MARKETBEAT Waterloo Region & Guelph Office Q1 2019

WATERLOO REGION OFFICE Economy With heightened trade tensions and capital markets in a state of Economic Indicators volatility, the strength of the economy through 2019 has become 12-Month Q1 18 Q1 19 highly speculative. Although January and February’s rebound Forecast across capital markets coupled with steady growth in Waterloo Region 279k 297k Employment employment and GDP has put a hold on these concerns, it has Waterloo Region not eliminated them. While low unemployment rates have often 5.3% 4.7% Unemployment been associated with high levels of output and general economic City of Guelph Employment 89k 95k efficiency, the burden now faced by small to medium sized City of Guelph businesses is attracting and retaining human capital, which 5.3% 1.7% Unemployment suggests that Ontario’s prolonged period of economic expansion Canada Unemployment 5.8% 5.8% has outpaced its supply of new labour. With business owners now adopting creative strategies to find the talent they need to remain competitive, the overall shortage of labour in Ontario Market Indicators (Overall, All Classes) reflects a general loss of economic utility, as businesses are 12-Month routinely using services abroad to fulfill their needs. Q1 18 Q1 19 Forecast Overall Vacancy 17.2% 13.4% Market Overview Net Absorption (sf) 43,882 310,276 Through 2018 availability across Waterloo Region & Guelph’s office inventory declined nearly 400 basis points, with the first Under Construction (sf) 221,000 475,700 quarter 2019 availability rate sitting at 13.4% - just below the Average Asking Rent* $24.30 $24.25 Region’s historical average. While the phrase “Flight to Quality” *Rental rates reflect gross asking $psf/year has been used to describe the general trend in demand for high Overall Net Absorption/Overall Asking Rent quality office space, particularly within urban cores, this 4-QTR TRAILING AVERAGE phenomenon is increasingly relevant to the Region as Waterloo’s city core has no Class A space available. When 300,000 $26 looking at Class A office space in Kitchener’s core, similar trends 250,000 of excess demand coupled with little supply have also become $25 200,000 prevalent, as availability for Class A office space has fallen to 150,000 $24 3.7%. While demand for space in both Waterloo & Kitchener’s 100,000 cores has continually surpassed that of their respective $23 50,000 Suburban counterparts, much of the Class B and C space, 0 $22 particularly in Kitchener, struggles to attract occupants. In Kitchener’s core alone, the amount of vacant Class B and C -50,000 $21 space sitting vacant amounts to nearly 380,000 square feet and -100,000 is expected to increase with new inventory under construction -150,000 $20 and continued preferences amongst office users. 2014 2015 2016 2017 2018 Q1 2019 Net Absorption, SF Asking Rent, $ PSF Outlook With new construction in the pipeline and the continued Overall Vacancy expansion of technology companies, the current demand 20.0% amongst firms across Waterloo Region and Guelph continues to showcase a strong preference for quality, best-in-class office 18.0% space, over existing space of lesser quality. As demand for office 16.0% space continues to reveal the obsolescence of dated inventory, 14.0% landlords of such properties will need to continue investing in 12.0% Historical Average = 13.6% creative ways to reposition their assets in order to attract 10.0% prospective occupants. Speculative to economic trends, 8.0% Waterloo Region remains an attractive destination for firms of 6.0% various sizes who look to situate themselves closer to new 4.0% talent, and also avoid competing for space in the Greater 2.0% Toronto Area. 0.0% 2013 2014 2015 2016 2017 2018 Q1 2019

cushwakewr.com MARKETBEAT Waterloo Region & Guelph Office Q1 2019

CURRENT NET OVERALL YTD NET AVERAGE ASKING AVERAGE INVENTORY SUBLET VACANT DIRECT VACANT OVERALL UNDER SUBMARKET TOTAL BLDGS VACANCY OVERALL RENT (ALL ASKING RENT (SF) (SF) (SF) ABSORPTION CNSTR (SF) RATE ABSORPTION (SF) CLASSES)* (CLASS A)* (SF) Waterloo Core 20 1,686,273 0 52,634 3.1% 63,899 63,899 $28.97 N/A

Waterloo Suburb 96 5,694,795 201,478 759,231 16.9% 186,636 186,636 100,000 $24.68 $24.28

Waterloo Total 116 7,381,068 201,478 811,865 13.7% 250,535 250,535 100,000 $24.82 $24.28

Kitchener Core 33 2,610,765 2,399 408,590 15.7% 118,536 118,536 $25.99 $28.28 264,700 Kitchener Suburb 55 2,198,047 0 283,276 12.9% -37,435 -37,435 $22.56 $22.93

Kitchener Total 88 4,808,812 2,399 691,866 14.4% 81,101 81,101 264,700 $24.66 $23.72

Cambridge Core 8 342,150 0 74,070 21.6% -29,042 -29,042 $19.38 N/A

Cambridge Suburb 25 915,197 37,747 137,807 19.2% -6,467 -6,467 $21.67 $22.37 111,000 Cambridge Total 33 1,257,347 37,747 211,877 19.9% -35,509 -35,509 111,000 $20.99 $22.37

Guelph Core 14 551,094 0 18,994 3.4% -1,061 -1,061 0 $25.24 $26.97

Guelph Suburb 38 1,166,740 1,929 48,398 4.3% 15,210 15,210 0 $23.56 $25.03

Guelph*Rental rates Total reflect gross asking $psf/year52 1,717,834 1,929 67,392 4.0% 14,149 14,149 0 $24.03 $25.44

Waterloo Region Totals 289 15,165,061 243,553 1,783,000 13.4% 310,276 475,700 $24.25 $24.00 310,276

CURRENT YTD YTD SUBLET DIRECT OVERALL OVERALL INVENTORY NET OVERALL NET UNDER CNSTR YTD CNSTR TOTAL BLDGS VACANT VACANT VACANCY AVERAGE (SF) ABSORPTION ABSORPTION CNSTR (SF) COMPLETIONS COMPLETION (SF) (SF) RATE ASKING RENT * SUBMARKET (SF) (SF) (SF) Class A 95 7,614,539 77,774 712,065 10.4% 296,455 296,455 475,700 $23.92 $15.22 102,000 Class B 119 5,335,131 159,096 734,267 16.7% 21,532 21,532 0 $25.23 $13.99 0 Class C 75 2,215,391 6,683 336,668 15.5% -7,711 -7,711 0 $22.28 $12.52 0 *Rental rates reflect gross asking $psf/year Key Lease Transactions Q1 2019

PROPERTY SF TENANTs TRANSACTION TYPE SUBMARKET

420 Wes Graham Way 97,900 TextNow, EY, University of Waterloo Lease Waterloo Suburb

595 Parkside Drive 28,985 Nordia Lease Waterloo Suburb

55 King Street West 18,316 Oracle/Netsuite, ATS Tooling Systems Lease Kitchener Core

Cushman & Wakefield WR For more information, contact: About Cushman & Wakefield Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers 4295 King Street East, Suite 401 Connor Ward, Research Analyst exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the Kitchener, ON N2P 0C6 Tel: +1 519 804 4394 largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, cushwakewr.com [email protected] facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. ©2019 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.