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Market Overview

Third Quarter 2016 / Office Market Report

Calgary

Market Facts

22.2%Calgary Overall Vacancy

21.3%Suburban North Vacancy

22.9%Downtown Vacancy

19.1%Beltline Vacancy

22.3%Suburban South Vacancy

The Calgary office market saw a further softening of market conditions in the third quarter of 2016. The overall Calgary office market vacancy rate continued to rise coming in at 22.2% in third quarter 2016, compared to 19.7% in the previous quarter. Vacancies in all markets across the city rose as a result of the slowdown. Growth remains tepid and business investment is relatively low as companies continue downsizing and cutbacks. As a result, many companies are delaying major real estate decisions and opting for shorter term leases, renewals, and sublet opportunities. Those tenants who are prepared to commit to larger term leases are seeking out alternative office locations with lowered rents in better quality buildings. However, as sublet space in quality buildings is absorbed or reverted back to head lease space,

tenants are being forced to consider

direct available office space, resulting in

less flexibility for tenants seeking short

term leases.

Significant office transactions throughout

2015 and 2016 have been few and far

between as a result of the weakened

economic climate in Calgary. Many

companies are concerned with the rising

vacancies and the amount of subleasing

going on as companies continue to

cut costs in a tough economy. Overall,

our forecasting model for the balance

of the year suggests the market will be

generally flat for 2017 with a modest

recovery beginning around third quarter

2018.

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Third Quarter 2016 / Office Market ReportCalgary

Calgary Overall -Vacancy 22.2%The overall Calgary office leasing vacancy rate increased in third quarter 2016 to 22.2%, up 2.6% from second quarter 2016. The significant increase in the vacancy rate was the result of 2,065,000 sf vacant space to market. The percentage of direct vacancy increased to 14.6% in third quarter 2016 up from 12.6% second quarter 2016. The overall percentage of sublet space increased from 7% to 7.6% in third quarter. Tenants continue to consolidate their existing space requirements, downsizing to gain further efficiencies and to reduce costs. The overall Calgary office market generated negative levels of absorption for a third consecutive quarter, with negative (1,473,000) sf of absorption.

Downtown - Vacancy 22.9%The overall vacancy rate in downtown Calgary continued to climb, increasing to 22.9% at the end of third quarter 2016. Vacant head lease space increased this quarter to 6.0 million sf, up 741,000 sf from the second quarter 2016 as a significant amount of expiring leases were returned to landlords as direct space. Sublease vacancy also increased by 725,000 sf from the previous quarter reaching 3.9 million sf at the end of the third quarter 2016. The downtown office market reported negative (1,197,000) sf of absorption in the third quarter of 2016 as tenants remained focused on cost containment and space optimization. The majority of the overall negative absorption took place in the higher quality market, with Class AA space having negative (288,000) sf absorption and Class A space accounting for negative (547,000) sf of

absorption. Class B office space came in at negative (265,000) sf absorption and negative (97,000) sf in Class C buildings. New supply over the next few years coupled with the tough economic conditions will continue to put downward pressure on rental rates in the Calgary downtown office market.

As a result of the current economic conditions and weak demand for space we do not expect any new projects to be announced in Calgary’s downtown core for several years.

Downtown projects currently under construction include the following.

� 707 Fifth is a 27 storey tower and will contain 564,000 sf of office space when complete in mid-2017. Manulife is building the tower with Brion Energy as the lead tenant. The building is currently 48% pre-leased.

2018: Positive 250,000 in each quarter

2017: Flat absorption in Q1 and Q2, Positive 150,000 sf in Q3 and Q4

2016: Negative 1,197,000 sf in Q3, Negative 300,000 sf in Q4

ABSORPTION - REASONABLE ASSUMPTIONS

Downtown Calgary Office Historical and Projected

Market SupplyABSORPTION - PESSIMISTIC ASSUMPTIONS

2018: Positive 150,000 sf in Q2 and Q3 Positive 200,000 sf in Q4 and Q1 2017

2017: Flat absorption in Q2 to Q4, positive 100,000 sf in Q1 2017

2016: Negative 500,000 sf in Q4, Negative 150,000 sf in Q1 2017

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Third Quarter 2016 / Office Market ReportCalgary

6.5%

12.4%

6.5%

9.2%

3.6%

12.8%6.5%

7.0%

15.9%

19.4%

15.7%

0%

5%

10%

15%

20%

25%

Class C Class B Class A Total

BeltlineOffice Vacancy Rates

Headlease Sublease

and other market nodes. Suburban South absorption in the third quarter came in at negative (159,000) sf as a result of the Seton Professional Centre East and West buildings all coming online.

Suburban South projects currently under construction include the following:

� The Odeon by Ronmor Developers in the heart of Marda Loop combines a mix of office and retail space. This 34,000 sf development is expected to reach completion during the fourth quarter of 2016. The office portion has approximately 29% pre-leased as of the third quarter of 2016.

� Macleod Professional Center developed by Opus is a medical focused development that will include 25,782 sf of office space over four floors. The 31,492 sf development is expected to be competed in Q1 2018 and is located on the corner of Macleod Trail and 39th Avenue SE.

� Remington Development Corp. continues to proceed with Quarry Crossing II in anticipation of future demand. Quarry Crossing II consists of three, five-storey office buildings totaling 512,000 sf with delivery anticipated in late 2017.

� 14th Street Office is an office and retail development located on the corner of 11th Avenue and 14th Street SW. The building will have office space totaling 38,000 sf and is 100% leased with completion scheduled for Q3 2018.

10.0%

14.3%

10.7%

2.7%

9.1%

3.1%

7.0%

8.8%

5.9%

7.2%

13.1%

21.3%

19.5%

8.6%

16.3%

0%

5%

10%

15%

20%

25%

Class C Class B Class A Class AA Total

Downtown CalgaryOffice Vacancy Rates

Headlease Sublease

Suburban South - Vacancy 22.3%The Suburban South office vacancy rate increased by 2.5% to 22.3% third quarter 2016. Landlords are striving to maintain competitive occupancy costs in order to attract, retain and maintain their tenant base. Of note, Tenants in the Suburban South market are not seeing the same pricing discounts being offered in the downtown core

� Brookfield Place Calgary - East is a 1.4M sf tower that has progressed significantly during the past quarter. Cenovus has leased approximately 1,000,000 sf in this tower and Scotiabank has leased approximately140,000 sf.

� The office portion of the 58-storey, 750,000 sf mixed-use TELUS Sky tower is approximately 33% leased and is planned to come on-line in Q1, 2019.

Beltline - Vacancy 19.1%The vacancy rate in the Beltline office market followed the overall trend as it rose to 19.1% in third quarter 2016 up from 17.7% second quarter 2016. The rise in vacancy can be attributed to an increase of 21,000 sf of direct vacant space being returned to the market along with 95,000 sf of vacant sublet space. Beltline absorption in the third quarter 2016 was negative (116,000) sf. Weighing on the Beltline office market is 11th Avenue Place which has over

80,000 sf of available Class A head lease space and 333 Centre which has more than 77,000 sf of space available.

Beltline projects currently under construction include the following:

� Mount Royal West is an 87,925 sf office and retail development by First Capital Realty which expects completion in Q2 2018.

� Centron has placed construction of Place 10 on hold indefinitely pending additional leasing activity.

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Third Quarter 2016 / Office Market ReportCalgary

� The Windsor is a five-story mixed use commercial development that will include approximately 100,000 sf office space. It is located on the corner of 50th Avenue SW and Elbow Drive SW and is 55% leased. Completion is anticipated to be Q1 2018.

Suburban North - Vacancy 21.3%The Suburban North vacancy rate increased to 21.3% third quarter 2016. The increase in vacancy can be attributed to the addition of some new buildings to our inventory that have vacancy. Absorption was flat for the quarter. New construction activity in the Suburban North market has tapered off in the past year and the majority of speculative construction is at a standstill as developers are mainly focusing on pre-leased opportunities.

Suburban North projects currently under construction include the following:

� Qualico’s Harvest Hills Office Park is nearing completion of its second building that will total 72,000 sf. It is expected to be ready on time for occupancy Q1 2017.

� REID Corporation’s GeoSpectrum Energy Building is progressing with its three-storey, 58,566 sf development. The development is 68% leased and completion of the Class A Office space is expected to be Q2 2017.

� The Link at Royal Vista is a new development by MartinVest Corp. that will include 27,954 sf of office space over three floors. The development is located in Calgary’s Northwest and is expecting completion in Q2 2017.

� Plaza 1319 is a multi-use project located close to Bridgeland and 16th Avenue NE. Currently two levels are fully leased by accounting firms. Planned completion is expected to be Q1 2017.

� The Computer Modelling Group building is fully leased and will be located in the University of Calgary’s Research Park, developed by Remington Development Corp with delivery anticipated in mid-2017.

14.9%

10.0% 10.3% 10.8%

2.2%

6.4% 5.5%

15.9%

12.2%

16.7% 15.8%

0%

5%

10%

15%

20%

25%

Class C Class B Class A Total

1.0%

Suburban SouthOffice Vacancy Rates

Headlease Sublease

9.4%10.3%

11.2% 10.6%

1.4%0.8%

8.0%

4.7%

10.8% 11.1%

19.1%

15.3%

0%

5%

10%

15%

20%

25%

Class C Class B Class A Total

Suburban NorthOffice Vacancy Rates

Headlease Sublease

Overall Vacancy by Type Vacancy by Class

17.9%AA Class Vacancy

23.8%A Class

Vacancy

24.0%B Class

Vacancy

17.9%C Class

Vacancy

AVISON YOUNG | Calgary Office Market Review

A ClassVacancy

23.8%

B ClassVacancy

24.0%

C ClassVacancy

17.9%Vacancy By

Class

Headlease

10.7M

Sublease

5.6MOverall Vacancy By

Type

AA Class

Vacancy17.9%

-5,000,000

-4,000,000

-3,000,000

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD2016

District Building Office Area (sf) Expected completion% Leased/ Pre-leased

LEED Target

707 Fifth Street 564,000 Q2 2017 48% GoldBrookfield Place Calgary - East 1,400,000 Q2 2018 81% Gold

Telus Sky 460,000 Q1 2019 33% PlatinumPlace 10 616,500 On Hold 0%

Mount Royal Village West 30,000 Q2 2018 0%The Odeon 34,000 Q3 2017 25% Gold

Macleod Professional Center 25,782 Q3 2018 50%Quarry Crossing II Building D 150,000 Q2 2017 0% GoldQuarry Crossing II Building C 181,000 Q3 2017 0% GoldQuarry Crossing II Building E 181,000 Q3 2017 0% Gold14th Street Office (Enright) 38,000 Q3 2018 100%

The Windsor 106,000 Q4 2018 56%ATCO Commercial Centre Building 1 100,000 Q4 2017 100%ATCO Commercial Centre Building 2 100,000 Q4 2017 100%

Harvest Hills Phase 2 72,000 Q4 2016 77%GeoSpectrum Energy Building 58,566 Q2 2017 68%

The Link at Royal Vista 27,954 Q2 2017 0%Computer Modelling Group (CMG) Building 90,000 Q2 2017 100%

Plaza 1319 5,000 Q1 2017 100%District at North Deerfoot 160,000 Q3 2019 100%

District Building Office Area (sf) Completion % Leased LEED TargetEau Claire Tower 615,000 Q1 2016 91% Gold

Calgary City Centre 820,000 Q4 2015 91% GoldGarrison Corner 34,000 Q1 2016 80%

Fairmore Business Park 55,000 Q2 2016 0%Imperial Oil Campus - Phase III 320,000 Q2 2016 100% Gold

Britannia Crossing 53,849 Q3 2016 98%Seton Professional Centre - East Building 44,000 Q2 2016 69%Seton Professional Centre - West Building 53,000 Q2 2016 31%

Meredith Block 161,000 Q4 2015 25% GoldCrowfoot 75 54,000 Q4 2015 0%

Suburban North

Downtown

Suburban South

Calgary Q3 2016 Office Construction Summary

Beltline

2016 Office Completion Summary

Downtown

Suburban South

Suburban North

Office Construction Summary

Calgary Overall Annual Absorption (sf )

Rachel Carter | 403.232.4304Eric Demaere | 403.232.4366Nicole Divina | 403.232.4389Nathan Donahue | 403.232.4320Spencer Duff | 403.232.4387Steve Goertz | 403.232.4322Larry Gurtler | 403.232.4326Eric Horne | 403.232.4339Chris Howard | 403.265.9552 ext. 223Jordyn Malkinson | 403.232.4316Will Mullane | 403.232.4325Paul McKay | 587.293.3365 Alexi Olcheski | 403.232.4332Nairn Rodger | 403.232.4341Glenn Simpson | 403.232.4329Anna Sorensen | 403.232.4383Mark St. Pierre | 403.232.4319Chris Tudda | 587.293.3361Peter Thorpe | 403.232.4342Todd Throndson | 403.232.4343Kara Vander Herberg | 403.232.4337Alex Wong | 403.232.4327Allan Zivot | 403.232.4307

Avison Young Calgary Office Team

Business Condominium Team

Research

Pali Bedi | 403.232.4311Fred Clemens | 403.232.4312 Puneet Nagpal | 403.232.0725

Ryan Eby | 403.232.4344

avisonyoung.com © 2016 Avison Young Avison Young Real Estate Alberta Inc. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.

Market Inventory

73,149,877 SF

VacancyRate

22.2%

Net Absorption

-1,473,205 SF

ConstructionPipeline

4,399,802 SF