Boomtown With nearly twice the construction of the US, how do ’s largest office markets compare to similar US cities?

Accelerating success. How Canada Stacks Up­— North American Office Growth

The current North American office market is seeing dramatic growth with a total of almost 146.5M square feet of new construction underway. Based on an average space per employee of 150 square feet, this implies that this new construction will accommodate over 976,000 new jobs. Of these new jobs, approximately 138,000 would be in Canada, 123,000 will be in the three larges cities of Toronto, Montreal and Vancouver.

In total, Colliers is tracking 20.75M square feet of new construction in Canada, with 18.5M square feet, or 89.2%, of this is in the three largest cities. In contrast, there is a total of 125.7M square feet under construction in the , but only 79.3% of this is in cities with populations over 2.4M people.

When the ratio of new construction for each country is compared to the existing size of the office market, Canada’s Construction Intensity for office premises is nearly double that of the United States1, meaning Canada is building substantially more office premises relative to its size.

Canada’s increased development activity may in part be explained by three key factors:

1 Canada has been 2 Canada’s lower 3 Canada’s more open benefitting from high vacancy rate immigration policies are job growth in office is driving new enabling an increase employment-based construction due to in population and industries a scarcity of space employment growth

Construction Intensity (% of Total NA Construction ÷ % of NA Inventory)

2.0 120.0% % of North American Construction 1.8 1.74 100.0% 1.6 Construction Intensity 1.4 (RHS) 80.0% 1.2

60.0% 1.0 0.93 1.00 0.8 40.0% 0.6

20.0% 0.4

0.2 0.0% 0.0 Canada USA North America

1 The Construction Intensity for Canada is estimated at 1.74 and for the United States is 0.93, resulting in a ratio of 1.87 (1.74÷0.93)

2 Canada’s Office Construction Almost Double that of the US | Colliers International Canada North American Office Inventory and Office Density per Census Population

At present, Colliers tracks 6.76B square feet of office space in North America. Canada’s tracked office premises is 551.2M square feet and represents 8.2% of the North American total. As of the end of 2018, Canada’s overall vacancy rate of 9.2% is 240 bps lower than that of the US, which stands at 11.6%.

In North America, Canada’s three largest markets occupy the 6th, 22nd and 26th position overall. The largest market by a significant margin is the greater New area with just over 865M square feet of premises. To put this in context, the greater New York market is 57% larger than the entire Canadian market.

From an office density per person in the census area, the average density in North American cities is 29.5 square feet per person; however, in Canada only the Toronto market exceeds this level, with Montreal and Vancouver both below the average.

Office Inventory by Key Market—Population > 2.4M

1,000,000 70.0

900,000 60.0

800,000

50.0 700,000

600,000 40.0

500,000

30.0 400,000 Office Space Tracked (Regional Area) (Regional Tracked Office Space Office Space per Person (Regional Population) (Regional Person Office Space per 300,000 20.0

200,000

10.0 100,000

0 0.0 Toronto Montréal Vancouver Kansas City Kansas Austin-Round Rock Austin-Round San Diego-Carlsbad -Naperville-Elgin -Tacoma-Bellevue -Warren-Dearborn Phoenix-Mesa-Scottsdale -Aurora-Lakewood Boston-Cambridge-Newton Dallas-Fort Worth-Arlington Dallas-Fort Charlotte-Concord-Gastonia Baltimore-Columbia-Towson Portland-Vancouver-Hillsboro New York-Newark-Jersey City New York-Newark-Jersey -Sandy Springs-Roswell Atlanta-Sandy -Oakland-Hayward Washington-Arlington-Alexandria San Jose-Sunnyvale-Santa Clara San Jose-Sunnyvale-Santa Philadelphia-Camden-Wilmington -St. Paul-Bloomington Minneapolis-St. Los Angeles-Long Beach-Anaheim Houston-The Woodlands-Sugar Land Woodlands-Sugar Houston-The Miami-Fort Lauderdale-West Palm Beach Lauderdale-West Miami-Fort

Sum of Inventory (SF) Occupied Space per Person North America Average Occupied Space per Person

3 Canada’s Office Construction Almost Double that of the US | Colliers International Canada The degree of office-based employment in a given market is, in part, measured by the office space per census population. In this case, the most office intensive market is that of the greater Washington area with 59.1 square feet per person (SFPP). In comparison, the Ottawa market only shows a density of 27.6 SFPP, although this much lower rate may be partly attributed to a greater percentage of office premises owned* by the Government in Canada as compared to that of the United States.

In comparison to similar cities, Toronto’s rate of 38.3 SFPP compares favourably to that of New York (38.7 SFPP) and Boston (39.3 SFPP); all are key financial centers.

A larger discrepancy is the differences between four key west coast cities; San Francisco, Vancouver, Seattle and Los Angeles. San Francisco has a dramatically higher rate of 42.3 SFPP in comparison to the others, with Seattle second with a rate of 33.3 SFPP, Vancouver in third at 26.6 SFPP and then Los Angeles fourth with a rate of only 18.7 SFPP. Montreal’s office density per census population also is at the low end of this list at only 19.3 SFPP.

Occupied Office Space per Census Population

Washington-Arlington-Alexandria 59.1 Denver-Aurora-Lakewood 46.0 San Francisco-Oakland-Hayward 42.3 Baltimore-Columbia-Towson 39.7 Boston-Cambridge-Newton 39.3 New York-Newark-Jersey City 38.7 Toronto 38.3 Dallas-Fort Worth-Arlington 34.3 Seattle-Tacoma-Bellevue 33.3 Atlanta-Sandy Springs-Roswell 33.2 Detroit-Warren-Dearborn 32.7 Minneapolis-St. Paul-Bloomington 32.4 Miami-Fort Lauderdale-West Palm Beach 30.5 North America 29.5 Chicago-Naperville-Elgin 27.9 Houston-The Woodlands-Sugar Land 27.2 Phoenix-Mesa-Scottsdale 26.7 Vancouver 26.6 Charlotte-Concord-Gastonia 25.7 Portland-Vancouver-Hillsboro 25.6 Orlando-Kissimmee-Sanford 25.6 San Diego-Carlsbad 22.8 Philadelphia-Camden-Wilmington 22.0 Tampa-St. Petersburg-Clearwater 19.7 Montréal 19.3 Los Angeles-Long Beach-Anaheim 18.7 St. Louis 15.6 Riverside-San Bernardino- 3.9 0.0 10.0 70.0 30.0 50.0 60.0 40.0 20.0 *Office buildings that are both owned and fully occupied by the Government are excluded from inventory statistics.

4 Canada’s Office Construction Almost Double that of the US | Colliers International Canada Office Construction in North America

While none of the Canadian markets are adding the largest amount of new office space, Toronto is in 3rd place overall. When the under-construction premises are considered as a percentage of existing office space, suddenly Vancouver’s increase of 6.8% puts it in first position well ahead of Seattle, San Francisco and Charlotte and more than triple the average increase for North American markets of 2.2%.

By contrast, Toronto is adding approximately 10.5M square feet of new premises, but this represents only an increase of 4.2% and Montreal’s new construction of 3.16M square feet represent an increase of 3.6%. Canada’s three largest markets occupy the 1st, 5th and 6th positions in North America for the pending increase in office market size as a percentage of existing office market area.

Office Space Under Construction—% Increase in Inventory

21,000,000 7.0%

18,000,000 6.0%

15,000,000 5.0%

12,000,000 4.0%

9,000,000 3.0% Increase in Office Inventory Increase Office Space Under Construction (SF) Office Space Under

6,000,000 North America Average Increase in Inventory—2.2% 2.0%

3,000,000 1.0%

0 0.0% Toronto Montréal St. Louis Vancouver San Diego-Carlsbad Chicago-Naperville-Elgin Seattle-Tacoma-Bellevue Detroit-Warren-Dearborn Phoenix-Mesa-Scottsdale Boston-Cambridge-Newton Dallas-Fort Worth-Arlington Dallas-Fort Charlotte-Concord-Gastonia Baltimore-Columbia-Towson Orlando-Kissimmee-Sanford Portland-Vancouver-Hillsboro New York-Newark-Jersey City New York-Newark-Jersey Atlanta-Sandy Springs-Roswell Atlanta-Sandy San Francisco-Oakland-Hayward Washington-Arlington-Alexandria Philadelphia-Camden-Wilmington Tampa-St. Petersburg-Clearwater Tampa-St. Minneapolis-St. Paul-Bloomington Minneapolis-St. Riverside-San Bernardino-Ontario Riverside-San Los Angeles-Long Beach-Anaheim Houston-The Woodlands-Sugar Land Woodlands-Sugar Houston-The Miami-Fort Lauderdale-West Palm Beach Lauderdale-West Miami-Fort

Sum of Under Construction (SF) % Increase in Inventory

5 Canada’s Office Construction Almost Double that of the US | Colliers International Canada New Premises Under Construction—The Impact of Vacancy

When the increase in inventory is displayed ranked by market vacancy rate, the two markets with the lowest vacancy rates are Toronto and Vancouver. New construction in these markets makes the most economic sense based on the current imbalance between demand and supply; where a normal office market may have a vacancy rate between 4% and 8%2. Overall, Canadian markets appear to be in better condition to absorb the new construction underway at present than most of the markets in the United States.

Presently there are only three cities in the United States that have a vacancy rate lower than the Canadian average of 9.2%; these are San Francisco, Orlando and Seattle. Other markets in the United States range from 9.2% vacancy in New York to Dallas and Houston with rates of 16.1% and 20.0% respectively. Having high vacancy rates in markets where oil and gas are key drivers of economic activity in the United States is similar to the Canadian experience in and where the weakness in the oil sector has impacted the office market dramatically.

Office Space Under Construction—% Increase in Inventory

8.0% 24.0%

7.0% 21.0%

6.0% 18.0%

5.0% 15.0%

4.0% 12.0%

3.0% 9.0%

2.0% 6.0% Office Space Under Construction (% of Existing Inventory) Office Space Under 1.0% 3.0%

0.0% 0.0% Toronto Montréal St. Louis Vancouver San Diego-Carlsbad Chicago-Naperville-Elgin Seattle-Tacoma-Bellevue Detroit-Warren-Dearborn Phoenix-Mesa-Scottsdale Denver-Aurora-Lakewood Boston-Cambridge-Newton Dallas-Fort Worth-Arlington Dallas-Fort Charlotte-Concord-Gastonia Baltimore-Columbia-Towson Orlando-Kissimmee-Sanford Portland-Vancouver-Hillsboro New York-Newark-Jersey City New York-Newark-Jersey Atlanta-Sandy Springs-Roswell Atlanta-Sandy San Francisco-Oakland-Hayward Washington-Arlington-Alexandria Philadelphia-Camden-Wilmington Tampa-St. Petersburg-Clearwater Tampa-St. Minneapolis-St. Paul-Bloomington Minneapolis-St. Riverside-San Bernardino-Ontario Riverside-San Los Angeles-Long Beach-Anaheim Houston-The Woodlands-Sugar Land Woodlands-Sugar Houston-The

Miami-Fort Lauderdale-West Palm Beach Lauderdale-West Miami-Fort % Increase in Inventory Vacancy Rate

2 The appropriate vacancy rate range for a “balanced” market is the subject of some discussion and is also impacted by the concentration of the office market, be it central business district or dispersed suburban, amongst other factors.

6 Canada’s Office Construction Almost Double that of the US | Colliers International Canada Concluding Summary

• While there is a large amount of new office construction underway at present, Canada’s market appears well prepared to accommodate this new supply. With low vacancy rates in most markets with substantial construction activity, a positive rate of employment growth and more open immigration policies, Canada can accommodate new workers and industries.

• Overall, Canada has a higher office density per census population than the United States and based on market fundamentals looks to be increasing this office density given that Canada’s construction intensity (herein defined) is almost twice that of the United States.

• Overall, the combined markets of Canada and the United States look prepared to offer new premises for an estimated 976,000 new jobs, 14.1% of them in Canada. Given that Canada’s population is 10.1% of the combined countries, Canada’s ability to accommodate growth in employment looks good, a set of circumstances supported by the recent growth of new Canadian offices in Toronto, Montreal and Vancouver for technology firms from the United States.

Office Density per Census Populaiton and Vacancy Rate

30.0 14.0% Office SF per Person

12.0% 25.0 11.6% Vacancy Rate 10.0% 20.0 9.2% 8.0% 15.0 6.0% 10.0 4.0%

5.0 2.0%

0.0 0.0% Canada USA

7 Canada’s Office Construction Almost Double that of the US | Colliers International Canada Author: 438 offices in Craig Hennigar, Director 68 countries on Market Intelligence | Canada Colliers International 200 Granville Street, 19th Floor 6 continents Vancouver, BC V6C 2R6 | Canada United States: 155 Main +1 604 681 4111 | Fax +1 604 661 0849 Canada: 48 Latin America: 20 Asia Pacific:94 EMEA: 119

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Copyright © 2019 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.