CBRE Market Outlook 2016

7/24/2019 CBRE Market Outlook 2016

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2O16CanadaCOMM ERC IAL REAL ESTATE

MARKET OUTLOOK

CBRE Research



2 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

INTRODUCTION

NATIONAL OUTLOOK

Investment ..................................................................................... 6

Offi ce ............................................................................................. 8

Industrial .....................................................................................10

Retail ............................................................................................12

Multifamily ..................................................................................14

Hotels ...........................................................................................16

Seniors Housing ...........................................................................18

REGIONAL OUTLOOK

Vancouver ..................................................................................... 22Calgary ......................................................................................... 24

Edmonton ..................................................................................... 26

Winnipeg ...................................................................................... 28

London & Kitchener/Waterloo ......................................................30

Toronto .........................................................................................32

Ottawa .........................................................................................36

Montreal .......................................................................................38

Atlantic Canada ........................................................................... 40




Progress is impossiblewithout change.This truism summarizes the outlook for Canadiancommercial real estate in 2016. Investors, landlordsand occupiers face significant change in the yearahead – much of it out of their control. In this dynamic

environment, some will identify and seize opportunities, while others will be le wanting.

For an industry known for its fixation on location,far-reaching global trends will overtake fine-graineddetails as the basis for real estate decisions in 2016.More than ever, new technologies are poised to deliveron the promise to alter the way we shop, ship, work andplay. The apparent end of the commodity supercycle hascurbed Canada’s economic momentum and questionsaround the nation’s growth prospects will need tobe answered. And while leasing activity has slowedin Canada, stimulative monetary policy globally will

continue to supercharge the investment market.

Not to be lost in the cross currents of change is the factthat Canada’s commercial real estate fundamentals aresome of the healthiest in the world. No building is futureproof, no business model is infallible, no lease term isindefinite, but Canada remains one of the best places toconfront technological advancements and the variabilityof the business cycle. The relative safety, stability, andreliability of returns offered by Canadian commercialreal estate will be welcome companions on the bumpyroad to progress.





NATIONAL OVERVIEWS




INVESTMENT SECTOR

The Canadian economy

is emerging from a slighttechnical recession and the U.S.Federal Reserve appears poisedto increase interest rates in thenear future; however, economic volatility remains high. Thisfactor, combined with a lowCanadian dollar and relativelystrong property fundamentals,should produce healthy demandfor Canadian commercial realestate in 2016.

Investors seeking safe, stablereturns will likely become evenmore selective in 2016. This will further divide a marketthat is already clearly splitbetween core and secondaryassets. As a result, super primeassets in desirable areas couldconceivably attract higherpricing and lower cap rates, while reducing liquidity foreverything else.

Scrutiny of the REIT sectorhas increased and yet there isa growing disconnect betweenREIT pricing and the value ofthe assets they hold. In 2016,markets may increasinglyfocus on the location andperformance of REIT holdingsto differentiate between thedifferent players in the sector.

This low cap rate environment

will put even greater emphasison development as a meansof enhancing return targets,although caution will berequired as some sectors arecharacterized by an oversupplyof new product.

The investment calculus haschanged most in Alberta,especially for offi ce properties where rental rates have fallenand the amount of sublet space

has risen to record levels.Successful transactions willneed to bridge the gap betweenbuyer and seller expectations,but little distressed sellingis expected in 2016. Low oilprices would likely have to besustained into 2017 for leaserenewals and lender pressure toforce the hand of some secondtier asset owners.

In terms of specific commercial

asset classes, land will beactively traded across thecountry in 2016, especially infilland development opportunities.High-quality retail, offi ce andmultifamily properties will alsobe sought aer, while covetedindustrial assets will remain inshort supply.

THIS COULD BE THE YEAR THAT

INTEREST RATES RISE, WHICH COULD

CAUSE INVESTORS TO RECALIBRATE

CHANGE

3DPRINTING

3D PRINTING

WORKPLACESTRATEGIES

WORKPLACESTRATEGIES

B I G D A T A

BIG DATA T E C H

TECH E C O M M E R C E

ECOMMERCE

FRACKING F R A C K I N G

$64,000 the

MAINLAND CHINESEINVESTORS WILL BE A

GROWING FORCE

Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $6,435 $5,034 $5,710

Industrial $4,706 $4,404 $4,954

Retail $6,532 $4,880 $4,680

Multifamily $ 3,667 $4,966 $3,914

ICI Land $3,785 $3,420 $3,104

Hotel $1,010 $1,695 $1,264

Total $ 26,134 $ 24,39 9 $ 23,62 5

Source: CBRE Limited

Statistics




INVESTMENT INVESTMENT




OFFICE SECTOR

The Canadian offi ce market

enters 2016 with vacancy ratesclimbing to a decade-long highfollowing a prolonged landlord’smarket. With an additional11.2 million sq. . underconstruction in downtownmarkets and 6.4 million sq. .being built in the suburbs asof Q3 2015, vacancy rates arelikely to remain elevated for theforeseeable future.

While new supply has been the

dominant factor shaping offi cefundamentals, the demandside of the equation will becomeincreasingly important in the year ahead. With banks signalingtheir intention to restructuresome operations and offi ce usersgenerally moving to new effi cient workplace strategies, there is thepotential for a sustained rate ofabsorption below historic norms.

The technology sector is the

fastest growing segment ofthe market, while the finance,insurance and real estate sectorcontinues to account for thelargest proportion of significantleases. Cities across Canada arereporting increased demandfrom growing tech companiesas the sector accounted for arecord 38.0% of significantoffi ce leasing transactionsnationally in Q2 2015.

With tech companies in thedriver’s seat, downtown markets will continue to outpace thesuburbs from a leasing andconstruction perspective, asthat is largely where the labourpool for this sector is located.Existing offi ce stock willattempt to appeal to innovativeusers by ‘defixturing’ traditionaloffi ce space and offering the loaesthetic and the style of workthat these businesses naturally

gravitate towards.

The pace oftechnological changeis putting increasedpressure on landlordsto ensure that theirproperties areadaptable and remaincompetitive. ‘Futureproofing’ will becomean increasing concernand new buildings

will be structured sothat offi ce space isphysically adaptable without incurringsignificant costs.

It is your brand,culture andcompetitiveadvantage

OFFICE SPACEIS NO LONGER A COMMODITY

LIFE

TIME

Guarantee

WITH THE PACE OF CHANGE ACCELERATING, DEVELOPERS

WILL ATTEMPT TO ‘FUTUREPROOF’ BUILDINGS

CATCHING UP

THE TECH SECTOR RANKED 2ND

IN TERMS OF SIGNIFICANT

OFFICE LEASES NATIONALLY

SINCE Q4 2012

FIRE

26% 1 6 . 9

m i l l i o n s q . f t .

TECH

20% 1 3 . 2

m i l l i o n s q . f t .

Central 2014 2015 F 2016 F YoY

Vacancy Rate 8.5% 10.1% 11.1%

Class A Net Rental Rate (per sq. ft.) $25.84 $24.81 $23.71

Absorption (sq. ft. in millions) 1.52 (0.79) 1.46

New Supply (sq. ft. in millions) 3.52 3.47 4.47

Under Construction (sq. ft. in millions) 11.67 9.94 5.98

Suburban

Vacancy Rate 13.4% 15.1% 15.4%





Overall

Vacancy Rate 10.7% 12.3% 13.0%






Statistics




OFF ICE OFFICE



CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

INDUSTR IAL SECTOR

▶ While economic growth has

been lacklustre and the officeand retail sectors are recording

higher vacancy rates, industrialproperty fundamentals remain

strong. The industrial market will outperform from a leasing

and investment perspectivein 2016, as a responsivedevelopment pipeline maintains

a healthy balance betweensupply and demand. Low

interest rates will support arobust owner-user market.

▶ Distribution and logisticsactivities will remain the

primary driver of leasing andinvestment activity in the

industrial sector. Retailers andindustrial businesses in general, will attempt to differentiate

themselves with supply chainenhancements that result

in cost savings and a betterclient experience.Industrial

construction and redevelopment

is being polarized between twotrends:

» The desire to consolidatelogistics operations in Canada’s

major distribution markets,Calgary and the Greater Toronto

Area, is spurring more frequent

construction of large buildingsand industrial parks nearing

the 1.0 million sq. . mark.This is a mature trend, but the

combination of pent-up and new

demand for large-bay space willmake this an enduring factor

through 2016.

» Ecommerce and same-daydelivery require proximity to

consumers, which is driving

demand for smaller ~50,000sq. . buildings within close

proximity to major populationcentres. This has the potential to

reinvigorate industrial properties

in the inner suburbs that wereformerly considered obsolete

for modern users; however,these same locations will face

pressure to be put to higher and

better use in 2016 as the generalurban intensification process

continues.

▶ Favourable foreign exchange

rates spurred hope of amanufacturing and export

renaissance, but there hasbeen a negligible impact onindustrial property demand

thus far. This is not expected

to change in 2016 as Mexico,China and other manufacturingpowerhouses are strong

competitors on a number offronts aside from exchangerates.

BIG VSSMALL

INDUSTRIAL DEMAND IS POLARIZED

BETWEEN LARGE DISTRIBUTION

CENTRES AND WELL-LOCATED

50,000 SF BUILDINGS

GREAT

EXPECTATIONS

Competitive Canadiandollar fails to alterindustrial decision making

SPEC CONSTRUCTION EQUALS52% OF INDUSTRIAL

DEVELOPMENT IN CANADA.WELL BELOW 66% IN THE U.S.

11.5MILLIONSQ. FT.

10.6MILLIONSQ. FT.

SPEC

BUILD-TO-SUIT

TIP P I N G

T H E S C A L E

2014 2015 F 2016 F YoY

Availabilit y Rate 5.4% 5.8% 5.8%

Net Rental Rate (per sq. ft.) $6.09 $6.45 $6.59

Sale Price (per sq. ft.) $101.68 $117.43 $117.92

Absorption (sq. ft. in millions) 18.36 12.49 12.61


Under Construction (sq. ft. in millions) 18.90 15.35 8.0 3


Statistics




INDUSTR IAL INDUSTRIAL




RETAIL SECTOR

The Canadian retail market

will continue to recalibratefollowing the demise of Targetand a challenging year formid-market retailers. In 2016,foreign retailers will viewCanada as a worthy destination,but will be more selective onlocations and roll out moregradually. Canada’s appealstems from store productivityand less competition for newentrants than some other hotlytargeted destinations.

The shopping mall has longbeen at the centre of theCanadian retail market, afact that will be underscoredin 2016. High-end retailers,traditionally located onCanada’s high streets, willgravitate towards the increasedluxury of super regionalshopping centres like YorkdaleMall in Toronto and CF PacificCentre in Vancouver. This is

part of a trend that will see thetenant mix along Bloor Street inToronto evolve to include moreexperiential retailers and high-end entertainment.

Retail leasing activity willbecome increasingly polarizedin 2016. Retailers will fixate onurban locations and high-endmalls, while lingering vacancycan be expected in second andthird tier malls. The department

store segment will remaincompetitive with The Bay,Nordstrom, and Saks all active,

while H&M, Zara and Forever 21

will continue to put pressure onmid-market retailers.

In 2016, logistics will be asimportant to retailers as thebricks and mortar shoppingexperience. Expect retailersto increase the number oflocations at which consumerscan receive and return goodsthat were purchased online.Ecommerce will gain ontraditional retails sales, but

the physical distance betweenretailer and consumer willdecrease as more distributionpoints make for a moreconvenient experience.

New technology and the riseof the sharing economy willcontinue to shape the retailmarket in 2016. Brands willattempt to deliver an overalllifestyle to the Millennialshopper. Online and in person,

retailers will appeal to theconsumer’s mind, body, andsoul.

2014 2015 F 2016 F YoY

Retail Sales (YoY)* 4.6% 2.2% 3.8%

COSTCO

MAKESGLUTTONS

OF MODEST

CANADIAN

CONSUMERS

The retail giant isextracting highersales per personand expanding asingle shop betterthan any otherretailer

ANNUAL ONLINE SALES EQUATE

TO THE PRODUCTIVITY OF 9.8

YORKDALE MALLS

INCREASED TOURISM IS HELPING

SPUR HIGHER RETAIL SALES DESPITE

LACKLUSTRE ECONOMIC GROWTH

* Conference Board of Canada

Statistics




RETAIL RETAIL




MULTIFAMILY SECTOR

The multifamily sector will

produce near record investment volume in 2015, following aperiod of constrained supply.Strong pricing and deferredmaintenance are causingowners to strategically re-examine their portfolios.Demand for multifamilyproduct is so widespread andfundamentals are so stablethat very little could derailinvestment activity in thissector in 2016.

The multifamily marketcontinues to evolve and thegrowing number of condosentering the rental universe willcontinue to shape the marketin 2016. Cap rates for Class Ahigh-rise apartments continueto tighten and are now at thelowest levels on record, which will translate into higher pricesfor investors and spur rentalrate increases and higher fees

for ancillary services such aslaundry and parking.

Baby boomer demand forseniors housing will peakin more than a decade, butin the interim, multifamilybuildings will benefit from a wave of empty nesters lookingto downsize. Multifamilyproperty fundamentals willalso benefit from an increasein new immigrants to Canada

and rising home prices willbar many Millennials frompursuing homeownership.

Alberta is the one province

breaking from the overall trendof stability. Vacancy rates areclimbing and rental rates areunder downward pressurein Calgary and Edmonton.Tertiary markets servicing oilsand operations in the northhave been hit harder. Rentaloccupancy rates could firmif economic diffi culties slowhousehold formation and createchallenges in the residentialownership market.

In 2015, there was a shi inthe market as new purpose-built construction increasedto the most significant levelin decades. Work on ongoingprojects will continue, butmuch of the new supply in2016 will likely be limited toopportunistic situations asowners of existing land arelooking to put it to higher andbetter use.

79% OF EXISTINGRENTAL STOCKIS >35 YEARS

OLD ANDINCREASINGLY IN

NEED OF CAPITALINVESTMENT.

NEW CONDOSOVERSHADOW

PURPOSE-BUILTRENTALS, BUT

HELP LIFTRENTAL

RATES

MULTIFAMILY FORMULAFOR SUCCESS

+

=

V A C A N T

2014 2015 F 2016 F YoY

Overall Vacancy Rate* 2.3% 2.8% 2.9%

*Canada Mortgage and Housing Corporation, CBRE Limited

Statistics




MULTIFAMILY MULTIFAMILY




HOTEL SECTOR

The market and financial

performance of hotels in B.C.,Ontario & Quebec, whichrepresent over 70.0% of theindustry in Canada, will showstrong improvement in 2016.Properties in Vancouver,Toronto and Montrealspecifically are poised for strongtop and bottom line growth.The financial performancefor Alberta hotels, whichrepresents about 15.0% ofthe Canadian inventory, has

suffered from the resourcedownturn and overbuilding insome markets, but the declinehas been decelerating. Expectmore stability with possiblysome signs of recovery in late2016. In the balance of thecountry, market and financialperformance for the hotelindustry will be positive, butmoderate.

Although many Alberta and

Saskatchewan markets areexperiencing RevPAR declinesapproaching 10.0% relative tolast year, most other marketsacross the country have postedhealthy RevPAR increases.Downtown Vancouver is leadingthe way at 19.0% year-to-dateas of September 2015, fueledby both ADR and occupancygrowth.

The 6.6% increase in inbound

overnight trips to Canada year-to-date as of August2015, according to StatisticsCanada, and overall risingdemand will support stronghotel operating fundamentals.The low Canadian dollar willcontinue to entice visitors,especially from the U.S. and Asian countries. Vancouver,

Toronto and Montreal, as well

as the resort sector, will bethe prime beneficiaries of thistrend; however, staycationactivity will also bolster hoteldemand throughout thecountry, particularly in markets with economic uncertainty like Alberta.

In 2015, hotel investors wereable to choose from the mostdiverse range of availableproduct in recent memory. The

variety of available productenticed a deep buyer pool,especially for properties under$30.0 million, with overallinvestment volume forecast toreach $2.2 billion in 2015, a levelof activity not seen since 2007. We expect the level of activityand demand for all producttypes to continue to be strongin 2016.

The typical deal profile in 2016

will likely involve core marketslike Toronto and Vancouver, anda continuation of bundled orportfolio deals. Buyers will alsobe keen to acquire hotel assetsin redevelopment and value-addpossibilities. There will alsobe a diverse buyer pool, withgrowing interest from privateequity and institutional buyers.

Strong investor demand iscreating downward pressure on

hotel cap rates in Vancouver,Toronto and Montreal. In Alberta, Saskatchewan andother resource dependentmarkets, declining hotel cashflows have tempered cap rateincreases as investors looktowards revised, more moderateperformance levels.

UNPRECEDENTED CROSS-BORDER

TRAVEL INTO CANADA IS LIKELY TO

CONTINUE

INVESTMENT

ACTIVITY WILL EXPANDFROM A FOCUS ON

ICONIC HOTELS TO

PORTFOLIO AND

SINGLE ASSET

TRANSACTIONS

A DIVERSE GLOBAL BUYER

BASE AND WIDE-RANGING

CAPITAL SOURCES ARE

CREATING RECORD LIQUIDITY

J F K Y Y Z

N E W Y O R K J F K

T O R O N T O P E A

R S O N

N E W Y O R K J F K

T O R O N T O P E A R S O N




HOTEL HOTELS




SENIORS HOUSING S ECTOR

The Canadian seniors housing

market has been a hotbed ofinvestment activity in recent years starting with the entryof U.S. REITs and culminating with a wave of consolidation,including the Ontario Teachers’Pension Plan Board/BayBridgepurchase of Amica in 2015. While it will be a challengefor the market to match thesame volume of transactions in2016, sellers may want to takeadvantage of current pricing.

While cap rate compression wascommon for quality commercialreal estate assets across Canadain 2015, seniors housingrecorded a remarkable 75-100basis point drop in average caprates for the highest qualityassets. The sub-7.0% averagecap rate for Class A assetssignifies the fact that highquality seniors housing is nowbeing viewed as an institutional

grade investment. Low cap ratesare likely to endure for qualityassets as long as the buyer poolremains deep and liquidity ismaintained. The pricing gapbetween Class A and Class B/Cassets will likely widen slightlyin 2016.

Recent movements in pricing

will result in a period ofprice discovery in 2016 thatrequires disciplined dispositionprocesses to identify optimalbuyers and to maximize pricing.

There is no indication thatthe development cycle willend in 2016, following a waveof new supply in recent years. While new constructionhas historically focused onlucrative high-end assets,

this market has becomeincreasingly competitive. Thereare significant opportunitiesfor new projects offering mid-range pricing and services, asthis segment of the market isexpected to grow in the coming years.

Merchant developers will bemore active and will act asa supply conduit for largeroperators. Discipline will be key

to maintaining balance in themarket. Construction will needto be strategic and will likelyoccur outside of core markets inpockets with future potential tointensify.

C E R T I F I E D

I N S T I T U T ION A L

G R A D E

P R O D U C T

S E N I ORS HOU S I N G

AMICA SALE REVEALS DEEP POOL OFINVESTORS PURSUING SENIORS

HOUSING ASSETS

ONITOR RESIDENTIAL

ARKET CONDITIONS – A

KEY DRIVER OF SENIORS HOUSING

DEMAND




SENIORS HOUSINGSENIORS HOUSING





21

REGIONAL OVERVIEWS




VANCOUVER

▶ Western Canada will be a study

of contrasts. Alberta’s economyand property fundamentals are

expected to struggle, while B.C. will outperform in spite of, and

in part because of, Alberta’schallenges. Investor and tenant

demand in the region willcontinue to shi to B.C. in 2016and the province is likely to

outperform from an economicand commercial real estate

perspective.

▶ The Vancouver office growthstory will continue to be largelypositive with leasing activity

likely to exceed expectations.The market will continue to

work through the 2.4 millionsq. . of new supply that wasdelivered in 2015. While vacancy

will remain slightly elevated,an active tech sector along with

other professional services willhelp mitigate soness in the

resource sector.

▶ Insatiable investors and

available capital pushed Vancouver property prices to

record highs and cap ratesto record lows. This trend

will carry over into 2016 aslong as owners are willingto sell and remain open to

unsolicited offers. Foreigncapital, especially from Asia,

will continue to pursue primeassets, but local buyers will

remain competitive in the faceof low cap rates and may drivedemand for suburban assets as

product becomes limited in thecore.

▶ Vancouver’s importance as a

port city and key part of theincreasingly sophisticated

supply chain was underscoredby the California port strikes

in 2015. The subsequent spikein demand for industrial space

was unexpected and despitesignificant new supply in 2015,little is scheduled for delivery

in 2016. Expect availability totighten and construction starts

to climb in 2016 as developersrespond to demand.

▶ Investors and developers willcontinue to build strategies

around inner submarketslike Strathcona and Mount

Pleasant. These transitionalnodes are gaining momentumand their long-term potential

for intensification more than justifies the high land costs and

zoning hurdles.

8 32

216 634

> 100,000 sq. ft. 50 - 99,999 sq. ft.

10-49,999 sq. ft. 0-9,999 sq. ft.

INDUSTRIAL AVAILABILITIES

INVESTORS ARECONSIDERING

UNCONVENTIONAL

LAND LEASES TO ADDB.C. PROPERTIES TOTHEIR PORTFOLIOS




Projects to Watch

Market Statistics

VANCOUVER

TSAWWASSEN MILLSSHOPPING COMPLEX

Located at Highway 17 and 52nd Street on

Tsawwassen First Nation Lands, Ivanhoé

Cambridge’s Tsawwassen Mills will includeapproximately 1.2 million sq. . of retail, with

16 anchors, a unique mix of premium fashion

brands, factory outlets, restaurants and first

to market retailers, as well as a 1,100-seat foodcourt. Construction began in January 2014

and will be complete in fall 2016.

http://www.tsawwassenmills.ca/faq

THE EXCHANGE OFFICETOWER

Credit Suisse’s $200.0 million venture

into B.C. is a 31-story speculative, LEED

Platinum, state of the art offi ce tower withcutting edge technologies in Vancouver’s

financial district. It is scheduled for delivery

in 2017.

www.theexchangebuilding.ca

DEVELOPMENT OFDOWNTOWN FRINGE, THEMOUNT PLEASANT ANDBROADWAY CORRIDOR

Zoning changes have expedited thetransformation of these areas while

opening the door for a broader range of user

groups.

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL


Vacancy Rate 6.8% 9.9% 9.8%


Absorption (sq. ft. in millions) (0.09) 0.89 0.14

Class A Cap Rate (%) 4.75-5.25 4.25-5.00 4.25-5.00



Suburban

Vacancy Rate 13.4% 13.2% 12.6%



Class A & B Cap Rate (%) 5.75-6.50 5.25-6.25 5.25-6.25



Overall

Vacancy Rate 10.1% 11.5% 11.2%



New Supply (sq. ft. in millions) 0.93 2.40 0.39 Under Construction (sq. ft. in millions) 3.13 1.08 1.03

2014 2015 F 2016 F YoY

Availability Rate 7.0% 5.9% 6.0%




Class A & B Cap Rate (%) 5.25-6.25 5.00-6.25 5.00-6.25



Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $434 $477 $1,630

Industrial $814 $910 $956

Retail $886 $1,108 $1,163

Multifamily $533 $950 $998

ICI Land $438 $789 $500

Hotel* $216 $511 $250

Total $3,321 $4,744 $5,496

2014 2015 F 2016 F YoY


Neighbourhood Cap Rate (%) 5. 50-6.00 5.00-5.75 5.00-5.75

2014 2015 F 2016 F YoY


Apartment Cap Rate (%) 4.25-4.75 4.25-4.75 4.25-4.75

*Source: Canada Mortgage and Housing Corp., CBRE Limited.

*Market and surrounding region* Conference Board of Canada




CALGARY

The confidence within Calgary’s

local business community hasonly faltered slightly despitethe second largest drop inoil prices in history andthe second most protracteddecline. The prevailing opinionis that the market is facing aman-made downturn in oilprices, not a structural shithat would undermine long-term investments. In 2016,supply and demand dynamics,including OPEC decisions,

will provide additional clarityand allow tenants, ownersand investors to act with morecertainty.

While an anticipated reboundin oil prices would put a floorunder offi ce fundamentals,capital expenditure and job cutsare mounting. For 2016, this will translate into a continuedrise in offi ce vacancy rates, bothdowntown and in the suburbs,

with an anticipated peak inQ3 2016. It appears that thebulk of downsizing has alreadyoccurred which will allow thepace of vacancy rate increasesand rental rate declines to slow.

There is good news in theCalgary marketplace. Even within a challenged offi cesector, accountants and lawfirms remain active, and

engineering companies

are expected to benefitfrom increased provincialinfrastructure spending. Thehotel and resort sectors arealso posting strong numbersas Albertans vacation closer tohome and tourism from the U.S.increases.

Leasing activity in Calgary’sindustrial market has slowed,but this sector has beenmore resilient and reflects

the continued maturationof Calgary as a distributionand logistics hub for WesternCanada. Third party logisticscompanies and distributionactivity will continue to act asa hedge against the oil and gassector. Industrial constructionactivity will also benefit froma decline in construction coststhat is expected in 2016.

Aer a lean 2015, investment

volumes are likely to besomewhat higher in 2016 asthere will be more clarityaround economic and energyprice forecasts. Smaller assetsfrom all property types arelikely to make up the bulkof transaction activity, withgrocery anchored shoppingcentres particularly in demand.Lenders will be encouraged bymore realistic underwriting.

8.5%

5.5%

1.1%

1.1%

CALGARY

HOUSTON

DALLAS

HIGH CONCENTRATION,HIGH IMPACT

DENVER

Energy jobs aspercentage oftotal workforce

TENANTSFEEL THE HEATSUBLETPERCENTAGEOF VACANTSPACE COULDTOP 50%

CALGARY HAS

THE 7TH

LOWEST

INDUSTRIAL

AVAILABILITY

RATE IN NORTH

AMERICA

50%

30%

10%

7 TH




Projects to Watch

Market Statistics

CALGARY

STONEY TRAIL/CALGARY RING ROAD

Construction of the southwest portion

of the ring road, scheduled to begin in

2016, will bring Calgary one step closerto completing the 100 km highway. The

development will further unlock real estate

by providing access to land that is currently

only accessible via side roads and circuitousroutes.

www.transportation.alberta.ca

ALBERTA’S OIL AND GASROYALTY REVIEW

Although the province has indicated it will

hold off implementing changes until 2017,

any modification to the detriment of the oiland gas sector will negatively impact the

ability to attract and retain business.

www.energy.alberta.ca

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL


Vacancy Rate 9.8% 16.3% 18.4%


Absorption (sq. ft. in millions) 0.52 (1.94) (0.32)

Class A Cap Rate (%) 5.50-6.00 6.00-6.50 6.00-6.50



Suburban

Vacancy Rate 13.1% 17.5% 17.7%



Class A & B Cap Rate (%) 5.75-7.25 6.00-7.75 6.25-7.75



Overall

Vacancy Rate 11.0% 16.7% 18.1%




2014 2015 F 2016 F YoY





Class A & B Cap Rate (%) 5.25-6.75 5.50-7.00 5.50-7.00



Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $709 $105 $267


Retail $401 $299 $323


ICI Land $439 $332 $167

Hotel* $148 $156 $80

Total $2,539 $1,497 $1,413

2014 2015 F 2016 F YoY

Retail Sales (YoY)* 7.0% (0.7%) 2.7%

Neighbourhood Cap Rate (%) 5. 50-6.00 5.25-5.75 5.00-5.75

2014 2015 F 2016 F YoY








EDMONTON

Edmonton, much like

Calgary, is confrontingrepriced oil and gas. The twomarkets have weathered thedownturn differently andtheir performance will varyin 2016. Edmonton’s propertyfundamentals will largelyoutperform those in Calgary.

Both Edmonton and Calgaryface challenges in theirdowntown offi ce markets, butEdmonton’s diffi culties stem

from pending oversupply andlimited absorption in the core.Expect the Edmonton offi cetenant base to remain relativelystable in 2016; however, newleasing activity will be so astenants wait for 1.8 millionsq. . of new supply to comeonline downtown by 2018before making any longer termcommitments.

Offi ce property owners will

need to deploy stronger assetmanagement strategies asthe offi ce market adjusts tonew supply. In this tenant’smarket, expect inducements toincrease as offi ce users are ina position of strength in leasenegotiations.

Industrial property

fundamentals should benefitfrom the fact that new supply will drop by 50.0% in 2016.Small bay properties will stillbe in demand, while Class Bdistribution properties will seeless activity. There will be aflight to quality as new productis delivered to the market, which will occur at the expenseof less functional real estate.

Investment volume is unlikely

to change dramaticallyin 2016 unless economicconditions change significantly.Institutional owners of offi cespace will face rental rateerosion and there will be nosignificant influx of qualityproduct for sale. Demand will continue to be strong forClass A industrial, retail andmultifamily properties, butsupply will be limited.

$71.0 BILLION OF PROJECTS AREUNDER CONSTRUCTION ACROSS

ALBERTA

INVESTORS WILLHOLD ON TO CORE

ASSETS

PRICING WILL REMAIN ACHALLENGE DUE TO

THIN TRADING




Projects to Watch

Market Statistics

EDMONTON

EDMONTON ARENA DISTRICT

This multi-billion dollar project by

Katz Group of Companies and WAM

Development Group spans 25.0 acres ofoffi ce, retail, hospitality, residential and

hotel properties revamping Edmonton’s

urban core.

www.ead.ca

ANTHONY HENDAY RING ROAD

The north east quadrant of Edmonton’s

main ring road is scheduled to be

completed by October 2016. Whencomplete, Anthony Henday Drive will total

78.0 km and provide seamless access to

surrounding arterial highway to enhancemarket access for all industrial products.

www.northeastanthonyhenday.com

EDMONTON LRT VALLEY LINE

The 27.0 km Valley Line runs east to west,

linking Mill Woods to Lewis Estates. With

approval and funding in place for the 13.0km leg from Downtown to Millwoods,

construction will commence in 2016

and is scheduled to be complete by 2020.Densification along the line may attract

employees to work downtown.

www.edmonton.ca/SEtoWestLRT

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL


Vacancy Rate 10.0% 10.7% 17.5%


Absorption (sq. ft. in millions) (0.04) (0.14) (0.06)

Class A Cap Rate (%) 6.25-6.75 6.25-6.75 6.25-6.75



Suburban

Vacancy Rate 13.3% 14.5% 14.1%



Class A & B Cap Rate (%) 6.75-7.75 6.75-7.75 6.75-7.75



Overall

Vacancy Rate 11.3% 12.2% 16.2%




2014 2015 F 2016 F YoY





Class A & B Cap Rate (%) 5.50-7.00 5.50-7.00 5.50-7.00





Retail $262 $76 $140


ICI Land $817 $532 $450

Hotel* $40 $35 $70

Total $1,820 $1,183 $1,170

2014 2015 F 2016 F YoY

Retail Sales (YoY)* 6.9% (1.1%) 2.7%

Neighbourhood Cap Rate (%) 5.75- 6.25 5.75- 6.25 5.75-6.25

2014 2015 F 2016 F YoY








WINNIPEG

Winnipeg may not offer Alberta

boom times or the scale of Vancouver or Toronto, but when the tide goes out in othermarkets, tenants and investorsare reminded of the stabilitythat characterizes Winnipeg. Winnipeg’s appeal will likelyincrease in 2016 due to itsrelative economic resilience andsteady growth trajectory.

Winnipeg is one of the fewoffi ce markets in Canada

where there is no downtownoffi ce construction; however,expect there to be more clarityaround proposed Class Aoffi ce construction projects in2016. Tenant desire for qualityspace and investors needingto place capital has resulted insignificant offi ce constructioncycles in other Canadiancities and may spur new offi ceconstruction in Winnipeg as well.

Low energy prices andfavourable exchange ratesare bolstering the Winnipegindustrial market, especiallythe manufacturing sector. Largeorders at New Flyer, a Winnipegbased bus manufacturer, area harbinger of medium-termindustrial activity and propertydemand. Construction ofmodern industrial buildings, with high ceiling heights and

effi cient column spacing, willalso increase as new land isprepared for development.

Traditionally, commercial

property in Winnipeg is tightlyheld by long-term owners.Investors have recently had arare opportunity to acquireassets in Winnipeg as a resultof portfolio rebalancing andgenerational turnover. Propertyavailability is expected to persistand spur investment activity,but investors will have to actquickly when opportunitiesarise in 2016 as demand isexpected to keep pace.

The 2016 investment volume will be healthy and similarto 2015 when the marketexperienced an uptick in thenumber of transactions.TOP 3

DOWNTOWN REVITALIZATION EFFORTS HAVE HAD SUCCESS, BUT WILL AMBITIOUS NEW

PROJECTS TAKE SHAPE?

OIL

OIL’S IMPACT VARIES ACROSS CANADIAN PRAIRIES

OVER A BARREL

WINNIPEG HAS ONE OFTHE HIGHEST GDP GROWTH

RATES IN CANADA




Projects to Watch

Market Statistcs

WINNIPEG

RBC CONVENTION CENTRE

This $180.0 million project in downtown

Winnipeg will provide an additional

100,000 sq. . of multi-purpose space ontop of the existing 160,000 sq. . venue. The

expansion will meet LEED Silver standards

and will be the fourth largest publically-owned convention centre in Canada.

Completion is scheduled for early 2016.

http://www.wcc.mb.ca/expansion-2016

SEASONS WINNIPEG

Positioned as Central Canada’s premiere

shopping centre, this mixed-use

development will include residentialcomponents, open air strip centres, an

enclosed outlet mall, two luxury car

dealerships and a hotel. Outlet Collection at Winnipeg will be the city’s first pure outlet

centre when it opens in spring 2017.

http://seasonswinnipeg.ca/leasing

CENTREPORT CANADA – WATER TREATMENT FACILITY

Development of a new water treatment

facility within Centreport will enable

servicing of residential, industrial andmixed-use land, and increase the velocity of

development within CentrePort. The facility

is expected to be operational in early 2016.

www.centreportcanada.ca

OFFICE INDUSTRIAL

MULTIFAMILY

RETAIL


Vacancy Rate 9.9% 11.7% 11.2%



Class A Cap Rate (%) 5.50-6.00 5.50-6.00 5.25-5.75



Suburban

Vacancy Rate 9.2% 13.3% 12.8%

Class A Net Rental Rate (per sq. ft.) n/a n/a n/a


Class A & B Cap Rate (%) 6.50-7.50 6.50-7.50 6.50-7.50



Overall

Vacancy Rate 9.7% 12.1% 11.6%




2014 2015 F 2016 F YoY




Absorption (sq. ft. in millions) (0.19) (0.16) 0.29

Class A & B Cap Rate (%) 6.00-7.50 6.00-7.00 5.75-6.75



2014 2015 F 2016 F YoY


Neighbourhood Cap Rate (%) 6. 50 -7.00 6. 50-7.00 6.50-7.00

2014 2015 F 2016 F YoY




* Conference Board of Canada




LONDON & K ITCHENER-WATERLOO

In recent years, it has been

diffi cult to speak aboutSouthwestern Ontario as ahomogenous region, but bothLondon and Kitchener-Waterloo will exhibit healthy leasingand investment activity as 2016unfolds, which is consistent with positive momentum acrossthe regional economy.

Waterloo and London willcontinue to see signs ofintensification in 2016 and new

development and investment will revolve around this trend.In Waterloo, the LRT is closerto the 2018 completion date, while London’s affordable core with ample parks and amenitiesis appealing to retirees andspurring the construction of anew 35-storey condo.

The industrial sector is oneof the most active parts ofthe market, but a very modest

amount of this activity can betied to favourable exchangerates. The market has retooledsince 2008 and industrialdecision making criteria in2016 will largely be the sameas in the prior year when theCanadian dollar was muchhigher. There is limitedavailability of industrialproperties >50,000 sq. . forsale or lease in London, while Waterloo is attracting industrial

tenants as an affordablealternative to Milton andMississauga in the western edgeof the GTA.

Waterloo will continue to attract

and foster the development ofinnovative businesses. Expectsignificant announcements,similar to the recent Shopifyexpansion, which will resultin offi ce absorption in 2016.London’s offi ce market willexperience a modest recoverythanks to a growing tech sector, which will be led by gamingcompany expansions.

Waterloo Region will outpace

London in terms of overallinvestment activity, but bothmarkets will post healthy volumes. The region will benefitas investors look for alternativedestinations outside of Albertaand Asian capital will also havean impact, albeit from mid-tierinvestors. 2016 will not be a yearof large trades and instead willbe characterized by mid-marketactivity.

LOCAL DEVELOPERS SPURMOST

CONSTRUCTION

IN THREE YEARS

LAND IS INDEMAND,

BODES WELL FORFUTURE GROWTH

THINKING

SMALL COULDHAVE A BIG

REAL ESTATE

IMPACT.

QUANTUM

NANOTECH-

NOLOGY

EMERGES AS

GROWTH SECTOR IN WATERLOO

REGION




Projects to Watch

Market Statistics

LONDON & K ITCHENER-WATERLOO

TRANSITION OF LONDON’SSOHO DISTRICT

Planning constraints in the city’s core

combined with increased demand for

creative space in heritage buildingscontinue to rejuvenate London’s SOHO

district.

WATERLOOREGIONAL LRT

Demand is expected to be high and

retrofitting will take place around LRT

stations, in particular the Columbia Streetnodes which are located on the edge of

University of Waterloo.

www.rapidtransit.regionofwaterloo.ca

REDEVELOPMENT OF VICTORIA HOSPITAL

The development community will get

clarity around the possibilities for the new

riverfront development south of London’sdowntown core. This will be the most

significant development opportunity in

London for the next decade.

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL

London Kitchener/Waterloo

Central 2015 F 2016 F YoY 2015 F 2016 F YoY

Vacancy Rate 15.5% 14.5% 10.0% 9.3%

Class A Net Rental Rate (PSF) $14.00 $14.00 $11.84 $11.75

Absorption (MSF) 0.05 0.04 0.06 0.07

Class A Cap Rate (%) 6.50-7.50 6.50-7.50 6.00-7.00 6.00-7.50

New Supply (MSF) 0.03 0.00 0.00 0.04

Under Construction (MSF) 0.00 0.00 0.05 0.15

SuburbanVacancy Rate 9.0% 9.5% 12.0% 10.6%

Class A Net Rental Rate (PSF) n/a n/a $14.55 $14.50

Absorption (MSF) 0.10 0.05 0.05 0.13

Class A & B Cap Rate (%) 7.50-8.50 7.50-8.50 6.50-7.00 6.50-7.00

New Supply (MSF) 0.09 0.07 0.13 0.00


Overall

Vacancy Rate 14.1% 13.4% 11.3% 10.1%

Class A Net Rental Rate (PSF) $14.00 $14.00 $13.69 $13.59

Absorption (MSF) 0.16 0.10 0.11 0.20

New Supply (MSF) 0.12 0.07 0.13 0.04



2015 F 2016 F YoY 2015 F 2016 F YoY

Availability Rate 11.2% 9.9% 6.1% 6.1%

Net Rental Rate (PSF) $4.15 $4.25 $5.07 $4.85

Sale Price (PSF) $65.00 $65.00 $65.04 $68.25

Absorption (MSF) 1.17 0.60 (0.23) 0.27

Class A & B Cap Rate (%) 7.50-9.00 7.50-9.00 6.00-7.50 6.00-7.50

New Supply (MSF) 0.16 0.10 0.61 0.33



Transactions ($ M) 2015 F 2016 F YoY 2015 F 2016 F YoY

Office $15 $30 $35 $43

Industrial $25 $28 $185 $164

Retail $30 $65 $141 $145

Multifamily $70 $100 $133 $140

ICI Land $15 $15 $19 $20

Hotel* $55 $25 $21 $22

Total $210 $263 $535 $533


2015 F 2016 F YoY 2015 F 2016 F YoY

Retail Sales (YoY)* n/a n/a n/a n/a

Neighbourhood Cap Rate (%) 6.75-8.00 6.75-8.00 6.00-6.50 6.25-6.75


2015 F 2016 F YoY 2015 F 2016 F YoY

Overall Vacancy Rate* 2.7% 2.7% 2.7% 2.8%

Apartment Cap Rate (%) 5.25-6.25 5.25-6.25 5.25-6.00 5.25-6.00






TORONTO (Office)

The 3.7 million sq. . of

downtown offi ce spacescheduled for completion by late2017 will face an unprecedentedrate of technological changeand the continued evolution of workplace strategies. State ofthe art buildings and existingoffi ce stock will be challengedto anticipate change and remaincompetitive.

Expect a change in thecomposition of preleasing

activity for the next offi ceconstruction cycle. With thelargest offi ce tenants in themarket currently committedto leases and offi ce occupiersmoving towards more effi cientfootprints, the next wave ofoffi ce towers will likely be built with the backing of a mix oflarger tenants as opposed tothe traditional anchor or singletenant.

New supply will continue to putupward pressure on vacancyrates in 2016; however, newoffi ce buildings are expected tobe at least 80.0% leased uponcompletion. Existing buildings with vacant space to backfill will feel pressure to completemajor upgrades and attract newtenants that can replace lostrevenue. This is an opportunityfor the historical financial coreto reinvigorate itself.

Suburban and downtown

offi ce vacancy rates will showthe greatest disparity in over20 years in 2016; however,the rising cost of downtownoffi ce space combined withenhanced regional transit andhousehold formation amongstthe Generation Y cohort, couldspur more economic activityand demand for offi ce space indensifying areas of the suburbs.

A new phenomenon called

‘industrial decoupling’ will alsoserve as a driver of demand forsuburban offi ce space. Oncehoused together, companiesare separating their industrialand offi ce uses and movingthe offi ce component to moretraditional suburban offi cenodes. Expect this trendto continue as industrialcompanies place offi ceemployees in more appropriatepremises.

AS VACANCY RISES, TENANTS

WILL HAVE MORENEGOTIATINGPOWER

INDU S TRI A L

O F F I C E

T EN A N T S L A NDLOR D S

K I N G S T

F R O N T S T

B A Y S T

This trend will drive suburban office

demand in 2016

DECOUPLING USES WILL INCREASE

SUBURBAN OFFICE DEMAND

OFFICE ACTIVITY CONTINUES TO

SHIFT TO THE SOUTH CORE




Projects to Watch

Market Statistics

TORONTO (Office)

VAUGHAN METROPOLITANCENTRE (VMC)

This 442.0 acre area will continue to

be developed to include offi ce, retail,

residential opportunities and a subwayconnection, which will be completed in

2017. The KPMG Tower offi ce development

is expected to be completed in 2016.

www.vaughan.ca

METROLINX EGLINTONCROSSTOWN LINE

The Eglinton Crosstown Light Rail Transit

is a $5.3 billion investment that will run

across Eglinton Avenue between MountDennis (Weston Road) and Kennedy

Station. It is part of a consolidated effort

to integrate transportation in the Greater

Toronto Area. The project will be completein 2021.

www.thecrosstown.ca

BAY PARK CENTREDEVELOPMENT

This Ivanhoé Cambridge project consists of

two offi ce buildings and retail space, along

with a new GO Bus Terminal in partnership with Metrolinx. Watch for a significant

pre-leasing announcement and the

commencement of construction in 2016.

www.ivanhoecambridge.com

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL





Class A Cap Rate (%) 5.25-5.75 4.75-5.25 4.50-5.00



Suburban

Vacancy Rate 13.8% 16.0% 17.0%



Class A & B Cap Rate (%) 5.75-7.75 5.50-6.75 5.30-6.55



Overall

Vacancy Rate 9.5% 10.7% 11.7%




2014 2015 F 2016 F YoY





Class A & B Cap Rate (%) 5.25-7.50 5.00-7.50 5.00-7.00




Industrial $2,190 $1,827 $2,270

Retail $2,616 $1,979 $1,704

Multifamily $1,176 $1,603 $998

ICI Land $1,426 $1,035 $1,226

Hotel* $323 $754 $500

Total $10,784 $10,533 $9,183

2014 2015 F 2016 F YoY


Neighbourhood Cap Rat e (%) 5.50 -6.50 5.6 3-5.75 5.4 3-5.55

2014 2015 F 2016 F YoY








TORONTO (Industrial)

With one of the lowest

industrial availability rates inNorth America, the GreaterToronto Area (GTA) is likelyto record an increase inspeculative construction activityin 2016; however, speculativedevelopment yields no longerprovide as large a premium forthe risk the builders assume dueto rising development chargesand increased constructioncosts.

The owner-user sale marketis coming off one of the mostcompetitive years on record. A lack of product, risingconstruction costs and readilyavailable financing are expectedto continue in 2016 andproduce another year of heatedcompetition amongst buyers.For investors, high demand toplace equity in the industrialsector is likely to force cap ratesto new benchmark lows.

Retailers will continue tobe the driving force behinddistribution centre activity in2016. Consumers are not buyingmore products as much asthey are purchasing productsdifferently through the omni-channel network concept.Therefore, as the ecommercecomponent of distributionnetworks evolve, so too willretailers’ industrial footprint.

In order to accommodate

ecommerce needs aroundspeed to market, there will beincreased demand for industrialproperties <50,000 sq. . withina twenty minute drive of thedowntown core; however,limited functional offeringsin South Scarborough, SouthEtobicoke and North York willforce users to be creative withtheir site selection criteria andapproach.

Leasing, investment andconstruction activity in the west end will outpace the restof the region. This area benefitsfrom the presence of superiortransportation infrastructureand intermodal facilities, whilethose with an eye to the futureanticipate highway wideningand new routes in the comingdecade.

LABOUR

AND SUPPLYCHAIN

EFFICIENCY

WILL BE KEY

FACTORS IN

INDUSTRIAL REAL

ESTATE DECISIONS

MILTON AND

GUELPH’S

INDUSTRIAL

PROSPECTS

ARE ON

THE RISE

GO

WEST!

NEW RECORD

INDUSTRIAL

SALE PRICES

AND RISINGLEASE RATES




Projects to Watch

Market Statistics

TORONTO (Industrial)

DEVELOPMENT OF NEW 400SERIES HIGHWAYS

New highway construction and extensions

on existing highways will directly impact

land purchases and drive industrial usersto consider new markets.

www.mto.gov.on.ca

INFILL DEVELOPMENTS INCORE MARKETS

Expect activity on older industrial facilities

in close proximity to core urban markets.

Carttera’s HBC infill development andthe CP/Dream land development are two

examples of the trend to revitalize older

stock.

CN INTERMODAL ANDLOGISTICS HUB IN MILTON

The $250.0 million intermodal and logistics

hub adjacent to its main line in the Town of

Milton will facilitate logistics development while attracting more warehousing

distribution centres and employment.

www.cn.ca

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL





Class A Cap Rate (%) 5.25-5.75 4.75-5.25 4.50-5.00



Suburban

Vacancy Rate 13.8% 16.0% 17.0%



Class A & B Cap Rate (%) 5.75-7.75 5.50-6.75 5.30-6.55



Overall

Vacancy Rate 9.5% 10.7% 11.7%




2014 2015 F 2016 F YoY





Class A & B Cap Rate (%) 5.25-7.50 5.00-7.50 5.00-7.00




Industrial $2,190 $1,827 $2,270

Retail $2,616 $1,979 $1,704

Multifamily $1,176 $1,603 $998

ICI Land $1,426 $1,035 $1,226

Hotel* $323 $754 $500

Total $10,784 $10,533 $9,183

2014 2015 F 2016 F YoY


Neighbourhood Cap Rat e (%) 5.50 -6.50 5.6 3-5.75 5.4 3-5.55

2014 2015 F 2016 F YoY








OTTAWA

Downtown Ottawa will continue

the process of redefining itselfin 2016 and beyond. Much likethe suburban offi ce marketstruggled for a decade followingthe burst of the tech bubble, thedowntown offi ce market willneed to adjust as the federalgovernment rationalizes andupgrades its offi ce footprint.The downtown economy andoffi ce tenant base will need togradually diversify and bringthe downtown vacancy rate into

balance.

The federal governmentcontinues to be the dominantforce in Ottawa and the recentchange in government has giventhe public service a renewedsense of optimism. It remainsto be seen if the governmentoffi ce footprint will continue todecrease. A drastic change incourse is not expected in 2016as it will take the government

time to implement new policies.

The Kanata offi ce market, with the support of a healthytechnology sector, will continueto be a dominant force inthe leasing market. Kanatarepresents approximately 14.0%of Ottawa’s offi ce inventory, yetaccounted for 39.0% of totaldeal velocity through Q3 2015.Expect Kanata and the techsector to remain active in 2016.

Ottawa’s industrial sector will continue to face growthconstraints in the east end. With 40.0% of industrial spacelocated in the Belfast-Sheffi eldindustrial area, less than 2.0%of land in that area is availablefor development. This situation

is not easily rectified and the

industrial sector will need to berewired to facilitate growth innew areas over the long term.

Retail market activity willfocus on upgrades and growthof Ottawa’s regional shoppingcentres, including the expansionand renovation of CF RideauCentre and Bayshore ShoppingCentre. The recent addition ofa Nordstrom and completionof the Tanger Outlet reflect

the vibrancy of Ottawa’s retailmarket and high disposableincomes in this market.

Ottawa will attract investorslooking to diversify theirreal estate holdings. Ottawais poised for an active salesmarket as opportunistic offi ceowners attempt to maximizeproperty values and investorsseek to make strategic long-termbets on the nation’s capital.

Additionally, value-drivenbuyers will attempt to capitalizeon opportunities to repositionobsolete offi ce buildings. Retailand multifamily property will also be sought aer byinvestors, while industrialtrading activity is expected to bemuted.

Welcometo Ottawa 2016:

“A year of discovery”

NDP

C

LWINDS OF

POLITICAL CHANGE

COULD HAVEIMPLICATIONS FOR

COMMERCIAL

PROPERTY IN

OTTAWA

WORKPLACE 2.0 COULD

REDUCE THE FEDERAL

GOVERNMENT OFFICE

FOOTPRINT BY UP TO 1.8

MILLION SQ. FT. IF FULLY

IMPLEMENTED

22% reduction in total space isonly 10% complete




Projects to Watch

Market Statistics

OTTAWA

WESTBORO CONNECTION(319 MCRAE AVENUE)

This mixed-use development located in

Ottawa’s west-end embodies the live,

work, play model and features 116,304 sq.. of offi ce space, 32,165 sq. . of retail

space, and 141 rental apartment units. The

building will be completed at the close of

Q4 2015 and tenants will take possession in January 2016.

CIENA CANADA EXPANSIONIN KANATA

In late 2014, Ciena firmed up a 13-year

lease deal at 5050 Innovation Drive

totaling 170,500 sq. . The site was builtfor Blackberry and was sold to Spear

Street Capital and subsequently sold

to Crestpoint. Ciena has kicked off two

new offi ce buildings on the adjacent site– Building B will be ~152,000 sq. . and

Building C will be ~102,000 sq. .

LEBRETON FLATSREDEVELOPMENT

The National Capital Commission (NCC)

has pre-qualified four groups to propose

plans for the redevelopment of LeBretonFlats. Among these is a proposal from the

Ottawa Senators to build a major sporting

and event centre.

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL





Class A Cap Rate (%) 5.25-6.00 5.25-6.00 5.25-6.00



Suburban

Vacancy Rate 10.4% 11.2% 11.4%



Class A & B Cap Rate (%) 6.25-7.75 6.75-7.25 6.90-7.40



Overall

Vacancy Rate 9.6% 10.3% 10.5%




2014 2015 F 2016 F YoY





Class A & B Cap Rate (%) 6.00-7.50 6.25-6.75 6.25-6.75





Retail $152 $101 $140


ICI Land $98 $335 $325

Hotel* $84 $33 $158

Total $1,071 $1,227 $1,428

2014 2015 F 2016 F YoY


Neighbourhood Cap Rate (%) 6. 25-7.00 6.00- 6.75 6.00- 6.75

2014 2015 F 2016 F YoY








MONTREAL

In 2016, the alignment of private

and public sector investmentand an improving economicoutlook will help Montreal tocontinue on its path to renewal. As construction across theregion suggests, the city isa work in progress, but thegroundwork is being laid for abright future.

The offi ce sector will have 2016to digest the vacant space intwo downtown offi ce towers

that have been completed aspart of the ongoing 1.5 millionsq. . development cycle. Threeoffi ce buildings are slated forcompletion in 2017, Manulife,Desjardins, and L’Avenue, which makes economic growthand preleasing in 2016 all themore important. Despite anincrease in offi ce vacancy ratesdue to new supply, the newstock of modern offi ce towers isessential for Montreal to remain

a competitive destination forbusinesses and be a world-class city. As for the suburbanoffi ce markets, they maybenefit as U.S. companies seekout competitive labour andoccupancy costs.

Montreal continues to rapidlydensify as it plays catch-up withother major Canadian citiesin this regard. Griffi ntownand the area around the Bell

Centre remain examples of thisprocess as condo and apartmentdevelopment support a growingurban population.

The local industrial economy

continues to be dominated bydemand for distribution space,as retailers pursue supply chainenhancements. Downtownstreet front retail remainsdynamic as more internationalretailers move in to fill vacancies le by some localretailers who have struggled.

As for investment dynamics,Montreal will gain furtherattention as competition for

core assets in Vancouver andToronto has become intense.Comparatively reasonablepricing and relative economicstability should attract investorsto Montreal in 2016. In theabsence of trophy assets, expectmore Class B and C propertiesto trade hands.

2010 36,189

2015 42,956

2020 49,471

D O W

N T O WN

M O N T R E A L

URBAN POPULATION GROWTH AC CE LE RATI ON

Population growth within a 1.0 km radiusof Peel and Rene Levesque West

THE CITY OF MONTREAL HAS ALLOCATED $1.5 BILLION

TO ROAD REPAIROVER THE

NEXT THREE YEARS

THE CHAMPLAIN BRIDGE ANDTURCOT INTERCHANGE AREHELPING TO MODERNIZE

MONTREAL




Projects to Watch

Market Statistics

MONTREAL

ROYALMOUNTRETAIL PROJECT

The $1.7 billion project located at the

intersection of Highways 15 and 40 offers

1.6 million sq. . of retail, 900,000 sq. . ofrestaurants and theatres, 1.5 million sq.

. of offi ce and two hotels. This has the

potential to capture retailers from other

Midtown locations like Rockland Centre.

http://www.carbonleo.com/en/project/royalmount-3/

PRIVATE SECTORINVESTMENT

Significant private companies are

committed to building new corporate

headquarters. Ericsson and ABB will beactive in the suburbs, while Manulife and

Desjardins will be active downtown.

VACANCY AT THE ROYAL VICTORIA, CHILDRENS’ ANDSHRINERS HOSPITALS

Situated on prime downtown real estate,

these three sites have the potential to

become part of the new urban fabric of

Montreal.

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL


Vacancy Rate 10.4% 10.7% 10.4%



Class A Cap Rate (%) 6.00-6.50 5.50-6.00 5.25-5.75



Suburban

Vacancy Rate 16.3% 16.7% 17.4%



Class A & B Cap Rate (%) 6.25-8.00 6.00-7.75 5.75-7.50



Overall

Vacancy Rate 12.7% 13.1% 13.2%




2014 2015 F 2016 F YoY





Class A & B Cap Rate (%) 6.00-8.25 5.75-8.00 5.50-7.75



Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $1,400 $600 $800


Retail $1,945 $1,117 $850

Multifamily $813 $1,110 $750

ICI Land $399 $304 $350

Hotel* $116 $105 $115

Total $5,282 $4,035 $3,665

2014 2015 F 2016 F YoY


Neighbourhood Cap Rate (%) 7.25-8.00 7.00-7.75 6.75-7. 50

2014 2015 F 2016 F YoY








ATLANT IC CANADA

▶ Atlantic Canada is working

from a base of relative stability with Halifax, Moncton and St.

John’s among the five fastestgrowing Census Metropolitan

Areas in Canada from a GDPperspective. 2016 will present

interesting opportunities forbusiness and investors in theregion.

▶ Halifax will break from one

significant national trend in2016, while falling in line with

another:

» The region has largelybeen spared the negative

consequences of depressedenergy prices. The low cost

of offshore oil production,

especially projects that arealready producing, continues to

attract exploration investmentin the region. The regional

mining sector also continues toexpand and support economic

growth, with significant

projects in Newfoundland andLabrador.

» Halifax had been one of the

few major Canadian cities with suburban real estate

activity significantly outpacingthe downtown core. This is

poised to shi, with renewed

residential development, a newlibrary and convention centre,

and an overall desire to havean urban experience leading to

a rebalancing of the market in

favour of the Halifax Peninsula.

▶ The outlook for leasing activity

is favorable, with office usersbeginning a shi towards

the downtown market. Theindustrial sector is poised to

benefit from the combinationof a low Canadian dollar and

growing U.S. economy, as wellas Irving Ship building activityand offshore oil exploration

– a winning combination for Atlantic Canada.

▶ Atlantic Canada’s super

regional shopping centresare receiving significantinvestment and tweaks to

their tenant mix in orderto maintain their position

amongst the top 20 mostproductive shopping centres inCanada.

▶ Investors are increasingly

looking to Atlantic Canada’sleading markets as an

alternative destination for

capital due to higher yield.There should be opportunity

to purchase assets in 2016as owners rebalance their

portfolios. Commercialproperty in Atlantic Canada

continues to offer an attractivecombination of reliable returnsand solid fundamentals, which

should appeal to disciplinedinvestors at this stage in the

investment cycle.

GROWTH OF

POPULATION AND REAL

ESTATE DEMAND TO

SHIFT TO DOWNTOWN

HALIFAX FROM THE

SUBURBS

OST CRANES AND CONSTRUCTION

ACTIVITY IN THE PAST 20 YEARS

LOW CANADIAN

DOLLAR

SUPPORTING

RECORD CRUISE

SHIP TRAFFIC

AND AN INFLUX

OF TOURISTS

OIL PRODUCTION COSTS GIVE

ATLANTIC CANADA THE EDGE

P E R

B A R R E L >$3 0

P E R

B A R R E L <$2 0




Projects to Watch

Market Statistics

ATLANT IC CANADA

MARITIME LINK PROJECT

The Maritime Link will allow Nova Scotia to

import hydro electricity from the Muskrat

Falls generating station in Labrador, which

is being developed by Nalcor Energy as part

of the Lower Churchill Project. The 35-year

investment is in exchange for 20.0% of the

electricity from Muskrat Falls.

www.emeranl.com/en/home/themaritimelink/overview.aspx

TRANSCANADA ENERGY

EAST PIPELINE

If approved, this 4,600 km pipeline will

carry 1.1 million barrels of crude per day

from Alberta and Saskatchewan to the

Irving Oil refinery in Saint John, the largest

and most advanced refinery in Canada.

Construction of a new tank terminal in

Saint John could also increase industrial

activity in the area.

www.transcanada.com

OFFICE INDUSTRIAL

MULTIFAMILY

INVESTMENT

RETAIL


Vacancy Rate 13.6% 14.6% 14.7%


Absorption (sq. ft. in millions) (0.07) (0.04) 0.12

Class A Cap Rate (%) 6.00-6.50 6.00-6.50 6.00-6.50



Suburban

Vacancy Rate 13.7% 14.8% 13.6%



Class A & B Cap Rate (%) 7.00-8.25 7.13-7.31 7.00-7.50



Overall

Vacancy Rate 13.7% 14.7% 14.0%




2014 2015 F 2016 F YoY





Class A & B Cap Rate (%) 6.50-7.75 6.50-7.75 6.50-7.50





Retail $55 $30 $150


ICI Land $93 $60 $50

Hotel* $38 $28 $45

Total $405 $434 $475

2014 2015 F 2016 F YoY

Retail Sales (YoY)* 3.4% (0.5%) 4.5%

Neighbourhood Cap Rate (%) 6.25- 6.75 6.25- 6.75 6. 50-8. 50

2014 2015 F 2016 F YoY











NationalContributors

RegionalContributors

National ResearchContributors

Regional ResearchContributors

Investment

Peter SenstPresident, Canadian Capital [email protected]

Paul MorassuttiExecutive Vice President, Managing Director

[email protected]

Retail

Tom BalkosDirector, Retailer [email protected]

Industrial

Andrew WrightExecutive Vice President, Managing [email protected]

Hotels

Bill StoneSale Representative, Executive Vice President

[email protected]

Seniors Housing & Healthcare

Matthew BurnettSale Representative, Associate Vice [email protected]

Stephen Hiscox Valuations and Advisory Services, Vice [email protected]

Sean McCrorieValuations and Advisory Services, Vice [email protected]

Offi ce

John O’TooleExecutive Vice President and Executive Managing [email protected]

Multifamily

Ross MooreDirector of Research, [email protected]

Vancouver

Norm TaylorExecutive Vice President and Managing [email protected]

Calgary

Greg KwongExecutive Vice President and Regional Managing [email protected]

Edmonton

Dave YoungExecutive Vice President and Managing [email protected]

Winnipeg

Ryan BehieVice President and Managing [email protected]

Southwestern Ontario

Peter WhatmoreSenior Vice President and Executive Managing [email protected]

Toronto (Offi ce)

John O’TooleExecutive Vice President and Executive Managing [email protected]

Adrian LeeExecutive Vice President and Managing [email protected]

Toronto (Industrial)

Werner DietlExecutive Vice President and Managing Director

[email protected]

Shawn HamiltonVice President and Managing [email protected]

Montreal

Alex SieberSenior Vice President and Senior Managing [email protected]

Atlantic Region

Robert MussettSenior Vice President and Senior Managing [email protected]

Ross MooreDirector of Research, [email protected]

Roelof van Dijk Research Manager, Canada/[email protected]

Christina CattanaResearch Team [email protected]

Ishita AbbottResearch [email protected]

Christian Denny Research [email protected]

Vancouver

Matthew Boddy Research Team [email protected]

Calgary

Jeffrey HurrenSenior Research [email protected]

Edmonton

Jayson de VeraSenior Research [email protected]

Winnipeg

Christian Denny Research [email protected]

Southwestern Ontario

Jaclyn HarrisonResearch [email protected]

Greater Toronto Area

Roelof van Dijk Research Manager, Canada/[email protected]

Ottawa

Daniel NiedraResearch [email protected]

Montreal

Lynn Johannesson

Research Team [email protected]

Halifax

Kara [email protected]

Documents

CBRE Market Outlook 2016