Second 2020 / Office Market Report

22.5% 25.0% 22.4% 18.1% 16.8% Calgary Overall Beltline Suburban North Suburban South Vacancy Vacancy Vacancy Vacancy Vacancy

A lot remains unknown about the office will be assessing their buildings and home has gone so well, they will be leasing market under the COVID-19 new determining strategies to allow them to moving to this model permanently reality. compete in this challenged marketplace. for portions of their business. On the other hand, there are also companies Most companies put decisions regarding Given the slowness over the past 3-4 who are indicating that safe physical their office space requirements on hold months in transactional activity, it is distancing for their employees will be for 60-90 days when the pandemic anticipated that this fall will see more their priority, and as such, they will shutdown started. While this initial activity in the Calgary office leasing require more office space due to new decision-freeze period is coming to an market, barring further lockdown layouts for their space to ensure peace end, many companies are choosing to situations. Most landlords have full of mind for their staff. There have also continue to delay decisions because building COVID-19 safety protocols in been indications that suburban space, of continued business shutdowns, place and corporate return to workplace with its lower density of buildings staff health and safety concerns about policies will have been developed. and people, as well as low-rise returning to the workplace, and the Avison Young has created an effective space with less reliance on elevator traditionally slow summer months. “Returning to the Workplace Amidst access, may become more desirable. Deals being done today are because of COVID-19” strategy guide, which can be Overall, organizations are giving more necessity, either due to an imminent tailored to suit individual companies’ consideration to different variables lease expiration or a relocation required requirements. around their office requirements than for operational requirements. ever before. However, the net change to Calgary’s Starting in September, the following Calgary’s office market has seen office vacancy is difficult to project. 12-24 months will likely see significant downsizing and cost cutting Discussions with a range of tenants unpredictable negative absorption in because of the local economic downturn have yielded a variety of strategies and Calgary’s office market; an unnerving over the last four years. The past three talking points. There will be companies prospect. Businesses that have months layered on new challenges for that experience layoffs and need to requirements for space coming up Calgary’s business community which will downsize, or worse, close altogether. will have a wide array of choices and a impact demand for office space moving Some companies have indicated that market full of landlords eager to work forward. Landlords, more than ever, the sudden transition to work-from- with them in putting deals together.

Partnership. Performance. avisonyoung.com Calgary Second Quarter 2020 / Office Market Report Calgary Q2 2020 Office Market Statistics

INVENTORY HEADLEASE SUBLEASE TOTAL ABSORPTION NEW UNDER AVERAGE AverageAVERAGE Taxes (SF) HeadleaseVACANCY SubleaseVACANCY TotalVACANCY AbsorptionFOR QUARTER NewSUPPLY UnderCONSTRUCTION AverageASKING Asking NET RENTAL &TAXES Operating & OPERATING Inventory VacancyRATE VacancyRATE VacancyRATE for Quarter(SF) Supply(SF) Construction(SF) Net RentalRATES ($/SF/ANNUM) Rates COSTSCosts ($/SF/ANNUM) (sf) Rate Rate Rate (sf) (sf) (sf) ($/SF/Annum) ($/SF/Annum) Downtown 46,303,719 19.1% 5.9% 25.0% -166,451 0 0 $4 - $30 $19.18 Class AA 15,387,381 6.6% 10.2% 16.8% -11,481 0 0 $20 - $30 $22.02 Class A 18,583,335 21.6% 5.4% 27.0% -187,010 0 0 $13 - $17 $18.30 Class B 10,422,313 32.3% 1.4% 33.8% 26,312 0 0 $8 - $12 $16.57 Class C 1,910,690 23.7% 0.3% 24.0% 5,728 0 0 $4 - $7 $15.90 Beltline 8,214,106 16.7% 5.7% 22.4% -82,289 0 0 $5 - $24 $17.53 Class A 3,226,221 14.8% 10.1% 24.9% -32,444 0 0 $16 - $24 $18.78 Class B 3,430,180 18.6% 3.9% 22.6% -61,603 0 0 $12 - $16 $16.88 Class C 1,557,705 16.4% 0.4% 16.9% 11,758 0 0 $5 - $12 $16.08 Suburban North 10,169,193 16.3% 1.8% 18.1% 62,043 0 39,505 $6 - $26 $14.42 Class A 5,788,044 16.2% 2.8% 18.9% 26,968 0 39,505 $16 - $26 $15.18 Class B 2,872,221 8.3% 0.7% 9.0% 74,029 0 0 $9 - $15 $14.16 Class C 1,508,928 32.2% 0.4% 32.5% -38,954 0 0 $ 6 - $10 $12.36 Suburban South 12,343,206 13.7% 3.1% 16.8% -47,122 0 173,316 $6 - $29 $15.05 Class A 9,369,284 14.1% 3.4% 17.5% -43,591 0 173,316 $15 - $29 $15.44 Class B 1,982,044 15.1% 3.0% 18.1% -11,572 0 0 $10 - $15 $14.52 Class C 991,878 7.1% 0.1% 7.2% 8,041 0 0 $6 - $10 $12.78 Calgary Total 77,030,224 17.6% 4.9% 22.5% -233,819 0 212,821 $4 - $30 $16.68

Market At a Glance

CALGARY GDP GROWTH FORECAST -5.5%* 2020F UNEMPLOYMENT RATE WTI SPOT PRICE June 0.1% 2019 15.6 % 2020 $ 39.67 June 29, 2020 5.2% 2018 June June 28, 2019 7.0 % 2019 $ 58.20 June $ 74.13 June 29, 2018 7.6 % 2018 -US EXCHANGE RATE EMPLOYMENT (PEOPLE) $ 0.7338 June 30, 2020 WCS SPOT PRICE June $ 0.7641 June 28, 2019 744,200 2020 $ 36.20 June 29, 2020 June $ 0.7594 June 29, 2018 $ 44.47 June 28, 2019 881,100 2019 Source: TD Economics, June $ 47.90 June 29, 2018 835,200 2018

LABOUR FORCE DIFFERENTIAL June 881,700 2020 $ 3.47 June 29, 2020 June 947,300 2019 $ 13.73 June 28, 2019 June June 29, 2018 903,800 2018 $ 26.23 Source: Source: U.S. Energy Information Administration, Bloomberg

2 | Partnership. Performance. avisonyoung.com Calgary Second Quarter 2020 / Office Market Report

Downtown Calgary Office Vacancy Rates Downtown Calgary Office Vacancy Rate Large Availabilities Downtown Calgary Office Vacancy Rates 35% 33.8%

1.45% There are 13 availabilities in Downtown 30% Calgary’s Downtown office vacancy Calgary with over 100,000 sf as one 27.0% increased once again to 25% in second- contiguous block. These blocks of space 25.0% quarter 2020. This is up from 24.7% 25% 24.0% 5.35% represent 23% of the total availability in 0.26% in first-quarter 2020, and from 24.4%

5.88% in second-quarter 2019, the lowest the Downtown market with 69% of this

20% vacancy reached for the downtown space available on a headlease basis.

16.8% market in the last three years. 32.35% Downtown Calgary’s office vacancy 15% remains below the peak vacancy for this

10.20% 23.74% downturn of 26.4% in second-quarter 21.61% 10% 2017. 19.14% Downtown Calgary Office Absorption 5%

6.64% Downtown Calgary 0% Second-quarter 2020 saw negative absorption Class AA Class A Class B Class C Overall Vacant Space Headlease Vacancy Sublease Vacancy Total Vacancy of -166,000 sf. The cumulative net absorption for the last 12 months has turned negative again, with 260,000 sf of space being added As sublease spaces continue to reach back to downtown Calgary’s availability. their expiration dates, the share of headlease space on the market continues to increase. Total vacancy Downtown Calgary Annual for the Downtown office market is 11.6 msf: 8.9 msf of headlease (77%) and Office Absorption 2.7 msf of sublease (23%). Sublease Downtown Calgary space reached a peak share of market Empty Buildings Downtown Calgary Annual Office Absorption availability in first-quarter 2016 with 4.1 1,000,000 msf out of 10.5 msf of total availability (44%). The AA market, however, is in 577,000 contrast to this trend, as there is more Out of 169 office building currently tracked in 500,000 400,000 space on the sublet market than the Downtown Calgary, there are four completely headlease market for this class now. empty office buildings. There are an additional 0 six properties that have greater than 75%

-189,000 vacancy.

-500,000 -391,000 Downtown Calgary Fully Occupied -1,000,000 Buildings Avison Young COVID-19 Resource Centre

-1,500,000 There are 35 office buildings over Keep up to date with 20,000 sf (16% of the overall inventory) the latest insights on -2,000,000 in Downtown Calgary that have no the impact of COVID-19 -2,205,000 availability. on commercial

-2,500,000 real estate markets. 2016 2017 2018 2019 2020 YTD

3 | Partnership. Performance. avisonyoung.com Calgary Second Quarter 2020 / Office Market Report

Beltline Calgary Office Beltline Office Beltline Office Enterprise Vacancy Rates Solutions Vacancy Rate Absorption

Beltline Calgary Office Vacancy Rates 30% The vacancy rate in the Beltline office Absorption for second-quarter 2020 was market increased once again to sit at negative 82,000 sf in Calgary’s Beltline office 24.9% 25% 22.4%, up from 21.4% in first-quarter 2020, market. Net absorption for the last 12 months 22.6% 22.4% and up from 20% in second-quarter 2019. is also negative, with a cumulative change of This is a new record-high vacancy for the -158,000 sf. 3.90% 20% 10.14% 5.69% Beltline, exceeding the previous high of

16.9% 22.2% recorded in third-quarter 2019. 0.44%

15% Beltline Empty Beltline Large

10% Buildings Availabilities 18.65% 16.42% 16.70% 14.78%

5% Out of 109 office buildings over 20,000 sf There are nine availabilities in Beltline Calgary currently tracked in Beltline Calgary, there with over 30,000 sf available contiguously. are two which are completely empty, both These nine blocks of space represent 35% of 0% Class A Class B Class C Overall of which are available for sublease. There the total availability of space in the Beltline is one additional property that has greater market, 57% of this space is available on a Headlease Vacancy Sublease Vacancy Total Vacancy than 75% vacancy. sublease basis.

Enterprise Suburban North Suburban North Suburban North Office Solutions Office Vacancy Rate Office Absorption Vacancy Rates

Suburban Office Vacancy Rates The Suburban North office market was the Absorption in the Suburban North office 35% only submarket in Calgary to see its vacancy market was positive once again in second- 32.5% 0.39% decrease this quarter. This decrease was due quarter 2020, recording 62,000 sf of absorption

30% to the completion of deals that had been for the quarter, and bringing the 12-month started prior to the pandemic shutdown. cumulative net absorption to -101,000 sf for The vacancy rate as of second-quarter 2020 the area. 25% is 18.1%, down from 18.8% in first-quarter 2020, but up from 17.2% in second-quarter

20% 18.9% 2019. Meanwhile vacancy in the quadrants 18.1% are 18.7% for the Suburban Northeast and 2.77% 1.83% Suburban North 32.16% 16.6% for the Suburban Northwest. 15% Inventory

10% 9.0% Suburban North 0.70% 16.32% 16.16% Large Availabilities HUB Calgary is a mixed-use student- resident focused building under 5% 8.30% construction in the Suburban Northwest and will contain 40,000 sf of podium office There are 10 available options for contiguous 0% space. There is no pre-leasing in place for Class A Class B Class C Overall blocks of office space over 30,000 sf in the office component of this project, with Headlease Vacancy Sublease Vacancy Total Vacancy Suburban North Calgary. These blocks completion expected later this summer. represent 53% of the total availability in the Suburban North office market and 21% of this space is available on a sublease basis.

4 | Partnership. Performance. avisonyoung.com Calgary Second Quarter 2020 / Office Market Report

Suburban South Office Enterprise Suburban South Suburban South Vacancy Rates Solutions Office Vacancy Rate Office Absorption

Suburban South Calgary Office Vacancy Rates 20% The vacancy rate increased to 16.8% in The Suburban South office submarket in 18.1% second-quarter 2020, up from 16.4% in Calgary saw its first negative absorption 18% 17.5% 16.8% first-quarter 2020, but remains down from quarter in two years. Absorption for second- 2.98% 16% quarter 2020 was -47,000 sf. Cumulative net 3.44% 18.1% in second-quarter 2019. Meanwhile 3.10% vacancy for the Suburban Southeast absorption for the last 12 months remains 14% is 17.2%, and 15.8% for the Suburban positive at 268,000 sf in the Suburban South Southwest. office market. The last negative absorption 12% quarter in the Suburban South office market was the second quarter of 2018. 10%

8% 15.11% 7.2% 0.11% 14.06% 13.67% Suburban South Suburban South 6% Inventory Large Availabilities

4% 7.07%

2% Poplar Centre, the PBS Systems Building, There are 13 contiguous availabilities in Suburban South Calgary over 30,000 sf. 0% and Bow45 remain under construction Class A Class B Class C Overall for the Suburban South office market of These 13 blocks of space represent 45% of

Headlease Vacancy Sublease Vacancy Total Vacancy Calgary. These three buildings contain a the total availability in the Suburban South total of 173,000 sf, and are currently 65% office market and 27% is available on a pre-leased altogether. sublease basis.

Overall Calgary Overall Calgary Calgary Overall Office Office Vacancy Office Absorption Vacancy Rate (Second Quarter Comparison) Second-quarter 2020 saw vacancy increase The overall absorption in Calgary’s office Calgary Overall Office Vacancy to 22.5% from 22.2% in first-quarter 2020, market in second-quarter 2020 was negative, (Second Quarter Comparisons) 30% and is also up from 22% in second-quarter with 234,000 square feet of occupancy lost 2019. Changes to Calgary’s office vacancy during the quarter. Net absorption for the last are expected to be erratic in the coming 12 months across Calgary’s entire office market % % 5 5 . 25% . 3 % 3 2 5 has returned to a negative figure for the first 2 % quarters as companies decide the future . 0 2 . 2 2

2 of their requirements under the new time in two years at -252,000 sf. The last time % 5 . COVID-19 reality, however the direction Calgary had a cumulative negative 12 months 9 20% 1 vacancy will ultimately trend in remains of absorption was Q2 2018 with -325,000 sf. uncertain.

15% %

5 Overall Calgary .

1 Overall Calgary 1 Additional Rent 10% Occupancy Costs % 2 . 8 % 1 . 6 % 6 . 5% 4 Average asking rents are expected to Taxes and operating costs have seen an experience downward pressure in the coming average decrease of 34 cents per square foot months as company’s assess their new reality to $16.68 psf over the last year. Downtown

0% from the COVID-19 pandemic It is anticipated properties saw the largest decreases, falling an Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 2012 2013 2014 2015 2016 2017 2018 2019 2020 that free rent and flexible terms of lease will average of 63 cents per square foot. However, be significant drivers for completing deals all areas of Calgary saw their average taxes and over the next several months. operating costs decrease over the last year.

5 | Partnership. Performance. avisonyoung.com Table of Contents

Executive Summary

Intent and Scope 3 Methodology 3 Recommendations 4 Updates and Additional Information 4 Key Assumptions 4 Public Health Regulations and Considerations 6

Policy Recommendations Space Planning & Cle aning O ce Layout 7 O ce Cleaning Routines 9 O ce Signage 9 O ce Operations 10 O ce Closures 10 Calgary Number of Sta in Each O ce Second Quarter 2020 / Office10 Market Report Discussions with Landlords 11 O ce Visitors & Client Meetings (Guest) 11 Calgary Q2 2020PPE Office Construction Summary Calgary Q2PPE 2020in O ce Office Construction Summary 12 PPE for Site Visits 12 Suburban - Under Construction Communication Building Name Address Office Area (sf) Expected Completion % Leased / Pre-Leased Poplar Centre Internal Communications F5512ramew Macleodork Trail SW 69,000 Q3 2020 13 48% HUB Calgary People 2416 - 16th Avenue NW 40,000 Q3 2020 0% PBS Systems BuildingViolation of COVID-19 Polic4041ies - 128th Avenue SE 80,000 Q4 2020 14 100% Bow45 4620 SW 24,000 Q3 2021 0% Illness 15 Travel 15 Information Technology/O‚ice Supplies Equipment 16 With the understandingPrinting that businesses and jurisdictions 16 around the globe will experience different response- O ce Supplies 16 recovery life cycles, and therefore need thoughtful and evolvingA precoverypendix plans based upon the best and most up-to-dateA: COVID information-19 Pre-Clean from our health 17 PlanPlan OverviewOverview care professionals,B: CO VIlocalD-19 governments Cleaning Tasks and industry 1CLICK8 HERE AsAs businesses businesses prepare prepare to to return return to to the the workplace, workplace, owners owners and and tenants tenants will will require require thoughtful thoughtful guidance guidance and and enhanced enhanced best best practices practices for for creating creating healthy healthy and and safe safe to view C: Risk Assessment workplacesworkplaces during during the the COVID-19 COVID-19 pandemic. pandemic. organizations, this document contains guidelines from WithWith the the understanding understanding that that businesses businesses and and jurisdictions jurisdictions around around the the globe globe will will experience experience different different response-recovery response-recovery life life cycles,cycles, andand therefore therefore needneed thoughtful thoughtful andand 19 evolvingevolving recovery recovery plans plans based based upon upon the the best best and and most most up-to-date up-to-date information information from from our our health health care care professionals, professionals, local local governments governments and and industry industry organizations, organizations, this this documentdocument contains contains guidelines guidelines from from the the Avison Avison Young Young Real Real Estate Estate Management Management Services Services team team to to assist assist owners owners and and occupiers occupiers in in navigating navigating their their “Returning “Returning to to the the the Avison YoungD: F rRealont D Estateesk Sign Management-In Sheet Services WorkplaceWorkplace Amidst Amidst COVID-19” COVID-19” strategy strategy and and adjustments adjustments for for the the “new “new normal.” normal.” 20 TheThe seven seven key key focus focus areas areas are: are: team to assist ownersE: Re-Ope andning occupiersAir Quality Rinequi navigatingrements their 21

CreatedCreated by Ayan by Ayan Sabbir Sabbir CreatedCreated by iconcheeseby iconcheese CommunicationsCommunicationsfromfrom the theNoun Noun Project Project PhysicalPhysical Distancing Distancing JanitorialJanitorial BuildingBuilding SecuritySecurity MechanicalMechanical & & Building Building fromfrom theSignage theSignageNoun Noun Project Project “Returning to the Workplace Amidst COVID-19” strategy avisonyoung.com AwarenessAwareness ServicesServices OperationsOperations SystemsSystems May 2020

SinceSince every every asset asset and and site site condition condition is is unique unique and and there there is is no no “one “one size size fits fits all”all” solution, solution, ownersowners should should carefullycarefully review review eacheach ofof the the recommendations recommendations in in this this documentdocument forfor applicability applicability to to their their facilities. facilities. The The guidance guidance contained contained in in this this document document is is intended intended to to assist assist owners owners and and their their managers managers to to tailor tailor implementation implementation within within the the unique unique and adjustments for the “new normal.” needsneeds of of each each building. building. During During these these times times of of constant constant change, change, owners owners and and managers managers must must stay stay abreast abreast of of the the latest latest guidance guidance provided provided by by local local governments, governments, the the U.S.U.S. Centers Centers for for Disease Disease Control Control (CDC) (CDC), The, The World World Health Health Organization Organization (WHO) (WHO), U.S., U.S. Government Government and and Canadian Canadian government government as as well well as as industry industry organizations organizations such such as as IREMIREM and and BOMA BOMA USA, USA, BOMA BOMA Canada. Canada. Owners Owners should should regularly regularly check check with with their their managers managers for for updates. updates.

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Loveleen Bhatti | 403 232 4337 Chris Howard | 403 265 9552 Kirsten Scott | 587 293 3363 [email protected] [email protected] [email protected]

Roseleen Bhatti | 403 232 4325 Jason Kopchia | 587 293 3361 William Shenstone | 403 232 4300 [email protected] [email protected] [email protected] Graphics Sean Clark | 403 232 4384 Nikolas Kosman | 587 293 3362 Glenn Simpson | 403 232 4329 [email protected] [email protected] [email protected] Penelope Johnson, Senior Graphic Designer [email protected] Eric Demaere | 587 293 3366 Tinyan Leung | 403 232 4334 Anna Sorensen | 403 232 4383 [email protected] [email protected] [email protected] For more information, please contact: Steve Goertz | 403 232 4322 Alexi Olcheski | 403 232 4332 Todd Throndson | 403 232 4343 Research [email protected] [email protected] [email protected] Susan Thompson, Research Manager Eric Horne | 403 232 4339 Nairn Rodger | 403 232 4341 Allan Zivot | 403 232 4307 403 232 4344 [email protected] [email protected] [email protected] [email protected]

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© 2020 Avison Young Real Estate Inc. All rights reserved. The spread of COVID-19 and the containment policies being introduced are changing rapidly. While information in the briefing notes is current as of the date written, the views expressed herein are subject to change and may not reflect the latest opinion of Avison Young. Like all of you, Avison Young relies on government and related sources for information on the COVID-19 outbreak. We have provided links to some of these sources, which provide regularly updated information on the COVID-19 outbreak. The content provided herein is not intended as investment, tax, financial or legal advice and should not be relied on as such.