Waterloo Region Office Market Report Q4 2015

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Information about Waterloo Region Office Market Report Q4 2015

Published on January 19, 2016

Author: DarrenShawSIOR

Source: slideshare.net

1. Research & Forecast Report WATERLOO REGION OFFICE Fourth Quarter 2015

2. 2 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Office | Colliers International Market Summaries City of Cambridge...........................................................................................................4 City of Kitchener......................................................................................................5 City of Waterloo.......................................................................................................6 Glossary................................................................................................................................ 7 Table of Contents

3. 3 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Office | Colliers International Waterloo Region Market Overview The Waterloo Region office leasing market finished up 2015 in much the same fashion as it started; relatively flat. A number of significant transactions were completed, but much of the growth and absorption reflected in the statistics are from 2014 transactions where tenants are only now taking possession; the most significant of these is Google’s lease at the Breithaupt Block. The City of Waterloo continues to chip away at its significant office vacancy. The market drivers are the extensive range of options and strong tenant demand. Confidence is high in the Waterloo market as reflected by the almost 300,000 SF of speculative construction that continues in the face of the high vacancy rate created by BlackBerry’s contraction. Despite the loss of a couple notable tenants, there is positive and significant activity occurring in Kitchener’s downtown office market: Google has back-filled their space at The Tannery, and Manulife is consolidating their Waterloo office space while increasing their density in Kitchener. There is renewed interest and commitment from large technology tenants to the downtown core as well as new developments starting as tenants commit to occupying space, one of which is Vidyard at 8 Queen Street North. Two major condominium developments are nearing occupancy, and a new restaurant headed by a world-class chef is opening. The City of Kitchener’s market is really catching its stride. Market Indicators Relative to prior period Waterloo Region Q3 2015 Waterloo Region Q4 2015 Trend VACANCY 16.42% 15.44% NET ABSORPTION 1,800 105,743 CONSTRUCTION 336,173 454,040 RENTAL RATE* $12.40 $12.27 * Rental rates for current quarter are asking weighted averages for all submarkets. Cambridge has continued to decrease the vacancy in the market. At 15.43% vacancy, Cambridge is in a healthy market when functionally obsolete buildings are excluded from our statistics. With no major new supply coming to market in the near future, Cambridge is in the position for developers to start contemplating new supply. Investment Market The volume of office sales was down drastically in Q4 2015. This follows a slow Q3, which indicates that office investors are still taking a “wait and see” approach in a post-BlackBerry expansion market. Volumes are expected to rise in 2016 as the improving market fundamentals give investors the confidence to buy into what we believe is a market on the rise. Source: Colliers International Historical Performance & Forecast | Waterloo Region Office Market (600,000) (500,000) (400,000) (300,000) (200,000) (100,000) 0 100,000 200,000 300,000 400,000 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 Net Absorption New Supply Vacancy Rate

4. 4 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Office | Colliers International Notable Lease Transactions TENANT NAME & ADDRESS TYPE APPROXIMATE SIZE (SF) 1. 250 Royal Oak Drive Headlease 6,400 2. 1165 Franklin Boulevard Headlease 4,800 1 Notable Lease Notable Sale New Supply City of Cambridge Cambridge’s continuing trend is to lease space and reduce vacancy. No new office product is currently coming to the market and the suburban area vacancy is expected to decline in 2016. The downtown market continues to struggle with high vacancy rates and antiquated buildings that require a new direction. Trends >> The long-term trend of declining vacancy will continue throughout 2016. >> Currently there are no new office developments in the planning stage in the City of Cambridge. >> Cambridge has the highest number of office transactions done in industrial, retail, mixed use and similar facilities. Notable Sale Transactions PURCHASER & ADDRESS PRICE APPROXIMATE SIZE (SF) Not Applicable Upcoming New Inventory ADDRESS COMPLETION APPROXIMATE SIZE (SF) Not Applicable Summary Statistics Cambridge Office Market 2015 Q3 2015 Q4 Trend Office Inventory 1,170,909 1,170,909 Net Absorption -2,822 9,501 Vacancy Rate 16.24% 15.43% Average Asking Net Rent (Per Square Foot) $11.29 $11.14 Average Additional Rent (Per Square Foot) $7.95 $8.35 Historical Performance and Forecast (60,000) (50,000) (40,000) (30,000) (20,000) (10,000) 0 10,000 20,000 30,000 40,000 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 Net Absorption New Supply Vacancy Rate 2

5. 5 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Office | Colliers International Notable Lease Transactions TENANT NAME & ADDRESS TYPE APPROXIMATE SIZE (SF) 1. The PEER Group 72 Victoria Street South Renewal 26,902 2. Unitron Canada 45 Washburn Drive Headlease 19,312 3. WR Homes For Mental Health 236 Victoria Street North Headlease 11,093 Notable Lease Notable Sale New Supply City of Kitchener The downtown core has two distinct property types: traditional towers and brick and beam buildings. Downtown Kitchener towers are aggressively pursuing tenants with lower lease rates and increased tenant incentives. Brick and beam buildings are currently enjoying low vacancy rates. Trends >> Downtown tenants continue to adjust to the two years of construction now underway along the future LRT route. >> The office towers in Downtown Kitchener are aggressively pursuing tenant requirements and are having success. >> The market for unique, urban office environments continues to be strong. >> New projects in the downtown core are on the docket with tenants in tow. Summary Statistics Kitchener Office Market 2015 Q3 2015 Q4 Trend Office Inventory 4,042,801 4,086,693 Net Absorption -52,595 53,057 Vacancy Rate 13.17% 11.73% Average Asking Net Rent (Per Square Foot) $11.66 $11.99 Average Additional Rent (Per Square Foot) $9.00 $8.51 Historical Performance and Forecast (150,000) (100,000) (50,000) 0 50,000 100,000 150,000 200,000 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 Net Absorption New Supply Vacancy Rate Notable Sale Transactions PURCHASER & ADDRESS PRICE APPROXIMATE SIZE (SF) 4. 618 King Street West $1,750,000 10,193 Upcoming New Inventory DEVELOPER & ADDRESS COMPLETION APPROXIMATE SIZE (SF) 5. Perimeter Developments & Allied Properties 25 Breithaupt Street Q1 2016 100,000 6. Voisin Capital & Brick by Brick Development 8 Queen Street North Q2/Q3 2016 32,995 6 2 3 5 4 1

6. 6 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Office | Colliers International Notable Lease Notable Sale New Supply City of Waterloo The City of Waterloo will continue to be dominated by the former BlackBerry portfolio, now owned by Spear Street Capital and Waterloo Innovation Network. The sheer depth and breadth of inventory has opened up many opportunities for leasing, owning, investing and development in this market. New modern space continues to be in high demand. Trends >> Suburban Waterloo continues to attract tenants. >> The Uptown Waterloo office market continues to have very low vacancy and a new building is currently under construction on Willis Way. >> Confidence is high with speculative development taking place. >> The vacancy rate will continue to decline. Summary Statistics Waterloo Office Market 2015 Q3 2015 Q4 Trend Office Inventory 6,285,326 6,285,326 Net Absorption 57,217 43,185 Vacancy Rate 18.55% 17.86% Average Asking Net Rent (Per Square Foot) $13.18 $12.82 Average Additional Rent (Per Square Foot) $8.75 $8.70 Historical Performance and Forecast (600,000) (500,000) (400,000) (300,000) (200,000) (100,000) 0 100,000 200,000 300,000 400,000 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 Net Absorption New Supply Vacancy Rate 1&2 Notable Lease Transactions TENANT NAME & ADDRESS TYPE APPROXIMATE SIZE (SF) 1. Aeryon Labs 619 Kumpf Drive Sublease 30,608 2. Trustwave 609 Kumpf Drive Headlease 13,082 Notable Sale Transactions PURCHASER & ADDRESS PRICE APPROXIMATE SIZE (SF) Not Applicable Upcoming New Inventory DEVELOPER & ADDRESS COMPLETION APPROXIMATE SIZE (SF) 3. 85 Willis Way Q3 2016 84,872 4. 451 Phillip Street (conversion) Q1/Q2 2016 236,173 5 4

7. 7 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Office | Colliers International Glossary Weighted Average Asking Net Rent The dollar amount requested by landlords for direct available space, not including subleases, expressed in dollars per square foot per year. Availability The amount of available space and available space to be delivered to the market within six months, divided by the market’s inventory base including those future deliveries. Available space is space that is available for lease, and may or may not be vacant. Net Absorption The net change in physically occupied space between the current measurement period, and the last measurement period. It can be either positive or negative. Vacancy The amount of vacant space divided by the building inventory base. Vacant space is physically unoccupied, and it may or may not be available for lease or sublease. This is physical vacancy. It is not determined whether a tenant is paying rent on the space.

8. Copyright © 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. About Colliers International Group Inc. Colliers International Group Inc. is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. In 2014 the firm handled $97 billion in total transaction value for 84,600 leases and sales. Colliers manages more than 1.7 billion square feet of commercial properties. Colliers International Group Inc. generates more than US$2.3 billion in annual revenues. With significant insider ownership and an experienced management team, Colliers International has a long-term track record of creating value and superior returns for shareholders – previously under the ownership of FirstService, and as of June 2015, continuously as an independently owned company. The common shares of Colliers International Group Inc. trade on the NASDAQ under the symbol “CIGI” and on the Toronto Stock Exchange under the symbol “CIG”. collierscanada.com 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.3 billion in annual revenue 1.7 billion square feet under management 16,300 professionals and staff MARKET CONTACT: Serguei Kaminski Market Intelligence Coordinator | Waterloo Region +1 519 904 7007 serguei.kaminski@colliers.com REGIONAL AUTHORS: Karl Innanen | Managing Director, Broker Serguei Kaminski | Market Intellience Coordinator John Lind | Senior Sales Representative Jennie Ross | Client Project Coordinator Colliers International | Waterloo Region 305 King Street West, Suite 606 Kitchener, ON N2G 1B9 | Canada +1 519 570 1330

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