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Office ReportMetro VancouverFirst Quarter - 2014

Tel: 604 684 7117 www.dtzvancouver.comVancouver•Victoria•Nanaimo•Kelowna•Calgary•Edmonton•Regina•Winnipeg•Toronto•London-Windsor-Sarnia•Niagra•Kingston•Ottawa•Montreal

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vancouver’s changing skyline

After being one of North America’s most undersupplied markets for almost a decade, Vancouver is experiencing a flurry of new construction. The most recent development saw Credit Suisse announce the construction of The Exchange – a 360k sf office building in the heart of the financial district – with no prelease commitments. This addition brings the amount of office space currently under construction in the downtown core of Vancouver to a total of 2,153,060 sf or 10.5% of the current inventory. This is the largest addition to downtown inventory since the mid 80’s.

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Vancouver • Victoria • Nanaimo • Kelowna • Calgary • Edmonton • Regina • Winnipeg • Toronto • London-Windsor-Sarnia • Niagra • Kingston • Ottawa • Montreal

Economic ovErviEw•National GDP showed positivemovementinJanuaryof0.5%offsettinga0.5%declinefromDecember.Growthwasprimarilyattributedtoanincreaseinmanufacturing.

•The national unemployment ratedecreased 0.3% over the quarterfollowing an increase in December.The increase in employment throughthe first quarter occurred in Januaryand March with 29,000 and 43,000jobs added respectively. The quarterconcludedwiththeunemploymentrateat6.9%.

•The Canadian dollar ended last yearat $0.9402 US down from a high of$0.9736 US. Continuing depreciation,saw a low of $0.8866US and a highof $0.9444US ending the quarter at$0.9089US.

•Inflation figures continue to be tepiddespite showing moderate increasesfromlastyear.Anincreaseof1.1%yearover year to February followed a 1.5%increase in January. These figurescontinue to remain below the Bank ofCanada’stargetedrateof2%.

British columBia•The unemployment rate in BC hasdecreased 1.3% year over year and0.6% from the previous quarter.The improvement reduced theunemployment to 5.8% whichcontinuestoremainbelowthenationalaverageof6.9%.

•TheCPI decreased0.3% in FebruaryyearoveryearwithBCbeingtheonlyprovincethatrealizedadecrease–thismarksthe11thstraightmonthofzeroor negative movement in the pricelevel.

•Housing starts in BC have increasedby 76,686 units in Q1. The greatestnumberofadditionalunitsoccurredinMarch with 27,371 units representinga 6.324% increase from the sameperiodlastyear.

•BritishColumbiaGDPgrowthfor2013was slow and concluded the yearwith growth at 1.5%. BC governmentprojectionsfor2014aremorefavorableat2.0%-thisisareducedfigurefrompreviousprojectionsat2.4%.

Metro Vancouver Office ReportFirstQuarter2014

Downtown corE - aBsorption, availaBility anD vacancy ratEssource: realnet canada inc.

*Trend of diverging vacancy and availability shows an increase of sublease space on the market

avEragE occupancy costs anD vacancy

Significant Office Leases Q1 2014Address City Area Sq Ft TenantBentall 5 Vancouver 53,000 Teekay Shipping725 Granville Vancouver 48,000 Miller Thomson LLPCathedral Place Vancouver 38,000 Singleton UrquhartBentall 4 Vancouver 34,000 CIBC Wood GundyHarbour Centre Vancouver 30,000 CNS Insurance Company401 West Georgia St. Vancouver 30,000 Build Direct510 Burrard St. Vancouver 20,000 Destination BC840 Cambie St. Vancouver 18,500 Microsoft Bentall 4 Vancouver 15,500 WesgroupBentall 4 Vancouver 15,500 Mind Quake

Metro Vancouver Sales Activity Building / Address Municipality Price Size (Sf) Price/Sf Cap RateRoyal Bank Building New Westminster $32,471,500 68,760 $472 5.0%5731 No. 3 Road Richmond $6,000,000 5,722 $1,0496329 King George Blvd. Surrey $4,000,000 13,146 $30424 East 4th Ave. Vancouver $2,675,000 6,732 $397

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vancouvEr’s changing skylinE

Inadditiontothenewconstructiondowntown, there is currently854,951 sf of office space underconstruction in the suburbs. Specifically, there is 220,899sfbeingbuiltinBurnaby,452,416sfunderconstructioninSurrey/NewWestministerand40,000sfbeingbuiltinNorthVancouver.

In total, there is currently 4m sfofofficespaceunderconstructioninMetroVancouver.Thedramaticincrease in new construction isa function of there having beenverylittleadditiontosupplyinthelasttenyears.Since2004,therehas been 4,973,987 sf of supplyadded to the office inventory inMetroVancouver.Thelackofnewinventory paired with modestbut consistent demand resultedin historically low vacancy ratesin several of the submarkets andparticularlyinthedowntowncore.As is often the case, developersmay have overreacted to thelow vacancy rates and resultantrecord high rental rates. Thispotential over upply combinedwith slack demand, will resultin increasing vacancy rates anddecreasing rental rates in allsubmarkets through 2016. Themarkets that will be impactedthe most will be the downtowncoreandBurnabywherevacancyratesareprojectedtoincreaseby50% and 30% respectively. Weanticipate that the new buildingswill lease albeit at rental ratesbelowproformawiththegreatestincrease in vacancy realized in“A” class buildings that are, onaverage,over20yearsold.

Downtown - annual aBsorption, nEw construction & vacancy ratE

markEt oBsErvations & trEnD

Downtown and Central Vancouver

• Q1 2014 saw 135,098 sf become vacant and available in the downtown core – representing the 7th consecutive quarter of negative absorption during which a total of 1,265,600 sf has became vacant and available.

• Dispite negative absorption, there were 10 transaction’s in the Q1 2014 of 15,000 sf or greater. (see sgnificant office leases Q1 2014)

• vacancy rates in the downtown core have continued to rise ending Q1 at 6.4% - up 1.0% from Q4 2013 and 2.5% year over year.

• rental rates in the downtown core are continuing to decrease as vacancy continues to rise. rates have decreased for 4 consecutive quarter’s - a trend we expect to continue through 2015 as vacancy continues to rise and a flood of new supply enters the market.

• available sublease space has increased in Q1 by 7,284 sf. total available sublease space has continued to grow for 8 consecutive quarters having returned 350,105 sf to the downtown market over that period.

• the most notable lease in the downtown core was teekay shipping’s commitment in Bentall 5 having renewed in 53,000 sf.

Continued from Page 1Suburban Markets

• suburban markets had moderate negative absorption of 35,419 sf most notably in Burnaby where negative 44,008 sf became vacant and available. richmond was the only market that had positive absorption with 38,885 sf.

• the vacancy rate increased moderately to 12.8% up 0.2% from the previous quarter. the greatest increases were observed in the langley and Burnaby markets with 1.8 % and 0.5% respectively.

• rates in suburban markets have decreased slightly in all markets except for richmond and tri-cities where increases of $0.28 and $0.50 were observed. we anticipate that rates will continue to decrease through 2014 as vacancy rises.

• leasing activity in suburban markets was moderate with no major leasing transactions having been completed in Q1.

Vancouver • Victoria • Nanaimo • Kelowna • Calgary • Edmonton • Regina • Winnipeg • Toronto • London-Windsor-Sarnia • Niagra • Kingston • Ottawa • Montreal

Metro Vancouver Office ReportFourthQuarter2013

all information has been obtained from sources considered to be accurate but is not guaranteed and is subject to conditions at the time of any transaction taking place. properties are submitted subject to prior sale or lease, withdrawal or changes without notice. DtZ vancouver real Estate limited, real Estate Brokerage 2014.

Tel: 604 684 7117 www.dtzvancouver.com

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* Total of 2,153,060 sf currently under construction in the downtown core.

Downtown Office Construction Name/Address Building Class Total Office AreaStatus DeveloperTELUS Garden AAA 477,185 UC Westbank745 Thurlow Street AAA 368,080 UC Bentall Kennedy475 Howe Street AAA 357,379 UC Credit Suisse725 Granville Street AAA 300,000 UC Cadillac FairviewMNP Building A 256,819 UC Oxford PropertiesManulife Financial Tower A 239,393 UC Manulife/CEI ArchitectureRogers Centre Tower A 106,153 UC Aquilini GroupTelus Podium AAA 48,051 UC Westbank

Totalbuildings

Total area (sq ft)

TotalVacant (sq ft)

Sublet Vacant (sq ft)

Q1 2014% Vacant

Q1 2014 Absorption

(sq ft)

YTDAbsorption

(sq ft)

Q4 2013% Vacant

Q1 2013 % Vacant

Avg. asking lease rate ($/sq ft)

Avg. Additional Rent ($/sq ft)

Metro Vancouver 671 52,015,788 4,554,869 764,954 8.8 -155,305 -155,305 8.4 7.2 19.99 13.56

Class A 279 31,072,512 2,931,988 551,177 9.4 -127,764 -127,764 9.0 7.0 22.31 13.87

Class B 241 14,628,640 1,071,585 139,221 7.3 8,201 8,201 7.0 6.7 18.87 13.61

Class C 151 6,314,636 551,296 74,556 8.7 -35,742 -35,742 8.2 9.4 17.69 12.93

Downtown Core 155 20,423,725 1,303,117 357,262 6.4 -135,098 -135,098 5.4 3.9 23.66 16.53

Class A 52 12,655,347 715,121 217,422 5.7 -118,145 -118,145 4.7 2.4 29.40 19.60

Class B 56 5,292,397 378,444 76,801 7.2 -9,232 -9,232 5.8 4.6 24.13 16.47

Class C 47 2,475,981 209,552 63,039 8.5 -7,721 -7,721 8.2 10.0 17.68 13.63

Broadway Corridor 79 3,915,084 188,474 8,473 4.8 63,012 63,012 6.4 5.3 20.94 15.27

Class A 30 2,007,813 73,505 6,735 3.7 11,101 11,101 4.2 4.8 23.80 16.08

Class B 28 1,217,342 66,211 1,738 5.4 15,101 15,101 6.7 4.0 18.50 14.67

Class C 21 689,929 48,758 0 7.1 36,810 36,810 12.4 9.1 18.43 14.42

Surrey 47 3,080,061 756,501 104,124 24.4 -6,928 -6,928 25.1 17.4 16.26 9.68

Class A 24 2,243,391 612,288 91,606 27.3 -9,652 -9,652 26.9 19.7 17.11 9.28

Class B 15 537,884 78,899 4,505 14.7 3,934 3,934 15.4 12.3 15.00 10.28

Class C 8 298,786 65,314 8,013 21.9 -1,210 -1,210 21.5 15.1 15.75 9.85

Richmond 77 4,663,787 621,037 69,399 13.2 38,855 38,855 14.1 15.6 14.83 9.91

Class A 43 3,115,973 522,192 42,776 16.8 14,500 14,500 17.2 17.4 15.91 8.81

Class B 25 1,160,966 83,242 26,623 7.2 17,202 17,202 8.7 10 13.86 11.52

Class C 9 386,848 15,603 0 6.3 7,153 7,153 5.9 19.1 11.67 11.63

North Shore 39 1,876,178 133,807 7,603 7.1 -4,141 -4,141 7.0 8.1 19.40 12.58

Class A 16 886,337 41,174 4,051 4.6 10,348 10,348 5.8 6.4 24.19 13.38

Class B 17 757,274 76,505 3,552 10.1 -14,489 -14,489 8.2 11.3 16.80 12.62

Class C 6 232,567 16,128 0 6.9 0 0 6.9 3.5 15.33 10.31

Burnaby 115 9,044,910 849,354 147,716 9.4 -44,008 -44,008 8.9 7.8 16.66 12.56

Class A 62 6,104,020 600,830 135,652 9.8 -21,926 -21,926 9.5 6.8 18.14 12.19

Class B 40 2,390,982 212,149 10,864 8.9 11,043 11,043 9.3 10.5 15.07 13.00

Class C 13 549,908 36,375 1,200 6.6 -33,125 -33,125 0.6 6.2 N/A N/A

Yaletown 36 2,048,745 93,301 5,156 4.5 -25,504 -25,504 3.2 3.5 28.64 16.20

Class A 6 602,285 20,516 3,785 3.4 0 0 3.4 3.7 35.00 17.48

Class B 13 907,080 10,298 1,371 1.1 -386 -386 1.1 2.3 30.33 13.97

Class C 17 539,380 62,487 0 11.6 -25,118 -25,118 6.9 5.1 24.83 18.00

Metro Vancouver Office ReportFirst Quarter 2014

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