waterloo region industrial market report q4 2015

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Research & Forecast Report WATERLOO REGION INDUSTRIAL Fourth Quarter 2015

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Page 2: Waterloo Region Industrial Market Report Q4 2015

2 Research & Forecast Report | Fourth 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

Page 3: Waterloo Region Industrial Market Report Q4 2015

3 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Industrial | Colliers International

Waterloo Region Market Overview

The Region’s industrial market remains robust with strong market activity and demand in Q4, leading the way to a strong start to 2016. Driven by low interest rates, relative ease of borrowing, and in many cases, above average loan-to-value ratios, demand is primarily centered around purchase opportunities. Cost of capital aside, many would-be tenants are exploring purchase options since monthly carrying costs are comparable to, if not less than leasing options with associated expenses. Demand for space continues to be focused on business parks close to Highway 401; Cambridge experiences the most demand and growth, and Waterloo sees the lowest overall activity. Supply of good quality purchase options remains low; buildings are often sold before market exposure, and, in some cases, with multiple offers. Demand for better quality space remains a key characteristic of the overall market, however, to purchase, users demonstrate a willingness to compromise certain requirements while being less willing to do so for lease options. Q4 saw a continued downward trend in the availability of A Class space, now at just 4.33% compared to 4.96% in Q3 and 5.01% in Q2. Although demand for rental space continues to lag behind the demand for purchase opportunities, there are positive signs that the leasing market is improving with activity at Blue Top Properties’ new development at 780 Wilson Avenue in Kitchener, Bentall Kennedy’s new building at 20 Tyler Street in Cambridge, and Karanda’s new development at 500 Jamieson Parkway. Lease activity of 168,000 SF in Q4 2015 is down considerably compared to Q4 2014 at 284,000 SF. The vacancy rate increased from 6.07 to 6.82%, largely

Market IndicatorsRelative to prior period

Waterloo RegionQ3 2015

Waterloo RegionQ4 2015 Trend

VACANCY 6.07% 6.82%

NET ABSORPTION 158,762 -442,816

CONSTRUCTION 106,255 89,616

RENTAL RATE* $4.73 $4.76 Note: Construction is the change in Under Construction. * Rental rates for current quarter are asking weighted averages for all submarkets.

due to the recently vacated 358,499 SF Leer facility in Kitchener and two buildings in Cambridge (289,657 SF), resulting in negative absorption of 442,816 SF.

Looking forward to Q1 2016, strong purchase demand is expected to continue due to low interest rates and carrying costs, however with few quality purchase options available, transaction activity may be affected.

Investment MarketIndustrial sales in Q4 2015 totalled $30.9M, one third of Q3 ($93.5M), 38.5% more than in Q2 ($19M), and on par with Q1 2015 ($30.5M). Four of nine notable industrial transactions were cap rate sales with unadjusted cap rates ranging from 6.55% to 7.50% and average pricing of $84/SF. This is consistent with the cap rate range for all of 2015 (6.40% to 7.68%) with the average cap rate being 6.93% and average pricing of $85/SF. Tenanted industrial properties are still in high demand and 75% of investment sales are completed before hitting the market.

Source: Colliers International

Historical Performance & Forecast | Waterloo Region Industrial Market

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Page 4: Waterloo Region Industrial Market Report Q4 2015

4 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Industrial | Colliers International

Notable Lease TransactionsTENANT NAME & ADDRESS TYPE APPROXIMATE

SIZE (SF)

1. Toyota Tsusho Canada Inc.1250 Franklin Boulevard Headlease 45,170

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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, attracting new investment. New speculative 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; availability of purchase 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.

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

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

Summary Statistics Cambridge Industrial Market 2015 Q3 2015 Q4 Trend

Industrial Inventory 31,479,223 31,497,664

Net Absorption -8,090 -166,471

Vacancy Rate 5.17% 5.70%

Average Asking Net Rent(Per Square Foot) $4.86 $4.84

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Notable Sale TransactionsPURCHASER & ADDRESS PRICE APPROXIMATE

SIZE (SF)

2. AGS Automotive Systems560 Conestoga Boulevard $12,500,000 534,000

3. 2456472 Ontario Inc.50 Groh Avenue $3,900,000 102,949

4. Oceanic Marketing Inc.181 Pinebush Road $2,600,000 42,000

Upcoming New InventoryADDRESS COMPLETION APPROXIMATE

SIZE (SF)

5. 45 Commerce Court Q1/Q2 2016 43,290

6. 75 Heroux Devtek Drive Q2/Q3 2016 20,582

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Page 5: Waterloo Region Industrial Market Report Q4 2015

5 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Industrial | Colliers International

Notable Lease TransactionsTENANT NAME & ADDRESS TYPE APPROXIMATE

SIZE (SF)

1. 615 Trillium Drive Headlease 16,000

2. 25 Groff Place Headlease 10,250

3. 5 Forwell Road Headlease 10,250

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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 functionally challenged or obsolete; these facilities present opportunties for redevelopment or adaptive reuse to gain tenancies.

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

> Industrial growth in Kitchener remains stagnant due to the lack of developed industrial land. The City of Kitchener is the primary land developer.

> Blue Top Properties’ new spec development at Wilson Avenue and Goodrich Drive brings much-needed Class A space to Kitchener; Phase I is ready and partially leased, Phase II is under construction with some pre-leasing completed.

Summary Statistics Kitchener Industrial Market 2015 Q3 2015 Q4 Trend

Industrial Inventory 19,722,310 19,636,168

Net Absorption 157,937 -305,000

Vacancy Rate 8.45% 10.04%

Average Asking Net Rent(Per Square Foot) $4.36 $4.37

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Notable Sale TransactionsPURCHASER & ADDRESS PRICE APPROXIMATE

SIZE (SF)

4. Nutri-Oeuf Inc.860 Trillium Drive $4,000,000 62,519

5. 300 Mill Street $2,640,000 30,699

Upcoming New InventoryADDRESS COMPLETION APPROXIMATE

SIZE (SF)

6. For Lease25 Goodrich Drive Q2/Q3 2016 65,572

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Page 6: Waterloo Region Industrial Market Report Q4 2015

6 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Industrial | Colliers International

Notable Lease Notable Sale New Supply

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 technology users. The remaining inventory trends 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 Q3 2015 Q4 Trend

Industrial Inventory 8,899,480 8,913,419

Net Absorption 8,915 28,655

Vacancy Rate 3.99% 3.66%

Average Asking Net Rent(Per Square Foot) $5.13 $5.40

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Notable Lease TransactionsTENANT NAME & ADDRESS TYPE APPROXIMATE

SIZE (SF)

1. 623 Colby Drive Headlease 18,195

2. 106 Randall Drive Headlease 12,355

3. 483 Conestogo Road Headlease 9,818

Notable Sale TransactionsPURCHASER & ADDRESS PRICE APPROXIMATE

SIZE (SF)

4. Schembri Property Mgmt.675 Davenport Road $2,400,000 43,795

5. Musashi Auto Parts Canada65 Northland Road $2,160,000 16,239

Upcoming New InventoryADDRESS COMPLETION APPROXIMATE

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Not Applicable

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Page 7: Waterloo Region Industrial Market Report Q4 2015

7 Research & Forecast Report | Fourth Quarter 2015 | Waterloo Region / Industrial | Colliers International

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.

Page 8: Waterloo Region Industrial Market Report Q4 2015

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. 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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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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