Third Quarter 2018 / Office Market Report

Quick Stats

Highest positive Downtown office lowest they have been since Brookfield Place absorption in 16 quarters was completed in second quarter 2017, but 22.9% remain well above 20%. This positive news is Calgary Overall Vacancy Calgary’s GDP growth was a country-leading tempered by the expectation of significant 6.3% in 2017, and is expected to be 2.9% tenant movements in fourth quarter 2018, in 2018 and 2.3% in 2019, according to The which may result in net negative absorption Conference Board of Canada. This anticipated for the quarter. The recent announcement 25.2% level of growth will place Calgary amongst regarding Nexen’s move to the Cenovus Downtown Vacancy the highest levels of growth for major sublease space in The Bow will be one Canadian cities. The unemployment rate for of those major factors. Nexen is taking September 2018 is 8.2%, which is moderately approximately 290,000 square feet (sf) in The better than 1 year ago when it was 8.4%. Bow, while leaving behind approximately 19.7% Calgary remains distant from the low of 4.4% 600,000 sf in Nexen Tower; this results in Beltline Vacancy seen in November 2014, but has improved a net negative absorption of 310,000 sf from the peak unemployment rate of 10.3% which would result in a 0.7% increase to the in November 2016. It should be noted vacancy rate. 17.4% third quarter 2018 saw the highest level of quarterly office absorption across the entire Additionally, the announcement of Husky Suburban North Vacancy Calgary office market since fourth quarter Energy’s intention to acquire MEG Energy is 2016 and the Downtown office market another market factor to watch. It remains saw its highest level of quarterly positive premature to determine how this potential merger and acquisition will play out. A 21.1% absorption since third quarter 2014. successful acquisition could potentially result Suburban South Vacancy As of third quarter 2018, the vacancy rates for in additional office space being brought both the overall Calgary office market and to market. It could also be an indicator for Calgary’s Downtown office market are the a trend of other mergers and acquisitions

Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

across the industry. While this would Calgary Overall Meanwhile, each of the Downtown, not be as significant an impact on Suburban North, and Suburban office vacancy and unemployment as ABSORPTION VACANCY RENTAL South office submarkets saw positive (DEMAND) (SUPPLY) RATES witnessed in 2015-16, it would certainly absorption in third quarter 2018. create further challenges with the market. Average asking rents are seeing some The overall vacancy rate decreased to reductions for the highest-quality On the good news side, new projects 22.9% during the third quarter of 2018 properties, but for the time being, with direct ties to Calgary’s energy from 23.5% in second quarter 2018, and the ranges for average asking rents sector have received the green light is down from 23.1% recorded 12 months are remaining stable on medium and recently. The LNG Canada project in ago in third quarter 2017. Across the lower-quality buildings. Quoted taxes Kitimat and two petrochemical project entire Calgary office market, headlease and operating costs average $17.50 per announcements for northern space (space available directly from square foot (psf) for all building classes, will have positive impacts the landlord) currently represents across the entire city. Class AA buildings for Calgary, as many 77% of Calgary’s overall availability, in average $23.05 psf, class A buildings 22.9% of the companies comparison to 69% 12 months ago. average $18.44 psf, class B buildings OVERALL OFFICE involved have their average $16.69 psf, and class C buildings VACANCY RATE corporate offices in Absorption for the overall Calgary average $14.31 psf. These numbers are Calgary. office market returned to a positive further broken down within the specific position in the third quarter of 2018, area of city sections later in this report. One other interesting factor is both the with positive 385,000 sf being absorbed, It is important to note that assessments University of Alberta and the University returning the Calgary office market to for office properties are seeing a of Calgary have expanded their software positive year-to-date absorption for divergence. Average assessments have engineering programs, including the 2018 (366,000 sf). The only submarket been decreasing in the Downtown addition of a master’s program. These in Calgary to see negative absorption office market over the course of the are good steps for creating a talent in third quarter 2018 was the Beltline, downturn, while the suburban office base for the Tech Industry as a method to diversify our economy. The success of these efforts can already be seen HistoricalHis Pricetorical Pofric Oile of VersusOil versu Calgarys Calgary DDowntownowntown Off iOfficece Vacan Vacancycy Rate Rate $180 30% thanks to the recent announcement of Source: U.S. Energy Information MobSquad receiving funding and grants Administration, Avison Young $160 to expand their remote technology 25% start-up team member matching $140 business. ) l

e $120 20% r r a b

r )

Oil prices have been stable, but the e % ( p

$100 e S t U a $ differential between WTI and WCS R

(

15% y e c c n i r (the price paid for most oil in Alberta) $80 a c P

a t V o reached a five-year high differential in p S

I T $60 10% September 2018 of $29.71 per barrel W according to Baytex Energy. Recovery in $40

Calgary remains sluggish and uneven, 5% but the trend lines continue to show $20 improvement. $0 0% l l l l r r r r r r r r r r r r r r r r t t t y y y y i i i i y y y y y y y y y y y y e e e e h h h l l l l s s s r r r r r r r r r r r r e e e e e e e e e e e e e e e e a a a a c c c n n n n u u u u a a a a a a a a u u u r r r p p p p b b b b b b b b b b b b b b b b u u u u J J J J M M M M u u u u u u u u a a a g g g o o o o A A A A J J J J r r r r m m m m m m m m m m m m t t t t n n n n u u u M M M b b b b e e e e e e e e e e e e c c c c a a a a A A A t t t t e e e e J J J J c c c c v v v v O O O O p p p p F F F F e e e e o o o o e e e e D D D D N N N N S S S S 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

WTI Monthly Spot Price Calgary Downtown Office Vacancy Rate WTI Monthly Spot Price Calgary DT Office Vacancy Rate

2 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

Overall Calgary Office Vacancy markets have seen slight increases in to be completed. The biggest one average assessments. It will be worth for third quarter 2018 being Parkland Rates watching the City work through their Fuel – a new tenant to the Downtown Overall Calgary Office Vacancy Rates tax review as there has been dialogue market – expanding and relocating 30% about shifting more of the tax burden to 111,000 sf in BP Centre from the away from the downtown out to the Suburban Northeast. Activity by smaller 25.2% 25% suburbs. tenants continues to be noticeable 22.9% with demand for space under 5,000 sf 6.28% 21.1% There were two new buildings 19.7% continuing to being high. It is expected 20% 5.34% 4.48% completed in third quarter 2018 – 17.4% that rental rates will continue to be 5.24% both in the Suburban North office 2.14% under pressure and inducements market. Approximately 530,000 sf of 15% (such as free rent and improvement new office space, in three buildings, allowances) remaining substantial. remains under construction across 10% 18.96% 17.60% Calgary, with 39% pre-leasing in place. As Calgary looks forward, flight-to- 16.62% 15.22% 14.44% The majority of this is in Downtown quality is expected to be a major

5% (86%), with the remainder located in component of the market. With rental the Suburban South (14%). There are rates and inducements being attractive, no office properties remaining under tenants are showing a strong interest 0% Downtown Beltline Suburban Suburban Overall North South construction in the Beltline or Suburban in moving into better quality buildings, Headlease Vacancy Sublease Vacancy Total Vacancy North. while keeping their cost structure stabilized. This ideology is supported by Energy and energy servicing companies the trend seen with lower vacancy rates continue to make up a large share of the for those buildings considered to be the leasing transactions being recorded and best in their respective submarkets. Calgary Annual Absorption by some larger transactions are starting Area of City Calgary CMA Employment and Unemployment Rate Overall Calgary Annual Office Absorption Calgary CMA Labour Force, Employment, and Unemployment Rate 4,000,000 (September 2018) 950,000 12%

3,000,000 2,921,000 Source: Statistics Canada Compiled by: Avison Young

2,000,000 900,000 10%

1,000,000 850,000 8% 366,000 e l

0 p o e p

f o

-502,000 800,000 6% r e

-1,000,000 b m u N

-2,000,000 750,000 4%

-2,658,000 -3,000,000

-3,303,000 700,000 2%

-4,000,000 2014 2015 2016 2017 2018

650,000 0% 3 4 5 6 7 8 3 4 5 6 7 3 4 5 6 7 8 3 4 5 6 7 8 3 6 4 5 7 8 3 4 5 6 7 8 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------l l l l l l r r r r r r y y y y y y v v v v v n n n n n n p p p p p p u u u u u u a a a a a a a a a a a a o o o o o a a a a a a e e e e e e J J J J J J J J J J J J S S S S S S M M M M M M N N N N N M M M M M M

Labour force Employment Unemployment rate Labour force Employment Unemployment Rate

3 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

Downtown which is companies have not put on quarter 2018 saw positive absorption ABSORPTION VACANCY RENTAL (DEMAND) (SUPPLY) RATES the market for a variety of reasons. for class AA buildings continue for the There is speculation this number third quarter in a row. Over the last three could be anywhere from 2-5% of months, class AA buildings saw positive additional vacancy. 144,000 sf absorption, class A saw Since Brookfield Place was completed positive 180,000 sf absorption, class B in second quarter 2017, the vacancy Vacancy by class is now: class AA saw negative (-25,000 sf) absorption, and rate has trended downwards. From –22.4%, class A – 23.3%, class B – class C saw positive 4,000 sf absorption. peak vacancy of 26.4%, the vacancy 33.9%, and class C – 20.7%. Of note, rate has decreased by 120 basis points. there was a distinct improvement in Average asking rents for headlease space office vacancy, as of occupancy in higher-quality buildings in Downtown are remaining steady third quarter 2018 is 25.2%. This is down this quarter. This is indicative of the and range between $4 and $36 psf, per from 26.0% in second quarter 2018, and flight-to-quality into AA and good annum. New Construction buildings the same vacancy rate 12 months ago in quality A buildings. range between $28 and $36 psf (average third quarter 2017. Total vacancy for the $32 psf). Class AA buildings range Downtown office market is 11.7 million Absorption in the Downtown office between $22 and $26 psf (average $24 square feet (msf), broken down by: 8.8 market for third quarter 2018 overall psf). Class A buildings range between msf of headlease space (75%) and was positive 305,000 sf. This $13 and $17 psf (average $15 psf). Class 2.9 msf of sublease space (25%). level of positive absorption for B buildings range between $8 and $12 It needs to be noted these 25.2% the quarter returns 2018 to psf (average $9 psf). Class C buildings numbers only reflect space DOWNTOWN OFFICE positive 184,000 sf absorption range between $4 and $7 psf (average VACANCY RATE being marketed and does not year-to-date. The Downtown $6 psf). Location, building quality, size include shadow space, which office market continues to swing of space, and length of term will all play is vacant space that shadow space, from mildly negative one quarter to into ultimately determining what the mildly positive the next quarter. Third asking rate for a property is. Sublease

Downtown Calgary Office Downtown Calgary Historical Quarterly Absorption Downtown Calgary Quarterly Office Absorption Vacancy Rates 1,000,000

Downtown Calgary Office Vacancy Rates 766,000 35% 33.9%

2.48% 500,000 30% 305,000

162,000 169,000 25.2% 25% )

t 1,000 3,000

23.3% e

22.4% e 0 F

e

6.28% r

20.7% a -65,000 -67,000 u

0.92% q -140,000 20% 6.68% S (

n -252,000 o

i -288,000 -290,000 9.18% t p r o 31.45% s -500,000 -416,000 15% b A -528,000 -526,000

-672,000

10% 19.78% 18.96% -815,000 16.58% -1,000,000

13.18% -1,053,000 5% -1,197,000

0% -1,500,000

Class AA Class A Class B Class C Overall 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 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

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3

Headlease Vacancy Sublease Vacancy Total Vacancy Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

4 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

opportunities can offer substantial availability of space in the Downtown Downtown Calgary Office Market discounts from these rates and vary market and 76% of this space is Average Asking Rents widely. available on a headlease basis.

Downtown Office Market Average Asking Rents Similarly, quoted taxes and operating The last remaining office building under RENTAL Headlease - High-Low-Average - ($/SF/Annum) RATES $40.00 costs average $20.46 psf for all building construction in downtown Calgary classes, in the Downtown market. Class is Sky. It contains 460,000 sf of $35.00 AA buildings average $23.05 psf, class new office space, which will result in $32.00 A buildings average $20.25 psf, class B a 1% increase in inventory, and is 39% $30.00 buildings average $17.34 psf, and class pre-leased. Looking to the future for C buildings average $15.57 psf. These the Downtown Calgary office market, $25.00 $24.00 average rates for taxes and operating we expect the fourth quarter to likely

$20.00 costs have decreased by $0.65 psf from show negative absorption due to the 12 months ago as properties adjust to Nexen deal, but 2019 to show positive $15.00 $15.00 their 2018 assessed values, which have 100,000 sf per quarter, rising to 150,000 seen dramatic decreases on average sf per quarter in 2020. With the addition $10.00 $9.00 versus previous years. of at the end of the year,

$6.00 vacancy is forecasted to rise as high as $5.00 There are 14 availabilities on the 26.6% upon delivery. market in Downtown Calgary that $0.00 New Class AA Class A Class B Class C have over 100,000 sf available as one Construction contiguous block. These 14 blocks Baytex energy | q3 2018 of space represent 30% of the total CLICK HERE heavy oil pricing update

Downtown Calgary Office Historical and Projected Vacancy REASONABLE ASSUMPTIONS: Downtown Calgary Office Historical and Projected Vacancy 30% 2018: Negative 200,000 sf in Q4 26.6% 26.6% 26.6% 26.6% 26.5% 26.4% 26.4% 26.0% 26.2% 26.0% 26.0% 25.6% 25.9% 25.7% 25.2% 25% 26.2% 26.0% 2019: Positive 100,000 sf 23.9% 23.9% 25.7% 25.8% 25.5% 25.2% 24.9% 22.9% 24.6% 24.3% in each quarter 21.1% 2020 and beyond: 20% Positive 150,000 sf in 17.6% each quarter 16.3%

15%

12.2% ) f PESSIMISTIC ASSUMPTIONS: s

0 0

10.7% ) f 0 , s )

f 0 0 s 2018: Negative 300,000 10% 0

9.1% 0 4 0 , 0 , 0 1 ( 3 0

, ) 5 sf in Q4 t f 3 s 8 s ) ( 1

a f

6 s E 0 e (

r

0 - 0 t r

0 , 0 e n e 2019: Flat absorption 0 0 c e , w 6 a

5% C 4 l o

4 6 P ( T y

t 5 i y ( e d

l

r 2020: Positive 50,000 sf k C i h e S i a t

y l f f r S i k C a F

U o in each of Q1 and Q2, g u L l o 7 a r E a 0 E B T C 0% 7 positive 100,000 sf in Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 each of Q3 and Q4 2015 2016 2017 2018 2019 2020

Vacancy Rate - Reasonable Assumptions Vacancy Rate - Pessimistic Assumptions Vacancy Rate - Reasonable Assumptions Vacancy Rate - Pessimistic Assumptions

5 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

Average asking rents for headlease Beltline space in the Beltline range between Beltline Calgary Office ABSORPTION VACANCY RENTAL $5 and $24 psf, per annum. Class A Vacancy Rates (DEMAND) (SUPPLY) RATES buildings range between $18 and Beltline Calgary Office Vacancy Rates $24 psf (average $22 psf). Class B 25% buildings range between $12 and $16 21.4% The vacancy rate in the Beltline office psf (average $14 psf). Class C buildings 19.7% range between $5 and $12 psf (average 20% 19.4% market increased for an eighth straight 4.36% quarter to sit at 19.7% in third quarter $10 psf). 16.3% 5.24% 2018. This is up from 19.5% in second 0.00% Similarly, quoted taxes and operating 15% 8.86% quarter 2018, and from 17.3% 12 costs average $18.12 psf for all building months ago in third quarter 2017. classes, in the Beltline market. Class This is a new peak vacancy A buildings average $19.69 psf, 10% for the Beltline office market. 19.7% class B buildings average $17.31 17.08% 16.26% Vacancy by class is now: class BELTLINE OFFICE 14.44% psf, and class C buildings average A – 19.4%, class B – 21.4%, and VACANCY RATE $16.37 psf. The average rate for 5% 10.51% class C – 16.3%. taxes and operating costs has Headlease space increased by 134,000 decreased by $0.09 psf from 12 months ago. 0% sf, while sublease space decreased Class A Class B Class C Overall by 111,000 sf during the last three There are seven availabilities in Beltline Headlease Vacancy Sublease Vacancy Total Vacancy months. This increase in headlease Calgary with more than 30,000 sf space was the result of new listings available as one contiguous block. being brought to market and a sizeable These seven blocks of space represent sublease in Stampede Station rolling 20% of the total availability of space in Beltline Calgary Office Average over to headlease. Total vacancy for the the Beltline office market and 30% of Asking Rents Beltline office market is 1.7 msf, broken this space is available on a headlease down by 1,213,000 sf of headlease Beltline Office Market Average Asking Rents basis. Headlease - High-Low-Average - ($/SF/Annum) space (73%) and 440,000 sf of sublease $30.00 space (27%). Beltline Calgary Annual Office Absorption in the Beltline office Absorption $25.00 Beltline Calgary Annual Office Absorption market for third quarter 2018 was 1,200,000 $22.00 negative (-28,000 sf). This is the seventh 1,063,000 $20.00 consecutive quarter of negative 1,000,000 absorption for the Beltline office 800,000 $15.00 market. Year-to-date the absorption for $14.00 the Beltline is negative (-117,000 sf). 600,000 Looking at the breakdown between $10.00 $10.00 building classes, third quarter 2018 saw 400,000 negative absorption for class A and C $5.00 buildings and positive absorption for 200,000 class B buildings. Over the last three 16,000 $0.00 months class A buildings saw negative 0 Class A Class B Class C (-36,000 sf) of absorption, class B saw -80,000 -117,000 positive 29,000 sf of absorption, and -200,000 -214,000 class C saw negative (-21,000 sf) of -400,000 absorption. 2014 2015 2016 2017 2018

6 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

A buildings saw negative (-26,000 sf) of Calgary Employment Snapshot Most Job Gains absorption, class B saw positive 64,000 September 2018 (Over the last 12 months) sf of absorption, and class C saw positive 2,000 sf of absorption. Vacancy by class is Unemployment Other services (except public admin) 8,600 Rates Comparison now: class A – 16.6%, class B – 17.3% and Manufacturing class C – 20.2%. September 2018 September 2017 7,800 Health Care & Average asking rents for headlease CALGARY 8.2% 8.4% Social Assistance 6,200 space in the Suburban North range ALBERTA 7.0% 7.8% between $6 and $28 psf, per annum. CANADA 5.9% 6.2% Most Job Losses New Construction buildings range (Over the last 12 months) between $25 and $28 psf, (average $25 Total Employment Total Unemployment Accommodation psf). Class A buildings range between 5,000 people 400 people & food services 7,100 $18 and $26 psf (average $19 psf). Class from August 2018 from August 2018 Finance, insurance, real B buildings range between $9 and $15 5,500 people 2,200 people estate, rental & leasing 7,100 psf (average $13 psf). Class C buildings from Sept 2017 from Sept 2017 Wholesale & range between $6 and $12 psf (average Retail Trade Source: Statistics Canada, compiled by Avison Young Geography: Calgary Metropolitan Area 6,400 $9 psf).

Similarly, quoted taxes and operating costs average $14.64 psf for all building Suburban North Suburban North Calgary classes, in the Suburban North market. Office Vacancy Rates Class A buildings average $15.56 psf, ABSORPTION VACANCY RENTAL Suburban North Calgary Office Vacancy Rates (DEMAND) (SUPPLY) RATES 25% class B buildings average $13.96 psf, and class C buildings average $12.21 psf. The average rate for taxes and operating 20.2% The Suburban North office vacancy rate 20% 0.29% costs has increased by $0.26 psf from 12 held steady at 17.4% in third quarter 17.3% 17.4% months ago. 16.6% 2.14% 2018 from second quarter 2018, but up 1.56% from 15.4% 12 months ago. Vacancy 15% 4.30% Suburban North Calgary appears to have peaked during this Annual Office Absorption downturn for this market segment Suburban North Calgary Annual Office Absorption 10% 19.96% 200,000 at 21.3% in the third quarter of 2016. 177,000

15.07% 15.22% Looking at the quadrants themselves, 150,000 vacancy for the Suburban Northeast 13.01% 127,000 5% is 17.9%, while the vacancy for the 100,000 Suburban Northwest is 15.8%. 68,000 50,000

0% Headlease vacant space increased by Class A Class B Class C Overall 0 97,000 sf, while sublease vacant space Headlease Vacancy Sublease Vacancy Total Vacancy -14,000

decreased by 117,000 sf during the last -50,000 three months. Total vacancy for the Suburban North office market is 1.8 msf, was positive 40,000 sf. Year-to-date the -100,000 broken down by 1.5 msf of headlease absorption for the Suburban North is -150,000 space (88%) and 217,000 sf of sublease positive 177,000 sf. Third quarter 2018 saw negative absorption for class A space (12%). -200,000 -194,000 buildings, and positive absorption for Absorption in the Suburban North class B and C buildings in the Suburban -250,000 2014 2015 2016 2017 2018 office market for third quarter 2018 North. Over the last three months class

7 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

Calgary Q3 2018 Office Construction Summary

DOWNTOWN Under Construction

Building Name Address Office Area (sf) Expected Completion % Leased/Pre-Leased LEED Target

TELUS Sky 110 - 7th Avenue SW 460,000 Q1 2019 38% Platinum

SUBURBAN NORTH New Supply

Building Name Address Office Area (sf) Expected Completion % Leased/Pre-Leased LEED Target

Aviation Medical Centre 1243 - 48th Avenue NE 27,600 Q3 2018 0%

One North Business Centre 1348 Northmount Drive NW 20,000 Q3 2018 35%

SUBURBAN SOUTH Under Construction

Building Name Address Office Area (sf) Expected Completion % Leased/Pre-Leased LEED Target

Macleod Professional Centre 3916 Macleod Trail SE 31,000 Q4 2018 40%

Meadows Mile Professional Centre 1 & 2 8500 Blackfoot Trail SE 44,800 Q2 2019 75%

North Business Centre a 20,000-sf North office market, and no new Suburban North Calgary Office development which was 35% pre- developments anticipated anytime Average Asking Rents leased at the time of completion soon. Suburban North Office Market Average Asking Rents and Aviation Medical Centre a fully- Headlease - High-Low-Average - ($/SF/Annum) renovated and retrofitted 27,600-sf $30.00 View economic building designed for medical tenants happenings and which had no pre-leasing in place at expectations in $25.00 $25.00 the time of delivery to market. With the ATB Financial’s completion of these two properties, most recent $20.00 there are no remaining projects Alberta Economic Outlook $19.00 under construction in the Suburban (August 2018) CLICK HERE

$15.00 Suburban North Vacancy by Location $13.00 Suburban North Office Vacancy by Location

$10.00 25% $9.00 22.1% 21.2% 0.0% 20.7% $5.00 20.2% 20% 0.3% 0.8%

5.6% 17.9% 17.3% 17.4% 16.6% $0.00 2.6% 2.1% 15.8% New Class A Class B Class C 1.6% 15.2% Construction 15% 4.3% 1.0% 1.8% There are 11 availabilities in Suburban 12.1% North Calgary with more than 30,000 22.1% 1.6% 10% 20.0% 20.0% sf available in one contiguous block. 7.6% 15.6% 15.1% 15.2% 15.4% 14.8% These 11 blocks of space represent 1.1% 13.0% 13.3% 34% of the total availability of space 5% 10.5% in the Suburban North office market 6.5% and 89% of this space is available on a

headlease basis. 0% Class A Class B Class C Overall Class A Class B Class C Overall Class A Class B Class C Overall Suburban North NE NW Two office buildings were added to 9.9 msf 7.4 msf (74%) 2.6 msf (26%) inventory in third quarter 2018 in the Headlease Vacancy Sublease Vacancy Suburban North office market – One

8 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

Suburban South 2.0 msf of headlease space (79%) and Suburban South Calgary 543,000 sf of sublease space (21%). Annual Office Absorption ABSORPTION VACANCY RENTAL (DEMAND) (SUPPLY) RATES Absorption in the Suburban South Suburban South Calgary Annual Office Absorption office market for third quarter 2018 1,500,000 1,355,000 was positive 68,000 sf. Year-to-date the The Suburban South office vacancy absorption for the Suburban South rate decreased to 21.1% in third is positive 121,000 sf. Third quarter 1,000,000 quarter 2018, down from 22.1% in 2018 saw positive absorption for all second quarter 2018, and down from classes of buildings in the Suburban 23.6% twelve months ago in third South office market. Over the last 500,000 quarter 2017. Vacancy appears to three months class A buildings saw have peaked during this downturn for positive 44,000 sf of absorption, class 95,000 121,000 this market segment at 24.3% in the B saw positive 6,000 sf of absorption, 0 first quarter of 2017. Looking at the and class C saw positive 19,000 sf of -141,000 quadrants themselves, vacancy for the absorption. Vacancy by class is now: class A – 24.6%, class B – 11.3%, and -500,000 Suburban Southeast is 22.9%, while the -538,000 vacancy for the Suburban Southwest is class C – 8.5%. 17.0%. Average asking rents for headlease -1,000,000 2014 2015 2016 2017 2018 Headlease space increased by 39,000 space in the Suburban South range sf over the last quarter, while sublease between $6 and $29 psf, per annum. space decreased by 153,000 sf. Total New Construction buildings range vacancy for the Suburban South office between $25 and $29 psf, (average $26 market is 2.6 msf, broken down by psf). Class A buildings range between Suburban South Calgary Office Vacancy Rates Suburban South Vacancy by Location Suburban South Calgary Office Vacancy Rates Suburban South Office Vacancy by Location 30% 30%

26.6%

24.6% 25% 25% 24.6% 22.9% 21.1% 8.1% 5.95% 6.0% 21.1% 20% 19.7% 20% 6.2% 4.48% 0.6% 4.5% 17.0% 0.4% 15% 15%

11.3% 12.1% 0.00% 11.3% 0.0% 0.0% 10.7% 10% 0.0% 9.8% 18.66% 8.5% 10% 0.0% 18.7% 8.5% 18.5% 19.1% 0.00% 16.62% 0.0% 16.6% 16.6% 16.6%

11.34% 12.1% 5% 11.3% 10.7% 8.45% 5% 9.8% 8.5%

1.9% 0.0% 0% 1.9% Class A Class B Class C Overall 0% Class A Class B Class C Overall Class A Class B Class C Overall Class A Class B Class C Overall

Headlease Vacancy Sublease Vacancy Total Vacancy Suburban South SE SW 12.1 msf 8.4 msf (70%) 3.7 msf (30%)

Headlease Vacancy Sublease Vacancy

9 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

Similarly, quoted taxes and Suburban South Calgary Office operating average $14.73 psf for all FOR SALE WITH NEW PRICE Average Asking Rents building classes, in the Suburban $20,000,000.00 Suburban South Office Market Average Asking Rents South market. Class A buildings Headlease - High-Low-Average - ($/SF/Annum)

$35.00 average $15.19 psf, class B buildings average $14.73 psf, and class C

$30.00 buildings average $10.46 psf. The average rate for taxes and operating $26.00 costs has increased by $0.27 psf from $25.00 12 months ago.

$20.00 $19.00 There are 19 availabilities in BROCHURE Suburban South Calgary with more Building $15.00 $14.00 than 30,000 sf available in one 215 - 16 Street SE contiguous block. These 19 blocks $10.00 $10.00 of space represent 59% of the total Prominent multi-purpose, flex availability of space in the Suburban office/industrial building on a $5.00 South office market and 72% of this space is available on a headlease key site with direct frontage on $0.00 basis. Deerfoot Trail New Class A Class B Class C Construction No new buildings were added to inventory in third quarter 2018. FOCUS ON INVESTMENT $15 and $23 psf, (average $19 psf). One office building remains under Investors, both foreign and Class B buildings range between $10 construction in Suburban South local, continue to make big and $15 psf, (average $14 psf). Class C Calgary: Macleod Professional investments in Calgary as vacancy remains at almost buildings range between $6 and $12 Centre. This building contains 31,000 psf, (average $10 psf). $ an all-time high. Large, sf, and is currently 40% pre-leased. downtown value-add plays, core Beltline assets, and a wide variety of suburban assets are among the trades recorded over the last three months. The activity level through to the end of Major events that will have an impact 2018 does not look like it will change the on Calgary's economy in 2019 trend for the year, although the scale of office real estate transactions may be larger. A few notable downtown office lease deals and an uptick in absorption has changed market sentiment for the better which will spur on additional investment activity. A few early movers have been seen trading Line 3 out of the assets they bought over the past Kitimat LNG Northern Alberta Replacement Program 18 months to crystalize their sizeable gains. Project Petrochemical Projects (in-service second half 2019) This has turned into a keen focus of other market participants that have sat on the sidelines throughout the downturn. MAY OCT Looking forward to 2019 there are a 31 21 number of macroeconomic events that could greatly impact the market’s sentiment, including the provincial election, Provincial Election Federal Election further LNG announcements, and the (on or before) progress of west, east or south pipeline construction.

10 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

Calgary Average Taxes & Operating Costs

BROCHURE Class AA Class A Class B Class C All Classes Sublease OPPORTUNITY DOWNTOWN $23.05 $20.25 $17.34 $15.57 $20.46 BELTLINE - $19.69 $17.31 $16.37 $18.12 GULF CANADA SUBURBAN NORTH - $15.56 $13.96 $12.21 $14.64 SQUARE SUBURBAN SOUTH - $15.19 $14.73 $10.46 $14.73 401 - 9 ave sw Overall $23.05 $18.44 $16.69 $14.31 $17.50 (per square foot per annum) 8,000 sf up to 240,000 sf

Conference facilities Access to restaurants, On-site Professional in the building coffee shops, eateries Management & 24/7 & services Security Connected to Plus 15 System Calgary Office Vacancy by September Labour Market Statistics Location Force Survey Calgary Q3 2018 Office Vacancy breakdowns Calgary specific labour Market Statistics of Calgary Submarkets and employment CLICK HERE CLICK HERE CLICK HERE

Calgary Q3 2018 Notable Office Leasing Transactions

DOWNTOWN Tenant Building Name Address Size (sf) Deal Type Parkland Fuel BP Centre 240 - 4th Avenue SW 111,000 Headlease

BMO - East 525 - 8th Avenue SW 70,000 Headlease

Tidewater Midstream Livingston Place South 222 - 3rd Avenue SW 66,000 Sublease

Painted Pony Centennial Place - East 520 - 3rd Avenue SW 44,000 Sublease BELTLINE Tenant Building Name Address Size (sf) Deal Type DJA Engineering Services* Central Park Plaza 340 - 12th Avenue SW 9,900 Headlease Sysgen Solutions Group* Stampede Station 1331 Macleod Trail SE 8,000 Headlease SUBURBAN NORTH Tenant Building Name Address Size (sf) Deal Type Reeves Education* Sunridge Business Park 1 2886 Sunridge Way NE 8,300 Headlease Hydrea Energy Services* Cantex Building 325 Manning Road 6,200 Headlease SUBURBAN SOUTH Tenant Building Name Address Size (sf) Deal Type Canada Brokerlink* Glenmore Professional Centre 1201 Glenmore Trail SW 32,600 Headlease Fontile Calgary Corporation* 6325 - 11th Street SE 6325 - 11th Street SE 6,400 Headlease Pomerleau* Corner Court 3 6223 - 2nd Street SE 5,600 Renewal-Expansion

*Indicates transactions Avison Young was involved in

11 | Partnership. Performance. avisonyoung.com Calgary Third Quarter / Office Market Report

Featured Listings Calgary Office Team Atruim II Western Union Building Taylor Archer Jordyn Malkinson 840 - 6th Avenue SW 640 - 8th Avenue SW [email protected] [email protected] Loveleen Bhatti Paul McKay [email protected] [email protected] Roseleen Bhatti Alexi Olcheski [email protected] [email protected] Rachel Carter Nairn Rodger

SUBLEASE Opportunity BROCHURE SUBLEASE Opportunity BROCHURE [email protected] [email protected] From 3,201 sf 1,100 sf Eric Demaere Kirsten Scott [email protected] [email protected] RECA Building 525 - 11 Avenue SW Spencer Duff Will Shenstone 1506 - 11th Avenue SW 525 - 11 Avenue SW [email protected] [email protected] Steve Goertz Glenn Simpson [email protected] [email protected] Larry Gurtler Anna Sorensen [email protected] [email protected] Eric Horne Todd Throndson [email protected] [email protected] HEADLEASE Opportunity BROCHURE HEADLEASE Opportunity BROCHURE 2,750 sf 693 sf - 7,483 sf Chris Howard Alex Wong [email protected] [email protected] Bisma Centre SWIFT Centre Jason Kopchia Allan Zivot 110 Country Hills Landing NW 7136 - 11 Street NE [email protected] [email protected] Tinyan Leung [email protected]

Business Condominium Team

Pali Bedi Fred Clemens [email protected] [email protected] HEADLEASE Opportunity BROCHURE HEADLEASE Opportunity BROCHURE 1,879 sf 6,603 SF - 47,289 sf Puneet Nagpal Shannon Darragh [email protected] [email protected] Corner Court 2594 - 27th Street NE 2nd Street & 62nd Avenue SE 2954 - 27 Street NE For more information, please contact: Research Susan Thompson | 403.232.4344 [email protected]

Graphics SUBLEASE & HEADLEASE BROCHURE HEADLEASE Opportunity BROCHURE 1,450 sf - 8,180 sf 39,295sf Penelope Johnson [email protected]

avisonyoung.com

Properties

© 2018 Avison Young Real Estate Alberta Inc. All rights reserved. E. & O.E.: The information contained herein was obtained from sources that we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.