waterloo region office market report | q1 2016

Research & Forecast Report

WATERLOO REGIONOFFICE First Quarter 2016

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2 Research & Forecast Report | First 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 continues to simmer with vacancy further dropping in Waterloo and Cambridge, while Kitchener sees an increase due to additions to the inventory. The Region is reaching a familiar position where specific types of space will be in short supply while traditional spaces will sit without tenancies for longer periods than in the past.

Waterloo continues to absorb space with no obstacles in sight. Again, the two driving forces in the market are the extensive range of space options and the strong tenant demand stimulated by the supply side of the market. Confidence is strong in the Waterloo market as indicated by the almost 300,000 square feet of speculative construction that continues in the face of relatively high vacancy.

The City of Kitchener keeps the momentum going with new requirements coming to market on a weekly basis. New options are being presented, including brick and beam space, which has clearly been the most sought-after type of space in the market. This continued trend favouring reinvented and repurposed buildings coupled with the residential component of the downtown market is reaching an apex as major condominium projects are now coming on line at the City Centre and 1 Victoria Street. It will be the incoming warm weather that will truly reveal the changes in Downtown Kitchener compared to the previous year; there will be an undeniable increase in daytime foot traffic and the presence of new residents in the core.

Market IndicatorsRelative to prior period

Waterloo RegionQ4 2015

Waterloo RegionQ1 2016 Trend

VACANCY 15.42% 14.13%

NET ABSORPTION 106,635 236,759

CONSTRUCTION 428,906 328,906

RENTAL RATE* $12.27 $12.23

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

The Cambridge market is healthy and continues its five year march towards lower vacancy. It has become difficult to find specific requirements in the Cambridge market and some new lease options are warranted. Large blocks of contiguous space and “A” Class options are conspicuously missing from the market. Cambridge is ready for new office development projects to fill this void.

Investment Market

There were no significant office investment sales in the first quarter of the year. This coupled with a very slow Q4 2015 shows us that office investors are taking a very cautious approach before buying into the market. However, given the strong leasing interest as well as dropping vacancy rates, we don’t expect it will take long for “first movers” to take advantage of an improving market. Therefore, we expect to see office sales volume pick up as the year continues.

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. 221 Holiday Inn Drive Headlease 4,744

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Notable Lease Notable Sale New Supply

City of CambridgeCambridge’s continuing trend is to lease space and reduce vacancy. No new office product is currently coming to the market and the suburban area vacancy is expected to decline in 2016.

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 continue throughout 2016.

> 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 2015 Q4 2016 Q1 Trend

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

Net Absorption 9,501 6,739

Vacancy Rate 15.43% 14.85%

Average Asking Net Rent(Per Square Foot) $11.14 $11.09

Average Additional Rent(Per Square Foot) $8.35 $8.37

Historical Performance and Forecast

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SIZE (SF)

1. Deloitte 195 Joseph Street Headlease 23,737

2. TD Canada Trust4275 King Street East Renewal 5,221

3. Bayshore Healthcare236 Victoria Street South Headlease 4,537


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 are in the planning stages with new and interesting options on the horizon.

Summary Statistics Kitchener Office Market 2015 Q4 2016 Q1 Trend







SIZE (SF)

None

Upcoming New InventoryADDRESS & DEVELOPER COMPLETION APPROXIMATE

SIZE (SF)

4.8 Queen Street NorthVoisin Capital & Brick by Brick Development

Q2/Q3 2016 32,995


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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. New 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 may increase due to new inventory coming to market, but absorption will remain strong.

Summary Statistics Waterloo Office Market 2015 Q4 2016 Q1 Trend







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SIZE (SF)

1. OTIP99 Randall Drive Sublease 22,252

2. Eclipse Scientific440 Phillip Street Headlease 16,706

3. 595 Parkside Drive Headlease 11,377


SIZE (SF)

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Upcoming New InventoryADDRESS & DEVELOPER COMPLETION APPROXIMATE

SIZE (SF)

4. 85 Willis WayPrimus Properties Q3 2016 84,872

5. 451 Phillip Street (conversion)Spear Street Capital Q2 2016 210,000

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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 © 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”.

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: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




waterloo region office market report | q1 2016

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