Q1 2011 | OFFICE

toronto ontario

COLLIERS INTERNATIONAL | MARKET REPORT

Canadian Market Overview

The economic outlook for Canada in 2011 remains cautiously optimistic overall. Canadas monetary policy and, in particular, the target of two percent inflation has steered the economy out of the recession. Our wealth of natural resources has provided stability to the economy as oil and commodity values continue to steadily rise despite a slight slowdown in Q1 2011. Canadian GDP growth is projected at 3.1 percent for 2011, but progress may be limited by risks from the European credit crisis, a strong Canadian dollar, and a slower American economy, all of which also contribute to the ongoing depressed state of the manufacturing sector. The overnight interest rate remains at one percent and is expected to rise to two percent alongside the anticipated shift in fiscal policy from stimulus to restraint. The unemployment rate is still expected to remain in the 7.4 to 7.7 percent range, although job creation has recently improved and there is a growing, educated population demographic that will help to reduce this economic indicator. Business confidence has risen in the past six months as careful spending and diligence through the recession is paying off. Investors are increasingly looking at Canada as a safe haven and with positive perceptions of our fiscally responsible banking and government systems. In relation to that, there has been a good rebound in the commercial property market in 2010 and into the first quarter of 2011. Interestingly, the current lack of speculative construction may lead to an increase in the number of design-build projects being undertaken in the near future as organizations seek to fulfill their space needs within time constraints.
2010 Q4 INVENTORY NET ABSORPTION VACANCY RATE ASKING NET RENT ADDITIONAL RENT 2011 Q1

MARKET INDICATORS

Greater Toronto Area Overview

The Greater Toronto Area (GTA) office market continued to recover from the recession and gained stability as activity levels increased across all markets. In the past 12 months, all seven markets within the GTA region reported marginal positive net absorption, totaling approximately five million square feet, 50 percent of which took place in Downtown market. The GTA office vacancy rate stabilized at approximately 6.4 percent for the past few quarters. Although some areas appeared to be more challenged than others, the overall GTA office market showed increased demand and experienced tightening.

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MARKET REPORT | Q1 2011 | OFFICE | TORONTO

GTA Historical Performance & Forecast North GTA Q1 2000 - Q1 2013f

Central East
Net Absorption

GTA East

Midtown Rent Asking Net DowntownVacancy Rate Central West

GTA West

According to the Conference Board of Canada, the rest of 2011 is expected to see a further increase of confidence in the market due to favourable interest rates, a forecasted growth in gross domestic product (GDP) from 2.6% to 3.5%, increasing employment figures, and an expanded diversity of industries and service businesses all factors which support a positive outlook for the GTA region.
GTA | HISTORICAL PERFORMANCE & FORECAST | Q1 2001 - Q1 2013F

Using office employment as a proxy for office space demand, vacancy is expected to slowly decline to 6.1 percent by the end of the year. Asking net rent is projected to increase from $16.08 in Q1 2011 to $16.31 by Q1 2012.

Net Absorption

Asking Net Rent

Vacancy Rate
FORECAST

20 10

12

(10)

(6)

(20)

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

(12)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Colliers International, March 2011

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Asking Net Rent ($)/Availability Rate (%)

30

18

Net Absorption (100,000 SF)

MARKET REPORT | Q1 2011 | OFFICE | TORONTO

Downtown
THE MARKET

With the steady performance of the finance, insurance and real estate (FIRE) sectors, the Downtown office market continued to remain stable. Over the past year, the In response to this new benchmark, a vacancy rate stabilized to approximately 5.7 trickledown effect is well underway with percent, leaving close to four million square upgrades of the established office towers in feet of total vacant space. The availability rate order to maintain their competitive positions decreased from its peak ofDowntownin within the Performance &environmental 10.3 percent Historical marketplace. These Forecast initiatives have been Q4 2009 back to 9.1 percent, the same level Q1 2000 - Q1 2013fcompleted or are underway at most of the flagship office observed before the recession. complexes in the financial core.
TRENDS
Net Absorption Asking Net Rent Vacancy Rate

Managers Association (BOMA) certifications, modern building systems, more efficient floor plan layouts, and lower operating costs.

square feet of new space into the Downtown market by the end of 2011. Colliers is also projecting that two new office tower developments for the Downtown market will be announced this year. Driven by the projected 7.0 percent expansion in FIRE sector employment over the next 12 months, the downtown financial core is expected to remain active and continue to grow. In the surrounding areas, where the information, culture, and public administration industries occupy 55 percent of the office space, the market is anticipated to be flat. Overall, Colliers anticipates the Downtown market to remain stable and experience a slight decrease in vacancy over the long term. The vacancy rate is projected to be stable for the next 12 months and then trend downward. Over the same time period, rental rates are predicted to remain steady in Class A buildings and increase in Class AAA space.

A significant amount of space has been exchanged among tenants in the downtown area. Top-tier buildings have become the preferred location for many corporate expansion plans, especially the three new towers of Bay Adelaide Centre, Telus Tower and RBC Centre, totaling over 2.9 million square feet. This can mainly be attributed to new standards in amenities, such as Leadership in Energy and Environmental Design (LEED) or Building Owners and

In the past six months, the vacancy rate for Class AAA space trended down from 7.7 percent to 5.3 percent, while the vacancy rate of all other classes experienced increases. This trend also created downward pressure on the asking net rent, resulting in a 4.8 percent decrease to $22.82 per square foot on average.
FORECAST

Currently on the horizon, the development of 18 York St. will add approximately 650,000

GTA DOWNTOWN | HISTORICAL PERFORMANCE & FORECAST | Q1 2001 - Q1 2013F

Net Absorption

Asking Net Rent

Vacancy Rate
FORECAST

15

30

Net Absorption (100,000 SF)

10

20

10

(5)

(10)

(10)

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

(20)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Colliers International, March 2011

COLLIERS INTERNATIONAL |

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Asking Net Rent ($)/Availability Rate (%)

MARKET REPORT | Q1 2011 | OFFICE | TORONTO

Midtown
THE MARKET

Midtown Historical Performance & Forecast Q1 2000 - Q1 2013f

The Midtown market is forecasted to remain tight and flat for the rest of 2011, as finding large, continuous blocks of space will remain challenging. In the long term, the growth of FIRE sector employment will TRENDS marginally drive down the vacancy rate in As a result of the tight market environment, the southern area of the Midtown market. Net Absorption Asking Net Rent vacancy rate tenants in the Midtown market are looking The northern area, including Yonge-St.Clair for economical alternatives in the form and Yonge-Eglinton, will be impacted by of sublease space. Almost one-third of the contraction of the public administration the currently available space in Class A sector as projected by Conference Board buildings are subleases. The sublease of Canada. Colliers expects the Midtown market has been active, especially among vacancy rate to remain at approximately 4.8 Class A buildings where model suites and percent for most of 2011 and asking net rent built out space are quickly absorbed due to to increase marginally to $15.73 per square the competitive demand. foot as the economy continues to improve.

As there has been virtually no new supply in almost three years, the Midtown market experienced significant tightening. The vacancy rate in the Midtown area has not exceeded 5.0 percent since Q3 2009. The current Midtown vacancy rate of 4.8 percent remained the lowest among all GTA markets. With very few large contiguous spaces available, tenant options continued to be limited within the Midtown market.

Similar to the downtown market, there are increasing tenant demands that favour modern building amenities and design, with strong preferences to upgraded interior and exterior building spaces.
FORECAST

MIDTOWN | HISTORICAL PERFORMANCE & FORECAST | Q1 2001 - Q1 2013F

Net Absorption

Asking Net Rent

Vacancy Rate
FORECAST

20

Net Absorption (100,000 SF)

10

(2)

(10)

(4)
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

(20)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Colliers International, March 2011

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Asking Net Rent ($)/Availability Rate (%)

MARKET REPORT | Q1 2011 | OFFICE | TORONTO

GTA North
THE MARKET

in the number of sublease transactions Due to Colliers redefinition of market in the market. Although the GTA North boundaries, Markham and the Highway 407 markets average asking net rental rate Corridor submarkets joined the GTA North has decreased slightly over the past few market from the GTA East market. Much quarters from $15.82 in Q3 2010 to $14.85 like the Midtown and Central North markets, in Q1 2011, landlords are realizing there is there was a tightening in GTA North, increasing demand. especially in Markham and Richmond Hill where supply was limited due to the large FORECAST GTA North Historical Performance & Forecast influx of tenants who were looking for space It is anticipated that the strong activity Q1 2000 - Q1 2013f in 2010. In the past six months, the vacancy level will continue and sublease absorption rate declined marginally to 6.4 percent, will keep the market stable. Based on the leaving approximately one million square Conference Board of Canadas forecasting feet of total vacant space. Based on the of office employment, Colliers expects vacancy rate, GTA North is considered to be the vacancy rate to decline to around 5.5 percent over the next year. This increasing the healthiest market in suburban Toronto. demand should push average asking net TRENDS rates from the current $14.85 per square Leasing activity has been strong in the GTA foot to $15.00 per square foot. North submarkets. Tenants are growing and consolidating, leading to an increase

GTA NORTH | HISTORICAL PERFORMANCE & FORECAST | Q1 2001 - Q1 2013F

Net Absorption

Asking Net Rent

Vacancy Rate
FORECAST FORECAST

18

Net Absorption (100,000 SF)

12

0 (3)

(2)
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

(9)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Colliers International, March 2011

COLLIERS INTERNATIONAL |

Asking Net Rent ($)/Availability Rate (%)

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MARKET REPORT | Q1 2011 | OFFICE | TORONTO

GTA East
THE MARKET

GTA East Historical Performance & Forecast FORECAST Colliers foresees that the challenges in the Q1 2000 - Q1 2013f
TRENDS

As a result of Colliers redefining its market boundaries, a few submarkets in the previous GTA East market were moved into the GTA North and Central East. Currently, GTA East is the smallest market in the entire GTA, with around 5.4 million square feet of office space. It reported the lowest net asking rent of all GTA markets at $7.41 per square foot, which was less than half of the GTA average price. Despite this, GTA East had the second highest vacancy rate among all markets.

absorption during the past six months. As landlords have been competing for tenants, prices are coming down and additional tenant inducements are being offered. As a result, the GTA East market has seen a declining average asking net rental rate from $8.11 per square foot in Q3 2010 to $7.41 per square foot in Q1 2011.

Although the overall market sentiment improved during the past year, the GTA East market has remained less active in comparison to other GTA markets. Scarborough, Pickering and Oshawa submarkets have reported negative net

GTA East market will persist in the short run, as there continues to be an abundance of inventory. As a result, asking rental rates in these markets are expected to remain soft for the next year. The vacancy rate is projected to decrease until the market recovers and employment statistics become more positive. By Q1 2012, the vacancy rate is projected to drop marginally to approximately 7.7 percent.

GTA EAST | HISTORICAL PERFORMANCE & FORECAST | Q1 2001 - Q1 2013F

Net Absorption

Asking Net Rent

Vacancy Rate
FORECAST

1.4

16 8

0 (8)

(1.4)

(16) (24) (32)

(2.8)

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Colliers International, March 2011

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Asking Net Rent ($)/Availability Rate (%)

Net Absorption (100,000 SF)

MARKET REPORT | Q1 2011 | OFFICE | TORONTO

GTA West
THE MARKET TRENDS

Around 70 percent of suburban office space in Toronto is located in GTA West. For the last three quarters, the GTA West market had the highest vacancy rate among all GTA markets at 8.4 percent, which was mainly attributed to the high vacancy in the Airport Corporate Centre and Airport East areas. This was partially due to new inventory being added and the fact that large American companies were situated within this submarket. Combined with the economic recession, this market was significantly impacted, causing the vacancy rate to steadily increase. As the United States has been slower to recover from the economic downturn, so too has this market. However rental rates have remained relatively stable in the past six months at around $14.60 per square foot on average, despite fluctuation within certain submarkets.

Although tenants have been able to work with flexible landlords in some GTA West submarkets, there have been concerns surrounding the Airport Corporate Centre, as well as pockets of Mississauga City Centre. This is due to the increasing traffic congestion problems in these areas, which has influenced an increasing number of tenants to move to other GTA West submarkets. In the Oakville and Burlington submarkets, there seems to be an influx of larger tenants looking for space, ranging from 15,000 60,000 square feet.
FORECAST

As vacancy and availability are expected to decrease in some GTA West submarkets, average asking net rents are in turn anticipated to increase year-over-year. As this continues, there should be an amplified trend of tenants who are willing to sign longer-term leases of ten years plus to avoid increasing rates. Tenants who are able to assess their current space needs and can enter into a long-term deal will benefit from a secure real estate strategy. Colliers predicts that the GTA West vacancy rate will decrease to 7.9 percent by the end of this year and the rental rate will increase from $14.60 per square foot in Q1 2011 to approximately $14.83 per square foot over that same time period.

In the next year, Colliers anticipates positive absorption due to very few speculative developments being delivered to the market, as many developers continue to hold off until they secure a lead tenant.

GTA WEST | HISTORICAL PERFORMANCE & FORECAST | Q1 2001 - Q1 2013F

Net Absorption

Asking Net Rent

Vacancy Rate
FORECAST

12

18

Net Absorption (100,000 SF)

12

(4)

(6)

(8)

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

(12)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Colliers International, March 2011

COLLIERS INTERNATIONAL |

Asking Net Rent ($)/Availability Rate (%)

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MARKET REPORT | Q1 2011 | OFFICE | TORONTO

Central East
THE MARKET

The Central East market was recently formed from the submarkets of Consumers Rd., Duncan Mill, Don Mills, Toronto East, and Woodbine-Steeles of Colliers previous GTA East market. The inventory size of 17.6 million square feet in Central East is similar to the Midtown market, although its rental rates were the lowest within the central Toronto area. In the past 12 months, the vacancy rate continued to trend downward from 8.2 percent to 5.9 percent, leaving approximately 1.6 million square feet of total vacant space.
TRENDS

area seem to be comfortable with their current location and do not have a desire to relocate. The majority of the movement within this market is from tenants who are seeking more efficient use of their spaces by combining multiple locations for more attractive inducements and overall lower gross costs.
FORECAST

480 offices in 61 countries

$1.9 billion USD in revenue 15,000 employees 2.4 billion square feet under management $154 billion USD in completed transactions over last three years

In some pockets within the Central East market, such as Don Mills Rd. and Consumers Rd., the high availability rate has already placed downward pressure on the net effective rate. Most tenants in this

Colliers predicts that the Central East market will remain flat over the next year. As the Midtown and Central North markets tighten, those tenants are likely to be pushed towards the peripheral markets, including Central East. In the short term, there has been no indication of other significant changes, but there is expected to be mild positive absorption throughout the year, although this will not affect the overall vacancy rate. Rental rates are anticipated to remain steady at around $11.85 per square foot.

CONTACT INFORMATION

John Arnoldi
Managing Director | Toronto +1 416 643 3733 john.arnoldi@colliers.com

Susie Wang

Central North
THE MARKET

Research Analyst | Toronto +1 416 643 3469 susie.wang@colliers.com

The Central North market was recently created from Colliers former GTA North market. It has a total of 12 million square feet of office space, 73 percent of which is located in the North Yonge Corridor. Similar to the Midtown market, the FIRE sector and public administration sector are the major tenant types, occupying 71 percent of office space. This market also features a low vacancy rate of 4.9 percent, leaving approximately 589,302 square feet of total vacant space. The current net asking rent in Central North is $18.90 per square foot, the second highest in the GTA.
TRENDS

they require, often by amalgamating all of their operations into a single building, if not one contiguous space. Often, the best way for tenants to do so is by capturing new sublease space. Simultaneously, the smaller non-contiguous spaces that are left behind are picked up by businesses in need of turnkey space for immediate growth and flexibility. As a result, the sublease market in this area has been active, with almost 40 percent of the currently listed space being for sublease.
FORECAST

Companies are increasingly looking for economies of scale and ensuring they are allocating space properly. Many are taking a look at their total footprints and attempting to downsize the amount of space

As companies continue to focus on maximizing efficiencies, subleases will remain a viable option for both quickly growing businesses and those looking to amalgamate. As a result, Colliers anticipates that there will continue to be positive sublease absorption in this already tight market.

This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. Colliers International is a worldwide affiliation of independently owned and operated companies. This publication is the copyrighted property of Colliers International and /or its licensor(s). 2011. All rights reserved. Colliers Macaulay Nicolls (Ontario) Inc., Brokerage.

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