Metro VancouverOffice Report

Third Quarter 2010

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Metro Vancouver Office Report - Third Quarter 2010 02

Metro Vancouver Office ReportThird Quarter 2010

Economic Overview

Canada’s economy held strong in the 3rd quarter despite a chaotic currency market and failing US economy. Employment continued upward, and while the GDP fell slightly, current investment and employ-ment trends indicate a strong resurgence going into the 4th quarter.

Due to this slow down, the Bank of Canada held the overnight at at 1% and downgraded its estimates for growth. While the banks and investors are cau-tious, they have continued to keep op-tions for investment financing open which has contributed to this quarters increased investment in construction. Metro Vancouver Market Summary

With a drop off in new supply, the vacancy of the Metro Vancouver area decreased 60 base points to 9.0%. All submarkets, with the exception of the Broadway corridor, saw a drop in vacan-cy in the 3rd quarter. Due to historically low vacancy rates, this drop has not had an effect on current lease rates, but may in the coming months. As the economy continues to recover and more jobs are added, we will continue to see this drop-ping vacancy. Expect to see rising rates, particularly in the downtown core, going toward the end of the year.

The Vancouver area, like much of Cana-da, has recently seen renewed interest in new construction. Investment in non-residential building construction rose to 6.4% from last quarter, and is expected to continue increasing into next year.

This quarter has clearly demonstrated the developing dichotomy the Vancou-ver market has experienced in the past, where vacancies in the suburbs have reached as high as 17-18% and where vacancies in the Downtown core have reached as low as 4-5%. As more ten-ants move into the higher quality, yet smaller spaces downtown, we expect to see this trend continue. In response, several developers have been working

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Historic Municipal Vacancy Rates

on projects close to major transportation hubs that have a large volume of smaller, more expensive space.

Downtown Office

As employment increased, the downtown office market saw a small amount of ab-sorption and a drop in the vacancy rates. While the Downtown core has seen stable rates, this increased market activity may result in slightly elevated lease rates. The core vacancy currently sits at 5.1%, down 50 basis points from 5.6% last quarter.

Notable lease deals:AMC renewed 145,000 square feet at •111 Dunsmuir StreetBorden Ladner Gervais LLP leased •105,000 square feet at 200 Burrard StreetFarris Vaughan renewed 67,000 •square feet at 700 West Georgia Street

Suburban Office

Due to decreased supply in the third quarter, suburban markets saw a drop in vacancy rates, to 13.5% from 15% last quarter. This marks the first quarter that office vacancies have decreased in a year, with 2,662,000 square feet of space, down from 2,866,000 square feet last quarter. This lack of availability in some areas may help increase the rental rates

in certain areas. While rates may have dropped again this quarter in all submar-kets, the drop was far less substantial than in previous quarters, due to the increased activity.

New Office Construction

Several buildings are currently under construction in Metro Vancouver, totalling 1,340,456 square feet. About 32% of this, 429,956 square feet, is in the City of Van-couver, but only 55,000 square feet or 4% is in the downtown core, with Bosa Prop-erties new building, the Jameson House. While development in the downtown core has been slow, the coming years hold a number of promising developments. The GM Place Tower is still in planning, hop-ing to break ground in late 2010. Bentall Capital’s project at 745 Thurlow is a much anticipated project that should add over 420,000 square feet of office and retail space to the market. Aquilini Investment Group is proposing a 236,000 square foot office tower at 800 Griffiths Way. Recent-ly, Austeville Properties announced plans for a 481,000 square foot office tower on the 400 block of West Georgia Street.

In the Suburbs, there are currently 7 proj-ects under construction, totalling 910,500 sq ft. Surrey is home to most of these new projects (4 of the 7 in the suburbs), including the the Panorama Place (Build-

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Metro Vancouver Office Report - Third Quarter 2010 03

Metro Vancouver Office ReportThird Quarter 2010

Metro Vancouver Office Report - Third Quarter 2010 03

Summary Statistics - Third Quarter 2010

Totalbuildings

Total area (sq ft )

Total vacant (sq ft)

Sublet Vacant (sq ft)

Totalvacancy

(%)

Average asking lease rate ($/sq ft)

Average taxes and operating costs ($/sq ft)

Metro Vancouver 685 51,588,374 4,639,080 839,375 9.0 20.0 11.9

Class A 274 29,849,526 2,767,282 601,658 9.3 22.4 12.5

Class B 252 15,237,355 1,170,105 205,229 7.7 19.5 12.1

Class C 158 6,469,493 696,447 32,488 10.8 17.1 10.8

Downtown Core 157 20,489,533 1,053,491 228,749 5.1 23.9 14.8

Class A 52 12,516,421 434,621 149,016 3.5 30.6 18.3

Class B 53 5,385,333 354,142 62,303 6.6 25.2 14.9

Class C 52 2,587,779 264,728 17,430 10.2 17.9 12.1

Broadway Corridor 81 4,086,965 199,880 35,499 4.9 21.1 14.7

Class A 31 2,147,433 112,248 24,267 5.2 22.7 15.1

Class B 30 1,350,757 70,204 10,551 5.2 21.3 15.1

Class C 20 588,775 17,428 681 3.0 16.8 12.6

Surrey 48 2,822,470 411,610 7,954 14.6 19.3 9.2

Class A 24 2,032,331 367,712 6,838 18.1 20.7 9.0

Class B 15 563,767 33,609 1,116 6.0 17.2 9.1

Class C 9 226,372 10,289 0 4.5 13.5 11.8

Richmond 86 5,184,049 914,658 202,252 17.6 15.0 9.0

Class A 49 3,449,340 696,037 175,881 20.2 16.6 9.3

Class B 28 1,287,536 145,083 26,371 11.3 13.8 9.3

Class C 9 447,173 73,538 0 16.4 10.7 7.5

North Shore 51 2,282,147 168,888 48,394 7.4 19.7 10.7

Class A 16 850,109 60,382 9,800 7.1 23.4 11.8

Class B 25 1,064,845 96,773 33,070 9.1 18.7 10.8

Class C 10 367,193 11,733 5,524 3.2 17.0 9.1

Burnaby 126 9,652,654 1,167,537 217,162 12.1 18.9 11.4

Class A 69 6,606,774 901,466 184,765 13.6 21.5 11.9

Class B 42 2,435,342 187,097 30,586 7.7 17.1 11.5

Class C 15 610,538 78,974 1,811 12.9 16.4 9.0

Yaletown 39 2,151,391 111,055 6,282 5.2 23.1 11.9

Class A 6 594,045 3,042 0 0.5 28.0 14.2

Class B 15 929,254 22,597 5,575 2.4 24.3 11.7

Class C 18 628,092 85,416 707 13.6 20.9 11.5

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Metro Vancouver Office Report

Third Quarter 2010

VANCOUVER • Victoria • Nanaimo • Kelowna • Toronto • Calgary • Edmonton • Winnipeg • Montreal • Mississauga • Burlington • Halifax • Kingston • London • Markham • Niagara • Ottawa • Regina • Waterloo

We have an extended team of over 10,000 professionals operating through our global network across 43 countries dedicated to serving our clients’ real estate needs.

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.

Notable office sale transactions - Q3 2010*Property address Municipality Price Size (sq ft) Price/ sq ft Purchaser(s)1133-1155 Melville Street Vancouver $27,650,000 99,100 $279 Oxford Properties Group157-199 West Hastings Street Vancouver $15,531,436 50,000 $311 Flack Hastings Properties Ltd.541-555 Howe Street Vancouver $8,425,000 21,075 $400 198198 Enterprises Ltd.1300 Richards Street Vancouver $6,150,000 13,264 $464 Wall Financial Corp.5731 No. 3 Road Richmond $3,494,900 6,265 $558 Postmedia Network Inc.269-271 East Pender Street Vancouver $1,368,000 9,150 $150 0887428 B.C. Ltd.

Notable office lease transactions - Q3 2010*Property address Municipality Tenant Size (sq ft)111 Dunsmuir Street Vancouver AMC 145,000200 Burrard Street Vancouver Borden Ladner Gervais LLP 105,000700 West Georgia Vancouver Farris, Vaughan, Wills & Murphy LLP 67,00013777 Commerce Parkway Richmond Stewart Olsen Dominion Construction 14,085

For more information please contact:James Fraser, Director of Researchjames.fraser@dtzbarnicke.com(604) 630 3405

DTZ Barnicke Vancouver Limited800 - 475 West Georgia Street, Vancouver, B.C. V6B 4M9 Tel: (604) 684 7117 Fax: (604) 684 1017

**Data sourced from RealNet Canada Inc.

www.realnet.ca

If you would like to receive this report via email, please contact us.

*Properties over 8,000 sq ft only

Definitions

Absorption: Refers to growth or net change in occupied space over time.

Inducements: A form of monetary entice-ment given by a land-lord to a tenant.

New Supply: New space entering the market through new construction.

Under Construction:Projects that are cur-rently being built but are not yet completed.

Vacancy Rate: The current amount of vacant building area compared to the total amount of existing inventory.

DTZ Barnicke Commercial Team

Neil McAllister

Tom Bakker

James Bayley

Tony Capolongo

Conor Finucane

Howard Malchy

Jason Marriott

Don Mussenden

Steve Schweigert

Rand Thomson

Chris Walters

Stephen Webber

ing H), the Benchmark Business Centre II, the Dean Business Centre II (which should be available early Q4) and the Grandview Business Centre. New Westminster, how-ever, has the Brewery District under con-struction, a project slated for completion in mid 2011 that would bring 150,000 square feet of office space to the market. There is some office space under construction in Langley as well, with about 68,000 square feet in the Langley 200 Business Centre.

There are also a number of projects that are still in planning or pre-leasing in the Metro Vancouver area. Most of this is in the suburbs, including Metrotower III, with 400,000 square feet expected in Burnaby, the Canada Line Office Build-ings with nearly 200,000 square feet and the Gateway Business Park in Surrey with over 500,000 square feet coming to the Market. The City of Vancouver will see some new supply as well with projects like the Containers on Terminal, with a total of 225,000 square feet, and the GM Place Tower, with 162,000 square feet.

Looking Ahead

As summer comes to a close, and •people return to work, we expect to see increased activity in the Down-town market. Decreasing supply and increased demand will help increase rental rates, particularly in areas with high quality office space.

Cautious prospecting tenants are still •fuelling a demand for smaller, high quality office space, particularly strata properties. We expect to see this trend continue, matched by a rise in lease rates in areas like the Downtown Core and Yaletown. This may force current tenants to move to more commodity space if they cannot afford the in-creased rates when their leases expire.

Vacancy in the suburbs is expected to •plateau going into next year as most construction is nearing completion. While we expect to see a increase in vacancy in the fourth quarter, we do not expect to see much new supply in the new year, particularly in the subur-ban markets as the demand catches