CBRE Limited Global Research and Consulting Ottawa Office www.cbre.ca/research Second Quarter 2012 The Ottawa office market reacted well Following the trends set in the first quarter despite lackluster economic growth in the of 2012, the West market’s vacancy rate second quarter of 2012. Leasing activity decreased by 40 bps to 5.6% as a result remained constant even though Ottawa’s of stable leasing velocity. Notable to this vacancy rate decreased by 90 basis submarket is the Canadian Institute for Quick Stats points (bps) quarter-over-quarter to 7.2%. Health Information’s renewal of 90,000 Ottawa’s vacancy rate remains below the SF at 495 Richmond Road where they national average of 8.2%. Change from last also executed an expansion of 15,000 SF. Current Yr. Qtr. The vacancy rate in the Central Business The second quarter of 2012 saw the District (CBD) decreased by 60 bps in the South market’s vacancy rate decrease by Vacancy 7.2 % second quarter of 2012 to 5.8%. 150 bps quarter-over-quarter to 9.5%. Lease Rates $15.92 psf Morguard’s Performance Court at 150 The primary source of this decrease can Net Absorption 323,614 SF Elgin Street continues pre-leasing and be attributed to a drop in Class A sublet Construction 2,351,546 SF has secured the Canada Council for the space. The Class C marketplace did *The arrows are trend indicators over the Arts who will occupy 80,880 SF and most experienced 16,433 SF of negative net specified time period and do not represent a positive or negative value. (e.g., absorption recently KPMG who will occupy 70,000 absorption, with the majority of this could be negative, but still represent a positive trend over a specified period.) SF upon the building’s completion in negative absorption occurring in the 2014. Ernst & Young will relocate to Colonnade/Rideau Heights sub node. reside in 27,720 SF at the Sun Life The East market’s vacancy rate was Hot Topics Financial Centre as they vacate the World unchanged quarter-over-quarter at 5.2% Exchange Plaza in order to consolidate • New buildings are creating as a result of stagnant leasing activity. their space on a single floor. Borden competition amongst landlords as There was 2,187 SF of negative net Ladner Gervais LLP renewed 70,000 SF tenants look to revitalize their space. absorption in a submarket that at 100 Queen Street and Norton Rose experienced relatively modest variations. Canada LLP renewed 42,000 SF at 45 • The suburban market performed well O’Connor Street. Investment sales in the Ottawa this quarter as leasing velocity marketplace were modest in the second exceeded expectations. Ottawa’s suburban market logged a 100 quarter of 2012 with two notable bps decrease in the vacancy rate and transactions taking place. Bridgeport • Rental rates decreased again this currently sits at 8.7%. Realty Management sold an asset at quarter but are expected to stabilize Kanata performed well throughout the 1130 Morrison Drive for $10.9 million to as the market remains active. second quarter of 2012 with multiple JDC Apex Inc. The building remains fully large transactions being completed. leased and houses eight tenants spread Genband’s search for space has come to over three floors. League Financial an end as they have landed themselves Partners traded 80 Aberdeen Street for a at 500 Palladium Drive, occupying consideration of $14.1 million to BTB 73,000 SF, Skyworks Solutions will move REIT. The building is situated on the to 1145 Innovation Drive, occupying fringe of the core and includes a multi- 25,000 SF, and finally PrairieFyre residential component. Software has renewed for 20,000 SF at 10 Brewer Hunt Way. © 2012 CBRE Limited, Real Estate Brokerage MarketView Market Statistics | All Classes Under Submarket Inventory Total Vacant Vacancy Direct Sublet Absorption Asking Net Construction Ottawa Office SF (000s) SF (000s) Rate (%) (%) (%) SF (000s) Rent $ psf SF (000s) Central Business District 15,605 899 5.8% 4.3% 1.5% 95 995 $22.42 (CBD) Central (excl. CBD) 2,538 130 5.1% 4.5% 0.6% 21 0 $16.70 Central Total 18,142 1,029 5.7% 4.3% 1.4% 116 996 $21.12 South 3,207 304 9.5% 7.6% 1.9% 47 43 $12.49 East 4,205 220 5.2% 3.5% 1.7% (2) 1,015 $15.29 West 6,527 366 5.6% 4.1% 1.5% 26 126 $14.64 Deep West 6,262 858 13.7% 11.4% 2.3% 136 172 $11.97 Suburban Total 20,201 1,748 8.7% 6.8% 1.9% 208 1,356 $12.97 Total 38,344 2,777 7.2% 5.6% 1.6% 324 2,352 $15.92 Ottawa Vacancy Rate 7.2% Rental Rates vs Vacancy Avg. Rental Rate (psf) $15.92 Ottawa’s office vacancy rate decreased for the $20 10% second consecutive quarter, down from 8.3% at $16 8% year-end 2011 to 8.1% in the first quarter of Vacancy (%) Rate Vacancy 2012 and then to 7.2% in the second quarter. $12 6% The change in the Ottawa’s office vacancy can $8 4% be attributed to relatively constant leasing Rental Rate ($psf) Rate Rental velocity and several deals in both the Central $4 2% and Suburban markets in the second quarter. $0 0% Ottawa’s average asking net rental rate 2Q11 3Q11 4Q11 1Q12 2Q12 decreased $0.62 psf quarter-over-quarter to $15.92 psf, however, it is expected to stabilize over the coming quarters. Ottawa 6.0% Ontario 7.7% Unemployment Rate Canada 7.2% The second quarter 2012 national 10% unemployment rate was unchanged quarter- over-quarter at 7.2%, however, there were slight 8% fluctuations throughout the quarter. There were 6% employment gains in business, health care, educational services and utilities, conversely 4% these gains were offset by declines in 2% information, culture and recreation as well as the agricultural sector. Ontario’s unemployment 0% rate edged up 50 bps to 7.7% after the federal 2Q11 3Q11 4Q11 1Q12 2Q12 government budget cuts were announced at the Source: Statistics Canada end of March. Conversely, Ottawa’s Second Quarter2012 unemployment rate remains virtually unchanged with a decrease of 10 bps quarter-over-quarter to 6.0%. Page 2 © 2012 CBRE Limited, Real Estate Brokerage MarketView Vacancy Rate 7.2% Absorption vs Vacancy Absorption (SF) 323,614 SF Ottawa’s overall vacancy rate experienced a 90 Ottawa Ottawa Office 500 10% bps decrease in the second quarter of 2012 to 7.2% as a result of 323,614 SF of positive net 400 8% absorption. Ottawa’s suburban market Vacancy Rate (%) Rate Vacancy recorded 207,751 SF of positive net absorption 300 6% which represents an increase of 96,008 SF from last quarter. The central market experienced 200 4% 115,863 SF of positive net absorption after Absorption Absorption SF ( 000s) experiencing negative 28,362 SF of absorption 100 2% in the first quarter of 2012. The Central Business District (CBD) by itself recorded positive 0 0% 94,856 SF of absorption in the second quarter. 2Q11 3Q11 4Q11 1Q12 2Q12 Central $21.12 psf Average Asking Rental Rates Suburban $12.97 psf Ottawa’s Central market average asking net $25 rental rate decreased for the second consecutive quarter, down $0.03 psf from the first quarter of $20 2012 to $21.12 psf. The Suburban market saw $15 a decrease of $0.63 psf over the same period to end the second quarter at $12.97 psf. The $ psf $10 slight decrease in asking rents is a result of new $5 supply that is coming available at the end of this year, giving tenants the option to revitalize their $0 office space. 2Q11 3Q11 4Q11 1Q12 2Q12 Under Construction 2,351,546 SF Under Construction vs New Supply New Supply 0 SF Although we are going through a period of economic uncertainty, both globally and 2,500 domestically, commercial development remains unphased. SmartCentres’ Laurentian Place is 2,000 well underway as pre-leasing activity continues. 1,500 Morguard’s Performance Court at 150 Elgin Street has landed two new tenants: the Canada SF (000s) 1,000 Council for the Arts and most recently KPMG. Windmill’s new suburban office building at 2611 500 Queensview Drive is nearly finished and slated for completion by the end of 2012. The federal 0 government’s downtown expansion continues at Second Quarter2012 2Q11 3Q11 4Q11 1Q12 2Q12 90 Elgin Street, which will house the Department of Finance upon completion. Page 3 © 2012 CBRE Limited, Real Estate Brokerage MarketView Ottawa Office Top Lease Transactions Average Asking Lease Rate Size (SF) Tenant Address Rate determined by multiplying the asking net lease rate for each building by its available 90,000 Canadian Institute for Health Information* 495 Richmond Road space, summing the products, then dividing by the sum of the available space with net leases 80,880 Canada Council for the Arts 150 Elgin Street for all buildings in the summary. Net Leases 73,000 GENBAND 500 Palladium Drive Includes all lease types whereby the tenant pays an agreed rent plus most, or all, of the 70,000 KPMG LLP 150 Elgin Street operating expenses and taxes for the property, including utilities, insurance and/or 70,000 Borden Ladner Gervais LLP* 100 Queen Street maintenance expenses. Market Coverage 42,000 Norton Rose Canada LLP* 45 O’Connor Street Includes all competitive office buildings 20,000 square feet and greater in size.