q3 2016 waterloo region office market report

Research & Forecast Report

WATERLOO REGIONOFFICE Third Quarter 2016

https://www.facebook.com/ColliersCanada

https://www.linkedin.com/company/colliers-international-canada

http://www.twitter.com/collierscanada




2 Research & Forecast Report | Third Quarter 2016 | Waterloo Region / Office | Colliers International

Market Summaries

City of Cambridge ..........................................................................................................4 City of Kitchener ..................................................................................................... 5 City of Waterloo ...................................................................................................... 6

Glossary ............................................................................................................................... 7

Table of Contents


Waterloo Region Market Overview

The Waterloo Region office leasing market is dynamic. The number of variables contributing to the activity in this market can make our numbers a little more difficult to discern than during other reporting periods. This reporting period can be defined by the new supply being added to the market; as our office inventories increase in the Region, it looks like vacancy is on the rise, which intuitively should lead to lower rates with the increased supply. This is not what is happening; vacancy is continuing to rise, but consistent leasing activity is pushing rates upward and will lead to further development of office space in the future.

The most interesting development in the market is the pre-leasing activity, for which statistics are not published. The pursuit of tenants to anchor new buildings and to initiate construction is at an all-time high as developers seek tenants who have the timelines and budget to commit to new buildings. How this will impact the market moving forward is not immediately obvious, but it does affect the supply side of the real estate equation.

Intense demand for real estate continues as the City of Waterloo offers strong fundamentals that attract users such as high quality buildings, exceptional demographics and proximity to the universities. These demand side characteristics as well as an aggressive landlord community have set the stage for the steady leasing of Waterloo office space well into the foreseeable future.

Market IndicatorsRelative to prior period

Waterloo RegionQ2 2016

Waterloo RegionQ3 2016 Trend

VACANCY 13.32% 14.70%

NET ABSORPTION 118,225 66,723

CONSTRUCTION 403,863 302,031

RENTAL RATE* $12.29 $13.14

* Rental rates for current quarter are asking weighted averages for all submarkets.

The City of Kitchener is continuing the trend of increasing office supply, positive absorption, lower vacancy rates and rising rental rates. The Kitchener market has a broader distribution of tenants than Cambridge and Waterloo in terms of size, industry and number of companies. This translates to stronger demand for office space and lends itself to a market that has a wide spectrum of building types, suite sizes and rates. The completion of two major condo developments in the downtown core has propelled a noticeable increase in traffic and will continue to create synergy with the office market.

Cambridge has hit a speed bump on its long-term trend towards lower vacancy and more space is expected to come to market in the next reporting period. This is a short-term trend as demand, although slow, will continue along the Highway 401 corridor. The lack of large blocks of A-class space indicated in Q1 2016 has rectified itself for the near future.

Investment Market

Office investment sales are starting to pick up after a lull following the sale of the BlackBerry portfolio. In Q2 and Q3, there were two office investment sales: 141 Weber Street North, Waterloo, and 408, 410 & 412 Albert Street, Waterloo, that sold for $207/SF and $200/SF respectively. The cap rates for these sales fall into the current range for office sales at 6.25% to 7.5%. There will be more office sales in the last quarter as these sales help both buyers and sellers understand current market valuations.

Regional Historical Performance and Forecast

(600,000)

(500,000)

(400,000)

(300,000)

(200,000)

(100,000)

0

100,000

200,000

300,000

400,000

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

20

11 Q

3

20

11 Q

4

20

12 Q

1

20

12 Q

2

20

12 Q

3

20

12 Q

4

20

13 Q

1

20

13 Q

2

20

13 Q

3

20

13 Q

4

20

14 Q

1

20

14 Q

2

20

14 Q

3

20

14 Q

4

20

15 Q

1

20

15 Q

2

20

15 Q

3

20

15 Q

4

20

16 Q

1

20

16 Q

2

20

16 Q

3

20

16 Q

4

20

17 Q

1

20

17 Q

2

20

17 Q

3

Net Absorption New Supply Vacancy Rate


Notable Lease TransactionsTENANT NAME & ADDRESS TYPE APPROXIMATE

SIZE (SF)

1. Undisclosed73 Water Street North Headlease 17,266

2. Hutton Forest Products320 Pinebush Road Headlease 7,165

3. 2491061 Ontario Ltd.445 Thompson Drive Headlease 5,232

1

Notable Lease Notable Sale New Supply

City of CambridgeThe City of Cambridge has new space coming to market that will temporarily reverse the trend of falling vacancy.

The downtown market continues to struggle with high vacancy rates due to the preference of many companies to be closer to Highway 401.

Trends

> The long-term trend of declining vacancy will be suspended until the second half of 2017.

> Currently there are no new office developments in the planning stage in the City of Cambridge.

> Cambridge has the highest number of office transactions done in industrial, retail, mixed use and similar facilities.

Notable Sale TransactionsPURCHASER & ADDRESS PRICE APPROXIMATE

SIZE (SF)

None

Upcoming New InventoryADDRESS COMPLETION APPROXIMATE

SIZE (SF)

None

Summary Statistics Cambridge Office Market 2016 Q2 2016 Q3 Trend

Office Inventory 1,170,909 1,170,909

Net Absorption 10,497 -4,528

Vacancy Rate 15.98% 16.37%

Average Asking Net Rent(Per Square Foot) $10.77 $10.98

Average Additional Rent(Per Square Foot) $8.47 $8.29

Historical Performance and Forecast

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

30,000

40,000

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

20

11 Q

3

20

11 Q

4

20

12 Q

1

20

12 Q

2

20

12 Q

3

20

12 Q

4

20

13 Q

1

20

13 Q

2

20

13 Q

3

20

13 Q

4

20

14 Q

1

20

14 Q

2

20

14 Q

3

20

14 Q

4

20

15 Q

1

20

15 Q

2

20

15 Q

3

20

15 Q

4

20

16 Q

1

20

16 Q

2

20

16 Q

3

20

16 Q

4

20

17 Q

1

20

17 Q

2

20

17 Q

3


32



SIZE (SF)

1. Communitech 137 Glasgow Street Headlease 60,000

2. Waterloo Club240 Duke Street West Headlease 11,300

3. Weed Maps305 King Street West Headlease 5,766


City of KitchenerThe downtown core has two distinct property types: traditional towers and brick and beam buildings. Downtown Kitchener towers are aggressively pursuing tenants with lower lease rates and increased tenant incentives. Brick and beam buildings are currently enjoying low vacancy rates.

Trends

> Downtown tenants continue to adjust to the two years of construction now underway along the future LRT route.

> The office towers in Downtown Kitchener are aggressively pursuing tenant requirements and are having success.

> The market for unique, urban office environments continues to be strong.

> New projects in the downtown core that were previously in the planning stages are aggressively pursuing tenants with long timelines.

Summary Statistics Kitchener Office Market 2016 Q2 2016 Q3 Trend


Net Absorption 30,479 48,390



Average Additional Rent(Per Square Foot) $9.19 $9.33 Notable Sale Transactions

PURCHASER & ADDRESS PRICE APPROXIMATE SIZE (SF)

4. 1190 King Street East $707,500 4,777

Upcoming New InventoryDEVELOPER & ADDRESS COMPLETION APPROXIMATE

SIZE (SF)

5. Allied Properties195 Joseph Street 2017 26,000

6. 5 Michael Street Inc.5 Michael Street 2017 30,490

7. Westerra 540 Bingemans Inc.540 Bingemans Centre Drive 2017 22,500

8. Schembri Property Management31 Kingsbury Drive 2017 80,725

9. Voisin Development235 The Boardwalk

Q4 2016 - Q1 2017 18,047


(100,000)

(50,000)

0

50,000

100,000

150,000

200,000

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20

11 Q

3

20

11 Q

4

20

12 Q

1

20

12 Q

2

20

12 Q

3

20

12 Q

4

20

13 Q

1

20

13 Q

2

20

13 Q

3

20

13 Q

4

20

14 Q

1

20

14 Q

2

20

14 Q

3

20

14 Q

4

20

15 Q

1

20

15 Q

2

20

15 Q

3

20

15 Q

4

20

16 Q

1

20

16 Q

2

20

16 Q

3

20

16 Q

4

20

17 Q

1

20

17 Q

2

20

17 Q

3


7

1 2

56 3

89

4



City of WaterlooThe City of Waterloo will continue to be dominated by the former BlackBerry portfolio, now owned by Spear Street Capital and Waterloo Innovation Network. The sheer depth and breadth of inventory has opened up many opportunities for leasing, owning, investing and development in this market. Modern space continues to be in high demand.

Trends

> Suburban Waterloo continues to attract tenants.

> The Uptown Waterloo office market continues to have very low vacancy and a new building is currently under construction on Willis Way.

> Confidence is high with speculative development taking place.

> Vacancy rates have increased due to new inventory coming to market, but absorption continues.

> New developments and off-market options are aggressively pursuing companies with long timelines.

Summary Statistics Waterloo Office Market 2016 Q2 2016 Q3 Trend


Net Absorption 77,249 22,861



Average Additional Rent(Per Square Foot) $8.22 $7.90


(600,000)

(500,000)

(400,000)

(300,000)

(200,000)

(100,000)

0

100,000

200,000

300,000

400,000

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

20

11 Q

3

20

11 Q

4

20

12 Q

1

20

12 Q

2

20

12 Q

3

20

12 Q

4

20

13 Q

1

20

13 Q

2

20

13 Q

3

20

13 Q

4

20

14 Q

1

20

14 Q

2

20

14 Q

3

20

14 Q

4

20

15 Q

1

20

15 Q

2

20

15 Q

3

20

15 Q

4

20

16 Q

1

20

16 Q

2

20

16 Q

3

20

16 Q

4

20

17 Q

1

20

17 Q

2

20

17 Q

3



SIZE (SF)

1. BigRoad180 Columbia Street West Headlease 10,997

2. Virtual Causeway180 King Street South Sublease 5,972

3. Garretson Canada ULC410 Albert Street Sublease 5,644

Notable Sale TransactionsPURCHASER & ADDRESS PRICE APPROXIMATE

SIZE (SF)

4. 141 Weber Street North $7,812,000 37,871

Upcoming New InventoryDEVELOPER & ADDRESS COMPLETION APPROXIMATE

SIZE (SF)

5. Voisin Properties245 The Boardwalk Q1/Q2 2017 210,000

6. Primus Properties85 Willis Way Q3 2017 84,872

7. 2425955 Ontario Inc.19 Regina Street North Q1/Q2 2017 21,350

41

3

27

5

6


Glossary

Weighted 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 The amount of available space and available space to be delivered to the market within six months, divided by the market’s inventory base including those future deliveries. Available space is space that is available for lease, and may or may not be 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.

Vacancy The amount of vacant space divided by the building inventory base. Vacant space is physically unoccupied, and it may or may not be available for lease or sublease. This is physical vacancy. It is not determined whether a tenant is paying rent on the space.

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.

Copyright © 2016 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. (NASDAQ: CIGI; TSX: CIG) is an industry leading global real estate services company with more than 16,000 skilled professionals operating in 66 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting.

Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals’ Global Outsourcing for 11 consecutive years, more than any other real estate services firm.

*All statistics are for 2015 and include affiliates.

collierscanada.com

554 offices in 66 countries on 6 continentsUnited States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112

$2.5billion U.S.* in annual revenue

2.0billion square feet under management

16,000professionals and staff

MARKET CONTACT:Serguei Kaminski Market Intelligence Coordinator | Waterloo Region+1 519 904 [email protected]

REGIONAL AUTHORS:Karl Innanen | Managing Director, BrokerSerguei Kaminski | Market Intellience CoordinatorJohn Lind | Senior Sales RepresentativeJennie Ross | Client Project Coordinator

Colliers International | Waterloo Region305 King Street West, Suite 606Kitchener, ON N2G 1B9 | Canada

+1 519 570 1330




q3 2016 waterloo region office market report

Real Estate