colliers toronto office market report 2015 q3

Research & Forecast Report

GREATER TORONTO AREAOFFICE MARKET Third Quarter 2015

2 Research & Forecast Report | Q3 2015 | Greater Toronto Area / Office | Colliers International

Market Summaries

GTA Market Overview ....................................................................................................3 Downtown ............................................................................................................... 4 Midtown .................................................................................................................. 5 Central North .......................................................................................................... 6 Central East ............................................................................................................ 7 GTA East ................................................................................................................. 8 GTA North ............................................................................................................... 9 GTA West .............................................................................................................. 10

Glossary .............................................................................................................................. 11

Table of Contents

3Research & Forecast Report | Q3 2015 | Greater Toronto Area / Office | Colliers International

GTA Market Overview

Market Overview

The Greater Toronto Area (GTA) office market remained steady in Q3 2015 as the overall vacancy rate declined slightly to 5.4 percent, while the availability rate decreased to 10 percent. The office market was stable throughout the GTA this quarter, as most office submarkets saw their vacancy rates remain relatively unchanged compared to the previous quarter. No new office space was added to the market this quarter, however, this is not a signal that office construction throughout the GTA is slowing down as almost 5 million square feet of office space is currently under construction. In addition, more than 50 office and mixed-use office buildings are proposed throughout the region, which could lead to an even greater amount of future office stock in the market. Of the office space that is under construction, about 4 million square feet are Class A buildings or above. With the newly constructed 88 Queens Quay and 120 Bremner Blvd becoming almost fully occupied throughout 2015, it will be interesting to see how the market responds to the large amount of new space that is under construction. With large amounts of pre-leased new office stock , once delivered, the leasing velocity as to which the remaining new space is absorbed, should provide a measurement of the demand for additional new office space, now in the proposal stages.

Investment MarketAccording to RealNet data, the Toronto investment market saw a gradual decrease in activity from Q2 2015 (more than 60 transactions) and has continued to remain relatively slow in transaction activity in contrast to Q3 2015 (about 50 transactions). According to Real Capital Analytics, the total office sale volume in Toronto was the smallest in the past three years. This is partially due to the fact that supply of quality assets on the market is low and large institutional property holders continue to keep their quality assets. Despite the slowdown within the central markets in previous quarters, a few notable sales were completed within the city of Toronto within the Downtown East and Midtown submarkets. These were Woodcliffe Corporation selling King James Place to Northam Realty Advisors for $59.5 million and Evton Capital Partners selling One St. Clair Avenue West to Slate Properties Inc. for $33.5 million.

Market IndicatorsRelative to prior period

Market Q2 2015

Market Q3 2015

Market Q4 2015* Trend

VACANCY RATE 5.6% 5.4%

NET ABSORPTION 391,852 430,215

AVAILABILITY RATE 10.7% 10.0%

AVERAGE ASKING NET RENT $18.65 $17.93 *Projected

Occupier DemandThe financial services sector is once again leading demand for office space throughout the GTA and specifically in the Downtown South, Financial Core, Downtown West and GTA West. Companies within engineering and technology/software industries are also looking for space within the GTA, but almost exclusively throughout the GTA West. The technology/software industry continues to grow and expand throughout the GTA office market and will likely continue to demand office space in the region. Government services companies/organizations are also increasing their demand for space, compared to previous quarters. Demand for all office space seems to be geographically focused towards the Downtown, GTA North and GTA West markets.

Q3 2015 – 1,432,000 Square Feet Financial Services

Engineering

Technology/Software

Other (Entertainment, Communications, Media, Transportation and Retail Trade)

Government Services

Architectural, Engineering and Related Services

Communications/Technology

Security Services

Communications/IT

Banking

Transportation

41%

15%

10%

8%

6%

5%

4%

3%3%

3% 2%Financial Services

Engineering

Technology/Software

Other (Entertainement, Communications, Media, Transportation andRetail Trade)

Government Services

Architectural, Engineering, and Related Services

Communications/Technology

Security Services

Communications/IT

Banking

Transportation

Historical Performance and Forecast

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2011

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Net Absorption (SF) New Supply (SF) Vacancy Rate (%)


DowntownThe overall vacancy rate within the Downtown office market declined slightly this quarter, while leasing activity remained steady. The Downtown West, East and South vacancy rates remain low with the supply not meeting the demand. With the completion of 351 King Street East set to take place in 2016 and the pre-leasing success within this building, the Downtown East could see greater interest from tenants and developers looking within the Downtown market, but outside of the Financial Core.

Trends > About 4 million SF of the currently 5 million SF of office space that is under construction is located within the Downtown office market.

> Every building that has been built within the past year in the Downtown South office submarket have been 100% leased.

Notable Lease TransactionsTENANT NAME - ADDRESS TYPE APPROXIMATE SIZE

(SF)

1. CI Financial - 2 Queen Street East

Renewal /Expansion

73,557 + 24,226

2. MacLaren McCann - 200 Wellington Street West Headlease 59,000

3. Liberty International Underwriters - 181 Bay Street Renewal 36,668

Summary Statistics Q3 2015 Regional Office Market Q2 2015 Q3 2015 Trend

Office Inventory 75,928,990 75,294,820

Net Absorption 236,367 224,935

Vacancy Rate 2.6% 2.3%

Availability Rate 7.7% 7.4%

Average Asking Net Rent $29.18 $28.89

Notable Lease Notable Sale New Supply

Upcoming New SupplyADDRESS CLASS FLOORS SIZE (SF) DEVELOPER COMPLETION STATUS

7. 22 Adelaide Street West AAA 44 1,020,000 Brookfield Financial Real Estate Group Q1 2016 Under Construction

8. 351 King Street East A 17 500,000 Q2 2016 Under Construction

9. 1 York Street A 35 800,000 HOOPP / Menkes Q3 2016 Under Construction

10. 100 Adelaide Street W AAA 40 905,722 Oxford Properties Group Inc. Q2 2017 Under Construction

11. 130 Queens Quay E A 178,300 The Daniels Corporation Q2 2019 Under Construction

Notable Sale TransactionsPURCHASER - ADDRESS PRICE APPROXIMATE

SIZE (SF)

4. Northam Realty Advisors - King James Place $59,500,000 79,133

5. Free The Children - 339 Queen Street East $14,500,000 43,500

6. Hullmark- 474 Wellington Street West $12,529,923 20,237

TORONTO

Union

Dundas

Bloor / YongeBay Castlefrank

Wellesley

Queen’s ParkCarlton StCollege St

Dundas St

Queen St

King St

Spad

ina

Ave

Univ

ersi

ty A

ve

Yong

e St

Parli

amen

t St

Bloor St

Gardiner Expwy

1 56 42

710

11

3 8

9

Lake Ontario


(600,000)

(400,000)

(200,000)

-

200,000

400,000

600,000

800,000

0.0%

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2009

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0.0%

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-200,0000

200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,0001,800,000

2011

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MidtownThe overall vacancy rate in the Midtown market remains almost unchanged from the previous quarter and sits at 2.7 percent. While the market didn’t see much movement, numerous leases and renewals took place in the Midtown market with companies such as the Toronto Transit Commission and EventMobi. The renewal activity within the Midtown market outlines the desire for companies to remain within this market.

Trends > Slate Properties purchased One St. Clair Avenue West this quarter for about $33.5 million.

> Demand by companies to locate within the Midtown market continues, as its public transit accessibility and proximity to the Downtown market continues to make this market attractive to office-leasing tenants.









6. 135 Yorkville Avenue A 11 50,000 Camrost Felcorp Q3 2016 Planned


SIZE (SF)

3. Slate Properties Inc.- One St. Clair Avenue West $33,500,000 84,982

4. Slate Properties Inc.- 2323 Yonge Street $29,000,000 67,389

5. Fernhill Holdings Limited- 10 Alcorn Avenue $9,300,000 67,200

Bloor St

Dundas St

Queen St

Eglinton Ave

Lans

dow

ne A

ve

Yong

e St

Bayv

iew

Ave

Duffe

rin S

t

Lawrence Ave

Gardiner Expwy

TORONTO

5

4

2

36

7 1


(600,000)

(400,000)

(200,000)

-

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400,000

600,000

800,000

0.0%

1.0%

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2009

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-20,000-40,000-60,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2011

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Notable Lease TransactionsTENANT NAME - ADDRESS TYPE APPROXIMATE SIZE

(SF)

1. EventMobi - 175 Bloor East Sublease 19,807

2. Indeed Canada- 365 Bloor Street East Headlease 12,600

3.The Counselling Foundation - 2 St Clair Avenue East

Headlease/Sublease 10,739


Central NorthSlate Properties purchased 5075 Yonge Street, a $31 million transaction that is part of the $94 million Evton Capital Partners - Slate Properties Toronto Office Portfolio 2015, comprising two more office properties located in Midtown Toronto. Evton will be selling additional fund properties, confirming the strong selling activities we are seeing in the market. Net absorption has seen some improvement due to some small-size deals in the market, recording a positive absorption of 37,748 square feet in Q3 2015.

Trends > A mix of office buildings and office condos is active in the sale market, with an average of $510/SF for an office condo this quarter.

> The vacancy rate declined to 2.9% this quarter, down from 3.2% in Q2 2015.



Net Absorption (183,571) 37,748






6. 4800 Yonge Street A 25 393,000 Oxford Properties Group Q4 2016 Planned

7. 4050 Yonge Street A 7 367,000 Build Toronto Inc. Q4 2016 Planned

Notable Lease TransactionsTENANT NAME - ADDRESS TYPE APPROXIMATE

SIZE (SF)

1. Toronto Transit Commission- 5 Park Home Avenue Headlease 23,150

2. Bluecat Networks- 10 York Mills Road Sublease 13,000

3. Recruiting In Motion Inc.- 2 Sheppard Avenue East Headlease 6,100

Sheppard Ave

Highway 401

Lawrence Ave

Finch Ave

Yong

e St

Bayv

iew

Ave

Keel

e St

Steeles Ave

Eglinton Ave

Bath

urst

St

York University

7

TORONTO

VAUGHAN54

Lawrence

Sheppard

Finch

Downsview

Lawrence West

Eglinton West Eglinton

1

2

36


(600,000)

(400,000)

(200,000)

-

200,000

400,000

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800,000

0.0%

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2009

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-100,000-150,000-200,000-250,000

-50,0000

50,000100,000150,000200,000250,000300,000

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SIZE (SF)

4. Slate Properties Inc.- 5075 Yonge Street $31,000,000 86,529

5. Intrepid Yonge Group Inc- 5287 Yonge Street $2,575,000


GTA NorthEngineering firms are still dominating the GTA North office market generally and Markham submarket specifically. They tend to stay and expand within the area, attracting more tenants of the same industry. With close to 1.5 million square feet of available office space, equivalent to 10 percent of availability rate, tenants looking in this market have many and diverse options. GTA North experienced positive absorption of 86,219 square feet this quarter with SCM Adjusters Canada and Mattamy Homes contributing to this positive absorption as they took 61,684 square feet at 175 Commerce Valley Drive West and 32,000 square feet at 7880 Keele Street, respectively.

Trends > 15 sale transactions were recorded this quarter, including Fiera Properties’ purchase of Liberty Centre for $111.5 million.

> The vacancy rate remained the same as last quarter, standing at 8.9%.


SIZE (SF)

1. SCM Adjusters Canada - 175 Commerce Valley Drive West Headlease 61,684

2. Mattamy Homes- 7880 Keele Street Headlease 32,000

3.Longview Solutions Canada ULC - 65 Allstate Parkway

Headlease 24,486









7. Millway Rd. at Apple Mill Rd A 14 350,000 Calloway REIT, SmartCentres Q1 2016 Planned

8. 7777 Weston Road A 8 136,000 Liberty Developments Q3 2016 Planned

9. 2833 16th Avenue A 60 9,000,000 Cadillac Fairview Planned

10. 1555 16th Avenue 7 120,650 Investors Group Planned

Newmarket

RichmondHill

King City

Highway 407

Aurora RdWellington St

High

way

404

Yong

e St

Stouffville Rd

War

den

AveH

ighw

ay 4

00

Steeles Ave

King Rd

Hig

hway

27

Davis Dr

9VAUGHAN

RICHMOND HILL

AURORA

328

710

56

41


(600,000)

(400,000)

(200,000)

-

200,000

400,000

600,000

800,000

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-100,000

-150,000

-50,000

0

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2011

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SIZE (SF)

4.Financial Debt Recovery Limited - 100, 120 and 160 Commerce Valley Drive East

$10,500,000 71,150

5. Metrus Properties - 33 Commerce Valley Drive East $10,000,000 125,000

6. Zzen Group - 7725 Jane Street $5,250,000 22,327


Central EastThe construction at Eglinton Crosstown LRT is progressing in the Central East market and it is spurring new developments along its route and in the vicinity. One of the proposed major developments is the Celestica 24-hectare lands located at the northwest corner of Don Mills Road and Eglinton Avenue East. The proposal, which offers a mixed-use development including residential, office and retail spaces, is still under the review and re-zoning process. The net absorption in the Central East market improved from -17,548 square feet in Q2 2015 to record a positive absorption this quarter at 40,299 square feet.

Trends > The vacancy rate has dropped from 5.5% in Q2 2015 to 4.7% in Q3 2015.


SIZE (SF)

1. Collection Group of Canada CGC - 251-255 Consumers Road Headlease 27,000

2. Techtronic Industries Canada- 7303 Warden Avenue Headlease 18,182

3. Catastrophe Response Unit Inc.- 2001 Sheppard Avenue East Headlease 8,991









7. 3377 Steeles Avenue East A 6 280,000 Bentall Real Estate Services Planned

8. 101 Gordon Baker Road A 12 250,000 Osmington Inc. Planned


SIZE (SF)

4. Trez Capital- York Mills Valley Centre $23,030,559 145,000

5. Bodhi Meditation- 130 - 180 Yorkland Boulevard $11,500,000 65,284

6. Logan Building Office & Services Inc. - 240 Logan Avenue $5,600,000 14,315

Highway 407

Eglinton Ave

Finch Ave

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hway

404

Yong

e St

Vict

oria

Par

k Av

e

Kenn

edy

Ave

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Mar

kham

Rd

Keel

e St

7

SCARBOROUGH

TORONTO

8Finch

Kennedy

Union

Lake Ontario

2

3 15

6

4


(600,000)

(400,000)

(200,000)

-

200,000

400,000

600,000

800,000

0.0%

1.0%

2.0%

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6.0%

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2009

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-100,000

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GTA EastIt has been a quiet quarter with minimal activities in the GTA East market, absorption dropped to -64,093 SF, most of this negative absorption took place in the A class buildings in both Scarborough and Pickering/Oshawa submarkets. Vacancy rate declined as well from 7.1% last quarter to 7.9% this quarter. A few small-size sale activities were recorded this quarter, ranging from $207 to $456 per square foot.

Trends > Average rental rates are still low and competitive at $11.41 per square foot.



Net Absorption (12,531) (64,093)






1. 65 Bayly Street West 2 31,500 Medallion Corporation Q1 2016 Under Construction

2. 400 Consilium Place A 15 375,000 (up to 900,000 available in 3 towers) Kevric Corporation Planned

Taunton Rd

Kingston Rd

Highway 407

Broc

k Rd

Harm

ony Rd

Sheppard Ave

Steeles Ave

Highway 401

York

& D

urha

m L

ine

ScarboroughTown Centre

Stouffville

Pickering Oshawa

Markham

12

TORONTO

OSHAWA

PICKERING

Lake Ontario


(600,000)

(400,000)

(200,000)

-

200,000

400,000

600,000

800,000

0.0%

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GTA WestThe GTA West office market experienced positive absorption this quarter, declining the market’s vacancy rate to 10.6 percent from 10.8 percent. PointClickCare and other tenants that inked deals in previous quarters have now occupied their new space within the third quarter, attributing to the positive absorption. PointClickCare occupied space at 5550 Explorer Drive – space vacated by Target Canada. The relative speed as to which this space was leased, combined with other large deal announcements in this quarter, displays demand for newly built Class A office space within the GTA West.

Trends > Desjardins recently renewed and expanded its office space at 1 and 3 Robert Speck Parkway.

> Larger companies in the financial services/banking industry have a high demand for office space within the GTA West.


SIZE (SF)

1. Dejardins - 3 Robert Speck Parkway Renewal 190,000

2. Dejardins - 1 Robert Speck Parkway Expansion 60,000

3. JTI-Macdonald Corporation- 1 Robert Speck Parkway Renewal 30,441









6. 255 Longside Drive B 1 70,000 NC Warehouse Inc. Q3 2015 Under Construction

7. 2476 Argentia Road A 4 100,000 Sunlife Assurance Company of Canada Q3 2015 Under Construction

8. 1383 North Service Road East B 1 46,650 Carttera Private Equities Inc. Q3 2015 Under Construction

9. 1393 North Service Road East B 1 35,074 Carttera Private Equities Inc. Q3 2015 Under Construction

10. 2727 Meadowpine Boulevard A 7 200,000 Carttera Private Equities Inc. Q1 2016 Under Construction

11. 2201 Bristol Circle A 7 236,000 Westbury International (1991) Corporation Q1 2016 Under Construction

12. 610 Chartwell Road A 4 104,000 First Gulf Q3 2016 Under Construction


SIZE (SF)

4. The Regional Municipality of Peel- 7150 Mississauga Road $21,950,000 79,406

5. Community Trust- 2350 Matheson Boulevard East $8,570,000 40,000

Kipling

Georgetown

Milton

Lake OntarioQEW

Highway

407

Highway

403

hwy 427

Highway 10

Highway 401

7 TORONTO

BRAMPTON

OAKVILLE

MISSISSAUGA

3

9

10

1112

8

54 6

2 1


(600,000)

(400,000)

(200,000)

-

200,000

400,000

600,000

800,000

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-200,000

-400,000

-600,000

0

200,000

400,000

600,000

800,000

1,000,000

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

1Q

2015

2Q

2015

3Q

2015

4Q

2016

1Q

2016

2Q

2016

3Q


Glossary

Weighted Average Asking Net Rent: The dollar amount requested by landlords for an available space, expressed as an average based on the weight of available space.

Availability: The total amount of space that is currently being marketed as available for lease or sublease at the end of the quarter. It includes space that is available, regardless of whether the space is vacant or occupied.

Net Absorption: The net absorption in available space in a given market between the current quarter and the previous quarter.

Direct Availability: Space that is being offered for lease directly from the landlord or owner of a building, not space by another tenant in the building trying to sublet a space that has already been leased.

Sublease Availability: Sublet space that is available for sublease by a tenant to another lessee for a term equal to or shorter than that held by the tenant under its original lease with the landlord.

Under Construction: Buildings where actual ground breaking has occurred (site excavation or foundation poured) and construction is ongoing (not abandoned or discontinued) but for which a certificate of occupancy has not yet been issued.

New Supply: Total square footage with completed construction, where all that remains is the installation of tenant finishes.

Days on the Market (DOM): How many days an available industrial property has been on the market for.

GTA Central: Includes East York, Etobicoke, North York, Scarborough, Toronto and York.

GTA East: Includes Ajax, Oshawa, Pickering, and Whitby.

GTA North: Includes Aurora, Markham, Newmarket, Richmond Hill, Vaughan and Whitchurch-Stouffville.

GTA West: Includes Brampton, Burlington, Caledon, Milton, Mississauga and Oakville.

GTA Southwest: Includes Hamilton and Stoney Creek.

Forecast Assumptions & TerminologyAbsorption was calculated using moving averages of historical absorption data and supplemented with incoming new speculative and build-to-suit developments.Colliers International has adopted NAIOP’s terms and definitions which is reflected in this glossary and report.

Copyright © 2015 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

About Colliers International Group Inc.Colliers International Group Inc. is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. In 2014 the firm handled $97 billion in total transaction value for 84,600 leases and sales. Colliers manages more than 1.7 billion square feet of commercial properties.

Colliers International Group Inc. generates more than US$2.3 billion in annual revenues. With significant insider ownership and an experienced management team, Colliers International has a long-term track record of creating value and superior returns for shareholders – previously under the ownership of FirstService, and as of June 2015, continuously as an independently owned company. The common shares of Colliers International Group Inc. trade on the NASDAQ under the symbol “CIGI” and on the Toronto Stock Exchange under the symbol “CIG”.

collierscanada.com

502 offices in 67 countries on 6 continentsUnited States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108

$2.3billion in annual revenue

1.7billion square feet under management

16,300professionals and staff

MARKET CONTACT:John ArnoldiExecutive Managing Director | Toronto BrokerageDIRECT: +1 416 643 3733 [email protected]

REGIONAL AUTHORS:Kimberlee WestMarket Intelligence Team Leader | Toronto +1 416 643 [email protected]

Shawn GilliganMarket Intelligence Coordinator | Toronto DIRECT: +1 (416) 607 [email protected]

Norhan MansourMarket Intelligence Coordinator | Toronto DIRECT: +1 (416) 791 [email protected]

Colliers International | TorontoOne Queen Street East, Suite 2200Toronto, ON | Canada

+1 416 777 2200