The Office ReportCalgary MarketQ2 2014

Calgary Overall - Vacancy 8.3%Calgary’s office leasing market entered positive territory after experiencing five consecutive quarters of negative absorption from Q1 2013 through Q1 2014. Overall, 39,000 square feet (sf ) of office space was taken off the market as leasing activity began to percolate in the suburban and Beltline markets during the second quarter. The Downtown market was the exception to the larger trend with absorption returning to negative numbers. This, however, is a function of large pockets of sublease space being placed on the market. In April, 2014 it was announced that Devon Energy Corp. had completed the sale of its Canadian conventional assets to Canadian Natural Resources Ltd. Following this divestiture, multiple floors in Devon Tower were placed on the market for sublease.

Overall headlease vacancy remains unchanged from the first quarter of 2014. Sublease space still represents one-third of overall vacancy and remains at a multi-year high. This is significant, particularly in context with the current construction boom. Of the projects under construction, the vast majority will meet Leadership in Energy and Environmental Design (LEED)™ certification and others are shadowing the designation by incorporating aspects of the energy efficiency model. These newest buildings represent an attractive alternative to existing A Class inventory, much of which was built prior to the mobile technology revolution late in the previous decade. These structures have, for several years, contended with increased staff density and multiple electronic devices per person,

each of which generate heat that older HVAC systems were not designed to deal with.

With millions of square feet of new and efficient inventory delivered over the last few build cycles plus millions more on the way, landlords are now taking steps to renovate older office towers to reposition them and compete for tenants in a tight market. In what many expect to become a future trend, many landlords are considering significant

ClassClassClassClass BuildingBuildingBuildingBuilding DistrictDistrictDistrictDistrict Office Area (sf) Office Area (sf) Office Area (sf) Office Area (sf) Expected Expected Expected Expected

completioncompletioncompletioncompletion

% Leased/ % Leased/ % Leased/ % Leased/

Pre-leasedPre-leasedPre-leasedPre-leasedLEED TargetLEED TargetLEED TargetLEED Target

Eighth Avenue Place - West Tower Downtown 844,000 Q4 2014 100.0% Gold

City Centre I Downtown 853,000 Q2 2015 40.0% Gold

Eau Claire Tower Downtown 615,000 2017 75.0% Gold

707 Fifth Street Downtown 564,000 Q2 2017 45.0% Gold

Telus Sky Downtown 459,936 Q1 2018 32.8% Platinum

Brookfield Place Calgary - East Downtown 1,400,000 2018 71.4% Gold

Q1 Block - phase 1 Downtown 82,000 Q3 2016 0.0%

11th Avenue Place Beltline 194,606 2015 58.7% Gold

Place 10 - East Tower Beltline 316,500 Q2 2017 0.0% Silver

Britannia Crossing Suburban South 54,079 Q4 2014 45.0% Gold

Corus Block Suburban South 18,374 Q1 2015 65.0%

Fountain Court (Buildings 1-3) Suburban South 90,000 Q1 2015 0.0%

Seton Professional Centre - East Building Suburban South 41,495 Q2 2015 100.0%

Seton Professional Centre - West Building Suburban South 58,489 Q2 2015 0.0%

Quarry Crossing A Suburban South 160,587 Q2 2015 25.0% Gold

Quarry Crossing B Suburban South 161,926 Q4 2015 0.0% Gold

Quarry Park - Imperial Oil Campus Suburban South 811,000 2016 100.0%

The Odeon Suburban South 38,000 2016 85.3%

75 Crowfoot Suburban North 51,800 Q2 2015 0.0% LEED Shadow

Meredith Block Suburban North 131,177 2015 15.0% Gold

A

AA

Calgary Q2 Office Construction SummaryCalgary Q2 Office Construction SummaryCalgary Q2 Office Construction SummaryCalgary Q2 Office Construction Summary

Avison Young The Office Report - Calgary Market | Q2 2014 | 1Partnership. Performance.

Calgary became a hotbed of office construction late in the second quarter of 2014. In addition to projects already underway, such as 11th Avenue Place and Britannia Crossing, ground was broken for new product in the form of 75 Crowfoot, Fountain Park, Place 10 and The Odeon. In total, nearly seven million square feet (msf ) of office inventory is being built with delivery dates commencing Q4 of 2014.

Demand for this new space is high, with more than 63% of future Downtown inventory having been pre-leased and 51% of coming Beltline and Suburban inventory pre-leased. Multiple projects are being built on spec, further displaying developer confidence in the Calgary Market.

upgrades and retrofits such as complete window and heating equipment replacement, plus new light-emitting diode (LED) light fixture installation. This sort of activity is a core aspect of Allied Properties REIT’s strategy in Calgary, in that the old buildings they purchase and refurbish become trendy and popular character space with extremely low vacancy.

Downtown - Vacancy 6.2%

Vacancy in the Downtown increased slightly over the first quarter by one basis point and currently sits at 6.2%.

Looking at the current environment in the context of a ten year history; however, demonstrates that the Downtown market has reached a mid-point between the extreme low vacancy seen in late 2006 and its peak near 12% in late 2009. Absorption fell into negative territory with 78,000 sf returned to the market. Among AA Class buildings, more than 84,000 sf was placed on the market and 113,000 sf came available in B Class inventory. A Class leasing activity was robust, with 98,000 sf leased overall. Approximately 163,000 sf was leased among First Canadian Centre, Penn West Plaza West and the East Tower of Sun Life Plaza where several full-floor and two-floor subleases were completed. In C Class buildings, 21,000 sf was taken off the market.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 DYT 2014

2004 - YTD 2014

Several large pockets of sublease space were placed on the market in the second quarter, giving tenants a lot of options to consider for their space requirements. In addition to Devon Tower, full-floor spaces could be found in Centennial Place West, Dome Tower, the East Tower of Eighth Avenue Place, Livingston Place South, TD Canada Trust Tower and Bantrel Tower.

Beltline - Vacancy 10.4%

The Beltline witnessed 31,000 sf of positive absorption in Q2 2014, due largely to activity in Tower I of TransAlta Place.

Also of note, 3esi and Alter NRG Corp took more than 17,000 sf of space in IBM Building A. Beltline vacancy decreased approximately two basis points over the second quarter due to a reduction in headlease vacancy, which fell from 7.7% in Q1 to 6.8%. Sublet space, however, increased from 2.8% of total vacancy in the first quarter to 3.6% this period. Contributing to the increase were two full floors of sublease space in Stampede Station I plus three floors in Connaught Centre that were placed on the market.

11th Avenue Place and the East Tower of Place 10 remain the only developments under construction in the Beltline and are expected to reach completion during the third quarter of

Avison Young The Office Report - Calgary Market | Q2 2014 | 2Partnership. Performance.

6.2%

10.8%

15.3%

17.0%

21.9%

5.5%

7.9% 7.5%

10.8%

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24.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2012 2013 2014 2015 2016 2017 2018

Downtown Calgary OfficeHistorical & Projected Market Supply

Historical & Projected Vacancy Rate

Assuming Recessionary Absorptionper annum (-164,313 sf)Assuming 10 Yr Avg Absorption perannum(808,172 sf)

2nd Esso Expiry:759,000 sq. ft.

Historical Forecast

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It will add more than 90,000 sf of Class A office space to the Suburban South East market. Expect completion and move-in readiness to occur in the first quarter of 2015. Construction activity continues on Buildings A and B of Quarry Crossing in Quarry Park and the first phase of the Imperial Oil building is now occupied.

In the South West, Embassy Bosa is to begin construction in 2016 on Currie Market, Flanders Point Plaza and Flanders Stroll in the former Currie Barracks. Though primarily a retail development, approximately 750,000 of office product is planned.

Suburban North – Vacancy 10.8 %

After falling sharply in the first quarter of 2014, the Suburban North market posted positive absorption of

33,000 sf for Q2. This activity was spurred by leasing of 12,000 sf in Sunridge Business Park and approximately 14,000 sf of sublet space being taken by the Yellow Pages Building.

In the North East, vacancy fell slightly from 12.8 % to 12.3% but remained high due to large amounts of B and C Class space available in Airways Mall and Horizon West.

In the North West, vacancy dropped sharply to 6.6% from 12.2% in the first quarter due to renewed leasing activity in B and C Class buildings, primarily in Centre Eleven and the Alastair Ross Technology Centre. Absorption totalled 26,000 sf for the seconds quarter.

On the development front, Royal Vista Centre is a newly-proposed mixed-use facility, to be located on Royal Vista Link. Plans are for a four floor, 83,000 sf building with main floor retail and office space on the upper floors. Telsec is moving forward with its 75 Crowfoot project in the North West. The three story building will add 52,000 sf of Class A inventory and will feature several innovative comfort and energy efficiency features that are consistent with LEED™ standards.

2015 and first quarter of 2017, respectively. Stampede Station II, a 317,000 sf proposed development by WAM Development Group and Keynote Tower 4 by Balboa Investments Inc. remain as possible new developments should pre-leasing justify moving forward.

Suburban South – Vacancy 12.5 %

Overall vacancy in the Suburban South increased slightly from 12.1% in the first quarter to 12.5% as a result of

more than 250,000 sf becoming available, primarily in A Class buildings. Headlease vacancy decreased across all classes but space being marketed for sublease more than doubled during this period. The largest blocks of sublease space were in Sundance place and Sundance West I, with 168,000 sf and 144,000 sf, respectively. 33,000 sf was also available for sublease by Jacobs Engineering in Quarry Central and more than 84,000 sf of headlease space remained in ICON Business Park.

Overall vacancy in the South East increased to 12.4% from 11.5% in the first quarter. Notably, sublease vacancy comprised more than half of vacancy in the quadrant, at 6.3%. This was a result of 408,000 sf space not leasing. In the South West, overall vacancy fell to 12.6% from 13.9% with sublease vacancy being just 0.51% of this number.

Construction is underway on the three-building Fountain Court project by Centron, which is moving forward on a spec basis.

Avison Young The Office Report - Calgary Market | Q2 2014 | 3Partnership. Performance.

Avison Young Calgary Office Leasing Team

Reese Campbell | 403.232.4387

Nathan Donahue | 403.232.4320

Erik Dobrovolsky | 403.232.4315

Marcus Desireau | 403.232.4385

Brock Evans | 403.232.4383

Steve Goertz | 403.232.4322

Larry Gurtler | 403.232.4326

Eric Horne | 403.232.4339

Chris Howard | 403.265.9552 ext. 223

Will Mullane | 403.232.4325

Alexi Olcheski | 403.232.4332

Doug Pilip | 403..232.4317

Nairn Rodger | 403.232.4309

John Savard | 403.232.4309

Glenn Simpson | 403.232.4329

Mark St. Pierre | 403.232.4319

Peter Thorpe | 403.232.4342

Todd Throndson | 403.232.4343

Alex Wong | 403.232.4327

Gordon Woodman | 403.232.4323

Allan Zivot | 403.232.4307

Business Condominium Team

Research

Pali Bedi | 403.232.4311

Fred Clemens | 403.232.4312

Anthony B. Scott | 403.232.4344

© 2014, Avison Young Real Estate Alberta Inc. All rights reserved. The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.

Calgary Place I & II330 - 5 Ave & 355 - 4 Ave SWLeasing Opportunity

Riverbend Atrium 200 Rivercrest Drive SELeasing Opportunity

340 - 12 Avenue SWLeasing Opportunity

639 - 5th Avenue SWLeasing Opportunity

Audis Building3402 - 8 Street SESale Opportunity

Dorchester Square1333 - 8 Street SWSublease Opportunity

Zurich Court1538 - 25 Avenue NELeasing Opportunity

McFarlane Tower700 - 4 Avenue SWSublease Opportunity

Avison Young The Office Report - Calgary Market | Q2 2014 | page 4Partnership. Performance.

References: AltusInsite.ca | www.psac.ca/firstenergy/ | Scotiabank Global Economics. (February 2014). Global Forecast Update. Retrieved from: www.gbm.scotiabank.com/English/bns_econ/forecast.pdf | Richards, J.(November, 2012). GREEN BUILDING: A Retrospective on the History of LEED Certification. Retrieved from: http://enviroinstitute.org/wp-content/uploads/2012/09/GREEN-BUILDING-A-Retrospective-History-of-LEED-Certification-November-2012.pdf | Toneguzzi, M. (June 2014). Older downtown office towers being updated to take advantage of tight market. Calgary Herald. Retrieved from: http://www.calgaryherald.com/business/Older+downtown+office+towers+being+updated+take+advantage+tight+market/9950638/story.html

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