Metro VancouverOffice Report

Fourth Quarter 2010

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Metro Vancouver Office Report - Fourth Quarter 2010 02

Metro Vancouver Office ReportFourth Quarter 2010

Economic Overview

Despite a rocky start, the economy in Canada continues its steady recovery. While the GDP dipped slightly going into the beginning of the quarter, it recovered nicely, increasing in October and Novem-ber, putting the GDP up 3.0% from this time last year.

Employment followed a similar trend, get-ting off to a slow start, but has recovered well, averaging 4700 new jobs per month. While construction jobs saw a drop off towards the end of the year, the increase in building permits and investment in new construction indicates that even these embattled sectors should recover in the coming months.

Metro Vancouver Market Summary

The lack of new supply in the Metro Vancouver area over the last two quarters continues to have an effect on vacancy and occupancy rates all over the Lower Mainland. Vacancy in the Metro Van-couver area has decreased 50 basis points to 8.5%, down from last quarter’s 9.0%. While this lack of space has had a slight raising effect on occupancy rates, promises of new supply and Vancouver’s history of low vacancy have helped keep them in check.

While the last 2 quarters have seen rela-tively few new developments, investors are still making plans, and the battle to build Vancouver’s next new office tower is heating up.

Downtown Office

The downtown office market has seen little change in Vacancy or occupancy costs. The core vacancy has gone down only 30 basis points this quarter, sitting at 4.8%, down from 5.1% last quarter. This trend may change soon, however, with a large number of projects in planning slated to provide hundreds of thousands of square feet of space to the usually dry market.

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Historic Municipal Vacancy Rates

While many are looking at the suburbs, those who have made their way down-town chose to stay there in 2010. Of the 900,000 square feet in lease deals Downtown, more than 3/4 of it was in lease renewals.

Even with almost a million square feet of vacancy at the end of the year, there are virtually no large (20,000 square feet and greater) spaces available. The only contiguous space available of this size comes with new buildings/supply, which also comes with a high, A or AAA class price tag.

Notable Lease DealsPublic Works and Government Servic-•es Canada renewed 206,000 square feet at 800 Burrard StreetTD renewed 76,000 square feet at •700 West Georgia StreetFluor renewed 55,000 square feet at •1075 West Georgia Street

Suburban Office

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

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

The suburbs have seen a steady quarter, accompanied by a slight drop in vacan-cies as well. Total vacant space dropped to 2,601,000 square feet this quarter from 2,662,000 last quarter. This is the second quarter that the suburbs have seen a drop in vacancy. This trend may continue as there is not enough new supply in the pipeline to meet the current demand. Pro-spective clients have also started looking outside of the core for office space, real-izing how expensive it can be to actually operate downtown. This, combined with the downward trend of vacancy rates have helped bring rates up slightly across the board. The only town to keep up with the demand has been Richmond, where the vacancy rate rose 210 basis points to 19.7%

Notable Lease DealsTranslink has leased 150,000 square •feet at the Brewery DistrictTerasen has leased 53,000 square •feet at 4370 Still Creek Drive

New Office Construction

While there was little new supply in the last

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Metro Vancouver Office Report - Fourth Quarter 2010 03

Metro Vancouver Office ReportFourth Quarter 2010

03

Summary Statistics - Fourth Quarter 2010

Totalbuildings

Total area (sq ft )

Total vacant (sq ft)

Sublet Vacant (sq ft)

Totalvacancy

(%)

Average asking lease rate ($/sq ft)

Average taxes and operating costs ($/sq ft)

Metro Vancouver 687 51,724,690 4,383,155 838,178 8.5 19.9 12.0

Class A 276 29,928,781 2,640,176 608,137 8.8 22.2 12.6

Class B 253 15,227,041 1,076,356 209,193 7.1 19.6 12.2

Class C 157 6,536,868 652,118 20,848 10 16.7 10.6

Downtown Core 156 20,483,624 984,645 248,466 4.8 23.8 14.9

Class A 52 12,520,421 407,872 151,972 3.3 29.5 18.2

Class B 53 5,396,424 353,378 89,225 6.5 25.3 14.9

Class C 51 2,566,779 223,395 7,269 8.7 16.8 11.8

Broadway Corridor 81 4,086,965 156,645 41,258 3.8 21.4 14.2

Class A 31 2,147,433 83,970 30,693 3.9 23.5 14.8

Class B 30 1,350,757 57,751 10,565 4.3 21.0 14.7

Class C 20 573,851 14,924 0 2.5 17.8 12.3

Surrey 48 2,822,470 397,065 5,035 14.1 18.8 9.3

Class A 24 2,032,331 361,562 3,919 17.8 20.4 9.0

Class B 15 563,767 26,242 1,116 4.9 16.5 9.1

Class C 9 218,227 8,145 0 3.6 13.6 11.7

Richmond 86 5,253,168 1,034,537 197,037 19.7 14.4 8.9

Class A 49 3,450,363 778,590 170,666 22.6 15.8 9.2

Class B 29 1,315,632 146,253 26,371 11.1 14.0 9.4

Class C 10 487,173 109,694 0 22.5 10.1 7.0

North Shore 51 2,324,405 151,705 29,667 6.5 19.2 10.9

Class A 17 893,343 67,324 7,000 7.5 21.2 11.7

Class B 25 1,063,869 68,979 16,206 6.5 18.5 10.9

Class C 9 367,193 15,402 6,461 4.2 17.1 8.6

Burnaby 124 9,464,175 1,018,087 239,288 10.8 18.8 11.9

Class A 69 6,608,341 815,384 208,189 12.3 21.6 11.8

Class B 41 2,226,053 170,781 29,288 7.5 16.2 11.9

Class C 14 589,781 31,922 1,811 5.4 21.3 11.7

Yaletown 39 2,159,802 91,556 2,710 4.2 22.8 11.8

Class A 6 595,458 6,827 0 1.1 27.3 13.6

Class B 15 917,499 11,755 2,003 1.3 24.1 11.7

Class C 18 628,263 72,974 707 11.6 20.2 11.3

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Metro Vancouver Office Report

Fourth Quarter 2010

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

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

All information has been obtained from sources considered to be accurate but is not guaranteed and is subject to conditions at the time of any transaction taking place. Properties are submitted subject to prior sale or lease, withdrawal or changes without notice.

Notable office sale transactions - Q4 2010*Property address Municipality Price Size (sq ft) Price/ sq ft Purchaser(s)815 West Hastings Street Vancouver $45,300,000 95,529 $469 815 West Hastings Ltd620 Royal Avenue New Westminster $12,100,000 47,973 $252 Sagewood Holdings300 Water Street Vancouver $3,850,000 10,000 $385 0887181 B.C. Ltd.147 West 16th Street North Vancouver $2,315,00 6,313 $367 Adamantia Developments Ltd

Notable office lease transactions - Q4 2010*Property address Municipality Tenant Size (sq ft)800 Burrard Street Vancouver Public Works and Government Services Canada 202,000The Brewery District New Westminster Translink Head Office & Transit Police 145,000TD Tower Vancouver TD Bank Financial Group 76,0001075 West Georgia Street Vancouer Fluor 55,000

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

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

**Data sourced from RealNet Canada Inc.

www.realnet.ca

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

*Properties over 8,000 sq ft only

Definitions

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

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

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

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

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

DTZ Barnicke Commercial Team

Neil McAllister

Tom Bakker

James Bayley

Tony Capolongo

Conor Finucane

Howard Malchy

Jason Marriott

Don Mussenden

Steve Schweigert

Rand Thomson

Chris Walters

Stephen Webber

two quarters, there are a number of major projects in planning, and some very close to completion. In the first few months of 2011, Delta Group’s The Offices at Hotel Georgia will be complete, bringing 71,500 square feet to the market. This will be followed closely by Bosa Properties Jame-son House, bringing 60,000 square feet of space to the market in Q2 of 2011. The Brewery District in New Westminster is also nearly complete with about 150,000 square feet due in April.

This overall lack of new supply, coupled with rising rental rates and re-invigorated interest in the office market, many devel-opers are racing to finish the next new office tower, particularly Downtown. Slated for a start in 2012, Bentall Kennedy is proposing a tower with 365,000 square feet of office and a 33,000 square feet retail component at 745 Thurlow. Aquilini Development and Construction has plans for a 22 storey, mixed use building with 223,000 square feet of office space and another 63,000 square feet for retail at 800 Griffiths Way.

Looking AheadLow and falling vacancy rates are con-•tinually pushing lease rates up in areas with high demand, typically smaller quality spaces, many have accepted the reality that finding this sort of space is difficult and are moving into slightly cheaper space, this had a dampening effect on the lease rates overall.

As more of the projects downtown and •elsewhere are approved, rental rates might ease up as many will be waiting for the new space. Many are already making commitments, with places like the Panorama Place and Benchmark Business Centre are already half sold.

The notoriously low vacancy rates •downtown might be challenged in the near future as well, as many developers are trying to take advantage of the high rental rates downtown. If projects like the Burrard Gateway at Burrard, Drake and Hornby Streets are approved it will establish precedent for many other large scale projects looking to build towers large enough to change the skyline of the Downtown area.