mid-year 2013 avison young office market report canada & u.s. · 8 mid-year 2013 canada, u.s....

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MID-YEAR 2013

Avison Young Office Market ReportCanada & U.S.

Canada & U.S. Market Overview

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Canada & U.S. Market Highlights

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Canada

Calgary & Edmonton 9

Halifax & Lethbridge 10

Mississauga & Montreal 11

Ottawa & Quebec City 12

Regina & Toronto 13

Vancouver & Winnipeg 14

United States

Atlanta & Boston 15

Charleston & Chicago 16

Dallas & Denver 17

Detroit & Houston 18

Irvine & Las Vegas 19

Los Angeles & New Jersey 20

New York & Pittsburgh 21

Raleigh-Durham & Reno 22

San Diego & San Francisco 23

South Florida & Washington, DC 24

Avison Young Research 25

About Avison Young 26

Our Contacts 27

Avison Young Office Market ReportCanada & U.S.Mid-Year 2013

avisonyoung.com

Canada Overview

Canada’s office market, at 491 million square feet (msf ) and growing, closed the first half of 2013 with 7.9% vacancy – up from 7.1% at

mid-year 2012, but remaining below the recent recessionary peak of 9.9% in mid-2010. Half of the 12 Canadian markets were below the national average and 10 posted single-digit vacancy. The gap in vacancy between Western and Eastern markets narrowed during the last 12 months. Representing two-thirds of the national inventory, the Eastern markets closed the first half of 2013 with a collective vacancy rate of 8.4%, or +70 basis points (bps), with Ottawa the lowest at 6%. The growing Western markets combined for a vacancy rate of 7.1% (+100 bps), with Regina reporting a national low vacancy of 5.2%. Corporations seeking to attract and retain the young and highly educated workforce increasingly living and working in urban areas have created competition in most downtowns. Corporate restructuring, downsizing and consolidations have raised sublease vacancy in some markets, elevating Canada’s downtown vacancy 40 bps over 2012 to 5.6% at mid-year 2013. The tightest markets are Calgary (4%, +80 bps), Ottawa (4.4%, -140 bps) and Vancouver (4.6%, +130 bps). Unsurprisingly, these markets have the highest average gross rents for class A space, led by Calgary ($57 per square foot (psf ), a $5.66-psf rise from 2012), Vancouver ($52 psf, -$2 psf ) and Ottawa ($47.95 psf, -$0.53 psf ). In contrast, new supply outpaced demand in some markets, pushing national suburban vacancy to 10.6% – up 130 bps since mid-2012 – with seven of the 12 markets below average. Except for Lethbridge and Vancouver, single-digit vacancy persists in the same markets as one year ago. Once again, Regina (3.1%, +170 bps) had the lowest suburban vacancy and Mississauga (Toronto West) (13.7%, +130 bps) the highest, while Lethbridge (11.6%) experienced the greatest year-over-year swing, spiking 350 bps. Calgary and Regina have the priciest suburban markets with average gross rent for class A premises of $37 psf, followed closely by Vancouver ($36 psf ).Office space under construction has increased by 4.5 msf since mid-2012 to nearly 22 msf (53% preleased), with a 60/40 downtown/suburban split. Toronto is the biggest development market in the country, with 7.1 msf (49% preleased) – one-third of the national total – and also leads with 5.3 msf (47% preleased/41% of national downtown total) underway downtown. However, Calgary is narrowly outpacing Toronto on the suburban front with almost 2 msf (78% preleased) under development – accounting for 23% of the national suburban total. For the second half of 2013, tight conditions will persist in most downtown office markets as tenants face eroding space options and likely higher rents. More options will present themselves later this year and into 2014 as new supply comes online. In contrast, more favourable space and rental-rate alternatives will be commonplace in select suburban markets across the country.

U.S. Overview

The 10.3-billion-sf U.S. office market continued its bumpy recovery over the last 12 months and ended the second quarter of 2013 with

an overall vacancy rate of 11.7%. Looking at Avison Young markets, vacancy rates remained in the double digits at mid-year 2013, with an overall average vacancy of 14.7%, down slightly from 14.8% at mid-year 2012. Nevertheless, 16 of the 20 Avison Young markets reported lower vacancy rates when compared to 2012. Class A rents averaged $48 psf and $27 psf (USD) for central business district (CBD) and suburban markets, respectively. San Francisco again saw a significant increase in CBD class A rent this year, ending the second quarter of 2013 at $52.50 psf, an 11.7% increase from the second quarter of 2012, following a remarkable 18% spike in rents between the second quarter of 2011 and the second quarter of 2012. Vacancy fell 140 bps year-over-year to 8.9%. The highest CBD class A rents currently are in New York, where the $64-psf rate was a 2.3% increase compared with 2012, and in Washington, DC, a 1.3% change at $56 psf. There is currently more than 43 msf under construction, 72% of which is in four markets – Houston (10.6 msf ), Metropolitan Washington, DC (7.8 msf ), New York (7.5 msf ) and Boston (5.3 msf ). Pittsburgh’s metropolitan area recorded an 8.2% vacancy rate at mid-year 2013 – the lowest of the Avison Young U.S. markets and one of only two U.S. markets with a total vacancy rate in the single digits. Although the Metropolitan Washington, DC office market remains relatively healthy (posting an average CBD vacancy of 9.3% at mid-year 2013), the region was one of four U.S. markets to see its overall vacancy increase (13.8%, +70 bps) over the past year. New Jersey currently has the highest vacancy, after experiencing a year-over-year increase in its vacancy rate (20.9%, +30 bps), although the market is headed in a positive direction after posting 21.4% vacancy in the first quarter of 2013. Elsewhere, Chicago’s total office market vacancy rate improved to 13.8% at mid-year 2013, down from 14.1% at mid-year 2012. In New York, leasing activity rebounded, but with large blocks of space being returned to the market, vacancy rose to 12.1% at mid-year 2013. Los Angeles is experiencing a slow but stable recovery with strong leasing activity, although the vacancy rate climbed 330 bps year over year to 16.3% by mid-year 2013. Atlanta’s elevated vacancy rate persisted and ended the second quarter at 19.7%, albeit down from 21.7% at mid-year 2012; and in South Florida, vacancy improved for the third straight quarter to 15.4%. Turning to Texas, Dallas recorded a vacancy decrease of 60 bps year-over-year, falling to 15.6%, while energy-driven Houston ended the second quarter of 2013 with an 11.1% total vacancy. After years of uneven recovery led by a handful of standout markets, many U.S. markets remain oversupplied. Expect vacancy to stay on its downward trajectory through year-end 2013 and some markets to demonstrate landlord-favorable conditions in the coming months.

Ongoing improvement in US commercial real estate market, tight market conditions in major Canadian downtown office markets Canada’s office markets, resilient during and since the recession, continue to sport relatively healthy market fundamentals; however, some major markets appear to be softening, turning in less-than-stellar performances in the first half of 2013. Many major U.S. markets remain oversupplied, with tenant-favoured conditions – even while tours and velocity have increased and several metro areas have moved into equilibrium.

Canada & U.S. Market Overview

3Mid-Year 2013 Canada, U.S. Office Market Report

Mid-Year 2013 Canada, U.S. Office Market Report4

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Mid-Year 2013 Canada, U.S. Office Market Report 5

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U.S. Downtown & Suburban Office Vacancy Rates

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Charleston Pittsburgh

Los Angeles Halifax

Montreal Chicago

Vancouver San Francisco

Toronto Washington, DC

Edmonton New York

Boston Ottawa

South Florida Toronto West/Mississauga

Raleigh-Durham New Jersey

Dallas Regina

Calgary Quebec City

Atlanta Denver

Houston Winnipeg

Lethbridge Irvine Reno

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Canada & U.S. - Office Area Preleased


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Canada & U.S. - Office Area Preleased


Calgary Office Market

Edmonton Office Market

Calgary’s office market has changed significantly from a year ago. Vacancy has been on the rise for three straight quarters and increased to 6.2% by the end

of the second quarter of 2013. This is in large contrast to one year ago, when overall vacancy recorded its 11th consecutive quarter of decline, dropping to 4.6% by the end of the second quarter of 2012.

Sublease space has been the major contributor to this market swing. Notably, sublease vacancy in the downtown was equal to head lease vacancy by the end of the second quarter of 2013. Both totalled 2%, resulting in a downtown vacancy rate of 4%. With a drop in the price of WTI oil and the ability of firms to borrow capital, activity in the energy sector has definitely cooled. Energy companies are responsible for 62% of all sublease space being offered downtown. Absorption levels have also dropped across all submarkets. After three consecutive years of intense market activity, during which time annual office absorption averaged more than 3 msf per annum, 2013 year-to-date absorption is negative 1 msf. Downtown, in particular, registered 346,000 sf of negative absorption in the second quarter of 2013 compared with 64,000 sf in the second quarter of 2012.

Asking rental rates have steadily increased during the past three years to the point where they are among the highest nationwide. However, they are beginning to show signs of retreat in response to the slowdown in market activity. The exception is class AA rates, which are as high as $50 psf due to upward pressure stemming from 0.4% vacancy. Despite diminishing leasing activity, construction activity remains strong. In the downtown, there are four office towers under development comprising 2.6 msf of space – 60% of which is preleased. In July (and thus not reflected in our mid-year numbers), Manulife Real Estate and Brookfield Properties each announced new construction projects, with Brookfield’s 225 Sixth, at 56 storeys, set to surpass the Bow as Western Canada’s tallest tower.

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Calgary Office Vacancy Rates

Downtown Suburban

With a stable economy and favourable vacancy rates, Edmonton has emerged as a preferred market in which to invest in Alberta. This situation

is expected to change to a landlord’s market by the end of 2013 as a few key transactions close and available space fills.

Edmonton’s vacancy rate has enjoyed a relatively long period perched at approximately 8% – the sweet spot, where both sides of the market enjoy favourable outcomes. In the second quarter of 2013, the city’s overall vacancy rate held steady at 8.7% from the previous year. The suburban market experienced a greater change, with vacancy rising 50 bps to 11.3% year-over-year. In the downtown market, vacancy registered 7.2% in the second quarter of 2013 compared with 7.5% in 2012 and 7.2% in 2011. Absorption was varied across the Edmonton market, resulting in a net absorption of merely 2,814 sf for the second quarter, which is in stark contrast to the 226,578 sf of positive absorption recorded in the second quarter of 2012. Downtown office inventory remained unchanged at mid-year, holding at 16.3 msf, while 280,000 sf of space was added in the suburban market during the last 12 months, bringing the suburban total inventory to 9.2 msf as of June 30.

Currently, the average rental rate for class A and AA buildings in the downtown core is $24 psf, as landlords have kept rates steady to fill vacancies. This trend is consistent with other classes in the downtown core that are holding steady at market rates. EPCOR Tower is advertising an above-market net rental rate of $37 psf and still has 172,000 sf of vacancy. Manulife Place and Commerce Place are advertising market rates at $27 to $28 psf. Overall, the Edmonton market is showing stability but without an excess of growth or major transactions.

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Halifax Office Market

Lethbridge Office Market

While Halifax’s overall office vacancy rate is up slightly year-over-year from 8.2% to 9.1%, the market is relatively stable. New office product in the

suburbs continues to be absorbed as does the new downtown RBC Waterside office building. The most significant office developments in the suburban market include the Intact building and the Blue Frog building, which total approximately 150,000 sf.

There has been no change in overall asking rents in the Halifax office market year-over-year. Little movement is expected in face rates during the next 12 months but operating costs will continue to increase due to increases in municipal taxes, power and water rates. Current market activity is not as robust as in the past few years but the market is expected to improve as the economic impact of previously announced projects takes effect. Most notably, these projects include: the federal government’s National Shipbuilding Procurement Strategy, Encana’s Deep Panuke offshore natural gas project, and Shell’s $971-million offshore exploration project.

The tug-of-war between the downtown and suburban office markets continues in Halifax. It appears the suburban office market is growing at the expense of the downtown as there has been an exodus of certain sectors to suburban locations. With that said, the downtown may be in the middle of a transition period and in the process of dramatic positive change. While there are vacant storefronts in the downtown, most are vacant because they are being redeveloped or will be redeveloped in the very near future. To put things in perspective, there is currently more development and redevelopment taking place in downtown Halifax than at any point during the past 25 years, and the market is expected to continue to change for the better in the coming months.

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Halifax Office Vacancy Rates

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Lethbridge’s downtown class A vacancy rate increased to 11.2% over the past 12 months. This increase is mainly due to the nearly completed redevelopment of

Lethbridge Centre from retail to a major office centre. When finished, the project will increase class A inventory downtown from 286,370 sf to 426,400 sf. The average asking rental rate for downtown class A office space is $15 psf, and currently includes aggressive tenant-inducement allowances due to competition. Downtown Lethbridge continues to draw professional tenants due to easy accessibility from all areas of the city and availability in prime buildings. The ongoing revitalization of downtown heritage buildings, the opening of Casa (a $34-million performing arts centre), and an owner/user development comprising more than 15,000 sf on the downtown’s last large vacant lot highlight renewed investment in the city core.

Suburban office space is attracting users for different reasons. Easy access from highways and main roads, abundant free parking, and proximity to retail centres and residential areas make the office space easier to access for clients. The space seems to attract tenants such as engineering firms, call centres and surveyors who do not need to be in the downtown core and have less business-based traffic. Class A suburban space is mostly made up of newer construction and, thus, carries an average lease rate of $20 psf, and vacancy similar to downtown at 12.7%. The suburban market also attracts office users wanting to own, as downtown has limited opportunity for owner/users.

Overall, the Lethbridge market remains strong, with a balance of both class A and B vacancy, and as suburban markets continue to expand, the availability of space for lease will continue to increase. By year-end 2013, the market is expected to witness a slight increase in both class A and B inventory. This is mainly due to new construction being occupied by owner/users, who are vacating existing class B and – to a lesser degree – class A space.

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Lethbridge Office Vacancy Rates

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Mississauga (Toronto West) Office Market

Montreal Office Market

The vacancy rate in the Montreal office market reached 9.3% at the end of the second quarter of 2013 compared with 7.7% 12 months earlier. The

downtown vacancy rate increased slightly during the past year as well, rising to 6.8% from 5.7%.Since mid-year 2012, most of the major leasing transactions in the downtown area were lease renewals. These included Intact Insurance, for 268,000 sf at 2020 University; Ubisoft’s lease of 248,821 sf at 5505 St-Laurent; Heenan Blaikie taking 125,000 sf at 1250 René-Lévesque West; FedNav’s deal for 42,576 sf at 1000 de la Gauchetière; and SITA leasing 33,000 sf at 770 Sherbrooke West. In addition, KPMG renewed and expanded its existing space – now totalling 155,835 sf – at 600 de Maisonneuve Boulevard West. The Quebec government also renewed more than 70,000 sf of office space across several buildings in Old Montreal.Construction projects announced in 2012 are currently in progress. Major projects include the Aimia Tower (the office component of the Altoria project), consisting of 230,000 sf of class A office space and 25 floors of condominiums; and Cadillac Fairview’s 514,000-sf office tower, adjacent to the Bell Centre, which is scheduled to be delivered in 2015. Deloitte has leased 160,000 sf for 15 years, thus freeing 185,000 sf at Place Ville-Marie in 2016. In addition, Rio Tinto also recently leased 190,000 sf in the project, bringing the preleasing of the Deloitte Tower to 70%.Other projects are under consideration – namely the Wilder building, property of SIQ, in the Quartier des Spectacles (Ste-Catherine Street and St-Laurent Street), which is expected to be redeveloped with nearly 100,000 sf of additional office space. FTQ Real Estate Fund also has a project under consideration in the area. Other projects could be announced in the near future. In the Downtown East area, the CBC lands and l’Îlot Voyageur are also in the process of redevelopment.

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Montreal Office Vacancy Rates

Downtown Suburban

Overall office vacancy in Toronto West has risen during the past 12 months, finishing the second quarter of 2013 at 13.7%, up 130 bps from mid-year

2012. This is the highest level of vacancy the market has recorded since the beginning of 2011. This rise in vacancy is largely attributable to new construction activity in Toronto West together with corporate restructuring/downsizing and consolidation.In the past year, the Toronto West market has seen the addition of 1 msf of new supply. Developers continue to be active, with approximately 1.3 msf of new office product under construction at mid-year 2013 - of which almost 60% is preleased across 13 buildings. The Heartland office leasing node comprises the bulk of the new supply with more than 400,000 sf under construction. Of this, 335,000 sf is at 60 Standish Court, a new development by Orlando Corporation, where TJX Company Inc. (owners of retail chains Winners, Marshalls and HomeSense) is expected to open its new Canadian head office in 2015. Other new developments include Carttera’s 7100 West Credit Avenue, which will deliver approximately 95,000 sf of speculative office development to the Meadowvale market in fall 2013.While there is some large-tenant activity in the market, overall velocity has been moderate. This velocity trend should improve as fall begins and the improving U.S. economy has a positive effect on absorption. Relative to one year ago, the average asking net rental rate and additional rent have remained status quo for class A suburban office product in Toronto West. The average asking net rental rate was approximately $17 psf at mid-year 2013 while additional rent was close to $13 psf. Rental rates are expected to remain relatively flat in the latter half of 2013, with new construction having little impact on the Toronto West market in late 2013 or early 2014.

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Mississauga (Toronto West) Office Vacancy Rates

Suburban


Ottawa Office Market

Quebec City Office Market

Following the delivery of 1 msf of office space in 2011 and 2012, the construction of new buildings in the Greater Quebec City area continues with slightly more

than 800,000 sf of new product under construction, of which approximately 589,000 sf (74%) has already been leased.

At the end of the second quarter of 2013, the overall vacancy rate in Quebec City remained substantially the same as one year ago, dipping only slightly to 6.7% from 6.8%. Meanwhile, vacancy in the downtown core dropped to 7.8% halfway through 2013, compared with 8.6% at the same time in 2012. With all of these projects under development, there is a shift in office market activity from the downtown area to surrounding areas such as Lebourgneuf and Laurier Boulevard. This increase in construction activity will undoubtedly have an impact on vacancy rates, which are expected to increase even though they are still relatively low in comparison with other Canadian markets.

Key development projects include three buildings in the Lebourgneuf sector, totalling 280,000 sf. In Lévis, the second phase of Complexe des Rives is expected to be completed within the current year. Moreover, Cité Desjardins de la coopération - a 330,000-sf development project occupied entirely by Desjardins Financial Security in Lévis - is scheduled to be completed in 2014. Phase 2 of Groupe GP Real Estate’s Henri-IV Business Complex (totalling 94,000 sf ) should also be delivered in 2014. Other projects are also under consideration, such as SSQ Insurance, which is planning an office building on Laurier Boulevard. The number of new projects in recent years and the stability of vacancy rates have kept average gross rents around $28 psf.

Demand for large space in recent years has mostly been driven by the insurance and financial services industries. In the current context, a slowdown in the construction of new office buildings is expected, in order for the market to absorb the new space and consequently slow progression of rental rates.

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Quebec City Office Vacancy Rates

Downtown Suburban

Vacancy statistics in Ottawa’s downtown core node reveal a trend worth following. At the end of the second quarter of 2013, the overall vacancy rate in

the downtown core was 4.5%. While this figure represents a drop since the end of 2012, the availability rate (space that is occupied but will be coming available in the next 12 months) is now approaching 8%. Not included in the availability numbers are new buildings under construction, which in the case of the downtown core are 90 and 150 Elgin Street. 90 Elgin is fully leased to Public Works and Government Services Canada (PWGSC) and 150 Elgin has secured approximately 170,000 sf of tenancies, leaving an additional 210,000 sf of availability that does not show up in the current availability numbers.

Net space absorption in the downtown core has been near zero since 2010, with only Export Development Canada (EDC) taking possession of its new building on Slater Street in late 2011 and the Bank of Canada backfilling the vacancy created by EDC vacating Plaza 234 Laurier in early 2013. As the new Government of Canada Workplace 2.0 standards continue to be implemented, the resulting pressure on private landlords will continue as the federal footprint of leased space continues to shrink. If anemic net private sector absorption rates continue, downtown core vacancy rates could approach double digits.

Exacerbating the situation in the core are recent stories in the print media suggesting the government’s plans for the relocation of the Department of National Defence (DND) to the former Nortel campus on Moodie Drive in the city’s West End may be reconsidered. Due to enhanced security levels required by DND, PWGSC is reported to be looking at alternative departments and agencies to occupy the sprawling suburban campus to keep costs more in line with the original budget estimates that were put forward when the campus was acquired.

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Ottawa Office Vacancy Rates

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Regina Office Market

Toronto Office Market

A stalwart during and since the recession, Toronto has succumbed to sporadic leasing activity, leading to less-than-stellar results during the

past year – especially in the first half of 2013. Market-wide office vacancy for the Greater Toronto Area (GTA) stood at 8.6% midway through 2013 – a modest 50-bps increase from one year ago. Downtown vacancy is 5.4% (+10 bps), leaving tenants with limited space options, while landlords with little existing or near-term vacancy exposure continue to push rents higher. In contrast, new supply is outpacing demand in the suburbs, prompting vacancy to climb 130 bps since mid-2012 to 11.8%.

Development activity has accelerated. While 13 buildings comprising 1.3 msf (with 86% in the suburbs) were delivered in the past year, a further 25 projects totalling 7.1 msf (49% preleased) are under construction as of mid-2013, with delivery starting later this year and into 2017. This compares with 5.5 msf (43% preleased) one year ago and 7 msf (59% preleased) at the onset of the recession in fall 2008. Three-quarters, or 5.3 msf (47% preleased), is in Downtown Toronto, driven largely by corporations seeking to attract and retain the growing young and highly educated workforce living and working downtown. The most notable new development is Oxford Properties’ Ernst & Young Tower: a 900,000-sf, 40-storey, class AAA, LEED Platinum tower in the financial core, to be completed in June 2017. The tower is 45% preleased to Ernst & Young and TMX Group. Given that 4.5 msf was built between 2009 and 2012, heightened downtown construction activity is raising some concern over the market’s ability to absorb not only the remaining new supply, but also the residual vacancy left behind by relocating tenants.

For the second half of 2013, demand will be muted, and until the bulk of new supply comes online in mid-to-late 2014, limited options and higher rents will persist downtown, while more favourable space and rental rate alternatives will be more common in the suburbs.

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Toronto Office Vacancy Rates

Downtown Suburban

Regina has more than 200,000 sf of office inventory on the market in a variety of sizes and locations, with more slated to become available in the near future.

Announced future inventory currently totals 700,000 sf, although it is reasonable to expect that not all projects will proceed if supply becomes excessive. Regina’s combined office vacancy rate currently sits at 5.2% and is expected to increase to 6.5% moving into 2014. The market has rebounded significantly from the low vacancy rates of past years and now includes choices for tenants in the downtown and suburban areas. Supply and demand have levelled off, indicating lease rates will as well.

Class A space represents 39% of the total inventory in the city’s competitive office market, of which 93% is concentrated in the downtown core. Demand for class A space remains high because of location, high-quality amenities and, most importantly, the region’s sustained economic growth. The current vacancy rate for class A buildings has increased to 1.8% due to the addition of Hill Tower III, but remains one of the lowest rates in North America. Net lease rates for existing class A buildings range from $20 psf to $26 psf, while rates for new space are well into the $30-and-higher psf range.

Class B-plus buildings represent 15% of Regina’s inventory, with 71% of the class B-plus space in the downtown core and the remainder located primarily at Innovation Place near the University of Regina. Demand for this space is high and generally for the same reasons as for class A space. Class B vacancy climbed to 7.1% this past year due to the relocation of some government departments. Net lease rates have remained stable, ranging between $18 and $26 psf. Class B space represents 46% of Regina’s overall office inventory and currently has a vacancy rate of 7.5%. Net lease rates range from $14 to $21 psf given the wide variety of locations and quality.

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Regina Office Vacancy Rates

Downtown Suburban


Vancouver Office Market

Winnipeg Office Market

As Winnipeg closes in on 800,000 people within the capital region, the market is experiencing a slight migration of office users to the city’s southwest quadrant.

The influx of tenants to this area started a few years ago with some large custom build-to-suits for Nortel and Manitoba Hydro. While Nortel is no more, that large block (92,500 sf ) has since been leased to Convergys Corp. and recently to CP Rail. This is just one example of the voracious appetite for vacant space present in the southwest. In some cases, existing tenants are experiencing renewal shock as their current five-year leases are being bumped up by 15% to 30%. The two reasons for this are a lack of inventory in all sizes but, more importantly, the high costs associated with moving and build-out.

Downtown tenants, who have many choices for space (specifically in class B and C space), are also seeing rental rates pushed higher at renewal time – typically by 10% to 12% – because of the inconvenience and high cost of relocating. The South End has wonderful drawing power because of its proximity to affluent neighbourhoods, shopping, restaurants, parking, etc. The area’s biggest challenge is the commute time from other areas of the city. The difference in lease rates for 10,000 sf of finished office space between other parts of Winnipeg and the South End can be as high as $6 to $10 psf. Many office properties in other suburban locations are older and industrial conversions, which may suffer from tight parking.

This exodus is not a tidal wave; however, it is a noticeable migration that several developers are taking into consideration. This demand is driving land prices up and making new developments difficult. In comparison, the downtown office market is steady and very competitive for relocating tenants. Move-in-ready space is attracting the action, while recently demolished properties are moving slowly. Overall, Winnipeg’s office market is steady, characterized by upticks of activity in the south and very motivated landlords.

Vacancy in Metro Vancouver’s office market rose during the past year, with the increase in the downtown core largely attributable to small increases in

vacancy across numerous locations rather than a few significant events in specific buildings. Meanwhile, vacancy in most substantial suburban markets rose slightly or remained stable with some exceptions. Following more than 640,000 sf of positive annual absorption in 2012, Metro Vancouver recorded six-month negative absorption in the opening half of 2013 for the first time since 2009. The region’s overall vacancy rose to 7.6% from 6.7% a year earlier. Downtown vacancy increased even further, climbing to 4.6% from 3.3% at mid-year 2012.

Despite the rise in downtown vacancy, the leasing programs in five of six new office developments now under construction remained strong with more than 50% leased to date and more announcements expected. These projects will add nearly 1.8 msf of class AAA space to the downtown inventory by mid-2015. Four other office developments totalling an additional 1 msf are in the pipeline and could start to deliver additional product as early as 2016.

Meanwhile, suburban vacancy rose to 10.1% at mid-year 2013 from 9.6% at mid-year 2012. There is more than 150,000 sf of new office product set for delivery in the second half of 2013. Approximately 830,000 sf is set for completion in 2014, including the 411,000-sf Metrotower III in Burnaby and the 137,000-sf Merchant Square development in New Westminster. Vacant sublease space increased in core and suburban markets with total sublease space rising to 388,061 sf from 269,706 sf. Downtown class A lease rates (asking and additional rent) remained stable, and this will continue as demand-side questions minimize upward pressure on rates. Suburban class A gross rent remained steady, but specific submarkets face downward pressure. Overall, Metro Vancouver’s office market remains stable with key indicators emerging that highlight a return to more normalized conditions.

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Vancouver Office Vacancy Rates

Downtown Suburban

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Winnipeg Office Vacancy Rates

Downtown Suburban


Atlanta Office Market

Boston Office Market

During the first half of 2013, Atlanta’s office market was buoyed by improved economic conditions. The city’s unemployment rate has decreased to 7.6%,

the lowest since the Great Recession. Professional services and IT firms have been expanding their office space and bringing new jobs to Atlanta. Healthcare technology company athenahealth confirmed it will lease 75,000 sf at Ponce City Market, with the possibility of growing to 120,000 sf over the term of the lease. The healthcare IT group will eventually bring 500 new high-tech jobs to the city from Alpharetta, GA. Coca-Cola has announced that it will bring its IT center to Downtown Atlanta, consolidating multiple locations in 275,000 sf at SunTrust Plaza and bringing 2,000 jobs to the city.

The positive economic improvements and a willingness expressed by firms to expand have led to gains in the Atlanta office market. Atlanta ended the second quarter of 2013 with a total inventory of 143.5 msf and a vacancy rate of 19.7%. The vacancy rate has decreased 200 bps during the last 12 months. Net absorption for the first half of 2013 totaled 595,445 sf, up slightly from 410,111 sf during the same period in 2012.

Atlanta’s CBD has also recorded an uptick in rent over the past year, with average asking rents climbing to $20.78 from $18.08. Overall suburban market rents have remained flat during the same period; however, suburban class A rental rates did increase to $22.51 psf from $22.31 psf. CBD class A market rents are also improving. Currently standing at $19.81 psf, the rate is the highest since year-end 2011. Moderate job growth and limited development are expected to continue throughout 2013, leading to a tightening demand for quality space and, eventually, to rent growth across the Metro Atlanta office market.

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Atlanta Office Vacancy Rates

Downtown Suburban

Boston’s office market continued to experience strong leasing velocity in prime submarkets during the second quarter of 2013, resulting in

vacancy declines across most of the class A and B inventory. Vacancies fell to 17.1%, down 190 bps from a year ago, with vacancy in the CBD’s 59-msf market declining to 12.5%. The CBD saw leasing velocity of 2.5 msf, slightly off last year’s annual pace of 5.6 msf. Cambridge and the suburban office markets dropped below 20% vacancy for the first time since 2008. With 5 msf leased in 2013, the suburbs will struggle to keep pace with the 11 msf leased in 2012.

Quoted asking rents continued to rise, reaching an estimated $24 psf across the metro – the highest level since 2008. Downtown, full-service rents averaged $50 psf for class A space while tighter highrise listings, as well as select listings in the Back Bay, exceeded $70 psf. Average suburban rents reached $22 psf, an increase of $1 psf versus one year ago, while select suburban submarket class A asking rents moved back to the low $30s.

When new construction begins to be delivered in the CBD later this year, a leveling-off in vacancy rates is expected downtown - with major tenants migrating to the new properties, returning excess square footage to the market, while landlords continue to trade vacancies. Meanwhile, the limited suburban development is almost entirely build-to-suit and should not impact vacancies greatly. However, as leasing activity is not expected to keep pace with the last several quarters, a leveling-off of vacancy rates may occur until the business community gains more comfort with federal fiscal policy. When this occurs, office-using employment should resume its assault on Massachusetts’ overall unemployment rate of 6.6%, which still sits 400 bps above the historic low of 2.6% in October 2000.

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Boston Office Vacancy Rates

Downtown Suburban


Chicago Office Market

Charleston Office Market

The Chicago office market ended the first half of 2013 with a vacancy rate of 13.8%, down slightly from 14.1% one year earlier. With an inventory

of 142 msf, Chicago’s CBD recorded a vacancy rate of 12.2% – a moderate increase from last year. Vacancy in the suburban office market recorded a decrease of 80 bps since mid-year 2012, ending the first half of 2013 at 15.7%. Class A rental rates have experienced relatively little growth during the last 12 months. The River North and West Loop submarkets continued to attract the highest rental rates within the CBD – currently $39 and $36 psf, respectively.

Overall leasing activity slowed throughout the first half of 2013. The two largest lease transactions to date have occurred in the CBD. Law firm SNR Denton leased 217,000 sf, moving into vacated space within the Willis Tower; and ComPsych Corporation renewed and expanded into 128,000 sf at NBC Tower. Large blocks of desirable space are increasingly scarce in both the CBD and suburban markets, prompting concern for tenants with requirements greater than 100,000 sf. Of the 32 buildings that have been built since 1990 within the CBD, only six can accommodate tenants looking for more than 100,000 sf of contiguous space. While no new product has been added to the CBD since 2009, construction has commenced on River Point. The 861,000-sf building is 26% preleased to McDermott Will & Emery. Delivery is set for early 2016 and is a joint venture between Hines Interests and Montreal-based Ivanhoé Cambridge.

The technology and healthcare sectors continue to be major employment drivers. Several local technology companies have committed to adding more than 2,000 jobs by 2015. Unemployment remains above the national average – 9.4% compared with 7.6% nationally. While the Chicago office market has improved, the remainder of 2013 is expected to remain much the same. CBD leasing activity should see an uptick.

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Chicago Office Vacancy Rates

Downtown Suburban

It is often said that retail follows rooftops. In Charleston, the office market is impacted by residential growth as well, with the most notable decrease in

vacancy and increase in asking rent centered on Mount Pleasant - Charleston’s densely residential suburb across the Cooper River. Home builders and developers are back in the market as home sales are recovering and interest rates are still very favorable. Two examples are Galloway Homes of Columbia, SC, which just opened a Mount Pleasant office, and DR Horton, which will be increasing its footprint in the Mount Pleasant market. Another driving factor is that people prefer to work near where they live. As business improves for many small-to-medium-sized businesses, owners choose to work closer to home and are willing to pay a little more. Mount Pleasant’s good schools and improved roadways make it a desirable choice for service-oriented businesses. Furthermore, new developments around Charleston - many shelved during the Great Recession - are coming out of the ground now. As Carnes Crossroads, the Horizon project and Carolina Park move forward, residential, retail and office development are part of the plan.

Other factors shifting the office market are Boeing’s expansion and the changing ownership of several local office properties. As Boeing delivers its first 787 to China, the company continues to expand its campus. Vendors and suppliers of this aerospace giant that benefit from being nearby will surely drive demand for office space. In the last quarter alone, four major office properties in Mount Pleasant and Daniel Island have changed hands. Rising interest rates combined with confidence in the market have triggered investors to seize the opportunity to gain a stake in the office sector.

As a whole, Charleston’s market-wide vacancy remains stable at 14.8% compared with 15.1% in the second quarter of 2012.

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Charleston Office Vacancy Rates

Downtown Suburban


Dallas Office Market

The Dallas/Fort Worth economy continues to grow at a rapid pace, adding 107,800 jobs in the 12 months ending in May. Employment in Dallas is

growing at an annual rate of 3.6%, making Dallas the fastest-growing of the 20 most populous metro areas in the United States. The unemployment rate continues to trend downward and currently stands at 6.3%. A large portion of the added jobs are in the traditional business sector, causing an uptick in office leasing activity. The strong market fundamentals have translated into healthy absorption gains to date in 2013. The Dallas office market recorded 483,869 sf of positive net absorption in the first half of 2013, down slightly from the 563,432 sf in the first half of 2012.

A healthy demand for space pushed the overall vacancy rate down by 60 bps from mid-year 2012 to 15.6%. Downtown Dallas continues to struggle with a high vacancy rate of 26.9%. Asking rates in the downtown are still below those found in key suburban submarkets, although rates are beginning to firm up. Demand has largely shifted to the suburban markets, particularly Uptown and North Dallas, where vacancy continues to trend downward and asking rates continue to rise. Following the demand, 1.7 msf is under construction in the suburban markets, 61% of which is preleased.

The Dallas metro area is currently experiencing the highest rate of job growth in the country, which will translate into increased demand for office space for the remainder of 2013. Downtown will likely continue to recover at a slow pace. Until the 1.7 msf currently in development begins to deliver later this year, space will remain tight in the most sought-after suburban submarkets, putting upward pressure on rents as space continues to disappear from the market.

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Dallas Office Vacancy Rates

Downtown Suburban

The Denver office market, consisting of approximately 187 msf across 40 different submarkets, concluded the second quarter of 2013 with steadily

improving vacancy rates and positive absorption. The overall vacancy rate came in at 11.6%, down from 12.2% at the same time in 2012. Suburban vacancy rates are especially improving, and are down to an average of 11.7% – almost 100 bps lower than in the second quarter of 2012. Absorption for the first half of 2013 ended positively at 1.1 msf with the suburban markets, especially the Southwest Denver submarket, leading the way with more than 1 msf of positive absorption. Leasing activity is down slightly from this time in 2012, but is expected to rebound in the coming quarters.

Another indicator of the strong market in Denver is the number of active construction projects in the area. Both downtown and suburban markets boasted new construction, with a total of 793,265 sf in the works. Of this figure, approximately 76% is preleased. Some projects under construction include the 275,000-sf Kaiser Permanente building at 10240 Park Meadows Drive; 145,158 sf at 1550 Market Street; and Union Station North Wing, a 112,000-sf office project. Additionally, 508,681 sf of office space was completed during the first half of 2013. Some noteworthy new office buildings include the 180,000-sf TriZetto world headquarters, the 125,000-sf Trimble headquarters, and Suncor Energy’s 84,086-sf building at 5455 Brighton Boulevard.

Denver’s average asking rates continued the upward trend witnessed since the conclusion of 2011. The average mid-year 2013 rental rate was $21.18 psf, up from mid-year 2012’s average of $19.95 psf. Class A asking rental rates were up almost $2 psf from the same point in 2012, finishing out the second quarter at $26.32. The average asking rate for class B office space also increased to $18.92 psf.

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Denver Office Vacancy Rates

Downtown Suburban

Denver Office Market


The American drilling renaissance has brought about significant changes on a national and international scale. At the mid-year point, the Houston office

market continued to benefit from the energy boom and sustained high oil prices as companies grow and expand their footprint in the “Petro Metro.” In an effort to retain top talent, energy companies have shifted towards high-quality office product. Available class A space in Houston’s most sought-after areas became practically non-existent in early 2013, causing absorption to slow during the first quarter as companies awaited new product to come online. Absorption picked up in the second quarter, totaling 714,152 sf year-to-date. Although absorption is down compared with the first half of 2012 (2 msf ), absorption is projected to increase substantially throughout the remainder of 2013 as new projects deliver. Square footage under construction rose by nearly 8 msf from mid-year 2012. In one of the best illustrations of Houston’s demand, 78% of the 10.6 msf under construction is already preleased.

Demand continues to be centered around West Houston and The Woodlands. The “Energy Corridor” has the largest concentration of energy companies in the United States and is undoubtedly the most sought-after area in Houston. However, Exxon’s 3-msf campus in The Woodlands has caused an influx of tenants to the area who wish to be near the energy giant. The majority of the new construction is occurring in these two submarkets.

Vacancy has remained stable in the CBD since mid-year 2012, while vacancy in the suburban markets fell by 40 bps. As a result, overall vacancy dipped to 11.1% from 11.4% at mid-year 2012. In response to the demand, city-wide asking rates increased by $0.17 psf to $24.21 psf. Leasing activity and absorption in the Houston office market are expected to increase throughout 2013 as the city’s strong market fundamentals and employment outlook translate into increased demand for office space.

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Houston Office Vacancy Rates

Downtown Suburban

Detroit Office Market

After much anticipation, the City of Detroit filed for Chapter 9 Bankruptcy protection on July 18, 2013. Kevyn Orr, the state-appointed emergency

manager, has been telegraphing this move since his first days on the job as the only realistic course for the City of Detroit to follow, given more than 40 years of mismanagement and financial negligence. With over $28 billion in long-term debt, the filing represents an opportunity for the southeast Michigan region to hit the “reset” button on Detroit and move forward under a more sustainable financial structure.

Vacancy rates in the 145-msf market slipped to 19.3% from 20% on a year-over-year basis. The downtown market, which comprises approximately 33 msf, represented the largest vacancy reduction in the market, dropping to 16.9% from 19.9% as a result of local investors and occupiers that have continued to acquire properties in the downtown and midtown areas of the Detroit CBD with intent to redevelop space into office or much needed residential stock. It is anticipated that major infrastructure projects, such as the $130-million M-1 rail project and the new $650-million Detroit Red Wings hockey arena and entertainment development, will proceed as planned.

On a regional basis, average annual rental rates have held steady in their respective submarkets despite a very broad range of $15 to $30 psf on a gross basis. The market continues to have a short supply of quality blocks of class A office and high-cube distribution space. Development activity for build-to-suit industrial requirements is significantly higher but it is anticipated that no class A office will be developed on a speculative basis in the near term as remaining class A and B vacancy is absorbed.

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Detroit Office Vacancy Rates

Downtown Suburban

Houston Office Market


Irvine Office Market

The Orange County office market exhibited signs of recovery in the second quarter of 2013, demonstrated by more than 700,000 sf of positive net absorption.

Additionally, average asking lease rates increased, indicating a bottom in the downward trend of asking lease rates, and further supporting the recovery of the past 24 months. Countywide, the office market posted more than 1.3 msf of positive net absorption in the first half of 2013, giving the market total positive absorption in excess of 6 msf during the last three years. There was a resurgence of demand for class A space in the second quarter of 2013, resulting in 470,000 sf of positive absorption. Renewed interest in class A space demonstrated ongoing confidence in the office market.

Orange County is among the leading regions in the country in multi-family development. Specifically in Irvine, the Irvine Company is developing more than 4,000 units that are either under construction or in the pipeline. Orange County will lead the region in employment gains, fueled by high-tech manufacturing and services, tourism, entertainment, professional and business services and construction. The county’s recovery will continue to outpace the rest of California, with gains of 22,300 jobs in 2013. The unemployment rate in Orange County, which peaked at 9.5% in 2010, dipped to a lean 6.8% in 2012 – the lowest in Southern California. Strong economic fundamentals and increased payroll averages will attract residents in need of housing to the region.

Vacancy and availability also declined in the second quarter, demonstrating further market strength. Vacancy in direct and sublease space finished the quarter at 15%, a decrease from the first-quarter rate of 16.7%. Vacancy will continue trending downward in 2013, ending the year at approximately 12%. As the Orange County office market moves into the second half of 2013, there will be continued progress, including positive net absorption, rising lease rates and strong levels of leasing activity.

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Irvine Office Vacancy Rates

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The Las Vegas office market continued to show signs of improvement as vacancy dropped to 19.5% in the second quarter of 2013 from 23.6% in

the second quarter of 2012. Conversely, medical office vacancy increased to 19.9% in the second quarter of 2013 from 18.5% one year ago. Medical office vacancy has been slowly increasing in recent years. This trend may be due, in part, to some medical practices downsizing or certain doctors closing their practices altogether and joining hospitals.

Since January 2013, there have been approximately 155 leases and 80 sales completed in the valley. Of the 80 office buildings sold, 14 were medical buildings. The majority of tenant activity took place in the South and Southwest submarkets in the first half of 2013, with lease deals averaging less than 10,000 sf. Average asking class A lease rates remain at similar levels as in recent quarters. Average asking class B lease rates, however, continue to drop as landlords are still competing with each other to attract new tenants or negotiate with existing tenants on renewals.

The local unemployment rate continued its steady decline, reaching 9.5% in May, down 70 bps from January. This trend bodes well for the office market. With approximately 5,000 people moving to Las Vegas every month, the job market remains highly competitive. The continual increase in jobs in the valley will once again push the greatly needed demand for office product that will help absorb existing vacant space across the Greater Las Vegas marketplace. Once developers see enough positive sales and leasing activity, new construction will achieve forward momentum in what has historically been one of the fastest-growing markets in the nation.

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Las Vegas Office Vacancy Rates

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Las Vegas Office Market


Los Angeles Office Market

Recovery in the Los Angeles office market has been slow, but stable. The second quarter of 2013 ended with a countywide vacancy rate of 16.3% – on par with the

first quarter of 2013. Leasing gained momentum as 3.3 msf was leased, boosting the year-to-date total to 6.5 msf. Rental rates remained stable, with consecutive quarters above $30 psf. Space requirements are trending smaller as tenants focus on using space more efficiently and reducing overall square footage. The Great Recession allowed for companies to downsize and re-examine conventional space usages. The majority of new leases signed in Los Angeles County are for premises less than 20,000 sf. Many white-collar businesses, such as law firms and financial consulting firms, make smaller commitments to office space when they renew leases for five or more years. Demand for space countywide yielded positive net absorption of 90,000 sf in the second quarter of 2013, up from negative absorption of 102,000 sf in the second quarter of 2012.

A major reason buildings have been slow to fill is that some companies are still giving up office space they agreed to lease before the recession forced layoffs. Other employers are packing more workers into less space, even though their firms are hiring. In spite of this trend, a handful of tenants moved into large blocks of space in 2013, including PricewaterhouseCoopers LLP into 133,363 sf at Figueroa at Wilshire; HULU into 85,113 sf at Colorado Center; and Westfield into 81,124 sf at Century Plaza Towers. Sales, investments and acquisitions have also characterized the first half of 2013, fueled by lower sale prices and distressed ownerships.

The creative office market demand will continue to lead the recovery in Los Angeles County, particularly in the Santa Monica and Lower Westside areas. As the Silicon Beach corridor continues to become saturated, technology and media tenants will seek space in the environs, including Playa Vista, an emerging market.

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Los Angeles Office Vacancy Rates

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Market indicators as of mid-year 2013 revealed that the New Jersey office market is being resuscitated through the combined impact of the life

science and healthcare industries. Five of the top six lease transactions that contributed to office space absorption during the second quarter were by these sectors, reinvigorating New Jersey’s reputation as the “Medicine Chest” of the United States and helping to bring about the largest decrease in New Jersey’s overall office vacancy rate since the third quarter of 2011.

During the second quarter of 2013, the New Jersey office market experienced positive net absorption of 676,000 sf, which contributed to a decrease in the overall vacancy rate to 20.9% at the mid-year point from 21.4% the previous quarter, but remained slightly higher than 20.6% year-over-year. Average asking rents also responded to the slowly improving market conditions, increasing to $22.58 psf gross, plus tenant electric during the quarter – the largest upturn since the first quarter of 2011.

The healthcare industry has been the fastest-growing sector in New Jersey, adding 171,100 new jobs from 1990 through 2011, while all other private sector employment has had a net increase of only 6,800 jobs. The life sciences industry in New Jersey is home to more than 350 biotechnology companies and 17 of the 20 largest pharmaceutical companies, employs 121,000 people in New Jersey and contributes more than $58 billion to the state economy. According to the U.S. Census, baby boomers make up the largest increase of all age groups, providing the foundation for a continued and increasing demand for healthcare and life science services and products. In the second half of 2013, the ongoing growth of these two sectors is expected to fuel office market activity and strengthen conditions, particularly in central New Jersey where the presence of life science companies is so prominent.

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New Jersey Office Market


New York Office Market

Indicators for the Manhattan office market were conflicting at mid-year 2013. Overall, activity has increased as tenants finally begin to make decisions after

waiting for the economy to gain footing – but large blocks of space are still being placed on the market. Demand for view space in trophy properties has been robust of late, but base floors have just started to see interest.

After rising during the first quarter, Midtown’s class A vacancy reversed direction during the second quarter, dipping to 12.3% from 12.5%. Illustrating a demand for new product, two of the largest deals for the quarter were completed in Hudson Yards. L’Oreal and SAP leased 402,000 sf and 115,000 sf, respectively, in towers that will be constructed on Manhattan’s far West Side.

With a class A vacancy rate of 7% and an overall rate of 9.3%, Midtown South remains the tightest market in the city. Both Midtown and Downtown are catching demand from tenants who need large blocks of space or who simply find Midtown South unaffordable. Meanwhile, in Downtown Manhattan, class A vacancy spiked to 16.8% during the second quarter, up from 14.8%, as 750,000 sf was added to the market at 180 Maiden Lane. The rate will likely escalate again before the end of the year as space at One World Trade Center is added.

On the whole, average asking rents across Manhattan rose during the quarter. Class A rents finished at $64.45 psf, up from $63.66 psf at the same time last year. Price escalation is occurring at the high end of the market. To date, there have been 31 lease deals with starting rents north of $100 psf compared with 34 such deals in all of 2012. The second half of 2013 begins with expectations that leasing activity will moderate through the summer months, followed by high activity and positive absorption in the final quarter.

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Pittsburgh Office Market

Throughout the first half of the year, the Pittsburgh office market has seen financial services, healthcare and technology pick up where the education sector has

slightly tapered off. These core sectors of Pittsburgh remain the strength of the region’s employment.

Pittsburgh continues to be in the national spotlight as unemployment decreases and vacancy remains low. With more than 1 msf under construction, building activity is up as many developers have a shovel in the ground, while several others await final approvals. Noteworthy transactions from the second quarter include Chevron’s purchase of 61 acres in Moon Township - leading many to believe this site is where the company will build its regional headquarters - and Dick’s Sporting Goods leasing 73 additional acres in order to construct a 180,000-sf expansion to the firm’s existing headquarters in Findlay Township.

Investment activity remains strong as several buildings valued at more than $3.5 million changed hands in the last quarter. Outside investors are still highly interested in entering the Pittsburgh market to consider all acquisition opportunities, from office complexes to multi-family portfolios and everything in between. Carrying over from the previous year, leasing activity remained strong as many companies – ANSYS, Google, Netronome, Rex Energy, Halcon Resources, the NSABP foundation and RBC Capital, to name a few – continued to expand and added to the never-ending list of companies planting roots in the region. The continued expansion and arrival of such renowned companies should come as no surprise to many who have followed the national media’s ongoing coverage of the resurgence and unrelenting growth of the Pittsburgh CBD and surrounding areas.

Much like its recent past, the Pittsburgh office market’s future looks promising. Pittsburgh appears to be on the cusp of another wave of activity in the market with U.S. Steel’s forthcoming decision on whether to renew or relocate its operations.

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Reno Office Market

The Reno office market witnessed a significant improvement in the first half of 2013 compared with the same period in 2012. Downtown vacancy increased

to 17.2% from 15.3%, but in suburban markets (where a majority of office space is located), vacancy fell to 15.7% from 17.2%. Most significant transactions in the first half of 2013 were in suburban areas. Among them were two call centers totaling more than 40,000 sf, a staffing agency moving into 6,040 sf and a large national engineering firm taking 14,000 sf.

Rental rates have stabilized in the Reno market. Positive absorption in the suburban markets and a lack of new construction in both the downtown and suburban markets have finally caused rental rates to reverse a five-year downward trend and start to head in a slightly upward direction. Leading the way have been several large class A buildings in the suburban market which have raised gross rents to $23 psf as vacancy dipped below 5%.

Local economic development authorities have experienced near-record inquiries and site visits from out-of-state companies looking to explore Reno’s positive business climate and proximity to California. Reno’s transportation infrastructure, excellent airport and solid employment base have led several companies to locate subsidiaries in the region. In addition, local city and county municipalities have turned the financial corner, creating a pervading sense of optimism that has spread to the business community. Very little of this optimism existed in the first half of 2012. Finally, unemployment rates in Reno have fallen to 9.2%, down from 11.8% in the first half of 2012. A continued lack of new construction and an upwardly mobile economy will drive Reno office vacancy to below 16% by year end.

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Reno Office Vacancy Rates

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Raleigh-Durham Office Market

Vacancy in the Raleigh-Durham office market resumed its downward trend in the second quarter of 2013 following an anticipated stumble earlier in the year that

sent absorption into the red for the first time in six quarters. Vacancy in the region’s CBD ended the second quarter at 10.4%, down by 80 bps since the second quarter of 2012. In the suburban markets, where landlords are facing a glut of class B space, vacancy ended the second quarter at 19.1%, down by 120 bps year-over-year.

While overall vacancy remained well above equilibrium (10% to 12%), class A options in prime locations are dwindling, and tenants are increasingly being forced to settle for their second or third location option. At mid-year, class A vacancy stood at 14.7% in the suburbs and at just 8.5% in the CBD. This lack of large blocks of class A space is keeping a lid on absorption. During the second quarter alone, transactions totaling nearly 100,000 sf were consummated in buildings that will not break ground until later this year. As tenants with large requirements are forced to turn to proposed buildings to accommodate their needs, the development pipeline is beginning to fill again. Landlords are starting to hold the line on concessions and, in select cases, beginning to raise asking rates. This trend will likely escalate heading into 2014, buoyed in part by the delivery of newly constructed space at a higher price point.

Office vacancy should continue to fall through the remainder of 2013, albeit at a measured pace, as an improving job market fuels increased demand. Raleigh-Durham’s unemployment rate fell to 7.3% in the second quarter, down from 7.8% one year ago and from a peak of 9.5% in early 2010. The region remains prominent on the radar of businesses looking to relocate or expand. Earlier in the year, MetLife announced it will open a new global technology and operations center in Cary, creating approximately 1,200 jobs.

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San Diego Office Market

During the first half of 2013, the San Diego office market recorded 142,152 sf of positive net absorption countywide. The second quarter’s net absorption level

was slightly below the post-recession quarterly average of 195,000 sf; however, it was an improvement compared with the negative net absorption recorded during the second quarters of the previous two years. Nearly one-third of the 1,362 existing office properties tracked countywide experienced activity, with 17% reporting positive net absorption totaling 1.14 msf. The average amount of space tenants vacated during the second quarter was approximately 5,300 sf. The trend of tenants decreasing their overall footprint and/or square feet per employee is one that will continue to be felt. Tenants are increasingly evaluating ways to improve their overall operating efficiency while rightsizing. Employees, similarly, are increasingly favoring flexible work schedules, including telecommuting, which is contributing to smaller footprints and will likely impact future average absorption numbers.

Total vacancy in the suburbs for all classes, including sublease space, was 14.4% in the second quarter of 2013, compared with 17.6% in the second quarter of 2012. Sale and lease transactions totaled 2.2 msf in the second quarter, in line with the 2.3 msf transacted in the first half of 2012.

Recovery has not yet been overwhelming in San Diego; however, overall, the office market has been steadily improving during the last three years. With few new deliveries in the pipeline to apply upward pressure on vacancy, the market is stabilizing. Lease rates have begun rising for class A property in some central areas. Leasing activity should increase as many short-term deals come up for renewal. Unemployment rates have continued to trend downward since the peak in 2010. As job creation continues and consumer confidence stabilizes, the office market will see further recovery.

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San Francisco Office Market

Compared with the first half of 2012, leasing activity in the city decreased nearly 50% in the first half of 2013. However, even with the slowdown in

leasing, the San Francisco market continued to have strong, positive absorption, and at mid-year 2013 hit the three-year mark for consecutive quarters of declining vacancy. Vacancy stood 140 bps lower at mid-year 2013 compared with a year earlier. Because of the impressive, record-breaking leasing activity seen in 2012, vacancy is expected to drop even further as prominent tenants such as Salesforce, Macys.com, Riverbed Technology and Yelp move into large blocks of space in 2013 and 2014.

As a result of sustained success in the San Francisco market, rental rates have continued to push upward. Class A rent increased 12.8% from mid-year 2012 to mid-year 2013. The growth can be partially attributed to the large number of buildings that traded hands in 2012, driving rents upward as owners seek quick returns on their new investments. Perhaps because of the large increase in class A rental rates, the class B market tightened at a greater rate in 2013. Class B availability decreased by 350 bps in the first half of 2013, while class A availability actually bumped up by 60 bps during the same period.

With few large blocks of space remaining in the city, speculative development has picked up steam. If 2012 was the year of building sales, 2013 is shaping up to be a year of new development. Three buildings, totaling more than 1 msf, were under construction by mid-year 2013, with another class A highrise expected to break ground in the second half of the year. Even though leasing has slowed down in the first half of 2013, San Francisco remains a hot market as investors and tenants continue to show a strong interest in the city and its amenities.

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Washington, DC Office Market

South Florida Office Market

Due to recent new deliveries and tenant consolidation, the Washington Metropolitan office market has seen its vacancy rate increase by 70 bps

since mid-year 2012, ending the second quarter at 13.8%. Importantly, all three jurisdictions that make up the region – the District of Columbia (DC), Northern Virginia and Suburban Maryland – had increased levels of vacancy. Nevertheless, after 2012’s substantial negative net absorption of 2 msf, year-to-date absorption for the region is positive, albeit nominal at less than 800,000 sf for this 369-msf market.

Well-located construction has successfully attracted tenants at the expense of older properties, some of which will be adapted for uses other than office, demolished or substantially upgraded for re-tenanting. This year, 5.9 msf is expected to be delivered and another 2.7 msf will be completed in 2014. Projects under construction boast a 50% prelease rate, some at record rent levels. One of the largest deals year-to-date is the long-anticipated resolution of the National Science Foundation’s (NSF) expiring lease in Arlington, VA. NSF announced in the second quarter that it will relocate in 2017 to a new development in Alexandria, VA near the headquarters of the U.S. Patent and Trademark Office. In DC, National Public Radio (NPR) completed its move to a new headquarters just north of Capitol Hill. NPR’s former headquarters will be razed and Boston Properties will develop a new building on the site, which is already 80% preleased to Arnold & Porter.

Transaction velocity, as in 2012, remains well below average volume. Continued uncertainty due to sequestration, which took effect in March 2013, and the failure of the President and Congress to agree on a federal budget, has driven many tenants to the sidelines. Various notable contractors who knew they could be impacted by sequestration began preparing months prior to the law’s implementation by systematically rightsizing. Look for the region’s tenant-favorable conditions to be sustained well into fiscal year 2014 as vacancy rates remain elevated relative to this market’s historical performance.

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Washington, DC Office Vacancy Rates

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Demand for office space in the South Florida market continues to show signs of strengthening in the wake of the Great Recession. A major contributing factor

to this persistent rise is Florida’s ever-improving employment market. According to the Florida Department of Economic Opportunity’s Local Area Unemployment Statistics (LAUS), as of May 2013, unemployment in the South Florida area continued to fall as the region gained more than 46,000 jobs year-over-year, pushing the unemployment rate down by 120 bps to 7.6%. As a result, demand for both downtown and suburban office space within Miami-Dade, Broward and Palm Beach counties remained on an upward trajectory as evidenced by declining vacancy rates, persistently positive absorption and increased construction activity.

The South Florida office inventory consists of approximately 158 msf in more than 2,300 buildings. Vacancy rates continued to tighten, dropping for the third straight quarter to 15.4%, a 70-bps decrease from the second quarter of 2012. Downtown class A buildings led the year-over-year decline with a solid 150-bps decrease from the first half of 2012. Absorption within the South Florida Metropolitan Statistical Area remained positive with 486,000 sf being absorbed during the first half of 2013. Suburban class A buildings accounted for more than 44% of this absorption with 179,000 sf of year-to-date absorption. Increasing demand in South Florida was also evidenced through the growth in construction activity. Currently, more than 730,000 sf of office space is under construction, an increase of nearly 30% from the first half of 2012.

With future employment projected to outpace inflation - growing an estimated 2.2% per year versus inflation at 1.7% to 2% (based on the Federal Reserve Board’s June 2013 projections) - and unemployment predicted to stay on its declining path to an estimated 6.1% in 2016, the South Florida office leasing market should continue to experience an increased demand for both downtown and suburban space.

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Avison Young ResearchCanada & U.S. Publications

Turning Information into Intelligence

Avison Young’s multi-disciplinary group of dedicated research professionals works collectively to deliver market analysis and insights that drive value in real estate decisions. We translate data into market intelligence to help

our clients strategically solve their real estate concerns and concentrate on what their business does best.

Avison Young regularly produces an array of local, regional and North American market research, including quarterly and special reports, and annual forecasts. Our research is quoted extensively in local, national, business, and global media outlets.

Through Avison Young’s professionals, our research team engages with a wide variety of corporate, investor and institutional clients to conduct customized research, due diligence and market assessments, as well as demographic and location analysis.

Leveraging in-depth knowledge from our broad services platform with information from internal proprietary and independent third-party data-tracking systems, our clients’ real estate decisions are fully supported by best-in-class, interpreted data – true market intelligence.

Avison Young Canada, U.S.Commercial Real Estate

Investment Review(Fall 2012)

By November 2012, the Washington metro area’s unemployment rate was 5.3%, one of the lowest levels in the U.S. Washington’s

employment gains and other strong indicators belie the overall sense of caution that has existed since mid-year. In 2012, anticipated vacancies due to Base Closure and Realignment of 2005 (BRAC), constrained federal government leasing, new construction and private-sector tenant consolidation resulted in a softer real estate market. At the same time, strong tenant-favorable conditions created opportunities for occupiers, and some tenants restructured leases well in advance of expiration dates for significant savings.

The next 12 months will be a time of transition while the market waits out the budget impasse and the federal government implements new policies regarding space utilization, security standards and energy efficiency. The sense of uncertainty will persist in early 2013 with deal velocity gradually improving in the second half of the year.

OfficeThe metro market’s vacancy rose to 13.3% in 2012 from 12.2% at year-end 2011, while transaction velocity fell and net absorption turned negative. Construction increased last year as 3.5 msf was completed, with roughly 65% preleased. Another 4 msf is scheduled to deliver this year. Notably, some sizable developments were started speculatively in 2012. Among them were Monday Properties’ 540,000-sf 1812 North Moore Street in Rosslyn and Macerich’s 530,000-sf Tysons Tower in Tysons Corner.

With favorable conditions for tenants, renewals still dominated leasing transaction activity, including the National Institutes of Health’s 356,000-sf lease in North Bethesda and the U.S. Small Business Administration’s 254,000-sf lease in Southwest DC. Bucking the renewal trend were TNS Inc., which signed for 120,000 sf in Reston, and Corporate Executive Board’s expansion of 109,000 sf in Rosslyn.

In 2013, some historically tight suburban Metrorail-served locations, such as Rosslyn-Ballston Corridor and Crystal City, will have further vacancy increases, while DC’s vacancy remains in the single digits. In the latter part of this year, deal velocity around the region will likely begin to accelerate, though many submarkets will remain oversupplied throughout the year.

RetailWashington continued to attract and retain retailers drawn to the market’s strong demographics in 2012. In the downtown DC market, retail performed well, with national retailers paying upwards of $80 psf in submarkets like Capitol Hill and even higher in destination areas such as Chinatown. Expanding food concepts are being supported by a myriad of multi-residential developments in these neighborhoods.

In the suburbs, submarkets such as Clarendon and Reston Town Center are mature mixed-use environments. Plans for a new Tysons, to coincide with the extension of the Silver Metrorail line, will bring an enhanced live-work-play environment to this car-and-mall-based submarket.

IndustrialThe Washington region’s 187-msf market recorded positive absorption and a decrease in vacancy (to 10.1%) in 2012. Recent significant leases include Nash Finch taking 365,000 sf in Suburban Maryland and Cuisine Solutions committing to 163,000 sf in Northern Virginia.

The region’s data center inventory, concentrated in Northern Virginia, is one of the largest in the country and boasts a sub 9% vacancy rate. Virginia’s governor recently signed a bill that expanded sales tax exemptions for data centers, and both the private and public sectors are expected to expand.

InvestmentBy November 2012, year-to-date sales volume for office, industrial and retail properties was $6.4 billion metro-wide. While exceeding 2009 and 2010 totals, volume lagged by 24% of what was achieved during the same period in 2011. That gap was expected to tighten before year-end 2012 as major sales were completed (including Constitution Center, which closed for an estimated $734 million in the fourth quarter), and as sellers rushed to close before any scheduled capital gains take effect.

In 2013, the best opportunities will be in high-quality, well-leased suburban office buildings with locations proximate to Metrorail.

L to R: Tysons Tower, Constitution Center, 1812 North Moore

Washington, DC

40 Avison Young 2013 Forecast

Region in transition in 2013 as sequestration plays out

Avison Young 2013 Canada, U.S. Forecast (2012 Annual Review)

Avison Young 2013 Forecast 9

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CANADA OVERVIEW & FORECAST

Office Vacancy Forecast 2013:

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MESSAGE FROM THE CEO

2013: A year to position for the future Looking much like 2012, minus the Mayan end of the world

As we go to print with our 2013 Forecast, we at Avison Young are happy to report another year of dramatic growth and solid

performance in 2012 for our company. We are proud to have helped clients successfully traverse a North American real estate landscape that was bumpy in some markets and asset classes. We are also pleased that we enabled clients to capitalize on robust growth in the oil and gas regions, relative stability in the major coastal “gateway” markets, and a nascent revival in industrial markets, thanks to a manufacturing sector that began to offer glimmers of hope in 2011.

We are forecasting a similar scenario for 2013, although without the doomsday predictions. Against a global backdrop of financial uncertainty stemming from continuing issues with stability in Europe, a potential slowdown in China, the debt ceiling and new fiscal cliffs in the U.S. and potential plateauing in Canada, North American real estate markets still appear to be the most stable – with a healthy balance of risk and opportunity.

We believe that the real estate community will – and should – position and reposition to take advantage of what will likely be a healthier and clearer picture by 2014. This is not to say that we should write off 2013, or sit on the sidelines. Quite the opposite: there is much to be transacted in 2013 while strengthening positions for the future, as economic and political issues in the U.S. and Europe see some form of resolution.

Most economists predict that Canada and the U.S. will grow their respective economies, as measured by gross domestic product, at the rates of 2% and 2.8%, respectively. These rates are still anemic and have some observers worried. However, considering all of the economic and political uncertainty in the world, these rates should be considered positive and definitely on the right track.

What we at Avison Young have been advising for the last three years will continue to be our mantra: stay patient, risk-manage your strategy on the buy-side, and take advantage of off-market and distressed opportunities when they present themselves. As a seller, do not be afraid to take some profits. Core assets in the major markets are highly sought-after and, therefore, aggressively priced when up for competitive bid. Multi-residential and high-end retail are the favoured assets, but significant office and industrial transactions are occurring. Plenty of opportunities can still be found in off-market

transactions, if one knows where to look. At Avison Young, we have been very successful in helping our clients do just that.

Canada: Are we at the top?

In Canada, the shortage of product (evidenced by REITs buying portfolios and private funds buying REITs) and very low current vacancy rates suggest more demand-side price upside, even though the large development pipeline may temper rent growth. The strong Canadian dollar is a problem for the domestic economy, though positive for Canadian institutions going global – a trend that we expect to increase in 2013. These factors, combined with pervasive condo overbuilding, are resulting in “Are we at the top?” questions north of the border.

U.S.: Are we at the bottom?

On the other hand, in the U.S., the early signs of a housing recovery are triggering the question: “Are we at the bottom?”. The lack of development is providing confidence for investors making value-add acquisitions, and core class A product is expensive everywhere.

Thus, as Canada appears to have reached a short-term top in pricing, the U.S. is just beginning to get its sea legs. Assuming Washington can reach agreement and avoid inducing a recession, all signs point to an economy and a real estate environment that has plenty of capacity to recover and grow.

Leasing advantage to occupiers

As we begin 2013, we see that leasing generally remains tilted in favour of the occupier, except in select oil and gas cities such as Houston and Calgary. Vancouver and Toronto are fairly balanced as well. Most other markets have either been flat-to-down or in unstable recovery mode. We have not seen extraordinary growth in rental rates or a huge reduction in vacancy in any major market in North America. Instead, we continue to see markets that are poised for positive absorption and rental growth when global factors and benchmarks turn positive and decision-makers finally take action. However, there is still too much pessimism and uncertainty in the system for a full-blown recovery. It wants to happen, but confidence needs to lead the way.

Avison Young 2013 Forecast 3

AVISON YOUNG 2013 FORECAST2012 Annual Review

Commercial Real Estate - Canada & U.S.

partnership. performance.

Avison Young Commercial Real Estate Newsletter (Canada, U.S.)

AV

ISON YOUNG

Following several years of less than 7% vacancy, Northern

Virginia’s 22-msf Rosslyn-Ballston (R-B) Corridor saw vacancy begin to climb in 2011 and reach 15% by the first quarter of 2013. Many factors contributed to this dramatic change and will likely test the market for years to come.The consolidation related to the Base Closure and Realignment legislation of 2005 (BRAC) – wherein defense agencies vacate leased space in the private-sector market and move to government-owned facilities – was to have been completed in 2011. The program will now carry on at least through 2015 with some 2 msf of additional move-outs planned in this submarket. 4040 North Fairfax

Drive is a prime example. A back-office function for the Department of Defense vacated the entire 184,000-sf building at the end of 2012 and moved to a neighboring submarket.New development activity is currently outpacing absorption. The R-B Corridor’s 10-year average annual absorption is 273,000 sf and by the end of 2013, 538,000 sf of speculative construction (nearly two years’ supply) is slated to be delivered in a single building at 1812 North Moore Street, being developed by Monday Properties.That being said, owners of new buildings can expect to attract a fair share of tenants. A significant dichotomy exists between the performance of newer properties and older ones beyond the general flight-to-quality trend also at play. The 22 newest buildings in the R-B Corridor, which were delivered between 2002 and 2012, averaged 424,000 sf of absorption annually during that period and boasted an 8.6% vacancy rate at year-end 2012, compared with 14.9% for buildings completed prior to 2002. Able landlords are renovating or repositioning older assets to help them stand out or converting them to other uses such as multi-residential projects.Additional market challenges include Metrorail’s Silver Line extension into Tysons Corner which, when completed, will create more affordable leasing opportunities for occupiers seeking Metrorail-served locations. There is also a pullback, beyond BRAC, from federal tenants due to a mandate to increase space-use efficiencies and pending further tightening, from government contractors as well, as a result of sequestration’s spending cuts. Similarly, space utilization rates are falling among private-sector tenants as work culture changes brought about by a younger workforce and technology are leading to more densely packed, open-workspace floor plans.Despite the R-B Corridor’s many desirable qualities, it is expected that these market influences will lead to a prolonged underlying vacancy, especially in class B buildings. The R-B Corridor is likely to experience intense competition for viable tenants for the foreseeable future.

Washington, DC

Recent Lease Transactions VA Data, Inc., Ashburn (industrial) – 200,000 sfTNS, Inc., Reston (office) – 120,000 sfNorthern Virginia Community College, Fairfax (office) – 84,900 sfPacific Architects and Engineers, Courthouse (office) – 71,100 sfLevel 3 Communications, Tysons Corner (office renewal) – 64,100 sfArlington Public Schools, Arlington (office) – 62,300 sfAlion Science & Technology, Alexandria (office renewal) – 57,300 sfRecent Exclusive Lease Listings Trinity Centre 1-4, Trinity Parkway, Centreville (office) – 488,200 sf5911 & 5971 Kingstowne Village Parkway, Alexandria (office) – 304,000 sf3150 Fairview Park Drive, Merrifield (office) – 252,600 sf10740 Parkridge Boulevard, Reston (office) – 215,700 sf8609 Westwood Center Drive, Tysons Corner (office) – 159,300 sf11790 Sunrise Valley Drive, Reston (office) – 139,500 sfRecent Properties Sold 1900-1902 Campus Commons Drive, Reston (office) – 239,600 sf10740 Parkridge Boulevard, Reston (office) – 215,700 sf8609 Westwood Center Drive, Tysons Corner (office) – 159,300 sf10800-10802 Parkridge Boulevard, Reston (office) – 121,700 sf9990 Fairfax Boulevard, Fairfax (office) – 93,000 sf607 Herndon Parkway, Herndon (office) – 78,300 sf

Avison Young acted on behalf of the buyer in the purchase of 10740 Parkridge Boulevard in May 2012 and has since represented the new landlord in three lease transactions totaling 170,000 sf.

In late 2012, 4040 North Fairfax Drive felt the effects of BRAC when the entire building was vacated. Renovations are planned in an effort to better attract tenants to backfill the space.

Rosslyn-Ballston Corridor facing a new reality

32

Avison Young Commerical Real Estate Newsletter

Canada, U.S. (Spring/Summer 2013)


AV

ISON YOUNG

31

The unending wave of multi-residential development

that took place in South Florida during recent years brought with it some concern as to whether the market could handle such robust activity. As the South Florida Business Journal reported recently, development activity has been strong and experts believe the market is ready for it. One of those experts, Alliance Residential chief operating officer Brad Cribbins, pointed out one trend fueling the

market demand: “Much of what is getting built is midrise downtown/urban buildings. What’s drawing people to that particular building type is mobility.” He adds that “the 25- to 35-year-old group is redefining how long they want to be tied down to a home.” Further supporting the claim that demand in the multi-residential market remains healthy is CVR Realty’s report that South Florida is on pace to surpass the 100 proposed condominium developments threshold in 2013 with as many as 15 condominium projects already under construction. Most of these projects are midrise developments near thriving urban areas. Adding these condo totals to the broad scope of South Florida’s multi-residential development boosts the local market to the top of most metros nationwide.Additionally, according to Multi-Housing News, at year-end 2012, the South Florida market had vastly outsold its share of multi-residential development sites compared with the rest of the country, with more than $315 million in sales (compared with second-place Los Angeles at more than $108 million). The South Florida sites seeing the most activity seem to be infill locations in the primary submarkets. Once the new supply hits the market, it does not take long to sell. As anticipated, class A inventory is still expected to be the product to beat. Reports show that brand new product sells very quickly, with the majority of the highly coveted projects still attracting all-cash buyers as the top bidders. Most of the region’s experts believe the market should maintain a steady growth rate as construction loans have become easier to obtain and capital from secondary markets is starting to become a factor. Foreign investment, especially from Latin America, also remains as a strong component of private capital with more overseas interest growing by the quarter. Simply stated, the sustained level of activity across the multi-residential market seems to indicate that the sector should remain one of the hottest commercial markets in South Florida.

View of Sunny Isles, Florida - home to many of South Florida’s marquee condominiums.

Recent Lease TransactionsCasto Investments Company, LLP (retail) – 126,400 sfLNR Property Corporation (retail) - 28,100 sfInBound Call Experts, LLC (office) – 26,500 sfTNHYIF REIV Kilo (office) – 16,700 sf LFC Development, LLC (office) – 12,900 sf Boca R & D Project (office) – 12,600 sf MS Eastchester, LLC (retail) – 12,300 sfBoca R & D Project 7, LLC (office) – 10,500 sf

Recent Exclusive Lease Listings3998 FAU Boulevard, Boca Raton (office) – 283,900 sf5900 N. Andrews Avenue, Ft. Lauderdale (office) – 215,000 sf100 W. Cypress Creek Road, Ft. Lauderdale (office) – 215,000 sf8051 Congress Avenue, Boca Raton (office) – 160,000 sf1875 NW Corporate Boulevard, Boca Raton (office) – 123,800 sf 900 Broken Sound, Boca Raton (office) – 120,700 sf 1100, 2200 & 2100 Park Central Boulevard, Pompano Beach (office) – 112,500 sf 1300 Sawgrass Corporate Parkway, Sunrise (office) – 106,600 sf 3201 N. University Drive, Coral Springs (office) – 105,900 sf 150 S. Pine Island Road, Plantation (office) – 102,000 sf2307 W. Broward Boulevard, Ft. Lauderdale (office) – 66,900 sf604-622 Banyan Trail, Boca Raton (office) – 65,000 sf141 NW 20th Street, Boca Raton (office) – 61,800 sf

Recent Properties SoldStearns Bank (office) – 14,200 sf

Recent Sale Properties Listed 604-622 Banyan Trail, Boca Raton (office) – 65,000 sf6501 & 6531 Park of Commerce Boulevard, Boca Raton (office) – 50,900 sf900 Broken Sound, Boca Raton (land) – 17 acres

The Trade Centre South building, located in Fort Lauderdale, continues to attract high-end office tenants.

South Florida

Multi-residential development leads market


AV

ISON YOUNG

Newly founded tech-focused companies have specific needs

in choosing a location: public transportation, downtown access, affordable living accommodations and, of course, access to inexpensive real estate – be it office, lab or flexible space. Years ago, East Cambridge became one of the world’s largest launch pads for startups and techs. The area met every demand including MIT, one of the largest generators of startups in the nation. Today, with East Cambridge rents leading Greater Boston, many startups will need alternative location options.

The relocation patterns of these young, nimble and technology-driven companies are explained by the decisions of their global corporate counterparts, such as Google and Microsoft. In an effort to coexist, industry behemoths effect supply and demand constraints upon smaller, younger firms. Hoping to capitalize on the human capital that is so critical to their core business, these global companies occupy real estate in locations dense with startups. As corporations absorb spaces upwards of 200,000 sf, the market tightens. The areas become less affordable for the very tenants who created the desire to enter the market – early-stage and tech ventures.In 1995, office space was renting in the mid $20s psf in East Cambridge. As rents have doubled – and, in some cases, tripled – there has been a tremendous shift. Startups and techs began taking space in the Seaport District in 2009. Dubbed the Innovation District by Boston Mayor Thomas Menino, the Seaport, with its vibrant lifestyle and lower rents, has attracted many small thriving companies. In recent years, however, $25 psf rents have become $38 psf rents. Availability has dropped with the addition of companies ranging from Life Is Good to Vertex Pharmaceuticals. Tenants nearing lease expirations face proposals that are as much as 30% higher than their current lease rates, so the cycle continues.With tight markets in Seaport and Cambridge, startups and techs are seeking rent relief. It is expected that companies will be attracted to the South Station and North Station submarkets, where rents can still be found starting in the high $20s psf. Many should consider the financial district. Although previously too expensive, the high vacancy stemming from the Great Recession is providing opportunities for affordable class B space. Companies such as PayPal (an eBay subsidiary) have taken advantage of the glut of lower-floor vacancy within the financial district’s class A highrises. As it turns out, early-stage and technology-driven companies are provided with more geographic options than ever; gone are the days when East Cambridge was the only choice. The real question is: what submarket will hold the crown as Boston’s innovation hub in five years’ time?

Recent Lease TransactionsCaliper Life Sciences (office/R&D) – 198,300 sfathenahealth, Inc. (office) – 83,000 sfEmerson Hospital (office/medical) – 80,800 sfPayPal (office) – 62,800 sfProto-Pac Engineering Inc. (industrial) – 45,900 sfA.I.M. Mutual Insurance Companies (office) – 34,500 sfZwicker & Associates PC (office) – 34,400 sfAcacia Communications (office) – 28,200 sfVecna Technologies, Inc. (office) – 26,600 sfTeraDiode, Inc. (industrial) – 24,500 sfSotax Corporation (office) – 21,900 sfPark Place International (office) – 17,800 sfVantage Partners, LLC (office) – 16,200 sfMaidPro Franchise Corporation (office) – 13,900 sfCrunchtime! Information Systems, Inc. (office) – 13,700 sfLexington Eye Associates (office/medical) – 12,200 sfFlexion Therapeutics (office) – 11,800 sfSmart Destinations (office) – 10,900 sf

Recent Exclusive Lease Listings526 Main Street, Acton, MA (office) – 36,000 sf

Recent Properties Sold221 Baker Avenue, Concord, MA (land) – 6.3 acres

Recent Sale Properties Listed354 & 356 Mountain View Drive, Colchester, VT (office) – 110,400 sf393 Fortune Boulevard, Milford, MA (office/retail) – 107,600 sf60 Hartland Street, East Hartford, CT (office) – 40,800 sf

Boston

Musical chairs for startups and techs

Boston’s Hubway bicycle rental network is a valuable amenity to employees and residents alike.

PayPal’s lease of 62,814 sf at 1 International Place has changed the way companies view the downtown market.

16

Today’s workforce spans four generations: Mature/World War II (born pre-1946); Baby

Boomers (1946-1965), Generation X (1966-1980) and Gen Y/Millennials (1981-2000). According to Statistics Canada and the U.S. Bureau of Labor Statistics, Gen Y represents approximately 35% and 34% of the Canadian and U.S. labour forces, respectively. Educated and tech-savvy, they are transforming the workplace, physically and psychologically. For decades, office designs changed little, with traditional private offices, cubicles and meeting rooms. In the 1990s, personal computers, mobile phones and the Internet brought dreams of a paperless office and hotelling. Still, over the past 20 years, office space looked much the same.Enter Gen Y: today, CEOs are in cubicles and there is a new business glossary: “distributed workforce” – hiring regardless of geography; “BYOD” – bring your own device to work; and “ROWE” – results-only work environment. Smart phones have become virtual desks, offering “unified communications” across platforms and media. According to CTIA – The Wireless Association, American data usage from July 2011 to June 2012 increased 104% from the previous year. Work is now mobile and, when it comes to office premises, less is more.Gen Y’s work characteristics (more flexibility, flat hierarchy, mobile devices and social networking) and businesses’ focus on cost reductions have changed the office landscape toward open plans and a collaborative work environment. Eroding work-life boundaries means work is no longer where you go, it’s what you do. Since Gen Y will become the dominant group in the workforce, businesses are adapting to attract top talent. Cisco’s “Connected Workplace” is a big draw with new recruits, where many staff don’t have

assigned workplaces – a trend evident not only in new, but also existing buildings. In the iconic 1960s-era TD Centre in Toronto’s financial core, TD Bank is retrofitting 20 storeys of old offices with an array of flexible work areas. Elsewhere, Deloitte introduced the “Deloitte Journey”, replacing assigned desks with shared work spaces. In contrast, Yahoo! clearly values face-to-face interaction, recalling work-from-home employees back to the office in a bid to rebuild the competitive advantage it once had. The rise in the urban supply pipeline and the technological advances being offered are making some lease renewals problematic as tenants eschew in-place renovations. Traditional office configurations simply won’t work. Generally, tenants are taking less space on a per-person basis as they relocate. A 2012 study found that corporations are looking to reduce office space by 17% by 2020 – leaving older, obsolete buildings ready for renovation and adaptive re-use.As office space per employee continues to decline, what happens to all of the underutilized space, and, indeed, to the traditional single-purpose office building? The future of office buildings may end up being the “Hackable Building” – a term coined in global architecture firm Gensler’s recent work on the evolution of the North American building. A Hackable Building is an existing structure that has been updated beyond recognition to incorporate a diverse mix of uses such as residential, office, retail, educational and public spaces.Advancing technology and generational shifts continue to shape the evolution of the workplace. When these changes have played out, what will the office of the future look like? Only time will tell.

Avison Young Commercial Real Estate Newsletter (Canada, U.S.)Spring/Summer 2013

Partnership. Performance.

Generations and technology – transforming the workplace C ANADA2 Calgary3 Edmonton4 Guelph5 Lethbridge6 Mississauga7 Montreal8 Ottawa 9 Quebec City10 Regina 11 Toronto12 Toronto North13 Vancouver14 Winnipeg

U.S.15 Atlanta16 Boston17 Charleston18 Chicago19 Dallas20 Detroit21 Houston22 Irvine23 Las Vegas24 Los Angeles25 New Jersey26 New York27 Pittsburgh28 Raleigh-Durham29 Reno30 San Francisco31 South Florida 32 Washington, DC33 About Avison Young34 Avison Young Research35 Our Offices


About Avison Young

Avison Young at a Glance

Avison Young is the world’s fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 1,300 real estate professionals in 49 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.

Transaction Services- Tenant representation, lease

acquisition and disposition- Investment acquisition

and disposition for owners and occupiers

- Landlord representation—all property types—office, industrial, retail, build-to-suit, land and multi-family

Consulting & Advisory Services- Portfolio review and analysis- Valuation and appraisal- Benchmarking- Transaction management- Asset rationalization- Mergers and acquisitions- Workplace solutions- Acquisitions and dispositions

Management Services- Project management- Property and operations review- Property/facility management- Tenant coordination and

relations- Financial reporting- Lease administration- Operations consulting- First stage lease review

Enterprise Solutions- Integrated services coordination- Transaction management- Optimization strategies- Portfolio lease administration- Project coordination and

reporting

Founded: 1978 Employees: 1,300+ Offices: 49 Markets: 39 Real Estate Professionals: 500+ Property Under Management: 60 million sf+Projects Under Management: 1.1 million sf+

WASHINGTON, DC

RALEIGH-DURHAM (2)

BETHESDA

HALIFAX

NEW YORK CITY

IRVINE DALLAS

HOUSTON

ATLANTA

SOUTH FLORIDA (4)

BOSTON

PITTSBURGH

OTTAWA

CHICAGO (2)

DETROIT

GUELPH

MISSISSAUGA

MONTREAL

EDMONTON

REGINA WINNIPEG

CALGARYVANCOUVER

LETHBRIDGE

DENVER

RENO

LAS VEGAS

SAN FRANCISCO

LOS ANGELES (4)

NEW JERSEY

TYSONS CORNER, VA

SOUTH CAROLINA (2)

TORONTO (2)

QUEBEC CITYTORONTO NORTH

CHARLOTTE

SAN DIEGO

SACRAMENTO

SAN MATEO


Canadian OfficesToronto (HQ) 18 York StreetSuite 400, Mailbox #4Toronto, ON M5J 2T8T 416.955.0000

Calgary401 - 9th Avenue SWSuite 309Calgary AB T2P 3C5T 403.262.3082

EdmontonSuite 2800, Bell Tower 10104-103 Avenue NWEdmonton, AB T5J 0H8T 780.428.7850

Guelph299 Brock Road SouthBuilding AGuelph, ON N1H 6H9T 226.366.9090

Halifax1533 Barrington StreetSuite 300Halifax, NS B3J 1Z4T 902.442.4050

Lethbridge515 7th Street SouthSuite 300Lethbridge, AB T1J 2G8T 403.330.3338

Mississauga77 City Centre DriveSuite 301Mississauga, ON L5B 1M5T 905.712.2100

Montreal 2000 McGill College AvenueSuite 1950Montreal, QC H3A 3H3T 514.940.5330

Ottawa 155 Queen StreetSuite 1301Ottawa, ON K1P 6L1T 613.567.2680

Quebec City1300 Sainte-Anne BoulevardQuebec, QC G1E 3M5T 418.694.3330

Regina2550-12th AvenueSuite 300Regina, SK S4P 3X1T 306.359.9799

Toronto North600 Cochrane DriveSuite 220Markham, ON L3R 5K3T 905.474.1155

Vancouver2100-1055 West Georgia StreetBox 11109, Royal CentreVancouver, BC V6E 3P3T 604.687.7331

Winnipeg330 Portage AvenueSuite 1000Winnipeg, MB R3C 0C4T 204.947.2242

U.S. OfficesAtlanta30 Ivan Allen Jr. Boulevard, NWSuite 900Atlanta, GA 30308-3035T 404.865.3663

Bethesda6430 Rockledge DriveSuite 400 Bethesda, MD 20817T 301.657.8386

Boston200 State Street7th FloorBoston, MA 02129T 617.250.7600

Charlotte2200 Floral AvenueCharlotte, NC 28203T 980.225.5994

Chicago (Downtown)120 North LaSalle StreetSuite 3300Chicago, IL 60602T 312.957.7600

Chicago (Suburban)9700 West Higgins RoadSuite 500Rosemont, IL 60018T 847.881.2045

Dallas5956 Sherry LaneSuite 1000Dallas, TX 75225T 214.451.6905

Denver1900 16th StreetSuite 1300Denver, CO 80202T 720.508.8100

DetroitT 313.510.2825

Houston2800 Post Oak BoulevardSuite 1950Houston, TX 77056T 713.993.7700

Irvine2030 Main StreetSuite 1300Irvine, CA 92614T 949.757.1190

Las Vegas3993 Howard Hughes ParkwaySuite 350Las Vegas, NV 89169T 702.472.7979

Los Angeles (Downtown)555 S. Flower StreetSuite 3200Los Angeles, CA 90071T 213.935.7430

Los Angeles (Santa Monica)301 Arizona AvenueSuite 303Santa Monica, CA 90401T 310.899.1800

Los Angeles (North)6711 Forest Lawn DriveLos Angeles, CA 90068T 323.851.6666

Los Angeles (West)10940 Wilshire BoulevardSuite 2100Los Angeles, CA 90024T 424.265.9200

New Jersey1120 Headquarters PlazaWest Tower, 4th FloorMorristown, NJ 07960T 973.898.6360

New York623 Fifth Avenue22nd FloorNew York, NY 10022T 212.729.7140

Pittsburgh20 Stanwix StreetSuite 401Pittsburgh, PA 15222T 412.944.2130

Raleigh-Durham1511 Sunday DriveSuite 200Raleigh, NC 27607T 919.785.3434

Raleigh-Durham(Chapel Hill)100 Europa DriveChapel Hill, NC 27517T 919.968.4017

Reno6151 Lakeside DriveSuite 1000Reno, NV 89511T 775.332.2800

SacramentoPark Tower980 9th StreetSuite 350Sacramento, CA 95814T 916.426.3773

San Diego4225 Executive SquareSuite 600San Diego, CA 92037T 858.201.7070

San Francisco601 California StreetFifth FloorSan Francisco, CA 94108T 415.322.5050

San MateoT 650.740.1666

South Carolina (Charleston)550 Long Point RoadMt. Pleasant, SC 29464T 843.725.7200

South Carolina (Columbia)717 Lady StreetSuite CColumbia, SC 29201T 803.298.3010

South Florida (Boca Raton)1875 NW Corporate BoulevardSuite 280Boca Raton, FL 33431T 954.903.1800

South Florida (Fort Lauderdale)515 E Las Olas BoulevardSuite 400Fort Lauderdale, FL 33301T 954.903.1800

South Florida (Miami)2525 Ponce De Leon Boulevard3rd FloorCoral Gables, FL 33134T 305.504.2045

South Florida (West Palm Beach)250 South Australian AvenueSuite 1100West Palm Beach, FL 33401T 561.721.7000

Tysons Corner8484 Westpark DriveSuite 150McLean, VA 22102T 703.288.2700

Washington, DC1999 K Street NWSuite 650Washington, DC 20006T 202.644.8700

Canadian Research Bill ArgeropoulosVice-President & Director of Research (Canada)[email protected]

U.S. ResearchMargaret DonkerbrookVice-President, U.S. [email protected]

Corporate Communications & MediaSherry QuanNational Director of Communications & Media Relations [email protected]

Our Contacts Canada & U.S.

© 2013, Avison Young (Canada) Inc. The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young (Canada) Inc.

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mid-year 2013 avison young office market report canada & u.s. · 8 mid-year 2013 canada, u.s....

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