Calgary Downtown Office Market Report

Q4 2019

Net Absorption MARKET OUTLOOK It was an active quarter for Calgary’s Downtown Office Market on the back of the Though transaction velocity has slowed given This Quarter Previous Quarter Canadian Federal Election, with a generally recent market conditions, Calgary saw a -620,385 SF -353,782 SF negative reaction by Calgary’s energy multitude of deals over 20,000 SF in the community to the outcome. Husky announced Downtown Office Market in 2019, of which layoffs the following morning which equated to Colliers Calgary directly advised on over two YTD Absorption the vacancy of the remainder of space they thirds. This volume of sizeable transactions occupied in the south tower of Western was partially driven by the flight to quality and -169,771 SF Canadian Place (~220,000 SF). Bankers Hall’s creative transaction structures targeting West Tower saw Repsol follow suit, as they balance sheet and/or income statement released five of their floors (~120,000 SF) onto improvements, driven by new lease recognition the sublease market. Of greatest significance to rules and not by contractual expiries. We Vacancy absorption this quarter was the addition of the expect similar trends to continue in 2020. entire former CNOOC/Nexen building This Quarter Previous Quarter (~600,000 SF), now named 801 Seventh to Though still de minimis in size relative to the 25.05% vacant inventory. Looking at 2019 as a whole, downsizing of the energy complex, we have 26.32% more than 1,100,000 SF in sublease and seen a number of technology companies from headlease space was added to the Downtown both inside and outside of Calgary transact in This Quarter Previous Quarter Market, however we only experienced negative the Downtown Core this quarter. Most notably, absorption of ~170,000 SF which reflects the Colliers advised on an 80,000 SF deal between SF SF 11,722,108 11,125,719 steady transaction volume that occurred during Telus Sky and Absorb Software, who will the year. relocate from its 35,000 SF headquarters in Inglewood to this AA space on 7th Avenue and Encana announced a decision one week post Centre Street. This continues the trend of Headlease Vacancy election to relocate its headquarters to Denver, reverse migration by tenants in the Suburban Colorado – though there were no layoffs and Beltline Office Markets, into Calgary’s This Quarter Previous Quarter announced as part of the change, it was very central business district. Companies such as 20.31% 18.92% negative overall for sentiment. The Canadian Finger Food Advanced Technology Group, are Oil & Gas sector continued to face significant expanding into Calgary from outside the challenges with respect to global commodity province, as they become the newest addition Sublease Vacancy prices, differentials, access to capital markets, to Brookfield Place this quarter. A litany of regulatory hurdles and legislative changes. quality space options and incentives provided This Quarter Previous Quarter Although there are some indications that 2020 by landlords as well as reduced property taxes could be a more promising year for this sector, from The City of Calgary, have largely 6.08% 5.82% we do not expect that to translate into activity contributed to these moves in 2019, however, which would materially offset vacancy rates we see the former starting to hold in what is near-term. increasingly tighter AA space.

Accelerating success. collierscanada.com/research Downtown Overview

Sublease Vacancy Rate Sublease/Headlease Composition 01 By Class | Q2 2018 – Q4 2019 02 By Quarter Sublease % of Total Vacancy 18% 16%

14% AA 12% AA

10% AA AA AA 8% AA AA 6% 4% 2% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 A B C A B C A B C A B C A B C A B C A B C 0% 2018 2018 2018 2018 2019 2019 2019 2019 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Headlease Sublease

Headlease Vacancy Rate Vacancy Rate by Class 03 By Class | Q2 2018 – Q4 2019 04 Q3 2019 – Q4 2019

40% 17.07% 27.14% 37.18% 30% AA A B 17.13% Q3’19 22.27% Q3’19 36.94% Q3’19 20%

10% 34.99% 26.24% A B C A B C A B C A B C A B C A B C A B C AA AA AA AA AA AA AA 0% C Total Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 34.71% Q3’19 25.05% Q3’19

Downtown Historical Overview Vacancy Rate Net Absorption New Supply 05 Availability vs. Net Absorption and New Supply Forecast 2,000,000 30% 25% 1,500,000 20%

1,000,000 Vacancy Rate 15% 500,000 10% 5% 0 0%

Absorption & New Supply (SF) & Supply New Absorption -500,000 -5% -1,000,000 -10%

Colliers Canada | Calgary Office Market Report | Q4 2019 collierscanada.com/research P.2 Downtown Calgary Market Statistics

Building Class AA A B C Total

Number of Buildings 21 34 39 69 164 Office Vacancy (SF) Current Quarter 2,806,837 3,809,279 3,207,315 1,898,677 11,722,108 Previous Quarter 2,817,738 3,105,247 3,186,884 1,883,414 10,993,283 Vacancy Rate Current Quarter 17.07% 27.14% 37.18% 34.99% 26.32% Previous Quarter 17.13% 22.27% 36.94% 34.71% 25.05% % Sublease Vacancy Current Quarter 9.75% 5.78% 1.75% 2.49% 6.08% Previous Quarter 9.74% 5.13% 1.86% 2.51% 5.82% % Headlease Vacancy Current Quarter 7.31% 21.37% 35.43% 32.50% 20.31% Previous Quarter 7.39% 17.32% 35.13% 32.22% 18.92% Sublease Availability Featured Sale & Lease Transactions Current Quarter 1,603,976 810,573 150,716 135,171 2,700,436 Previous Quarter 1,601,887 692,992 156,539 136,061 2,586,479 Headlease Availability Current Quarter 1,202,861 2,998,706 3,056,599 1,763,506 9,021,672 Previous Quarter 1,215,851 2,424,616 3,017,984 1,846,501 8,504,952 Absorption Current Quarter 10,901 (595,592) (20,431) (15,263) (620,385) Previous Quarter (116,968) (324,457) 86,976 667 (353,782)

Notable Lease Transactions

Transaction Type Building Name Address Submarket Company Size

*Headlease Telus Sky 685 Centre Street SW Central Absorb Software Inc. 80,000 SF

*Sublease Eighth Avenue Place - West 585 8 Avenue SW Central Pembina Pipeline Company 48,000 SF

Headlease Suncor Energy - East 111 5 Avenue SW East Suncor Energy Inc. 44,000 SF

*Headlease Centennial Place – West 250 5 Street SW Central Crew Energy Inc. 35,000 SF

Sublease Fifth Avenue Place - West 237 4 Avenue SW Central Canlin Energy Corporation 35,000 SF

*Headlease BP Centre 240 4 Avenue SW Central Torxen Energy Ltd. 33,000 SF

*Sublease Jamieson Place 308 4 Avenue SW Central Arcurve Inc. 23,500 SF

*Colliers was involved in deal

Colliers Canada | Calgary Office Market Report | Q4 2019 collierscanada.com/research P.3 Colliers Research

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