIPEG MARKETS AT A GLANCE
CONTENTS
ECONOMY
The resilient Manitoba economy sidestepped OFFIC E
 NATIONAL
the worst of the economic turmoil of 2009 Central Area
 VANCOUVER
and stands to perform relatively well through Inventory
 CALGARY
2010/11. The province’s growth contracted Q1 2010: 10.1 million sf
by only 0.3% in 2009 – compared to national
 WINNIPEG
average of 2.6%. BMO Capital Markets forecasts Vacancy Rate Outlook:
 TORONTO
Manitoba’s GDP to grow by 3% this year. Q1 2010: 7.8%
 OTTAWA Population growth above the national average Q1 2011: 7.1%

→
 MONTREAL and a strong job market fuelled by several
 SAINT JOHN large capital projects will support long-term
 MONCTON economic stability. In addition to the James Suburban
 FREDERICTON Armstrong Richardson International Airport and Inventory
 HALIFAX the Canadian Museum for Human Rights, the Q1 2010: 2.9 million sf
 ST. JOHN’S province is investing $1.8 billion in infrastructure Q1 2011: 3.0 million sf
and capital renewal in fiscal year 2010/11. Vacancy Rate Outlook:
Manufacturing and trade numbers Q1 2010: 14.6%
strengthened in Q1 2010 despite a high Q1 2011: 14.6%

↗
Canadian dollar. The expansion of the
University of Winnipeg Campus and Red River Rental Rate Outlook:

Campus downtown, along with new office
projects in the Central Business District have
added to the sense of optimism about the city’s 5.6% to 6.2%. This increase was mainly due to
long-term prospects. CanWest Global returning some 30,000 square
feet to 201 Portage Avenue. At 360 Main Street,
OFFICE OVERVIEW Microsoft Canada leased about 10,000 square
Office market activity started to pick up in Q1 feet, reducing the direct vacancy rate at that
2010, with a number of tenants who hadn’t building to approximately 1%.
budged for years suddenly looking to expand Class B office vacancy in the CBD is
or upgrade outdated premises. Firms emerging hovering around 10.8% due to some extent
from the recession with strong balance sheets to the customer contact industry’s continuing
are poised for growth and taking a long-term contraction, which resulted in Inspyre Solutions
view with respect to their real estate needs. vacating about 30,000 square feet at 363
They are finding opportunities created by the Broadway in Q1. At the same time, Statistics
convergence of low interest rates, increased Canada leased some 12,000 square feet at 330
vacancy in the CBD and the hangover of a Portage Avenue.
fragile 2009 leasing market. As well, the cost
differential between upgrading existing premises OFFICE OUTLOOK
versus relocating to new premises has closed Thanks to a stable economy and the
significantly, making relocation an increasingly enhancements added by major projects,
attractive option. including a skywalk system expansion, Winnipeg
The Class A market saw moderate activity in is experiencing a downtown renaissance that
the first quarter of 2010 as the overall vacancy has caught the attention of businesses, and put
nudged up by 0.6 percentage points, from the brakes on the number of tenants migrating


A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | WINNIPEG

OUTLOOK 2010

WINNIPEG
CONTENTS
to suburban markets. Increased movement developers. That gap is starting to close as
 NATIONAL between buildings and building classes is tenants facing renewals are finding out.
 VANCOUVER expected to continue as opportunistic tenants The market is in a period of flux and will
 CALGARY seize attractive lease deals and sublet offerings. likely see both an increase in net rates on both
 EDMONTON
Although lease rates will remain unchanged, renewals and vacancies coupled with some new
NERs are expected to shrink as landlords developments. Still, when compared to other
 WINNIPEG
aggressively pursue tenants to fill vacancy. As real estate markets, the Winnipeg industrial
 TORONTO
well, overall office vacancy rates are expected landscape offers terrific value, especially when
 OTTAWA to creep slightly up as shadow vacancy grows you factor in the geographical and economic
 MONTREAL and more sublet space is returned to market. benefits of the city’s location.
 SAINT JOHN This, however, will not be enough to dampen an
 MONCTON otherwise healthy market. INDUSTRIAL OUTLOOK
 FREDERICTON Winnipeg did not suffer the precipitous declines
 HALIFAX INDUSTRIAL OVERVIEW experienced by other markets and is therefore
 ST. JOHN’S There are many interpretations of statistics expected to make a faster recovery. The
for overall vacancy rates for the industrial industrial market is expected to continue to
leasing market in Winnipeg. Ranging anywhere reflect elevated activity levels in an already tight
from 2% to 5%, one thing is certain: vacancy market, which may spur some much needed
continues to reflect decade-low levels. The new development by the end of the year.
Winnipeg market has never been over-built Companies in good positions to take advantage
with speculative development and as a result of the strengthening economy will, in many
tenants do not have an abundance of choices. cases, need additional space, which may not
However, the market velocity hasn’t quite be available. The gap in rental rates will start
reached levels to drive rates high enough or to close as landlords realize they can charge
quickly enough on the older inventory to spur more on renewals without the risk of losing
new development. There is a gap between their tenants to competing space. Vacancy will
net lease rates on the predominantly older continue to tighten further unless new inventory
inventory and the near double-digit rates is brought on stream.
required to make new construction work for The development of an inland port near

OFFICE

Absorption (sf, thousands) Vacancy Rate (%)

1,000 10%

800 8%

600
5%
400
3%
200
0%
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
(200) -3%

(400) Absorption Overall Vacancy Rate -5%



OUTLOOK 2010

WINNIPEG
CONTENTS
the new airport, CentrePort Canada Inc., has
 NATIONAL heightened interest among companies from
 VANCOUVER around the world with global supply chain
 CALGARY needs. The city’s central geographic location as
 EDMONTON
the northern gateway along the Mid-Continent
Trade Corridor has enabled CentrePort Canada
 WINNIPEG
to forge strategic alliances with other North
 TORONTO
American inland port operations, which will
 OTTAWA maximize its value to exporters, distributors
 MONTREAL and manufacturers. As well, CentrePort Canada
 SAINT JOHN is working to enhance its presence along the
 MONCTON Asia-Pacific Gateway by teaming up with Cuntan
 FREDERICTON Bonded Port Zone in Chongqing, China on
 HALIFAX a cooperation agreement that will see the
 ST. JOHN’S two inland ports work together on common
priorities and new business opportunities.



OUTLOOK 2010

TORONTO MARKETS AT A GLANCE
CONTENTS
ECONOMY
There is increased evidence that the economic OFFIC E
 NATIONAL
recovery is taking hold in Canada. The Bank of Central Area
 VANCOUVER
Canada’s April 2010 Business Outlook Survey Inventory
 CALGARY
showed that over 50% of respondent firms Q1 2010: 83.1 million sf
expect to increase their payroll, while only
 WINNIPEG
12% expect a reduction in their payroll. While Vacancy Rate Outlook:
 TORONTO
Ontario’s economy may outpace the rest of the Q1 2010: 6.7%
 OTTAWA country this year, the strong Canadian dollar Q1 2011: 9.1%

→
 MONTREAL will dampen strengthening demand south of
 SAINT JOHN the border. Growth will be further affected
 MONCTON as government stimulus packages are reduced Suburban
 FREDERICTON and interest rates rise. As well, fallout from Inventory
 HALIFAX the European financial crisis will impact US and Q1 2010: 83.7 million sf
 ST. JOHN’S Canadian recovery. All these factors could slow Q1 2011: 84.4 million sf
acceleration in demand for office space as we Vacancy Rate Outlook:
enter a long, slow expansionary cycle. Q1 2010: 9.2%
Q1 2011: 11.2%

↘
OFFICE OVERVIEW
Toronto’s office real estate market is one Rental Rate Outlook:

of the most reliable indicators of the city’s
INDUSTRIAL
viability and long-term economic health.
Leasing activity, whether organizations expand,
contract or consolidate, offers tremendous
insight into long-term business confidence Vacancy Rate Outlook:
levels and Toronto’s growth potential. Through Q1 2010: 6.2%
the recession and into recovery, Toronto’s Q1 2011: 5.6%

→
office demand performance has exceeded
Rental Rate Outlook
expectations, showcasing the city’s unique
characteristics, including the cool heads of
tenants and landlords alike. The market’s
resilience also speaks to the enormous quarter for 11 painful quarters. Interestingly,
significance of Toronto’s financial services while the impact on office markets was
cluster, which is well supported by related severe, the downturn itself only lasted one
sectors, including business services, information, quarter – and while Class A vacancy soared
communications, and computer services. to 11.3% in downtown Toronto, new supply
When the global recession struck in 2008, hadn’t been a factor for a number of years.
many thought that the city’s office markets This speaks to the irrational exuberance of
would be lambasted as least as hard as they companies that jumped on the high-tech
were during the 2001-2003 office downturn, bandwagon, leasing up space based on wildly
which was precipitated by the high-tech unsustainable growth projections.
meltdown. Back then, absorption (change in Most recently, the worst recession since
occupied space) in all office buildings classes The Great Depression strangled economies
averaged negative 350,000 square feet per around the world for three full quarters. The


A C U S H M A N & WA K EF I EL D P U B L I C AT I O N Outlook 2010 | Mid-year market review | TORONTO

OUTLOOK 2010

TORONTO
CONTENTS
combination of low demand and 4.5 million sorts—marked by neutral absorption.
 NATIONAL square feet of new space coming to market Sublet space nudged above one million square
 VANCOUVER between 2009 and 2011 had many worried that feet, far off the heights of 2001 when it peaked
 CALGARY vacancy would soar to levels not seen since at 1.6 million square feet. And the nature of the
 EDMONTON
1993 and, with a slow recovery in demand sublets was strikingly different. During 2001
anticipated, a tenants’ market would be created there were many high-quality long-term sublets,
 WINNIPEG
for years to come. as over valued high-tech companies went under
 TORONTO
What Happened: The recession’s initial impact or downsized dramatically, returning hundreds
 OTTAWA on downtown Toronto office markets hit hard, of thousands of square feet of space to market
 MONTREAL as expected. Negative absorption during the during the cycle’s first six quarters. Most of the
 SAINT JOHN first half of 2009 paralleled 2001 numbers, sublets during this recession have little remaining
 MONCTON averaging negative 350,000 square feet per term and lower quality of build-outs.
 FREDERICTON quarter. However, by the third quarter of 2009, By Q3 2009, downtown demand had already
 HALIFAX the tide began to reverse, with central markets shifted into a neutral “phase” as tenants paused
 ST. JOHN’S experiencing unexpected strength—a revival of to get a better sense of where profitability was

TORONTO GTA - OFFICE GTA - INDUSTRIAL


8,000 12% 12,000 9%

6,000 9%
8,000 6%

4,000 6%
4,000 3%
2,000 3%

0 0%
0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F

(2,000) Absorption Overall Vacancy Rate -3% (4,000) -3%
Absorption Overall Vacancy Rate

TORONTO CENTRAL - OFFICE TORONTO SUBURBAN - OFFICE


4,000 12% 4,000 12%

3,000 9% 3,000 9%

2,000 6% 2,000 6%

1,000 3% 1,000 3%

0 0%
0 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F
(1,000) -3%
(1,000) -3%

(2,000) -6%



OUTLOOK 2010

TORONTO
CONTENTS
going. While few companies were motivated made prudent sense. Still, reflecting persistent
 NATIONAL to relocate, those that did remained focused economic strain, growth is not across all
 VANCOUVER on cash flow savings and minimizing capital industry sectors, and tenants continue to focus
 CALGARY expenditures, while landlord’s focused on on reducing occupancy costs and cash flow
 EDMONTON
retaining tenants and strong covenants to savings. Toronto’s trump card, however, is that it
protect asset value. is Canada’s financial capital and Canada’s banks
 WINNIPEG
By Q4 2009, central demand surprised market are among the most secure and successful in the
 TORONTO
watchers even more by showing real gains. It world. They continue to expand and create jobs.
 OTTAWA became evident that the banking sector was While demand has surpassed expectations by
 MONTREAL not only healthy, but growing. Demand growth showing moderate strength in a fragile economy
 SAINT JOHN also came from professional services, other – some 2.5 million square feet of larger blocks
 MONCTON financial services, health and government. Rental of space are projected to return to market prior
 FREDERICTON rates, which had fallen substantially by Q3 2009, to 2012 end. This will cause downtown vacancy
 HALIFAX plateaued and began to strengthen. A market rates to rise over the balance 2010 and into
 ST. JOHN’S characterized by spot pricing based on building 2011 even with moderate positive absorption.
vacancy and tenant covenant began to stabilize, Continuing global economic stress will slow
benefiting both landlords and tenants. During the demand, which will temper growth for the next
first half of 2010 opportunities were at their peak year. Rental rates have stabilized but in some
for tenants negotiating occupancy decisions. instances are both rising and falling depending
The success of Toronto’s new office towers on the building, the covenant, and availabilities
also speaks volumes about the strength and in a particular size range. With an abundance of
depth of business activity. During the downturn space yet to return to market, any upward climb
of 2001, with no significant development activity, in rental rates will be offset, likely keeping rates
premium space vacancy rose to 4.1 million neutral for some time.
square feet, reaching a 10.7% vacancy rate. This
time around, in the midst of an unprecedented SUBURBAN OVERVIEW
global recession, 4.5 million square feet of new During the 2001 to 2003 downturn, demand
space came to market. One could say build in Toronto’s suburban markets weakened,
it and they will come, because that’s what yet remained quite strong. The GTA West
happened. Tenants have more than revealed for instance averaged positive absorption of
their interest in new buildings. Now substantially 160,000 per quarter throughout the 2001 to
leased, the new towers, including 25 York, 2003 contraction. What drove up the vacancy
RBC Centre and Bay Adelaide Centre, are rate for premium space in the suburban markets
shining testaments to design focused on helping during that downturn was not weak demand,
business attract and retain talent, control costs, but a significant pipeline of new supply that
and achieve new space efficiencies. came to market. Between 2001 and 2002 in the
GTA West alone, over 4.7 million square feet
OFFICE OUTLOOK of new space was added to the market. This
Since Q4 2009, demand in downtown Toronto helped push Class A vacancy rate to 16.3%.
has been fast approaching expansionary Largely because of the closer ties to US
levels. The banking sector is a juggernaut of demand and ownership, the suburban markets
demand strength, with other financial and were hit much harder during the recession of
professional services companies remaining 2008/2009. Numerous US subsidiaries or satellite
neutral or securing expansion space where it offices simply ceased operations in Canada and/or



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