Research & Forecast Report GREATER AREA OFFICE MARKET

Second Quarter 2018

Table of Contents

Market Summaries GTA Market Overview...... 4 Downtown...... 5 Midtown...... 6 GTA North-East...... 7 GTA West...... 8 Notable Transactions & Key Statistics...... 9

Glossary...... 10 GTA Market Overview

• Toronto continues to lead the top 10 North American Market Indicators Market Q2 Market Q2 Trend Central Business Districts with the lowest vacancy rate Relative to prior period 2017 2018 (1.6%); New York is the second lowest with a of 6.6%. Net Absorption 885,765 46,447 • Robust demand for flexible, sustainable and high- Vacancy Rate 5.8% 4.4% quality space remains a common denominator across the GTA, spurring new office developments in Availability Rate 8.4% 6.6% attempts to satisfy demand. Average Asking Net Rent $19.42 $19.32 • Cadillac Fairview announced the construction of 160 GTA Lease Transactions by Industry Front St W a 46-storey office tower featuring 1.2 M SF GTA Lease Transactions by Industry Q2 2018 in the heart of the Financial Core that is scheduled to open in Q3 2022. 4% Finance, Insurance & Real Estate 20% Technology, Advertising & Media 37% Information • Three office buildings were constructed this quarter in Healthcare, Education & Government

the GTA West market, adding 160,600 SF of new 3% Legal office inventory. 14% Other

• IBM is giving back 173,000 SF of their space in the 22% Schedule I Banks Woodbine/Steeles complex, constituting the largest available block of space in the Central East market. The investment market saw a total of $715 M in office sale transactions across the GTA in Q2, down from $1.8 B • Rental rates in regions located near major in Q1. This decline was due to the lack of Downtown transportation systems coupled with new retail transactions, where the largest deal was the sale of the completions or improvements continue to climb faster Parkway Place complex in North York for a total YoY than their counterparts in less-accessible areas. consideration of $256.25 M. The GTA West market saw a Downtown asking net rents grew by 6.1% YoY, while fair amount of transactions this quarter (23% of the GTA the GTA West and Midtown continued to see modest volume), highlighted by the Rogers acquisition of 1004 growth (3.5% and 1.3%). Middlegate Rd in Mississauga for $65 M.

GTA Market HistoricalGTA Marketand Forecasted Historical Trend: Performance 2014 - 2020 and Forecast: 2014 - 2020

2,500,000 10.0% 2,000,000 8.0% 1,500,000 4.5% 5.2% 6.0% 1,000,000 4.0% 500,000 2.0% 0 0.0% -500,000 -2.0% Vacancy Rate (%) Total Square Feet (SF) -1,000,000 -4.0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2014 2015 2016 2017 2018 2019 2020

New Supply Net Absorption Vacancy Rate

Note: 10-Year Historical Absorption is 390,000 SF per Quarter

4 Research & Forecast Report | Q2 2018 | / Office | Colliers International Downtown Summary Statistics Q2 2018 Regional Office Market 2017 Q2 2018 Q2 Trend Though Toronto’s Downtown market is the sixth largest central business district (CBD) in North America, it is the Net Absorption 482,863 147,913 tightest, at 1.6% vacancy (down from 1.8% in Q1 2018), for current and prospective tenants. In response to the growing Vacancy Rate 4.5% 1.6% pent-up demand, landlords such as First Gulf and Cadillac Fairview have announced the construction of 25 Availability Rate 7.3% 3.7% St (460,000 SF) and 160 Front St W (1,450,000 SF). 160 Front St W, slated for occupancy in the fall of 2022, will be Average Asking Net Rent $28.91 $30.68 kicked-off by the Ontario Teacher’s Pension Plan, who will be relocating from 5650 Yonge St in the North Yonge Corridor. 25 Ontario St will begin construction without landing an anchor tenant and is slated for completion in Q2 2021.

Rental rates across AAA, A and B product continued to climb Downtown Lease Transactions by Industry (+6.12% YoY) this quarter with the largest increase amongst Q2Downtown 2018 Lease Transactions by Industry B-Class product (+11.01% YoY), which has lost 55% of its HEG Legal vacant space over the past five years. As product continues Schedule I 3% 2% to become scarcer and demand increases, rental rates should Banks continue rising above historical averages. 7%

This quarter saw the leasing of many current and future large-block availabilities. Tim Hortons announced in early FIRE Other Q2 their intentions to relocate from Oakville to the Financial 43% Core by year-end, Google inked an expansion at 100 Adelaide 17% St W and elected to renew its lease at 111 Richmond St W, and OneEleven, one of Canada’s leading tech-ventures signed a 50,000 SF lease at 325 Front Street West to reflect its continued growth. Harlequin has also announced it will be TAMI relocating from the Central East submarket, to occupy two 28% floors at 22 Adelaide St W. Lastly, CIBC Square’s first phase, 81 Bay, has attracted multiple suitors looking to secure their future tenancy and is now rumoured to be fully leased.

DowntownDowntown Market Historical Market and Forecasted Historical Trend: Performance 2014 - 2020 and Forecast: 2014 - 2020

2,000,000 6.0%

1,500,000 4.5% 3.6% 1,000,000 3.0% 1.6% 500,000 1.5%

0 0.0% Vacancy Rate (%) Total Square Feet (SF) -500,000 -1.5% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2014 2015 2016 2017 2018 2019 2020

New Supply Net Absorption Vacancy Rate

Note: 10-Year Historical Absorption is 265,000 SF per Quarter

Research & Forecast Report | Q2 2018 | Greater Toronto Area / Office | Colliers International 5 Midtown Summary Statistics Q2 2018 Regional Office Market 2017 Q2 2018 Q2 Trend The Midtown market hit yet another record-low vacancy rate of just 1.3% (a -30 bps decline from Q1 2018) as it reported a solid Net Absorption 47,005 51,293 51,293 SF of positive absorption this quarter. Net asking rental rates also grew by 1.3% YoY; the increase was primarily driven Vacancy Rate 3.0% 1.3% by the Yonge-Bloor submarket which saw a hike of +6.5% YoY. For the first time in more than ten years, the Midtown is Availability Rate 4.9% 3.6% set to take on new supply as the construction at the Bathurst College Centre is nearing completion and is slated to open Average Asking Net Rent $22.33 $22.61 in fall 2018. Once completed, it will add 70,000 SF of office space to the total inventory; 40,000 SF of which is already pre-leased. There is an additional 360,000 SF of planned office developments in the pipeline for the Midtown market that could offer some ease ot the much-tightened market. Midtown Lease Transactions by Industry The City of Toronto received nine residential/mixed-use Q2Midtown 2018 Lease Transactions by Industry development applications in the past three months across the Midtown market, most of which are located within the Yonge- Eglinton submarket. The increase of development activity in this submarket is very much anticipated as the construction TAMI of the Eglinton Crosstown LRT is well underway, targeting 12% completion in 2021. FIRE From an investment standpoint, the overall transaction volume Other 46% in the Midtown market was $111 M spread across all asset 18% classes. The multi-family sector was the leading asset this quarter (67%) followed by retail (28%), while office recorded just one office condo sale transaction. The most notable deal this quarter pertains to the sale of 41-45 Spadina Road, a low- HEG rise multi-family building for almost $21 M, corresponding to 24% $872,917 price per unit.

Midtown MarketMidtown Historical Market and Forecasted Historical Trend: Performance 2014 - 2020 and Forecast: 2014 - 2020

100,000 10.0% 1.3% 50,000 1.0% 5.0% 0 0.0% -50,000 -5.0% -100,000 -10.0% -150,000 -15.0%

-200,000 -20.0% Vacancy Rate (%) Total Square Feet (SF) -250,000 -25.0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2014 2015 2016 2017 2018 2019 2020

New Supply Net Absorption Vacancy Rate

Note: 10-Year Historical Absorption is 11,750 SF per Quarter

6 Research & Forecast Report | Q2 2018 | Greater Toronto Area / Office | Colliers International GTA North-East Summary Statistics Q2 2018 Regional Office Market 2017 Q2 2018 Q2 Trend Despite experiencing a statistically weak quarter, the GTA North/East Market’s vacancy continues to decline YoY (-0.1% Net Absorption 72,344 (305,078) YoY). The large sources of negative absorption were IBM’s office at 3600 Steeles Ave E (172,000 SF), and Harlequins’s Vacancy Rate 5.7% 5.6% office at 225 Duncan Mill (111,000 SF). Should these two vacancies be discounted, the Central East submarket fared a Availability Rate 5.9% 7.4% healthy quarter of absorption (+37,508 SF) relative to its 10- year historical average (-13,821 SF per quarter). Average Asking Net Rent $15.54 $15.96

The North Yonge Corridor has struggled in recent quarters with tenants such as SAP and Ontario Teachers’ Pension Plan relocating to the Downtown Core, coupled with the premise that vacancy has nearly doubled over the past five years. However, there is growing anticipation that the submarket could begin GTA North-East Lease Transactions by Industry rebounding in quarters to come. Given the lack of currently GTAQ2 North 2018 -East Lease Transactions by Industry available large block availabilities in the Downtown and Midtown Legal markets, the North Yonge Corridor offers plenty of opportunity 1% for prospective tenants of various sizes to consolidate their offices into a singular location, have access to premium TAMI amenities and remain connected to the TTC and a 400-series highway. Equifax seized an opportunity to relocate within the 10% submarket to 5700 Yonge St and will leverage swing space as Other their new 50,000 SF office undergoes renovation. FIRE 40% 24% Given that Markham is continuing to be one of the leading absorbers of inter and intra-provincial migration and is planning to complete its Stouffville GO Expansion by 2025, transaction activity remains strong amongst product adjacent HEG to Highways 401-404. Tenants looking for an excess of 20,000 SF have over 13 options to choose from, 11 of which are within 25% A-Class buildings. Landlords appear to be aware of the growing demand in this region, as asking net rents amongst A-Class product have risen +16.21% YoY in the Consumers Road submarket and +7.7% YoY in the Woodbine and Steeles submarket.

GTA North-East Market Historical and Forecasted Trend: 2014 - 2020 GTA North-East Market Historical Performance and Forecast: 2014 - 2020

500,000 5.6% 5.5% 7.0% 5.0% 300,000 3.0% 100,000 1.0%

-100,000 -1.0% -3.0%

-300,000 Vacancy Rate (%) -5.0% Total Square Feet (SF) -500,000 -7.0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2014 2015 2016 2017 2018 2019 2020

New Supply Net Absorption Vacancy Rate

Note: 10-Year Historical Absorption is 22,500 SF per Quarter

Research & Forecast Report | Q2 2018 | Greater Toronto Area / Office | Colliers International 7 GTA West Summary Statistics Q2 2018 Regional Office Market 2017 Q2 2018 Q2 Trend The GTA West market is the second largest office market after the Downtown market, representing 23% of the overall GTA Net Absorption 283,553 147,160 inventory. It experienced a positive absorption of +147,160 SF in Q2 2018 that was mainly driven by organically growing Vacancy Rate 9.3% 9.1% tenants. The majority of the lease transactions that transpired this quarter were in the A-Class product, eluding to the flight Availability Rate 12.2% 11.8% to quality within tenants’ demand. The net asking rents grew by +3.5% YoY in the GTA West, mostly driven by the Airport Average Asking Net Rent $16.27 $16.84 West and Hwy427-Islington submarkets (+19.1% and +10.3% YoY, respectively).

The GTA West market took on three office building completions this quarter, adding a total of 160,600 SF to the inventory. One office building is located in the Airport East submarket GTA West Lease Transactions by Industry where Ledcor will be relocating, while the other two are in Q2GTA 2018 West Lease Transactions by Industry Oakville: Aviva’s A-Class office building at 1335 North Service Road East and Fengate’s second office building at the Oak West Corporate Centre, a one-storey flex-office building featuring 30,600 SF. Despite the addition of the new supply Legal this quarter, the vacancy rate in the GTA West remained TAMI 6% unchanged quarter-over-quarter (9.1%). 11% As a result of the accessibility of the GTA West market, Other professional services such as engineering, consulting and FIRE 43% tech continue to be the dominating industries within the office 15% market. Given that the GTA West market harbours the highest concentration of professional graduates, it is unsurprising that these industries continue to leverage their workplace as away to attract top talent. HEG 25%

GTA West Market Historical and Forecasted Trend: 2014 - 2020 GTA West Market Historical Performance and Forecast: 2014 - 2020

600,000 9.1% 9.0% 12.0% 400, 000 6.0% 200,000 0 0.0% -200,000 -6.0%

-400,000 Vacancy Rate (%) Total Square Feet (SF) -600,000 -12.0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2014 2015 2016 2017 2018 2019 2020

New Supply Net Absorption Vacancy Rate

Note: 10-Year Historical Absorption is 90,000 SF per Quarter

8 Research & Forecast Report | Q2 2018 | Greater Toronto Area / Office | Colliers International Notable Lists

Q2 2018 Market Stats

PROPORTION WGT AVG. WGT AVG. CURRENTLY # OF OFFICE VACANCY AVAILABILITY ABSORPTION MARKET CLASS OF SUBLEASE ASKING NET ASKING UNDER BLDGS INVENTORY RATE RATE (SF) AVAILABILITY RENT GROSS RENT CONSTRUCTION

Central Total All 444 95,529,203 1.5% 3.7% 18.0% 199,206 $28.94 $53.76 5,551,270

Financial Core All 90 36,449,251 2.3% 5.9% 14.0% 133,814 $32.37 $60.56 155,000

Downtown All 321 78,571,968 1.6% 3.7% 17.7% 147,913 $30.68 $56.56 5,481,270

Midtown All 123 16,957,235 1.3% 3.6% 19.3% 51,293 $22.61 $43.56 70,000

Suburban Total All 1051 102,788,963 7.2% 9.4% 8.7% -152,759 $16.50 $32.00 613,124

Central North All 86 13,581,362 7.1% 9.0% 11.0% -12,793 $18.93 $39.61 135,000

Central East All 163 17,870,371 6.5% 8.3% 11.9% -245,492 $13.70 $30.08 0

GTA North All 186 15,521,502 4.4% 6.0% 13.5% -1,067 $17.63 $31.65 0

GTA East All 106 9,734,959 4.0% 5.5% 3.7% -40,567 $11.94 $27.42 31,500

GTA West All 510 46,080,769 9.1% 11.9% 7.0% 147,160 $16.87 $31.25 446,624

GTA Total All 1495 198,318,166 4.5% 6.7% 11.2% 46,447 $19.32 $36.93 6,164,394

Notable Lease Transactions

TENANT ADDRESS AREA (SF) MARKET LEASE TYPE

Ontario Teachers' Pension Plan 160 Front Street West 265,000 Financial Core Headlease

Google Canada 111 Richmond Street West 101,500 Financial Core Renewal

AMEC 2020 Winston Park Drive 66,000 Sheridan Winston Renewal

WeWork 100 University Avenue 65,000 Financial Core Headlease

Tim Hortons 130 King Street West 60,000 Financial Core Headlease

Campbell Soup 5090 Commerce Boulevard 58,000 Airport Corporate Centre Headlease

Equifax 5700 Yonge Street 52,000 North Yonge Corridor Headlease

OneEleven 325 Front Street West 50,000 Downtown West Headlease

Google Canada 100 Adelaide Street West 47,000 Financial Core Headlease

Newell Brands 6975 Creditview Road 45,000 Meadowvale Sublease

Raymond James 40 King Street West 45,000 Financial Core Headlease

Primerica 6958 Financial Drive 43,000 Meadowvale Headlease

Notable Office Developments

ADDRESS – BUILDING NAME CLASS AREA (SF) ESTIMATED COMPLETION OWNER/DEVELOPER BUILDING STATUS

81 - CIBC Square AAA 1,500,000 Q2 2020 Ivanhoe Cambridge Under Construction

160 Front Street West AAA 1,200,000 Q3 2022 Cadillac Fairview Planned

410 Front Street West - The Well AAA 847,630 Q2 2023 Allied REIT/RioCan REIT Under Construction

16 York Street AAA 800,000 Q1 2020 Cadillac Fairview Under Construction

2-8 Prologis Blvd - Mississauga A 215,699 Q1 2019 HOOP Under Construction Gate Way Centre

218 Explorer Blvd - Red Diamond A 98,136 Q4 2018 JG Capital Realty Under Construction Corporate Centre

Research & Forecast Report | Q2 2018 | Greater Toronto Area / Office | Colliers International 9 Glossary

RENT: Weighted Average Asking Net Rent: The dollar amount requested by landlords for available space. This is expressed as a weighted average based on the available space. Weighted Average Asking Gross Rent: The weighted average of the sum of the net asking rent and the additional asking rent.

VACANCY & AVAILABILITY: Vacancy Rate: The ratio between vacant inventory and total inventory. Available Space: The total amount of space currently being marketed as available for lease or sublease at the end of a quarter. It includes space that is available, regardless of whether the space is vacant or occupied. Net Absorption: The net absorption is the difference between the occupied space in the current quarter and the previous quarter. Direct Availability: Space that is being offered for lease directly from the landlord. Sublease Availability: Sublet space that is available for sublease by a tenant to another lessee for a term equal to or shorter than that held by the tenant under its original lease with the landlord.

SUPPLY: Under Construction: Buildings where actual ground breaking has occurred and construction is underway, but for which a certificate of occupancy has not yet been issued. Net New Supply: Total square footage for buildings where construction has been completed.

Forecast Assumptions & Terminology Forecasted vacancy rates were calculated using a fixed 10-year historical average and supplemented with incoming new speculative and build-to-suit developments.

10 Research & Forecast Report | Q2 2018 | Greater Toronto Area / Office | Colliers International

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