Research & Forecast Report OFFICE

Third Quarter 2018 Table of Contents

Ottawa Market Overview ...... 3

Market Summaries Downtown...... 4 Fringe Core...... 5 East...... 6 South/Airport...... 7 West...... 8 Kanata...... 9

Glossary...... 10

Authors...... 11

2 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Ottawa Market Overview Market Overview Over the next several years, one of the largest contributors to economic growth in Ottawa will be non-residential Market Indicators Market Q2 Market Q3 Year over Year Relative to prior period 2018 2018 Trend construction1. The city is preparing for extensive renovations of Parliament Hill’s Centre Block, an ambitious project AVAILABILITY 10.7% 10.1% managed by Colliers Project Leaders that is expected to NET ABSORPTION (157,983) 314,710 have the block closed for the next decade. Public Services CONSTRUCTION* and Procurement Canada has promised to provide alternate 402,000 402,000 tourism experiences because the Centre Block is one of RENTAL RATE** $16.70 $16.78

Ottawa’s most popular tourist hot-spots. The House of Note: *Currently under construction Commons is set to move to a new chamber located in the **Weighted Average Net West Block for the duration of the closure in early 2019. The first stage of the new Light Rail Transit system Tenant Demand experienced several delays, but the start of the $3.5 billion Ottawa’s availability rate has been declining and is now 10.1% second stage is on the horizon, with construction still overall, with the CBD availability rate at 7.0%. The suburbs scheduled to begin in 2019. As part of transit related projects, saw particularly strong absorption in the past quarter with the widening of Highway 417 will help relieve potential almost 279,000 square feet of increased occupancy; this disruption caused by LRT construction. equals almost 6.1% annualized office occupancy growth. Several large government tenders were secured this quarter, Investment Market most notably in the Downtown Core. Investment activity was strongest in the Downtown Core, Government activity shows no signs of slowing after an where 92% of this quarter’s 1,470,908 square feet was sold. At announcement that federal space is required in Ottawa’s east 945,030 square feet, the single largest transaction was the sale end. The Downtown Core has seen the largest decrease in of Minto Properties Inc.’s assets at 407-433 availability, dropping 270 basis points year over year, making West, 180 Kent Street, and 344 Slater Street to LaSalle Canada it increasingly more difficult for tenants to find new space. Property Fund. Being the largest office sub-market, it has impacted the overall market with a -110 bps change YoY. Cap rates hovered between 4.00% and 6.00% for downtown Class A properties, and ranged from 6.50% to 7.50% for Class B assets. Cap rates for suburban office properties varied between 6.25% and 7.00% for Class A buildings, and between 7.00% and 8.00% for Class B buildings.

Downtown vs. Overall Vacancy

14.0% $19.00 12.0% $18.00 10.0% $17.00 8.0% $16.00 6.0% $15.00 4.0% $14.00

2.0% Rate Net Rental Availability Rate Availability 0.0% $13.00

Quarter Downtown Availability Rate Projected Downtown Availability Rate Ottawa Overall Availability Rate Projected Ottawa Overall Availability Rate Asking Rental Rate* Projected Asking Rental Rate

*Weighted Average Net Rate

1. Conference Board of Canada

3 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Downtown | Ottawa

The Downtown submarket is the principle office node in Ottawa, comprising 44.2% of office space in the city. A number of Federal Government offices and the majority of the private sector facilities are located within this area.

7 Trends 3 >> The Department of National Defence is taking longer to move out 8 4

of their space than expected. It is projected that the completion 9 5 of their move to the former Nortel campus on will be sometime in 2020. 1 6 >> Class A assets continue to be in popular demand with private sector tenants. Availability for these spaces has gone down 2 100 basis points since this time last year, and currently has the lowest availability in the city at 4.1%.

Summary Statistics Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend

Office Inventory 18,061,393 18,061,393 Notable Lease Notable Sale New Supply Net Absorption 137,063 49,068

Availability Rate 7.6% 7.0% Notable Lease Transactions

APPROXIMATE Average Asking Net Rent $17.41 $17.86 ADDRESS TYPE SIZE (SF) 1. 180 Kent Street Lease 20,793 Average Additional Rent $19.28 $18.83 2. 410 Laurier Avenue West Lease 14,211 3. 160 Lease 13,469 4. 200 Laurier Avenue West Lease 9,537 Historical Performance and Forecast 5. 180 Elgin Steeet Lease 9,441

12.00%

10.00% Notable Sale Transactions APPROXIMATE PURCHASER - ADDRESS PRICE 8.00% SIZE (SF)

6.00% LaSalle Canada Property Fund - 407-433 Laurier Avenue West,

AvailabilityRate 6. $135,000,000 945,030 4.00% 180 Kent Street, 344 Slater

2.00% Street Slate Asset Management LP 0.00% and Outcore Equities Inc., 191 7. $20,000,000 206,725 Laurier Avenue West, 120 Quarter Historical Availability Projected Availability Greystone Managed 8. Investments Inc. - 250 Albert $56,000,000 184,063 Street Canadian Parks and Wilderness 9. $6,750,000 22,530 Society - 100 Gloucester Street

Upcoming New Supply

ADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS There is no new construction for this quarter.

4 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Fringe Core | Ottawa

The Fringe Core submarket in Ottawa is comprised of a number of neighbourhoods, most notably the ByWard Market and the Glebe, making up 9.8% of Ottawa’s office space. Tenant composition within the submarket consists of mainly small, cost-conscious businesses. Trends 2 >> The Federal Government secured nearly 50,000 SF of space at 4 400 Cooper Street, which will be a ten minute walk away from the future Parliament LRT station. 1 >> Demand among private sector tenants has remained stable in the past quarter. >> Landlords are looking to entice start-up technology groups on 3 tight budgets as the gross rents are more economical than in the 5 Downtown Core.

Summary Statistics Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend

Office Inventory 4,019,032 4,019,032 Notable Lease Notable Sale New Supply Net Absorption (39,591) (12,929)

Availability Rate 12.9% 11.0% Notable Lease Transactions

APPROXIMATE Average Asking Net Rent ADDRESS TYPE $15.23 $14.82 SIZE (SF) 1. 400 Cooper Street Lease 18,001 Average Additional Rent $17.68 $17.29 2. 116 Lisgar Street Lease 6,700 3. 150 Isabella Street Lease 6,080

Historical Performance and Forecast

14.00% 12.00% Notable Sale Transactions 10.00% APPROXIMATE PURCHASER - ADDRESS PRICE 8.00% SIZE (SF) CMG Realty Services Ltd. - 6.00% 4. $7,430,000 47,695

AvailabilityRate 434 4.00% 10901989 Canada Society - 5. $3,050,000 7,655 2.00% 72 Chamberlain Avenue

0.00%

Quarter Historical Availability Projected Availability

Upcoming New Supply

ADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS There is no new construction for this quarter.

5 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International East | Ottawa

The East submarket is the smallest component of the Ottawa office market, comprising only 8.2% of office space in the city. While the region has typically struggled to attract new tenants, the future LRT may bring increased exposure and amenities. Trends >> Properties along the future LRT will have an advantage in the coming years, as the light rail will bring them closer to many 3 amenities and different parts of the city. >> Landlords with properties not situated along the LRT line have gone through early renewals to secure tenants in anticipation of 1 a changing market. 2 >> Not only do many properties in the East boast competitive rents, but free parking is common, giving the East an edge over other sub-markets.

Summary Statistics Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend

Office Inventory 3,329,687 3,329,687 Notable Lease Notable Sale New Supply Net Absorption (19,140) 34,343

Availability Rate 18.2% 17.1% Notable Lease Transactions

APPROXIMATE ADDRESS TYPE Average Asking Net Rent $15.28 $15.45 SIZE (SF) 1. 1200 St. Laurent Boulevard Sub-lease 33,000 Average Additional Rent $17.84 $16.61 2. 250 Tremblay Road Lease 22,149 3. 1420 Blair Place Lease 8,376

Historical Performance and Forecast

20.00%

18.00%

16.00% Notable Sale Transactions 14.00% APPROXIMATE PURCHASER - ADDRESS PRICE 12.00% SIZE (SF)

10.00%

8.00% There are no notable transactions for this quarter. AvailabilityRate 6.00%

4.00%

2.00%

0.00%

Quarter

Historical Availability Projected Availability

Upcoming New Supply

ADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS There is no new construction for this quarter.

6 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International South/Airport | Ottawa

The South/Airport submarket is the second smallest of the Ottawa office markets, housing 9.1% of the city’s office space. The boundaries for this market have recently been revised to include assets south of the area and west of .

Trends >> The South has gained interest with tenants of all sizes, primarily those within the 1,000 - 5,000 SF range. >> Tenants searching in the area continue to experience modest growth, but are not always looking for bigger space. More efficient space is becoming more popular, with common areas that can accomodate multiple uses for a better work flow.

Summary Statistics Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend

Office Inventory 3,715,412 3,715,412 Notable Lease Notable Sale New Supply Net Absorption 180,706 (35,469)

Availability Rate 10.8% 10.8% Notable Lease Transactions

APPROXIMATE ADDRESS TYPE Average Asking Net Rent $13.08 $13.49 SIZE (SF) There are no notable transactions over 5,000 SF for this quarter. Average Additional Rent $13.81 $13.16

Historical Performance and Forecast

12.00%

10.00% Notable Sale Transactions

APPROXIMATE 8.00% PURCHASER - ADDRESS PRICE SIZE (SF) 6.00% There are no notable transactions for this quarter.

AvailabilityRate 4.00%

2.00%

0.00%

Quarter Historical Availability Projected Availability

Upcoming New Supply

ADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS There is no new construction for this quarter.

7 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International West | Ottawa

The West submarket is one of the larger office markets in Ottawa, comprising 13.4% of total office space available in the city. The boundaries for this market have recently been revised, with assets located south of the Hunt Club Road area and west of Woodroffe Avenue being place in the South’s inventory. 2 Trends 5 >> Availability rates for the west continue to drop, and each quarter 4 fewer options over 10,000 SF are available. This quarter, large 1 options over that size make up only 23% of the availabilities. 6 >> Tech start-ups are touring the area more than in previous quarters, likely due to the connectivity that the LRT will bring, connecting tenants in the area to Kanata and the Downtown Core.

Summary Statistics Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend 3

Office Inventory 5,457,939 5,457,939 Notable Lease Notable Sale New Supply Net Absorption (244,142) 72,989

Availability Rate 10.9% 9.5% Notable Lease Transactions

APPROXIMATE ADDRESS TYPE Average Asking Net Rent $15.59 $14.91 SIZE (SF) 1. 932 Lease 15,458 Average Additional Rent $15.58 $15.37 2. 1565 Carling Avenue Lease 14,473 3. 303 Lease 12,927 4. 1770 Woodward Drive Lease 9,375 Historical Performance and Forecast

20.00%

18.00% 16.00% Notable Sale Transactions 14.00% APPROXIMATE PURCHASER - ADDRESS PRICE 12.00% SIZE (SF) 10.00% 1505 Laperriere Avenue Ottawa 8.00% 5. $7,200,000 27,285 AvailabilityRate Inc. - 1505 Laperriere Avenue 6.00% 4.00% Land Cross Realty Inc. - 1504 6. $2,100,000 13,940 2.00% 0.00%

Quarter Historical Availability Projected Availability

Upcoming New Supply

ADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS There is no new construction for this quarter.

8 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Kanata | Ottawa

The office market in Kanata is the main location for a large number of high-tech firms in Ottawa. The clustering of these firms contributes to a continuing high demand for space in this region. The Kanata submarket is the second largest in Ottawa, comprising 15.4% of the city’s office space. 4

Trends 3 1 >> Three large new listings on 4000 Innovation Drive have pushed the 2 availability rate up quarter over quarter, as they total 150,000 SF of space coming to the market. >> Tenants looking for space in between 10,000 and 15,000 SF might have more difficulty finding the perfect office, as these sizes tend to lease up more quickly than others.

Summary Statistics 5 Q3 2018 Ottawa Office Market 2018 Q2 2018 Q3 Trend

Office Inventory 6,284,704 6,284,704 Notable Lease Notable Sale New Supply Net Absorption (172,879) 206,708

Availability Rate 14.1% 14.9% Notable Lease Transactions

APPROXIMATE ADDRESS TYPE Average Asking Net Rent $13.41 $13.52 SIZE (SF) 1. 1135 Innovation Drive Lease 48,944 Average Additional Rent $13.44 $13.15 2. 495 March Road Sub-lease 17,856 3. 515 Legget Drive Lease 13,407 4. 340 Lease 11,746 Historical Performance and Forecast

25.00%

20.00% Notable Sale Transactions

APPROXIMATE PURCHASER - ADDRESS PRICE 15.00% SIZE (SF) Central Precast Inc. - 2150 10.00% 5. $1,534,600 10,165 AvailabilityRate Richardson Side Road

5.00%

0.00%

Quarter Historical Availability Projected Availability

Upcoming New Supply

ADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS There is no new construction for this quarter.

9 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Glossary

Additional Rent: Includes operating costs and property taxes, per square foot per year.

Gross Rent: Obtained when adding additional rent to net rent.

Lease: Offered on the market by the landlord or property manager, whether or not the space is 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.

Sublease: Offered on the market by the current tenant, whether or not the space is vacant. The space competes with space available for direct leasing.

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 Rate: The amount of available space divided by the building inventory base. Available space is space that is available for lease, and may or may not be vacant.

Vacancy Rate: The ratio between vacant inventory and total inventory.

Notable Transaction: Any deal that has been completed within the quarter that is more than 5,000 square feet or deemed to be of note given its impact on the market.

Notable Sale: Any sale that has been completed within the quarter and is deemed to be of note given its impact on the market.

10 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International Warren Wilkinson Managing Director | Ottawa Region Sales Representative +1 613 683 2207 [email protected]

Alison Collins Marketing and Market Intelligence Coordinator +1 613 683 2226 [email protected]

11 Research & Forecast Report | Q3-2018 | Ottawa / Office | Colliers International MARKET CONTACT: 413 offices in Warren Wilkinson Managing Director | Ottawa Region Sales Representative 69 countries on +1 613 683 2207 6 continents [email protected] REGIONAL AUTHORS: United States: 145 Alison Collins | Marketing and Market Intelligence Coordinator Canada: 28 Latin America: 23 CONTRIBUTORS: Paula Collins | Data Intelligence Associate Asia Pacific:86 Sarah Al-Hakkak | Sales Representative EMEA: 131 Ryan Aubertin | Sales Representative Benjamin Burns | Sales Representative Jeff Brown | Associate Vice President, Broker Giorgio DiNardo | Sales Representative George Djuric | Sales Representative $2.7B Lee Lacombe | Sales Representative US* in annual Jordan Lovett | Senior Analyst David A. MacLeod | Sales Representative revenue Emily McClelland | Sales Representative Derek Parker | Broker Michael Pyman | Associate Vice President 2B Jessica Whiting | Sales Representative square feet under management Colliers International | Ottawa 340 Albert Street, Suite 930 Ottawa, ON | Canada

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