waterloo region industrial market report q3 2015

Research & Forecast Report

WATERLOO REGIONINDUSTRIAL Third Quarter 2015

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2 Research & Forecast Report | Third Quarter 2015 | Waterloo Region / Industrial | 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 market continues to see positive activity with strong demand for purchase opportunities driven by historically low interest rates and relative ease of borrowing. Transaction volume is limited by the availability of good quality, in-demand spaces; the availability rate for Class A space in Q3 2015 decreased from 5.01% to 4.56% which lead to some design build activity as users gravitate from leasing to ownership opportunities. Leasing activity shows some signs of life, but the decision process has been very challenging to the deal process, leaving the impression that the market is slow. Nevertheless, the Region saw a comparable number of transactions over 5,000 SF to Q2 2015 and Q3 2014 (consistently within 300,000-350,000 SF range). The large number of the users, who are of paramount importance to the health of the market, are waiting for the right purchase opportunities to come to market, or progressing through the expectedly long decision-making process consistent with larger lease transactions. Thus, Q3 2015 saw only a slight decrease in the vacancy rate, down from 6.35% to 6.07%. Weighted average asking net rents decreased slightly from $4.75/SF to $4.73/SF; a reflection of supply levels rather than current demand with B & C class spaces dominating the inventory. Class A rents remain within the $6.50/SF to 7.00/SF range, while B &C Class spaces sit between $3.95 and $4.57/SF. We maintain that in the market cycle and the current economic situation, the state of the commercial real estate market will remain ‘steady’ rather than ‘growing’.

For the end of 2015 and the beginning of 2016, we expect the same continued trend: an imbalance between the

Market IndicatorsRelative to prior period

Waterloo RegionQ2 2015

Waterloo RegionQ3 2015 Trend

VACANCY 6.35% 6.07%

NET ABSORPTION 506,838 158,762

CONSTRUCTION (44.%) 77%

RENTAL RATE* $4.75 $4.73 Note: Construction is the change in Under Construction. * Rental rates for current quarter are asking weighted averages for all submarkets.

demand for better quality space and the supply that misses the mark, either by class or by size. Despite an increase in land sales, construction activity will only slightly improve. Market demand and activity has, and will continue to be, centered predominantly around the 401 corridor, with only one exception: the newly constructed/under construction facility at 25 Goodrich Drive/780 Wilson Avenue in Kitchener.

Investment MarketThe number of industrial investment sales in Q3 2015 is almost five times the volume in the previous quarter, with a total of $93.5M versus $19M. Of the twelve notable industrial transactions, five are true cap rate sales with the unadjusted cap rates ranging from 6.40% to 7.68%. The current cap rate range remains within 6% to 7% for higher quality buildings, and 7% to 8% for older, tired properties. Two large properties purchased in Q3 2015 will be upgraded and brought to market, providing 50,000 to 270,000 SF leasing options.

Source: Colliers International

Historical Performance & Forecast | Waterloo Region Office Market

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Net Absorption New Supply Vacancy Rate


Notable Lease TransactionsTENANT NAME & ADDRESS TYPE APPROXIMATE

SIZE (SF)

1. Aecon1230 Balmoral Road Sublease 77,534

2. Shred-it540 Jamieson Parkway Headlease 18,500

3. Ad Art Fabricating55 Fleming Drive Headlease 11,770

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Notable Lease Notable Sale New Supply

City of CambridgeCambridge remains the most active of the Region’s industrial market; with quick access to Highway 401, readily available serviced land and reasonable development charges, it will continue to grow and to attract new investment. New spec projects attract tenants seeking modern, efficient facilities while less functional, outdated buildings sit with vacancies. Construction activity is recovering as demonstrated by both spec and design-build projects now under way. Purchase options are in demand; inventory is the limiting factor.

Trends > Vacant inventory consists mostly of older Class B and C space while demand is strong for newer Class A space.

> 20 Tyler Court is best suited to serve 30,000-150,000 SF tenants; 500-540 Jamieson Parkway: 10,000-15,000 SF tenants; and 520 Thompson Drive: 5,000-10,000 SF tenants.

> New spec space will generate activity in Q4 2015 and 2016 with new options for tenants seeking high quality, efficient space.

> Sale activity remains strong as low interest rates and financing availability encourage users to purchase.

Summary Statistics Cambridge Industrial Market 2015 Q2 2015 Q3 Trend

Industrial Inventory 31,404,419 31,479,223

Net Absorption 517,758 (8,090)

Vacancy Rate 5.16% 5.17%

Average Asking Net Rent(Million Square Feet) $4.83 $4.86

Historical Performance and Forecast

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Notable Sale TransactionsPURCHASER & ADDRESS PRICE APPROXIMATE

SIZE (SF)

4. 1250 Franklin Boulevard $8,101,000 274,200

5. 549 Conestoga Boulevard $7,650,000 96,495

6. 75 Savage Drive $2,360,000 40,300

Upcoming New InventoryADDRESS COMPLETION APPROXIMATE

SIZE (SF)

7. 45 Commerce Court Q1/Q2 2016 43,290

8. 75 Heroux Devtek Drive Q2/Q3 2016 20,582

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1. 3 Hoffman Street Headlease 7,200

2. 500 Trillium Drive Headlease 6,700

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City of KitchenerKitchener’s industrial market activity continues to be restrained by the lack of quality Class A space available to both tenants and prospective buyers. Available options comprise older Class B and C space, or buildings that are poorly sized for demand requirements. Industrial users actively seek opportunities in the neighbouring City of Cambridge due to its superior Highway 401 proximity.

Trends > Much of the available space is comprised of functionally challenged or obsolete facilities that are ideal for redevelopment or adaptive reuse.

> Downward pressure on lease rates is a result of functionally challenged buildings attempting to attract tenants through lower leasing costs.

> Industrial growth in Kitchener remains stagnant due to the lack of available, municipally developed industrial land.

> Blue Top Properties’ new spec development at Wilson Avenue and Goodrich Drive will bring much-needed Class A space to Kitchener.

Summary Statistics Kitchener Industrial Market 2015 Q2 2015 Q3 Trend


Net Absorption 34,432 157,937




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SIZE (SF)

3. 29 Manitou Drive $2,100,000 28,958


SIZE (SF)

4. For Lease25 Goodrich Drive Q4 2015 65,572

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City of WaterlooThe smallest and least active industrial market of the three cities in the Region, the City of Waterloo is challenged by its lack of both Highway 401 proximity and industrial development opportunities. Over the past decade, Waterloo’s industrial inventory has decreased as many facilities were repurposed to accommodate the explosion of office and high tech users. The remaining inventory tends to light industrial uses.

Trends

> Waterloo’s declining inventory will stabilize as BlackBerry-influenced conversions and demolitions cease.

> New development/construction will be limited to small additions to the existing facilities.

> Activity in Waterloo has been, and will continue to be, dominated by users who are already located in and wish to remain in the City of Waterloo.

Summary Statistics Waterloo Industrial Market 2015 Q2 2015 Q3 Trend


Net Absorption -45,352 8,915




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SIZE (SF)

1. Aecon601 Colby Drive Headlease 24,454

2. Stemmler Meats & Cheese725 McMurray Road Headlease 11,250


SIZE (SF)

3. 550, 554, 560 Parkside Drive50 Northland Road $43,250,000 508,870

4. 200 Bathurst Drive $2,550,000 23,411

5. 623 Colby Drive $1,000,000 18,250


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Not Applicable

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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.

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”.

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$2.3billion in annual revenue

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

REGIONAL AUTHORS:Karl Innanen | Managing Director, BrokerRon Jansen | Vice President, Sales RepresentativeSerguei Kaminski | Market Intellience CoordinatorJennie Ross | Client Project Coordinator

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waterloo region industrial market report q3 2015

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