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2012 Q3* 2012 Q2*

Vacancy

net absorption

sales price (psF)

rental rate

Q3 2012 | OFFICE

Canadian Market Overview Canadian economic performance remains in growth mode, albeit moderate in the East and strong in the West. The divide between East and West is attributable to commodities driving the West and the lack of a similar catalyst in the East. Manufacturing in the East is weighed down by slow growth in the U.S.; an upside surprise is the return of auto sector to near pre-recession levels.

The outlook for commercial real estate is stable, with the exception of a few higher growth centers in the West. Employment growth will sustain the office market and growth in retail sales, along with new U.S. retailers will underpin demand for retail and distribution facilities. Manageable new supply of both office and industrial property should avert supply driven vacancy challenges. Overall commercial property looks well positioned to close out a solid year in 2012 and continue on the same path through 2013.

Ottawa Market Overview The overall vacancy rate for the Ottawa office market at the end of the third quarter is 7.5 percent. This is a 1.1 percent decrease from the revised 8.6 percent reported in the previous quarter - the Q2 vacancy rate was revised to include formerly available space at 234 Laurier Avenue West. Colliers expects vacancy rates to remain stable in the suburban markets over the short term followed by some vacancy

ottawa ontario

COLLiErS inTErnATiOnAL | MArkET rEpOrT

*change in comparison to previous quarter

ottawa Vacancy rate

OTTAWA REGION: Colliers has more than 19 years of experience servicing public and private sector clients in Ottawa and surrounding areas. Ottawa has experienced steady growth through hard economic times, and continues to be top ranked in canadian cities to live and invest in.

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predictions

of 5.6 per cent for the quarter. The decline was fueled by the Bank of Canada and the Department of Justice’s move out of 234 Wellington Street while it is renovated. The Bank of Canada will be occupying the balance of 234 Laurier Avenue and the Department of Justice will relocate to the Sun Life Financial Centre at 50 O’Connor Street and 99 Bank Street. They will absorb 45,189 square feet at 50 O’Connor and 32,724 square feet at 99 Bank. These two significant absorptions were slightly offset by large vacancies coming available at the World Exchange plaza at 45 O’Connor. Two full floors at 45 O’Connor will be vacated in the coming months. Currently, the 14th floor is occupied by Allstream and the 12th floor is occupied by the Canadian institute for Health information (CiHi) which will be available in October and november respectively. CiHi is consolidating their 495 richmond road location and Allstream is relocating their operations to 150 Laurier Avenue.

The B Class market experienced positive absorption of 30 basis points driving down the vacancy rate to 7.0 per cent on the strength of 12,693 square feet of absorption. The largest of which was at 220 Laurier Avenue which leased approximately 5,000 square feet over

the quarter through small tenant leasing activity.

The C Class market also experienced notable absorption that pushed down the vacancy rate from 8.73 per cent to 7.95 per cent over the quarter, representing positive absorption of approximately 13,000 square feet. The largest moves were MS Legal Services into nearly 5,000 square feet at 116 Albert Street, and Trillium College which now occupies 6,000 square feet at 75 Albert Street. Overall, rental rates were quite stable over the quarter but Colliers’ previous prediction of a downward pressure on B and C Class office space seems to be coming true as the average B Class rental rate took a dip of $0.65 per square foot to $17.15 per square foot.

sUbUrbsOverall vacancy rates in the suburban markets increased 30 basis points to 8.9 per cent from 8.6 per cent in the previous quarter. The kanata market had some substantial movement with positive absorption of 53,490 square feet. However, as a result of adding 300 Terry Fox Drive, the office portion of 500 palladium Drive and 232 Herzberg road, to the competitive kanata inventory, the vacancy rate increased

downtown and ottawa oFFice Vacancy rate

decreases in the long term. The downtown core will experience a decrease in vacancies as several government agencies enter the competitive private sector real estate market and top-tier, private sector tenants vie for renewals and relocations within the Class A office market.

ottawaThe Ottawa market has been stable over the early portion of the quarter, but experienced a substantial increase of activity in September. The biggest news is that the Bank of Canada will be relocating to approximately 350,000 square feet in plaza 234 on Laurier Avenue and that the Department of Justice will be relocating to nearly 78,000 square feet in the Sun Life Financial Centre. These two moves will drastically impact the downtown office leasing market, driving down vacancies in competitive, private, office space. in addition, there was a considerable amount of investment activity, with three major deals valued at a total of $885.4 million closing in the past three months. downtownVacancy rate in the downtown core declined 3.0 per cent to arrive at an overall vacancy rate

Market Overview cont’d

predictions

p. 2 | colliers international

mARkET REpORT | Q3 2012 | OffiCe | Ottawa mARkET REpORT | Q3 2012 | OFFiCE | OTTAWA

sUbUrban and ottawa oFFice Vacancy rate

from 13.1 per cent to 14.4 per cent. One of the largest spaces to come available was 38,000 square feet at 415 Legget Drive. This is a sublease opportunity with the head lease held by Sanmina-SCi who is believed to be relocating to 500 palladium Drive. positive absorptions that occurred over the quarter were 18,500 square feet absorbed by Skyworks inc. at 1145 innovation Drive and Halogen Software’s expansion to 54,000 square feet at 495 March road.

The Fringe region saw a vacancy rate decrease from 5.3 per cent to 4.5 per cent driven by the completion of a 40,000 square foot sublease at 343 preston Street – the new subtenant has not been announced. Also in the Fringe region, 222 Somerset West saw its vacancy rate increase due to the Textile Human resource Council vacating 6,180 square feet on the fifth floor.

The East had very little movement with a vacancy increase of 10 basis points to 4.7 per cent, primarily due to the Conservative party of Canada vacating 19,000 square feet at 2713 Lancaster road. The location was used as a campaign office for the past provincial election; consequently they will not be relocating elsewhere. The

Consolidations and workplace reengineering are driving suburban office market.

resultant net absorption was -5,841 square feet.

The South saw vacancies decrease from 8.2 per cent to 8.0 per cent driven by numerous small absorptions, but also saw a major renewal with revenue Canada remaining in its 110,000 square feet at 2204 Walkley road for an additional five years.

The West experienced a minor increase in vacancy of 10 basis points. The Carling Executive park saw a shuffling of tenants with numerous smaller pockets still available despite the additions of Onix Corp. and Target Corp. at 1525 Carling Avenue; leasing 5,000 square feet and 2,500 square feet respectively. The average rental rate in the suburbs was stable with a slight decrease of $0.15 to $14.43 per square foot. The South and West saw increases in their rental rates which were counteracted by the decreases in the Fringe, East, and kanata regions.

predictions

colliers international | p. 3

mARkET REpORT | Q3 2012 | OFFiCE | OTTAWA

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522 offices in 62 countries

• $1.8 billion USD in revenue

• 12,300 employees

• 1,250 million commercial square feet under management

• $68 billion USD in transaction volumeLocal Spotlight Storyplaza 234 is leased!

The Bank of Canada will be relocating to Cadillac Fairview and Gillin Engineering’s plaza 234 on Laurier Street. 234 Laurier is the former home to Export Development Canada who has relocated to their new office downtown at 150 Slater Street. The Bank will be using 234 Laurier as swing-space while their 234 Wellington location is being renovated. plaza 234 was formerly considered non-competitive space as this building was never publicly marketed for lease. This caused the substantial decrease in vacancies this quarter; in order to present an accurate picture of the leasing activity in the CBD, Colliers retroactively set the previous quarter vacancy rate to reflect plaza 234 as being competitive and free of occupants for all but four floors which are occupied by ground floor retail and FinTrAC offices. As previously stated, the other big public sector move was the Department of Justice also moving out of 234 Wellington. These moves will have an enormous effect on the downtown Ottawa office market. no direct leases for pockets of contiguous space in the 35,000 plus square feet range will be immediately available for major corporate tenants who wish to relocate or upgrade to better space. Colliers anticipates demand for this product to rise as some A Class buildings built in the 1970s and 1980s will require retrofitting and renovations in the near future should they want to remain competitive A Class buildings. This will likely generate a premium on leasing large A Class

andrew dawdy research Coordinator | Ottawa +1 613 683 2226 andrew.dawdy@colliers.com

kelvin Holmes Managing Director | Ottawa +1 613 683 2234 kelvin.holmes@colliers.com

pockets downtown in the near term. in the coming 12 to18 months however, we will see large contiguous space become available as 150 Elgin is built and the Canadian Council for the Arts vacates 350 Albert Street.

Beyond the major moves by the government, the Ottawa office market has experienced some exciting investment over the past quarter. in the face of ongoing government cuts and predictions of a softening Ottawa economy, the Ottawa investment market is proving quite resilient. The notable leasing activity that has taken place this quarter is a real testament to that fact, and the stability and resilience has not gone unnoticed. Over $885.4 million has been invested in Ottawa real estate through office investment activity. Cominar rEiT completed its acquisition of GE Capital real Estate for $697 million, 200 kent Street was acquired by the Great-West Life Assurance Company for $143.4 million, and 77 Metcalfe – otherwise known as the nAV Canada building – was acquired by Bentall kennedy prime Canadian property Fund for $45 million. These deals have had cap rates below 6 per cent and office buildings downtown appear to be increasing in value. The fact that Ottawa has the federal government provides a level of stability not found elsewhere in the country, and the city continues to attract investment.

mARkET REpORT | Q3 2012 | OffiCe | Ottawa