Research & Forecast Report OFFICE MARKET Second Quarter 2018 Table of Contents

Market Summaries Market Overview...... 3 Downtown Financial District...... 6 Downtown Government District...... 7 Southside, South Henday, Whyte Ave, Eastgate & Sherwood Park...... 8 West End, 149th Street, 124th Street & 118th Ave...... 9

Downtown Historical Performance...... 10

Glossary...... 11

2 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International EDMONTON OFFICE MARKET Q2 2018 ENHANCES CLASS AA DISTRICT, TRICKLE DOWN CHANGES EXPECTED MARKET SUMMARY TO CONTINUE ACROSS SUBMARKETS

The Edmonton Office market remained active this quarter The classification of the Class AA building was first introduced in terms of leasing activity. Over the course of the quarter, by Colliers in Q1 2014, in anticipation of new developments that 733,541 SF of space was leased while 556,988 SF of were starting to take shape. Representing the highest quality space was vacated resulting in 176,553 SF of net positive office space available in our market, these buildings were a absorption; this is the highest net positive absorption from premium offering and expected to be the new benchmark. At leasing activity seen over the past 5 years. This quarter also the time, 4 properties made up the Class AA district: EPCOR marked a significant construction milestone as Stantec Tower Tower, , Commerce Place, and Bell Tower. was recognized as being completed. At roughly 643,000 SF of Since then, the Financial Class AA has grown to nearly office space, Stantec Tower is the largest office tower addition double the size with the recent additions of the Enbridge to downtown in the last 30 years. This addition to inventory Centre (formerly the ), Edmonton was expected to increase vacancy to nearly 20%, however Tower, and Stantec Tower. The "flight to quality" was soon due to conversion activity which had reduced vacancy for the to follow, with tenants moving from Class A space to Class past 2 quarters, vacancy rates have maintained below the AA space. The vacancy created in Class A buildings became peak and are at nearly an identical level to Q3 2016 as can be an attractive option for tenants in a Class B or C building, as seen in Figure 1 below. So far this year conversion activity these opportunities may not have been previously available removed 467,000 SF of vacant office space in Q1 2018, while or feasible for consideration. Additionally, a few tenants have new construction completions this quarter added roughly struck deals to move downtown from other districts, adding 722,000 SF of office space to the market. After accounting to an increasingly diverse tenant mix and vibrancy. for net positive leasing activity, vacant office space in the market increased this quarter over last by roughly 545,000 There are a select number of tenants that are willing to pay SF in Q2 2018, increasing the vacancy rate across downtown the premium price for newer Class AA office space, which and suburban markets 160 basis points from 15.58% in Q1 is significantly more expensive than Class A space, and even 2018 to 17.18% Q2 2018. older Class AA space. So far these tenants have typically been from the government, financial, and legal sectors, as Edmonton O ce Market seen in Figure 2 below. These types of tenants are willing 5 Year Historical Net Absorption and Vacancy by Quarter to pay a premium for AA space for a number of reasons 200,000 20.00% including environmental objectives (top level LEED/BOMA

Stantec Tower certifications), efficiency and large floor plate designs, and 18.00% 150,000 the prestige and status that comes with being located within a brand new tower. 16.00% 100,000 Significant Lease Transactions In "AA" Towers Since 2011 14.00% BUILDING TENANT SIZE (SF) YEAR

50,000 EPCOR Tower EPCOR 292,000 2011 12.00% EPCOR Tower Government of Canada 129,000 2011 EPCOR Tower Canada 48,000 2012 - Edmonton Tower 10.00% 7 7 3 7 7 5 6 3 4 3 5 5 6 8 4 6 5 8 4 6 4 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 EPCOR Tower Ernst & Young 21,000 2016 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

1 1 1 1 1 3 3 4 2 3 3 4 3 2 4 2 4 2 4 2 2 Enbridge Centre Enbridge 305,000 2016 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 8.00% (50,000) Enbridge Centre Field Law 50,000 2016 Enbridge Centre KPMG Canada 40,000 2016 6.00% Enbridge Centre Parlee McLaws LLP 38,000 2016 (100,000) Edmonton Tower City of Edmonton 395,000 2017 4.00% Edmonton Tower Royal Bank Dominion Securities 47,000 2017

(150,000) Stantec Tower Stantec 410,000 2018 2.00% Stantec Tower PriceWaterhouseCoopers 50,000 2018 EPCOR TOWER BioWare 75,000 2019 (200,000) 0.00% Stantec Tower Dentons 62,000 2019 Net Absorption (SF) Vacancy (%) Stantec Tower DLA Piper 25,000 2019

Figure 1: 5-Year Edmonton Office Market Absorption and Vacancy by Quarter Figure 2: Significant Lease Transactions In Downtown "AA" Towers Since 2011

3 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International GROWING DOWNTOWN CLASS A OPPORTUNITY space to the Downtown Financial Class A district. At the end of With Stantec’s move from the Government Class A district Q2 2018, vacancy rate in the Government Class A district has to the Financial Class AA district, we expect the "flight to risen from 7.58% to 20.41% and vacancy rate in the Financial quality" to continue for the foreseeable future. The substantial Class A district has also increased albeit at a slower pace, vacancy created by Stantec opens up further mid- and high- from 18.94% to 19.30% this quarter. It is expected that the quality opportunities for tenants to pursue. growing amount of space available in these Class A districts, especially downtown Government, will create opportunities Of the 643,000 SF of office space in Stantec Tower, 460,502 for further "flight to quality" moves from tenants throughout SF is recognized as being leased this quarter. Stantec will the city. be moving from their current premises at Stantec Center, the Devonian Building and Stantec 2, and consolidating into In addition to Stantec, other moves will also add to a growing 410,000 SF in the new Stantec Tower. As a result of the Class A opportunity. PriceWaterhouseCoopers will be move, Stantec Centre and the Devonian Building will become vacating 41,672 SF from TD Tower and leasing 50,502 SF in available, adding 348,271 SF of vacant office space to the Stantec Tower and although not recognized this quarter, DLA Downtown Government Class A district. Stantec 2 will also Piper will be vacating 24,000 SF in and leasing become entirely available, adding 57,000 SF of vacant office 25,317 SF in Stantec Tower in 2019.

Edmonton Skyline - Signicant Tenant Movements Upon Stantec Tower Completion

STANTEC TOWER

MANULIFE PLACE

TD TOWER STANTEC STANTEC 2 CENTRE

DEVONIAN BUILDING SCOTIA PLACE

VACATING VACATING VACATING LEASED VACATING LEASED VACATING LEASED VACATING LEASED 189,304 SF 123,990 SF 57,000 SF 410,000 SF 41,672 SF 50,502 SF 63,000 SF 62,000 SF 24,000 SF 25,317 SF STANTEC DEVONIAN STANTEC 2 STANTEC TD TOWER STANTEC MANULIFE STANTEC SCOTIA PLACE STANTEC CENTRE BUILDING TOWER TOWER PLACE TOWER (2019) TOWER (2019) (2019) (2019)

4 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International TENANT ACTIVITY LOOKING FORWARD

Lease transactions this quarter totalled approximately 733,541 Since Q2 2017, the Edmonton Office market has seen SF, where tenants 10,000 SF and above account for 78% of many changes in both leasing activity and construction that this figure. As Q1 2018 lease transactions totalled 370,000 have resulted in a turbulent, but positive trend towards an SF, our Q2 2018 numbers showed a healthy increase in improving office market. Q4 2017 was the first quarter to leasing activity of roughly double the quarter prior. This return to positive absorption after 11 consecutive negative strong leasing activity has helped mitigate vacancy increases quarters. Since then, both Q1 2018 and Q2 2018 continued as new supply comes onto the market and is suggestive of a the trend of positive absorption, with Q2 2018 posting the positive economic outlook for the City. Tenants are continuing largest quarterly absorption seen over the past 5 years. This to negotiate favorable leases, and with a growing amount of continued and growing leasing activity is a promising sign downtown Government Class A options coming available, that tenants are active in the marketplace and opportunities landlords must continue to remain competitive in what are present for both tenants and landlords who can remain remains a challenging marketplace. competitive.

Notable Lease Transactions The recovery of the office market from peak vacancy levels in Q2 2017 is correlated to the economic recovery taking BUILDING TENANT SIZE (APPROX. SF) place in as key economic indicators forecast either

Stantec Tower Stantec Consulting 410,000 stable or slight growth:

Bonaventure Gate Alberta Government 57,000 >>ATB Financial’s Alberta Economic Outlook forecasting real GDP growth of 2.7% for the remainder of the year. Stantec Tower PriceWaterhouseCoopers 50,000 >>West Texas Intermediate (WTI) oil prices remain stable in Beaver House Work Nicer 11,600 the $70 a barrel range. >>Unemployment rate holds steady at 6.6% in the Capital Bell Tower Freedom 55 Financial 11,200 region this quarter. First & Jasper Trust Science 11,100 >>Net interprovincial migration is expected to return to

Energy Square McBride Career Group 10,800 positive in the near future.

Figure 3: Notable Lease Transactions Q2 2018 over 10,000 SF With this being said, looking forward there are a few potentially significant challenges still on the horizon. For In addition to Stantec and PriceWaterhouseCoopers' leases example, in 2019 the Federal Government of Canada will in Stantec Tower for a combined 460,000 SF of space, be vacating approximately 90,000 SF in ATB Place North another notable lease transaction this quarter includes the Tower (Telus Plaza North) and consolidating within Canada Alberta Government leasing 57,000 SF in Bonaventure Place. Additionally, Enbridge Place, HSBC Bank Place and Gate. Following Google DeepMind's move last quarter, Trust Highfield Place - 3 buildings totaling over 500,000 SF, could Science, a software company spanning A.I. and machine add vacant space to the market directly, see significant learning with offices in Seattle, Houston, and renovation, or remove a significant amount of inventory Vancouver joins Edmonton as they lease 11,100 SF in the First through conversions. With the completion and recognition & Jasper building. A new space for entrepreneurs is expected of Stantec Tower, it is expected that the inventory supply- to become available as Work Nicer, a co-working space side of the market will become more stable (no new product provider based out of Calgary, leased 11,600 SF in Beaver and fewer conversions), however with upcoming vacancies House, expanding to the Edmonton market. In the downtown anticipated we expect our market vacancy may remain near Government District, McBride Career Group expands to a peak levels throughout 2018 and 2019 and then begin to full floor totalling just over 10,000 SF in Energy Square, and decrease in 2020 and beyond. Freedom 55 Financial vacates HSBC Bank Place for 11,200 SF within Bell Tower. Sources: ATB Financial Alberta Economic Outlook, May 2018 City of Edmonton Economic Indicators, July 2018

5 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International Downtown Financial District

Although the downtown Financial District reported very strong positive absorption of 407,566 square feet, the vacancy rate rose from 16.97% to 17.83% due to a large increase in inventory. Trends & Observations >> 643,527 square feet of office space has been added to the Financial Class AA district, as Stantec Tower nears its completion. Approximately 460,000 SF of the entire space has been absorbed this quarter, with Stantec taking 410,000 SF and 1&2 6 PriceWaterhouseCoopers taking 50,000 SF. 8 A 4 >> The majority of the space within Stantec Tower that was not absorbed this quarter is committed space, with leases commencing mid-2019. 3 >> PriceWaterhouseCoopers is largely responsible for the negative absorption reported in Financial Class A, as they vacated 7 approximately 40,000 square feet within TD Tower, which is now 5 available for sublease. >> Over the second quarter, negotiations for the purchase of the brand new Edmonton Tower were completed and the sale of the building officially closes in July. Albari Holdings Ltd. purchased the building for $400,000,000.00 ($633.89 PSF). Notable Lease Notable Sale Construction

Notable Lease Transactions Summary Statistics 2018 Q1 2018 Q2 Trend APPROXIMATE TENANT - BUILDING TYPE SIZE (SF) Office Inventory 12,300,633 12,944,160 1. Stantec - Stantec Tower New Lease 410,887

PriceWaterhouseCoopers - Net Absorption 48,399 407,566 2. New Lease 50,502 Stantec Tower

Vacancy Rate 16.97% 17.83% 3. Work Nicer - Beaver House New Lease 11,663

Freedom 55 Financial - Bell 4. New Lease 11,231 Tower

5. Trust Science - First & Jasper Sublease 11,181 District Breakdown Vacancy Rate Absorption (SF) Financial AA 18.78% 470,985

Financial A 19.30% (24,691) Notable Sale Transactions

APPROXIMATE BUILDING - ADDRESS PRICE Financial B 10.15% (44,859) SIZE (SF) Edmonton Tower 6. $400,000,000 631,027 Financial C 26.82% 6,131 10111 - 104 Avenue Enbridge Tower 7. $22,000,000 184,057 Total 17.83% 407,566 10201 8. 10420 - 103 Avenue Building $7,000,000 18,000

Construction

BUILDING NAME ADDRESS CLASS FLOORS OFFICE AREA (SF) DEVELOPER STATUS / DATE A. Stantec Tower 103 Avenue & 102 Street AA 62 600,000 EAD Joint Venture Construction - 2018

6 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International Downtown Government District

As Stantec begins to move into their new space within Stantec Tower (Financial District), large vacancies are being left behind within the downtown Government District. Net absorption for the quarter was negative 250,884 SF, and the vacancy rate rose 1 to 13.39%. Trends & Observations >> Government Class A, responsible for driving the negative absorption for the district overall, contains the two large blocks of space that Stantec will be vacating. Stantec Centre (189,304 SF) will be entirely vacant, as will seven floors of the Devonian Building (123,990 SF). These previously Stantec-occupied spaces are both available for sublease. >> There was some slight positive absorption reported within Government Class B over the second quarter of the year, with McBride Career Group leasing a full floor within Energy Square, and Brosseau & Associates leasing approximately 4,500 square feet within First Edmonton Place.

Notable Lease Notable Sale Construction

Notable Lease Transactions Summary Statistics 2018 Q1 2018 Q2 Trend APPROXIMATE TENANT - BUILDING TYPE SIZE (SF) Office Inventory 5,362,128 5,431,432 McBride Career Group - Energy 1. New Lease 10,866 Square Net Absorption (3,970) (250,884)

Vacancy Rate 8.88% 13.39%

District Breakdown Vacancy Rate Absorption (SF)

Government A 20.41% (258,933)

Government B 9.76% 8,367

Government C 5.33% (318)

Total 13.39% (250,884)

Construction

BUILDING NAME ADDRESS CLASS FLOORS OFFICE AREA (SF) DEVELOPER STATUS ------

7 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International Southside, South Henday, Whyte Avenue, Eastgate & Sherwood Park Trends & Observations >> The Southside district reported 41,119 square feet of negative absorption, largely as a result of Nuna Logistics vacating the entire Richfield Building. Nuna Logistics plans to occupy space within City West Business Park, which is largely an industrial property. We therefore do not track City West as an office building and there is no positive absorption associated with this movement. >> 60,000 square feet of office inventory was added to the South Henday district, as the Healthpointe Building at Edmonton Business Campus nears completion. Although Healthpointe has leased 20,000 SF within the building (a full floor), this was not shown as positive absorption for Q2 as their lease does not commence until 2019. >> The Whyte Avenue district also reported an inventory increase, as the Raymond Block building also nears completion. With only minor leasing activity completed over the quarter, this additional inventory increased the vacancy rate for the relatively small Whyte Avenue district by over 5%.

Notable Lease Notable Sale Construction

Summary South Whyte Sherwood Statistics South Henday Avenue Eastgate Park Q2 2018

Vacancy 14.59% 21.44% 17.61% 36.24% 26.46%

Net Absorption (41,119) 3,559 5,358 1,757 (2,948)

Q1 2018

Vacancy 13.34% 17.89% 12.46% 36.40% 26.25%

Net Absorption 3,467 40,270 2,318 (12,928) (1,185)

Construction

BUILDING NAME ADDRESS CLASS FLOORS OFFICE AREA (SF) DEVELOPER STATUS ------

8 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International B West End, 149th Street, 124th Street & 118th Avenue

Trends & Observations 1 >> The 149th Street district reported strong positive absorption of

61,367 square feet over the second quarter, and this was almost 2 entirely a result of the Alberta government leasing 57,048 SF within Bonaventure Gate. The vacancy rate for 149th Street now stands at 15.66%, which is over a 5% decrease since Q1. >> After a strong first quarter, the West End district reported negative absorption equal to 22,088 square feet for Q2, as two fairly A sizable tenants plan to vacate the district. Rockwell Automation is consolidating their operations and therefore vacating 14,211 SF within Centre 170. An additional 10,048 square feet is also available within Mayfield Square, which was the former Hawkings Epp Dumont LLP (now Metrix Group LLP) space. >> Some positive leasing activity occured within the 124th Street district this quarter, although each of the transactions themselves were relatively small. Some of these new leases include Design Works at the Westcor Building (~4,000 SF), the Federal government at Plaza 124 (~4,000 SF), and Heshka Accounting, also at Plaza 124 (~2,000 SF). Notable Lease Notable Sale Construction

Summary Notable Lease Transactions Statistics West End 149th Street 124th Street 118th Avenue APPROXIMATE TENANT - BUILDING TYPE Q2 2018 SIZE (SF) Province of Alberta - 1. New Lease 57,048 Vacancy 11.60% 15.66% 25.32% 9.65% Bonaventure Gate NAIT - Parkwest Business 2. Extension 6,058 Centre Net Absorption (22,088) 61,367 13,961 (166)

Q1 2018

Vacancy 10.41% 21.01% 26.94% 9.62%

Net Absorption 30,218 (1,333) (14,993) 7,721

Construction

BUILDING NAME ADDRESS CLASS FLOORS OFFICE AREA (SF) DEVELOPER STATUS 1. West Block 142 Street & Stony Plain Road A 3 53,453 Beaverbrook Developments Construction 2. Oasis Health Centre 16203 - 137 Avenue A 2 29,414 Bonaventure Group Holdings Construction

9 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International Downtown (Financial & Government) Historical Performance

FINANCIAL AA A B C OVERALL

Inventory (SF) 4,155,235 6,477,598 2,056,401 254,926 12,944,160

Occupied Space (SF) 3,374,926 5,227,189 1,847,724 186,545 10,636,384

Direct Available (SF) 728,148 842,320 208,677 68,381 1,847,526

Sublease Available (SF) 52,161 408,089 - - 460,250

Vacancy Rate 18.78% 19.30% 10.15% 26.82% 17.83%

Average Rental Rate $25.00 - $40.00 $18.00 - $26.00 $16.00 - $20.00 $10.00 - $16.00 -

Average Operating Costs $17.00 - $21.00 $17.00 - $21.00 $13.00 - $19.00 $11.00 - $16.00 -

Top Rental Rate $40.00 $26.00 $20.00 $16.00 -

Downtown Financial Historical Performance 500 30

25 400 20 300 15

200 10

100 5

0 0

Absorption SF) (Thousands Absorption -5 Vacancy (%) / Net Asking Rent ($) -100 -10

-200 -15

Net Absorption (SF) Current Quarter Average Asking Net Rent Vacancy Rate

GOVERNMENT A B C OVERALL

Inventory (SF) 1,977,236 3,151,012 303,184 5,431,432

Occupied Space (SF) 1,573,617 2,843,571 287,019 4,704,207

Direct Available (SF) 90,325 306,178 16,165 412,668

Sublease Available (SF) 313,294 1,263 - 314,557

Vacancy Rate 20.41% 9.76% 5.33% 13.39%

Average Rental Rate $16.00 - $20.00 $12.00 - $18.00 $12.00 - $16.00 -

Average Operating Costs $14.00 - $17.00 $13.00 - $19.00 $11.00 - $15.00 -

Top Rental Rate $20.00 $18.00 $16.00 -

Downtown Government Historical Performance

150 25

100 20

50 15

0 10 -50 5 -100 0 -150

Absorption SF) (Thousands Absorption -5 -200 Vacancy (%) / Net Asking Rent ($)

-250 -10

-300 -15

Net Absorption (SF) Current Quarter Average Asking Net Rent Vacancy Rate

10 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | 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.

Gross Positive Absorption: The total increase in occupied space between the current measurement period and the last measurement period while ignoring space vacated and new inventory added.

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.

11 Research & Forecast Report | Second Quarter 2018 | Edmonton Office Market | Colliers International MARKET CONTACT: 413 offices in John Frederickson Regional Vice President | Prairie Region 69 countries on +1 780 969 3030 [email protected] 6 continents EDMONTON OFFICE TEAM: United States: 145 Ian Bradley | Executive Vice President Canada: 28 Phil Goh | Senior Vice President Kevin Petterson | Senior Vice President Latin America: 23 Fahad Shaikh, CPA, CA | Vice President Asia Pacific: 86 Taylor Riar | Associate Courtney Weale | Licensed Client Project Specialist EMEA: 131 Audrey Powell | Licensed Client Project Specialist Brandon Wu | Licensed Sales Assistant

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