GTA Office Investment Report - JLL Office Investment Report . ... Sherbourne Street . 1376 Bayview Avenue : 832 Bay Street, Units ... $565 . $183 : Cap Rate (%) - - - - -

GTA Office Investment Report Q1 2013

Calculated real estate insight for the informed GTA office investor.

Jones Lang LaSalle • Office Investment Team • Q1 2013

Executive Summary Market activity was noticeably slower in Q1 2013 versus the previous quarter, with total investment volumes declining by 77.0%. Average cap rates notched upwards by 6 basis points and the average price per square foot dropped by $50 to $259 psf.

A disconnect in pricing expectations has started to develop between buyers and sellers following a record setting trade volume in the fourth quarter in 2012. Lack of available investment product and ferocious investor demand has caused upward pressure on pricing such that it has likely reached an equilibrium point. Buyers are now becoming more discerning and paying closer attention to factors that could erode their returns if they chose to transact in the current environment. An example of such risk factors are capital expenditure requirements and large leasing renewals in local markets.

For the first time in recent years, not all assets that come to market will trade if underwriting assumptions are overly aggressive and unrealistic. The market recently witnessed the delisting of a significant institutional portfolio in West Toronto for the aforementioned reasons.

The leasing market in the suburbs has softened with the outlook not expected to change until the end of the year. Both the West and North regions experienced an increase in vacancy to 13.0% and 6.3%, respectively. Suburban Class A buildings finished the quarter with 10.6% vacancy. Most notably, the engineering and mining sectors are suffering which is leading support sectors downward.

Despite looming vacancies, most of the new construction continues to occur in the West as a result of large corporate consolidations and major renewals from the financial crises that are maturing. Almost 1.3 million square feet of new construction is currently underway with 81,000 square feet having been completed in Q1.

Sources: RealNet, Altus, Real Capital Analytics, JLL Research

West

Metro Toronto Downtown Toronto North East


GTA Office Investment Market Clock*

$2,648.60 $234.03 $207.66 $166.21 $160.72

$45.32 $32.00 $31.74 $27.86 $19.56 $17.45 $10.54 $4.25 $4.05 $3.95 $2.78 $1.55 $1.53 $1.45 $1.06

$0 $1,000 $2,000 $3,000

TorontoMississaugaScarborough

North YorkMarkhamEtobicoke

OakvilleBurlingtonBramptonEast YorkVaughan

NewmarketAjax

Richmond HillYorkKing

OshawaMilton

WhitbyEast Gwillimbury

Trailing 12 Months Sales Volume by Municipality

Millions $

$98.89

$31.68

$30.24

$20.75

$18.21

$18.04

$12.60

$5.41

$2.33

$1.55

$1.47

$1.45

$1.06

$- $20 $40 $60 $80 $100

Mississauga

Toronto

Burlington

Etobicoke

Markham

Scarborough

Brampton

North York

Vaughan

York

Richmond Hill

Whitby

East Gwillimbury

Q1 2013 Sales Volume by Municipality

Millions $

Peaking market Falling market

Rising market Bottoming market

West

Peaking market Falling market

Rising market Bottoming market

Metro

East

North

Toronto

Mississauga

Burlington

Etobicoke

Markham

North York

Brampton

Oakville

Scarborough

Note: *based on price per square foot for observed transactions


Overview – Entire GTA

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Billi

ons $

CBD vs. Suburban Office: Historical Investment Volumes

CBD Investment Volumes Annually Suburban Investment Volumes Annually

YTD

Total office investment volumes for Q1 2013 were 77% lower than the previous quarter as a result of the lack of trading of institutional, CBD-located trophy assets. There were only 7 buildings in the GTA that transacted at sales prices above $10M and 3 above $15M (Erindale Corporate Centre - $71M, 2901 Sheppard Avenue East - $18M and 295 The West Mall - $16M). CBD and Suburban cap rate spreads have widened considerably since converging in 2006 and are now at a 115 basis point differential. This spread has decreased over the past quarter by 85 bps to 115 bps, signaling that investors may be increasing their interest in non-core assets due to favourable pricing. We expect that this trend will continue and rates will eventually re-converge in approximately 5-10 years, which is within a standard holding period for owners. Q1 investment volumes for suburban assets outpaced CBD assets at $216.3M as compared to $28.7M. We predict a reversal of comparative volumes in the coming 9 months as continued global economic uncertainty, a low interest rate environment and inflated valuations will motivate institutions to trade more significant CBD assets. From a top level view, the average square footage per transaction deceased to 32,000 SF in Q1 from 98,000 SF in Q4. There was also a notable rise in the sale of strata office, which increased from 3 to 8 units (or total square footage transacted from 11,000 SF to 39,000 SF).

Quick Stats Q1 2013 Q4 2012

Sales Volumes 245M 1,070M

Average Cap Rates 6.42% 6.36%

Total SF Transacted 1,109K 3,303K

Average $PSF $259 $306

Number of Transactions 37 33

Cap Rate Spread vs. CBD 115 bps 200 bps

$PSF Spread vs. CBD -$85 -$155

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GTA Office Investments Volumes and Avg Cap Rates

GTA Sales Volumes GTA Avg Cap Rates

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Historical Cap Rates: CBD vs. Suburban

CBD Office Cap Rates Suburban Office Cap RatesYTD

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Overview – Office Class and Sub-Category

Pricing expectations resulting from a highly active Q4 have caused a disconnect between buyers and sellers, which has led to more cautious buying behavior and the slowing of investment volumes in the Class A & B segments.

Cap rates have further compressed from Q4 and bidding wars are becoming much more prevalent causing investors to seek off-market opportunities. We are aware of a significant portfolio (north of $100M and including Class A & B buildings) that was listed in the West market and subsequently removed due to aggressive pricing expectations.

As a result of the expectations gap, we believe that low gross cost alternatives will perform better than Class A assets as occupiers stay focused on minimizing their overhead and overall risk.

The investor profile has shifted from a heavy REIT and institutional weighting in Q4 (49% of all trades) to substantially less in Q1 (2%). Private investors and user groups accounted for 92% of the transactions in the last quarter.

Medical office sales were on the rise at $46M, which was substantially higher than the trailing 12 month rolling average of $28M. Flex office sales have been flat quarter over quarter likely due to persistent vacancy issues in new inventory that has come to market.

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GTA Class B Office Investments Volumes and Avg Cap Rates

GTA Total Investment Volumes Class B GTA Avg Cap Rates Class B

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GTA Class C Office Investments Volumes and Avg Cap Rates

GTA Total Investment Volumes Class C GTA Avg Cap Rates Class C

Quick Stats Q1 2013 – By Asset Class

A B C

Sales Volumes 112M 90M 41M

Average Cap Rates 6.00% 6.20% 6.30%

Total SF Transacted 533K 390K 184K

Average $PSF $269 $243 $271

Number of Transactions 10 15 12

Quick Stats Q1 2013 – By Office Subcategory

Medical Flex

Sales Volumes 46M 17.37M

Average Cap Rates - -

Total SF Transacted 115K 107K



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Investor Profile

User Public REIT Private Investor Institution Developer

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GTA Class A Office Investments Volumes and Avg Cap Rates

GTA Sales Volumes Class A GTA Avg Cap Rates Class A


Market Perspective Q1 2013 showed a sharp decline in the number of trades of institutional trophy assets. The previous quarter had a record number of high dollar transactions, including: Brookfield Place ($453M), 121 King Street West ($306M), 700 Bay Street ($112M) and 333 King Street East ($69M). There may be a consensus in the market that pricing has reached peak levels, as demonstrated by Brookfield Place selling at $750 per SF which is in the range of high-end residential pricing. There is no shortage of interested buyers who are looking for grade A downtown product. With no substantial new supply being introduced to the market until Q3 2013, we expect vacancy rates to remain stagnant and pricing to be sustained at peak levels. Redevelopment and value add strategies are becoming the most viable option for investors in downtown Toronto considering the scarcity of available product. Access to this market is limited to well capitalized buyers with an appetite for increased risk.

Cap Rates and Transaction Volume Quick Stats Q1 2013 Q4 2012

Sales Volumes $31.68M $982M


Total SF Transacted 81.65K 2,656K



Cap Rate Spread (vs. CBD) 0 bps -10 bps

$PSF Spread (vs. CBD) $12 -$33

Name 545 King Street West

600 Sherbourne

Street

1376 Bayview Avenue

832 Bay Street, Units

203, 205, 206, 209

&211

540 College Street

Address 545 King Street West

600 Sherbourne

Street

1376 Bayview Avenue

822 Bay Street, Units

203, 205, 206, 209

&211

540 College Street

Class C Medical C A Medical

Date Jan 10/13 Jan 4/13 Mar 19/13 Feb 15/13 Jan 16/13

Price $11.50M $7.00M $2.99M $2.90M $2.86M

Size (SF) 47,000 Undisclosed 7,224 5,136 15,666

$PSF $245 - $414 $565 $183

Cap Rate (%) - - - - -

Seller H&R Sterling

Textiles Limited

Maureen Dev. Private Investor H&R REIT

2005433 Ontario Limited

Buyer Hullmark Dev.

J&K Rosedale Management Corporation

2341620 Ontario

Corporation Lanterra Dev.

Parallax Investment Corporation

Financial Core Downtown East Downtown North

Downtown South Downtown West King & Dufferin

Bloor Eglington St. Clair

Leasing Nodes Included:

Development Statistics # of Buildings SF

Current Inventory 531 86,190,222 SF

Under Construction 7 4,420,025 SF

% Increase from Existing Stock 5.13%

Pre-Leasing 11 4,781,631 SF


Toronto

$PSF and Total Area Transacted

Recent Transactions

New Office Supply

Building 1 Building 2 Building 3 Building 4 Building 5

Name 60 Atlantic Avenue

MaRS Discovery Centre – Phase II

RBC Waterpark

Place

Southcore Financial Centre – Bremner Tower

Queen Richmond

Centre West – Phase 1

Address 60 Atlantic Avenue

661 University Avenue

88 Queens Quay West

120 Bremner Boulevard

134 Peter Street

GLA (SF) 25,159 746,898 886,015 669,817 284,460

Class B A A A A

Leasing Node

King & Dufferin

Downtown North

Downtown South

Downtown South

Downtown West

Developer Hullmark Alexandria Oxford bcIMC Allied REIT

Delivery Date Q4 2013 Q4 2013 Q3 2013 Q3 2014 Q2 2015

Office Inventory Snapshot

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New Office Supply


Name 2240 Argentia Road

Parkside Village

255 Longside Drive

5875 Explorer Drive

Winners – East & West

Towers

Address 2240 Argentia Road

4080 Confederation

Parkway

255 Longside Drive

5875 Explorer Drive

60 Standish Court

GLA (SF) 45,778 60,000 65,980 51,934 335,000

Class Flex A Flex A A

Leasing Node Meadowvale Mississauga

City Centre Heartland Airport

Corporate Centre

Heartland

Developer EDEV Amacon Mantoria Bentall Kennedy

Orlando Corporation

Delivery Date Q3 2013 Q3 2013 Q4 2013 Q4 2013 2014/2015

Market Perspective Mississauga remains the most active market in the GTA outside of the City of Toronto. Quarter over quarter, sales volumes increased tenfold but have normalized to levels comparable to Q1 2012 ($184M), Q2 2012 ($57M) and Q3 2012 ($67M). With upward pressure on pricing in Toronto, Mississauga is a favourable alternative for investors as yields are approximately 1.5% higher than CBD assets. The introduction of the Bus Rapid Transit system (running from Mississauga City Centre to Highway 427) is expected to increase the attractiveness of the Airport Corporate Centre as evidenced by HOOPP’s decision to build up to 1 million square feet at Spectrum Square. Major tenancies are demonstrating a flight to quality as consolidations and large renewals take place. We expect favourable shifts in the Airport Corporate Centre, and Highway 10 Corridor nodes and unfavourable shifts in the Airport Strip (approximately 461,000 SF of rollovers are anticipated by significant tenants in this node).


Sales Volumes $98.9M $9.51M


Total SF Transacted 516.69K 179.80K



Cap Rate Spread (vs. CBD) 150 bps 135 bps

$PSF Spread (vs. CBD) -$178 -$343

Name Erindale

Corporate Centre

6355 Viscount

Road

220-280 Britannia

Road East

391-415 Matheson Boulevard

East

3141 Cawthra Road

Address

1270, 1290 & 1300 Central

Parkway West

6355 Viscount

Road

220-280 Britannia

Road East

391-415 Matheson Boulevard

East

3141 Cawthra Road

Class A B B B Medical

Date Mar 28/13 Mar 27/13 Mar 27/13 Mar 1/13 Jan 17/13

Price $71.1M $10.04M $9.26M $6.94M $1.55M

Size (SF) 338,162 75,852 57,909 43,001 1,770

$PSF $210 $132 $160 $161 $132

Cap Rate (%) 7.0% - - - -

Seller Desjardins

Life Assurance

Sobeys Capital

EPIC Realty Partners

EPIC Realty Partners

Private Investor

Buyer Redbourne

Realty Advisors

Canderel Crown Realty Advisors

Crown Realty Advisors

I.D. Gangam Medicine

Airport Corporate Centre Airport East Airport North Airport West

Cooksville Dixie & Eglington Heartland Meadowvale

Mississauga City Centre Sheridan




Under Construction 7 748,692 SF




Mississauga


Recent Transactions


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Available for lease through JLL


Market Perspective While it appears that Burlington experienced a significant gain in positive momentum in the first quarter of 2013, 62% of the transactions were to non-arms length parties of the vendors. Approximately $11.63 million traded independently at cap rates in the range of 6.25%. To put this in perspective, $2.76 million was traded in 2012 and $36.8 million was traded in 2011. Q1 2013 showed a slight decrease in the average cap rate from the last verifiable quarter (Q4 2011) at 6.80%. Municipal cap rate spreads have narrowed from 125 basis points to 75 basis points indicating investor tolerance for lower yields. 100% of the transactions involved private investors who were not owner-users on the buy-side. No ICI land sales occurred during the quarter for property zoned for office use. Burlington remains a bifurcated market consisting mostly of Class A and C assets. Class B and Flex office inventory are significantly underrepresented. The construction of 325,000 square feet of new supply between three Class A buildings will further polarize the market and sustain vacancy issues for older Class A competitive assets.


Sales Volumes $30M - 0

Average Cap Rates 6.25% - -

Total SF Transacted 187.13K - 0

Average $PSF $175 - -

Number of Transactions 5 - 0

Cap Rate Spread (vs. CBD) 75 bps - -

$PSF Spread (vs. CBD) -$169 - -

Name 1001

Champlain Avenue

880 Laurentian

Drive

4145 North Service Road

4125 Upper Middle Road

3190 Harvester Road, Unit

102

Address 1001

Champlain Avenue

880 Laurentian

Drive


4125 Upper Middle Road

3190 Harvester Road, Unit

102

Class A B A C B

Date Feb 1/13 Jan 31/13 Feb 1/13 Feb 28/13 Feb 15/13

Price $9.56M $9.15M $9.05M $1.30M $1.18M

Size (SF) 61,273 52,145 61,273 6,623 5,811

$PSF $156 $175 $148 $196 $202

Cap Rate (%) - 6.2% - 6.3% -

Seller Lisgar Dev. Gross Capital Corp. Lisgar Dev. Skillington

Construction 1297634

Ontario Inc.

Buyer 1001

Champlain Avenue Inc.

Children’s Financial

Group


Inc.

1297632 Ontario Inc.

1877998 Ontario Inc.

Burlington




Under Construction 0 0 SF


Pre-Leasing 3 326,066 SF


Burlington


Recent Transactions

New Office Supply


Name

Westbury Business

Park – Phase III

Emery-Alton Corporate

Centre

5091 Fairview Street - -

Address International

Blvd. and Burloak Dr.

4901 Palladium

Way

5091 Fairview Street - -

GLA (SF) 132,862 130,000 63,204 - -

Class A A A - -

Leasing Node Burlington Burlington Burlington - -

Developer Westbury Development

Emery Investments - - -

Delivery Date Pre-Leasing Pre-Leasing Pre-Leasing - -


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Market Perspective Transaction levels mirrored the previous quarter with approximately 20% less square footage changing hands at pricing that was 17% higher. All sales occurred in the $5-20 million category with the trade of 295 The West Mall accounting for 75% of the volume. Cap rates for Etobicoke vs. CBD assets moved closer to converging, demonstrating that investors are willing to increase their risk tolerance in order to place capital in the face of product scarcity. With limited new developments coming online in the near future and continued economic uncertainty, we expect that tenants along the 427 corridor will seek to reduce their corporate overhead by moving north to the Airport Strip upon lease expiries. In effect, this will cause cannibalization of the portfolios that are held by a small number of investors in these leasing nodes. Although Etobicoke is relatively close to the downtown core, it continues to be challenged by aging inventory, poor access from public transit and a lack of parking space. We expect that leasing rates will remain flat while tenant incentives will be on the rise.


Sales Volumes $21M $18.94M







Name 295 The West Mall

400 Carlingview

Drive

880-884 The Queensway

908 The East Mall

200 Ronson Drive

Address 295 The West Mall

400 Carlingview

Drive

880-884 The Queensway

908 The East Mall

200 Ronson Drive

Class C B C C B

Date Mar 19/13 Feb 2/13 Dec 14/12 Nov 1/12 Oct 11/12

Price $15.5M $5.25M $2.3M $1.04M $17.90M

Size (SF) 93,600 26,754 14,000 6,000 139,326

$PSF $166 $196 $164 $173 $136

Cap Rate (%) 7.1% - - - 8.3%

Seller H&R REIT Transglobe

Jornew Holdings,

Queensway Holdings, Shonrew Holdings

798326 Ontario Limited

Blackwood Partners

Buyer Rose and Thistle Group

True North Commercial

REIT

Chartwell Queens Inc.

International Development

and Relief Fund

Gross Capital Group

Bloor & Islington Etobicoke North

Etobicoke South Highway 427 Corridor






Pre-Leasing 1 249,200 SF


Etobicoke


Recent Transactions

New Office Supply


Name

Westmetro Corporate Centre – Phase 4

- - - -

Address 181 The West Mall - - - -

GLA (SF) 249,200 - - - -

Class A - - - -

Leasing Node

Highway 427 Corridor - - - -

Developer Starlite - - - -

Delivery Date Pre-Leasing - - - -


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Market Perspective Of the 5 trades that closed during the quarter, 4 hovered around the $1M mark and were for strata office units and small non-conventional office space, equally divided between private investors and users. The largest trade at $13.9M occurred for a fully occupied building tenanted by a technology firm, which was bought by the not-for-profit organization CAA South Central Ontario. Cadillac Fairview recently announced the Buttonville Airport redevelopment plan that is projected to introduce 2.6 to 4.6 million square feet of office space to the market using a multi-year approach. Phase 1 is scheduled to begin in 2013 and Cadillac has announced that 1 million square feet of “head-office” style buildings will be delivered. We are skeptical that such an aggressive timeline will be followed, considering the softening leasing market emerging in the suburbs. As Buttonville is a planned mixed-use community, we predict that the majority of development will occur in the residential and retail segments unless commitments from large anchor office tenants are secured. The steep increase in downtown residential pricing and slow down of construction of detached housing projects should fuel demand for the aforementioned sectors.


Sales Volumes $18M $1.36






$PSF Spread (vs. CBD) $3 -$78

Name 10 Commerce Valley Drive

East

7130 Warden Avenue, Units

606-609

143 Main Street


403-407

3621 Highway No. 7 East,

Units 503-505

Address 10 Commerce Valley Drive

East


606-609

143 Main Street


403-407

3621 Highway No. 7 East,

Units 503-505

Class A A C A A

Date Mar 12/13 Feb 15/13 Mar 28/13 Feb 4/13 Mar 7/13

Price $13.90M $1.18M $1.05M $1.05M $1.04M

Size (SF) 43,000 2,752 2,700 2,935 3,242

$PSF $323 $428 $389 $356 $320

Cap Rate (%) - - - - -

Seller ATI Technologies

Alderland Group

Private Investor

Alderland Group Liberty Dev.

Buyer CAA South

Central Ontario

Royal Natural Products Co.

Group Canada

Grasshopper Realty Inc.

Royal Natural Products Co.

Group Canada

Flato Dev. Inc.

Highway 404 & Highway 407 Richmond Hill

Highway 404 & Steeles








Markham


Recent Transactions

New Office Supply


Name

775 Cochrane

Drive – Phase 1 & 2

Liberty One Offices at Uptown

Markham

80 Minthorn Boulevard

103 Commerce Valley Drive

East

Address

775 Cochrane

Drive – Phase 1 & 2

1 Steelcase Road West

Walden Avenue

80 Minthorn Boulevard

103 Commerce Valley Drive

East

GLA (SF) 436,000 400,500 371,526 160,407 156,000

Class A A A A A

Leasing Node

Highway 404 & Highway

407

Highway 404 & Steeles


407


407


407

Developer GWL Realty Advisors Liberty Dev. Times Group Wemat Four

Limited Triovest

Delivery Date Pre-Leasing Pre-Leasing Pre-Leasing Pre-Leasing Pre-Leasing


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Available for lease through JLL


Market Perspective The Scarborough market remains very inactive with only 8 trades occurring over the past 24 months, with 50% being significant transactions above $10M. The Q1 average cap rate was the highest of the main 8 municipalities, observed at 7.28%. While pricing was substantially higher than the GTA average on a cost per square foot basis, we consider this to be an anomaly and a result of the sole trade occurring between non-arms length parties. At the moment, no new office supply has been announced over a 5 year horizon as a result of landlords’ inability to increase face rates and achieve reasonable returns. With a total lack of leasing velocity, landlords are having to be very aggressive with incentives for tenants. JLL is aware of some owners offering one year abatements and $40 per SF tenant inducements to secure long term leases.


Sales Volumes $18M - 0


Total SF Transacted 28.97K - 0

Average $PSF $623 - -



$PSF Spread (vs. CBD) $279 - -

Name 2901

Sheppard Avenue East

636 Kennedy Road

100, 200 & 300

Consillium Place

441 Ellesmere

Road

3420 Finch Avenue East

Address 2901

Sheppard Avenue East

636 Kennedy Road

100, 200 & 300

Consillium Place

441 Ellesmere

Road

3420 Finch Avenue East

Class B B A A C

Date Mar 19/13 Sep 1/12 Jul 23/12 Jun 1/12 Dec 19/11

Price $18.04M $2.20M $182.62M $4.80M $13.60M

Size (SF) 28,965 7,123 1,036,720 55,000 49,827

$PSF $623 $309 $172 $87 $273

Cap Rate (%) - 6.5% 7.4% - -

Seller MIG Investments

RMC Global Traders Menkes

The Greek Community of

Toronto

Simmtech America Inc.

Buyer 1600 Dev. Worldeal

Investments Ltd.

Kevric Real Estate

Jain Society of Toronto

Yuyang International Investments Group Inc.

Scarborough






Pre-Leasing 0 0 SF


Scarborough


Recent Transactions

New Office Supply


Name - - - - -

Address - - - - -

GLA (SF) - - - - -

Class - - - - -

Leasing Node - - - - -

Developer - - - - -

Delivery Date - - - - -


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Market Perspective North York experienced a significant slow down of investment activity quarter over quarter with volumes dropping 85% and total area transacted by 90%. The average square footage per deal decreased significantly which yields a misleading rise in the average pricing on a per square foot basis. While there are six buildings currently pre-leasing, we expect that development will be deferred for most assets not located on the Yonge Street corridor. Much like Etobicoke, North York is plagued with the issues of poor transit and limited/expensive parking options for tenants. Suburban buildings often offer lower net rental rates and better parking ratios. Hence, if buildings are not located on the Yonge or University subway lines, they have to compete with non-core product. To secure tenants, landlords may have to provide incentives such as off-site parking and shuttle bus service to their buildings. We expect that the completion of the University subway line extension will spur office development activity in the path of construction.









Name 4640 Jane Street

18 Wynford Drive, Units

301-307

307 Shepperd Avenue East

2655 Bayview Avenue

28 Hendon Avenue

Address 4640 Jane Street

18 Wynford Drive, Units

301-307

307 Shepperd Avenue East

2655 Bayview Avenue

28 Hendon Avenue

Class B A C C C

Date Mar 15/13 Feb 4/13 Jan 30/13 Dec 21/12 Nov 30/12

Price $2.50M $1.56M $1.35M $1.70M $1.60M

Size (SF) 7,410 9,600 1,903 9,700 1,500

$PSF $337 $162 $709 $175 $1,065

Cap Rate (%) - - - - -

Seller

FITPAC Office

Management Inc.

Rose and Thistle Group

Cobob Holdings Ltd.

Lawrence Park Animal

Hospital Professional Corporation

Private Investor

Buyer

Jane Shoreham

Medical Centre Inc.

iVedha Inc. Romanovsky Associates

LLP

Private Investor

The Trustees Of Fifth

Church or Christ

Downsview Dufferin & Finch Yorkdale North Yonge

Duncan Mill Consumers Road Don Mills & Eglington Highway 404 & Steeles








North York


Recent Transactions

New Office Supply


Name Downsview Corporate

Centre

4050 Yonge Street

Steeles Technology Campus – Building 3

101 Gordon Baker Road

Morneau Sobeco Centre

Address 1035

Sheppard Avenue West

4050 Yonge Street

3377 Steeles Avenue East

101 Gordon Baker Road

895 Don Mills Road

GLA (SF) 400,000 366,997 266,500 250,000 220,000

Class A A A A A

Leasing Node Downsview North Yonge Highway 404

& Steeles Highway 404

& Steeles Don Mills &

Eglinton

Developer Build Toronto Build Toronto Bentall Kennedy - Fana Group

Delivery Date Pre-Leasing Pre-Leasing Pre-Leasing Pre-Leasing Pre-Leasing


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Market Perspective Investment activity has substantially slowed in Oakville over the past six months with only one trade occurring in Q4 2012 for a small strata unit that was purchased by a private investor. While Oakville has traditionally been a fairly quiet market, the average sales volume per quarter over the past 24 months has been approximately $14M. It is unusual to witness two consecutive quarters with almost no volume: Q3 2012 ($23M), Q2 2012 ($7M), Q4 2011 ($46M), Q2 2011 ($18M) and Q1 ($19M). While there is considerable activity around new office construction and development announcements, the total square footage actually leased in each category is not material. 27% of new construction has been tenanted and there have been no confirmations on pre-leased space. Engineering firms currently dominate the Oakville market; however, a downturn in this sector is expected to lead to near term spikes in availability rates. The wave of new supply compounded with the existing 19% overall vacancy rates will likely complicate investment decisions going forward. We expect that development of the many pre-leasing projects will be deferred.


Sales Volumes 0 - $2.05M

Average Cap Rates - - -

Total SF Transacted 0 - 7.10K

Average $PSF - - $288


Cap Rate Spread (vs. CBD) - - -

$PSF Spread (vs. CBD) - - -$173

Name

1384 Cornwall

Road, Units 5-8

1400 Cornwall

Road, Units 7&8

Winston Office Centre

295 Robinson Street

239 Church Street

Address

1384 Cornwall

Road, Units 5-8

1400 Cornwall

Road, Units 7&8

2381, 2401 & 2421 Bristol

Circle

295 Robinson Street

239 Church Street

Class C C B C C

Date Nov 1/12 Aug 31/12 Aug 14/12 Jul 5/12 Jun 15/12

Price $2.05M $1.18M $20.00M $1.60M $1.69M

Size (SF) 7,100 4,327 117,629 13,032 5,385

$PSF $288 $272 $170 $122 $313

Cap Rate (%) - - 7.3% - -

Seller 1483098 Ontario Limited

Axiom Real Time Metrics

Churchill International

Property Corporation

295 Robinson Street Inc. Randvest Inc.

Buyer 2216169 Ontario Inc.

2308555 Ontario Inc. CTL Group

Cassique Management

Inc.

Private Investor

Oakville




Under Construction 2 97,660 SF




Oakville


Recent Transactions

New Office Supply


Name

Great Lakes Business

Park – Phase II

2727 Portland Drive


West


West

Ennisclare Corporate

Centre

Address 3430

Superior Court

2727 Portland Drive


West


West


GLA (SF) 64,085 33,575 171,250 171,250 158,499

Class Flex A A A A

Leasing Node Oakville Oakville Oakville Oakville Oakville

Developer Paul’s Property Corp

Stellar Construction

Westbury Development

Westbury Development

Bentall Kennedy

Delivery Date Q3 2013 Q4 2013 Pre-Leasing Pre-Leasing Pre-Leasing


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Metro Area Toronto, Etobicoke, York, North York, East York, Scarborough

The Toronto Metro area includes 117.5 million SF of office space. Even with 5.4 million SF of new development being delivered by 2017, vacancy rates are expected to continue to trend downward and remain below 10%. As space becomes more limited, pricing is expected to increase, causing a healthy increase in NOIs for owners. This will make these assets more attractive, which may cause further cap rate compression if interest rates hold. In 2012, 78% of total sales were for buildings valued over $100M. Of the $2.92B traded in this segment, public REIT’s were the predominant purchasers, accounting for $1.6B in volume. Conversely, private investors have been the most active year to date in 2013 with 57% ($44M) of total deal volume.

West Area Mississauga, Oakville, Burlington, Brampton, Halton Hills, Milton, Caledon


Sales Volumes $77M $1,034M


Total SF Transacted 259.88K 2,975.20K



Cap Rate Spread vs. GTA 12 bps 0 bps

$PSF Spread vs. GTA -$30 -$99

The Toronto West market includes 40.4 million SF of inventory and is expected to deliver 900,000 SF in 2013. Although it has the highest overall vacancy rate at 13%, the West remains the most active and attractive suburban office market due to the younger age of inventory and ease of transportation options (Hwy 407, GO Transit, Bus Rapid Transit line). In 2012, the $1-20M segment was the most active pricing category with $134.7M transacted, which accounted for 36% of total deal volume. Private capital held the lion’s share of this volume at $103.4M invested. This trend has continued thus far in 2013; 98% of the $72M that has been traded has had private investor backing.









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Metro Office Sales Volumes and Avg Cap Rates Metro Office Total Area Transacted and Avg $ PSF

West Office Sales Volumes and Avg Cap Rates West Office Total Area Transacted and Avg $ PSF


North Area Vaughan, Markham, Richmond Hill, King, Aurora, Newmarket, Whitchurch-Stouffville, East Gwillimbury, Georgina

The North Toronto market has softened over the past 15 months and showed no sign of strengthening in Q1 2013. While 2012 sale volumes were $194M, approximately $130M of these transactions were to non-arms length parties involved in the transfer of three South Creek Corporate Centre buildings. Of the remaining $64M that was transacted, all buildings were valued in the $1-20M range and private investors comprised $37M of the total. Of the 9 transactions that occurred in Q1 2013, 8 of the trades fell into the aforementioned $1-20M range. These sales totaled $9.1M and were to end-user purchasers. The ninth transaction was a Markham, Class A, multi-tenant building that sold for $13.9M to a private investor.

East Area Pickering, Ajax, Whitby, Oshawa, Clarington, Uxbridge, Scugog, Brock









Toronto East is the most dormant market in the GTA with no new construction scheduled over the next 5 years. An oversupply and lack of demand is resulting in the inability of landlords to achieve growth in net asking rents. The combined average base rent for all office classes is currently $12.78 psf vs. the GTA average of $15.32 psf. The East region has only seen transactions ranging from $1-20M with the buildings generally being between 20,000 to 50,000 SF. Purchasers in this region have predominantly been end users, as evidenced in 2012 by this category representing the substantial majority of trades at $5.8M. One transaction occurred in Q1 2013 for a Class C, single-tenant medical office building located in Whitby.


Sales Volumes $1.45M $4.25M

Average Cap Rates - - -




Cap Rate Spread vs. GTA - - -


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North Office Sales Volumes and Avg Cap Rates North Office Total Area Transacted and Avg $ PSF

East Office Sales Volumes and Avg Cap Rates East Office Total Area Transacted and Avg $ PSF

For more information, please contact: JLL GTA Office Investment Team

Andy Baines CA, MBA Associate Vice President Tel: 416-738-9619 Email: [email protected]

Alex Dorohoi MBA, AACI (candidate) Financial Analyst Tel: 416-304-6016 Email: [email protected]

Amit Kumar MBA Jr. Broker Trainee & Analyst Tel: 416-304-0681 Email: [email protected]

Jones Lang LaSalle 199 Bay Street Suite 4610, Box 407 Toronto, Ontario M5L 1G3 Tel: +1 416 304 6000 Fax: +1 416 304 6001 www.joneslanglasalle.ca

©2013 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

About Jones Lang LaSalle Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management. For further information, visit www.jll.com.

© 2013 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.

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