Colliers Office Market Report 2010

Office Market Repor t & Forecast Colliers International | Greater Toronto Area

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2010

$2 billion in annual revenue 1.1 billion square feet under management Over 12,000 professionals 294 offices in 61 countries

Colliers International Contacts John Arnoldi Managing Director Office Practice Group, Toronto 416.643.3733 John.Arnoldi@colliers.com

Scott Addison Executive Managing Director Toronto 416.620.2800 Scott.Addison@colliers.com

Mary Mowbray Manager Retail Practice Group 416.643.3740 Mary.Mowbray@colliers.com

Duerten Lindenbeck Senior Research Analyst 416.643.3764 Duerten.Lindenbeck@colliers.com

Introduction

Most of us would agree that commercial real estate is predictably cyclical, and yet it would be a mistake to assume that this alone makes our industry any more predictable. With each cycle involving a unique set of variables and resulting in different consequences, having relevant and substantiated knowledge helps us to anticipate and manage the constant change around us.

In an effort to provide you with greater market intelligence, we are pleased to share the Colliers International Winter 2010 Office Market Report & Forecast. Our hope is that this publication provides you with the insight and understanding to assist you in making confident business decisions over the coming months.

Colliers’ Toronto research team has employed a variety of statistical analysis and forecasting models to produce this report. For those of you who would like to review our statistical tables or discuss forecast methodology in more detail, please contact Duerten Lindenbeck from our research team.

As always, we look forward to your questions and feedback.

Best Regards,

John Arnoldi Managing Director, Office Practice Group Toronto

Economic Overview

After three consecutive quarters of negative growth, the Canadian economy celebrated success in its struggle to regain footing as real GDP grew by 0.1 percent in Q3 2009 or 0.4 percent on an annualized basis. According to Statistics Canada, the output of service-producing industries increased 0.6 percent in Q3 2009, with wholesale trade, retail trade and real estate services leading the way.

Goods-producing industries continued a downward trend of -1.4 percent that started in Q3 2007, with mining as well as oil and gas extraction showing the most strain as a result of temporary shutdowns.

Extensive reductions in the goods-producing sector have driven the GTA’s negative growth, similar to the Canadian trend. Economic output in this sector has declined since 2006 and will record a contraction of 13 percent for 2009, the largest reduction since tracking began in 1987.

Employment in goods-producing industries is forecasted to shrink by almost 15 percent, pushing the GTA’s unemployment rate to 9.5 percent from 6.9 percent in 2008. In contrast, the GTA’s service sector has fared considerably better and managed to grow by 0.9 percent in 2009 despite tough economic circumstances.

The Greater Toronto Area (GTA) reported two consecutive quarters of growth in Q2 and Q3 of 2009, after three quarters of decline. This suggests that the GTA led the country going into the recession, but is also leading the country coming out of it. However, this recent mild growth will not help the GTA to finish 2009 in the black as the Bank of Canada continues to warn that significant fragilities remain in the markets. The Conference Board of Canada is also forecasting overall economic output for 2009 to contract by 1.9 percent nationally and 2.3 percent in the GTA.

The service sector is broken into transportation and communication; wholesale and retail trade; finance, insurance and real estate (FIRE); commercial services; noncommercial services and public administration. However, only FIRE, commercial services and public administration are utilizing typical office space. All three industries grew in 2009, with FIRE and public administration leading the growth in economic output at 3.6 per cent each, while commercial services grew at 0.6 per cent in 2009.

Employment in the three industries grew by 5.5 per cent, adding approximately 63,000 office workers in 2009 to

Economic Indicators Quarter

Annual

2009 Q1 GTA GDP at Basic Prices

Q2

2010 Q3

Q4

Q1

Q2

Q3

Q4

2008

2009

2010

214,174 214,187 217,731 218,146 220,822 222,599 224,550 226,702 221,110 216,060 223,668

(Mil. $ 2002)

% change GTA Unemployment Rate GTA Employment

(1.7%)

0.0%

1.7%

0.2%

1.2%

0.8%

0.9%

1.0%

0.3%

(2.3%)

3.5%

8.8

9.6

9.8

9.7

9.5

9.5

9.4

9.2

6.9

9.5

9.4

2,900

2,875

2,876

2,915

2,934

2,943

2,942

2,949

2,921

2,892

2,942

(0.8%)

(0.9%)

0.0%

1.3%

0.6%

0.3%

0.0%

0.2%

0.02

(0.01)

0.02

1,177

1,207

1,236

1,246

1,244

1,240

1,233

1,237

1,153

1,216

1,238

1.8%

2.5%

2.4%

0.8%

(0.1%)

(0.3%)

(0.5%)

0.3%

2.4%

5.5%

1.8%

(000s)

% change GTA Office Employment* (000s)

% change

* Utilized in office demand forecast. Source: The Conference Board of Canada, December 2009

3 | Office Market Report & Forecast | Winter | 2010

Economic Overview

bring the total to more than 1.23 million office workers.

With the expansion of multiple investment banks into the Canadian market and a strong performance of the major banks in their corporate, investment banking and trading divisions, the FIRE sector had the strongest growth in its employee base of 9.9 percent.

Investment in non-residential building construction in the GTA diminished by 10 percent from a recent all-time high of $2 billion in Q3 2008 to $1.8 billion in Q3 2009, reinforcing that developers are reacting with caution to unsettled demand for new non-residential product. The 70 percent majority share of investment in non-residential building construction allocated to commercial product and has declined by 8 percent since Q3 2009. Investment in institutional and government product accounts for 22.7 percent and has receded by 10 percent since its recent peak in Q4 2008. Investment in industrial product currently only accounts for 7.2 percent of the total investment in nonresidential building construction, and has withdrawn since Q2 2008 by a significant 43 percent.

Nevertheless, leading Canadian economic institutions are in general agreement that recovery is in sight for the national and global economy, although at a slow pace. The Bank of Canada’s most recent Business Outlook Survey demonstrated that Canadian businesses are regaining confidence as the majority of companies are optimistic and believe that their sales will improve over the next 12 months. The Conference Board of Canada is forecasting GDP growth for the GTA to bounce back by 3.5 percent in 2010, with no declines in any of the major industries. As a result, the economic output of the office work force is projected to grow by 3.5 percent in 2010 and 3.8 percent in 2011, while office employment is assumed to grow further in 2010 by 1.8 percent and in 2011 by 2.5 percent.

Through Colliers International’s statistical analysis, it has been determined that economic output and office employment correlate well with the office market indicators. Given the strength of the correlation between these economic indicators and market performance, these indicators have been utilized in Colliers’ forecast of the GTA’s office markets.

Toronto Economic Overview | 4

Economic Overview

Top Five Availabilities* Address

3. 155 Wellington Street West

2. 100 King Street West

313,081

323,511

342,808

488,296

Available Space (SF)

4. 1150 Eglinton Avenue East

301,172

1. 199 Bay Street

5. 18 York Street *As of Q4 2009

Buildings with current availability are used to show how available office space is distributed across the GTA. Red indicates an area of high availability and blue indicates low availability. Where the colour fades from blue to white indicates that there is no data on current availabilities for that area. The locations of the top five highest availabilities have been indicated on the map.

5 | Office Market Report & Forecast | Winter | 2010

Economic Overview

3. 40 King Street West

2. 44 King Street West

1. 151 Front Street West

$34.00

$35.00

$35.00

$65.00

Asking Net Rate

4. 1 Adelaide Street East

$32.50

Address

Top Five Asking Net Rents (per SF)*

5. 123 Front Street West *As of Q4 2009

Buildings with current availability have been used to show how net asking rates in office buildings vary across the GTA. Red indicates an area of high rent and blue indicates low rent. Where the colour fades from blue to white indicates that there is no data on current availabilities for that area. The locations of the top five asking net rates have been indicated on the map.

Greater Toronto Area | 6

Greater Toronto Area Vacancy: 6.1% p

Net Absorption: (353,376) SF q

Net New Supply: 3,590,148 SF p

Asking Net Rent: $16.20/SF q

Arrows indicate trends observed since summer 2009.

Despite subtle signs of economic recovery, the GTA office market continues to be impacted by weak demand for office space and is furthermore digesting the addition of approximately 4.8 million square feet, an influx of space not experienced since 2002. Compared to the end of 2008, vacancy has increased by 1.9 million square feet or 20 percent, adding up to 11.3 million square feet of vacant space or 6.1 percent of the total office inventory in the GTA. The increases in vacancy are primarily driven by the GTA West and downtown markets. Nevertheless, the GTA office vacancy rate did not increase as dramatically as expected due to the fact that GTA office employment experienced stronger growth than originally forecasted by the Conference Board of Canada six months ago.

Average asking net rent dropped by more than nine percent from $17.83 per square foot in Q4 2008 to $16.20 per square foot in Q4 2009. This indicator is usually later in the cycle to adjust, and experienced less of a decrease than what was predicted just six months ago. The rent decrease can be attributed to two observations: landlords aligning their price expectations with current market conditions to stay competitive, and the fact that the majority of newly added available space is of lesser quality in Class B and C buildings.

GTA North GTA East Midtown

GTA West

Downtown

Considering the Conference Board of Canada’s forecasts for GTA GDP and office employment, net absorption of office space is expected to be negative again in 2010, although not as low as observed in 2009. By 2011, net absorption should revert back to healthy, positive levels of between two to three million square feet per annum.

GTA Historical Performance & Forecast Net New Supply

Net Rent $ / Net New Supply (100,000 SF)

$30.00

Asking Net Rent

Vacancy Rate FORECAST

12.0%

10.0%

$25.00

8.0%

$20.00

$16.20

$15.00

6.0%

6.1%

$10.00

4.0%

$5.00

2.0%

$0.00

0.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Colliers International & Conference Board of Canada - Metropolitan Outlook Data as of December 3, 2009.

With this outlook for net absorption, vacancy is expected to increase further during the year to a peak of around 6.9 percent by the end of 2010, and start to decline thereafter as the economy continues to recover. Through 2010, increases in vacancy are expected to cause average asking net rent 7 | Office Market Report & Forecast | Winter | 2010

to deflate further to levels around $16.00 per square foot.

Technically this still represents a landlord’s market; however, it is a market with more flexible landlords and an increased number of suitable options for tenants.

18-Month Vacancy Trend Total Vacant Area

Vacant Space (1,000s SF)

12,000 9,416,836

Vacant Sublease Space (SF)

% of Vacant Sublease Space of Total Vacant Space 11,280,911

10,812,010

9,406,640

10,365,695

10,883,950

8.5%

8.3%

10.8%

10.0%

796,795

862,532

1,174,297

1,080,144

Q4

Q1

Q2

Q3

8,000

4,000 7.2% 0

675,640

Q3

2 008

2009

Q4

has increased by 48 percent. However, compared to its recent peak in Q2 2009, the amount has decreased mildly by three percent. With this and the fact that direct vacant space has increased to over ten million square feet, the sublease ratio averages out to ten percent.

18-Month Occupancy Trend Total Office Space Inventory (SF)

Total Occupied Space (SF)

Available Space (SF)

190,000

100.0%

180,000 179,504 170,000

% of Inventory Currently Occupied

92.5%

179,695

180,275

180,897

92.9%

92.3%

92.2%

166,999

166,015

166,424

160,000

166,716

182,244

184,487 96.0%

91.2% 166,128

90.2%

92.0%

166,362 88.0%

150,000

Q3

Q4

Q1

2008

Throughout 2009, 16 new office buildings were completed in the GTA, adding approximately 4.7 million square feet to bring the GTA’s office inventory to 184.5 million square feet. Approximately 70 percent of this growth occurred in the downtown market, with four office buildings turning this market into the center of the attention ever since the plans to build them were announced. While office

Q2

Q3

Q4

84.0%

2009

inventory grew by 2.7 percent since the end of 2008, occupied space ebbed down by a marginal 0.4 percent or 636,000 square feet, pushing down the occupancy ratio to 90.2 percent. This reduction was caused by decreases in the midtown and suburban markets, while the downtown market experienced an increase in occupied space.

Greater Toronto Area | 8

Greater Toronto Area

Vacant sublease space remains at a level reached earlier in 2009 of over 1.1 million square feet across the GTA as companies continue to look for ways to reduce operating expenses by marketing part or all of their space as sublet space. Compared to the end of 2008, vacant sublease space

10.1% 1,138,095

GTA Downtown Vacancy: 5.3% p

Net Absorption: 541,046 SF p

Asking Net Rent: $21.38/SF q

Net New Supply: 2,053,363 SF p

Arrows indicate trends observed since summer 2009.

GTA Downtown Historical Performance & Forecast Net New Supply

Net Rent $ / Net New Supply (100,000 SF)

$30.00

Asking Net Rent

Vacancy Rate FORECAST

11.0%

10.0%

$25.00 $21.38

7.0%

$20.00 5.3%

$15.00

5.0%

$10.00

3.0%

$5.00

1.0%

$0.00

-1.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Colliers International & Conference Board of Canada - Metropolitan Outlook Data as of December 3, 2009.

Office market fundamentals in the downtown market have not yet been as severely impacted by approximately 3.3 million square feet of new supply and the instability in the economy as anticipated in Colliers’ Summer 2009 Office Market Report, due to recent signs of economic recovery. Although not as high as projected, vacancy still increased by 690,000 square feet in 2009, pushing the vacancy rate from 4.5 percent at the end of 2008 to 5.3 percent at the end of 2009. A rate this high was last observed about three years ago, prior to the economic downturn.

Similarly, average asking net rent has not fallen as much as anticipated, but has decreased by over $3.00 per square foot

or 13 percent. While all building classes quoted lower average asking net rents than a year ago, Class AAA reported the largest decline of 9 percent, indicating that landlords were lowering their prices due to more competition of similar types of space with the completion of the new office towers.

Looking forward using office employment growth as a proxy for office space demand, vacancy rates are expected to rise up to almost 6.1 percent by Q3 2010. Asking net rents are expected to remain at a similar level as observed at the end of 2009, only increasing once demand for office space has returned and more of the available space in the market has absorbed.

Asking Net Rent 12-Month Change $30

December 2008 December 2009

Financial Core  8%

Toronto West  19%

$25 $20

$28.26

$15

$25.95

$10 $5

Downtown East  7%

$12.26 $16.74

$10.34 $15.66

$0

$15.94 $17.64 Downtown North  10%

$20.82 $21.71 $22.92

Downtown South  5%

9 | Office Market Report & Forecast | Winter | 2010

$21.80 Downtown West  5%)

Although the financial core is continuously quoting the highest average asking net rent among all GTA submarkets, rent decreased during 2009 by 8.2 percent from $28.26 per square foot to $25.95 per square foot. The largest decrease during the last twelve months was observed in the Downtown North area. Average asking net rent decreased in all but two of the six downtown submarkets. Downtown East increased its asking net rent by seven percent and Toronto West by 19 percent.

12 Month Net Absorption by Submarket Downtown West Downtown South Downtown East Toronto West Downtown North Financial Core

For the last twelve months, the downtown market as a whole reported approximately 400,000 square feet of positive absorption. The growth was observed in the Downtown South and Downtown West submarkets, while all other submarkets quoted negative absorption for the last calendar year.

646 429 (5) (69) (105)

Circle represents the distribution of occupied space within the downtown submarkets as of December 2009.

-1,527

(507)

(600) (400) (200)

0

200

400

600

Absorption (thousands of SF)

18-Month Vacancy Trend Total Vacant Area

Vacant Sublease Space (SF)

Vacant Space (1,000s SF)

4,000 3,240,935

3,031,043

3,000

% of Vacant Sublease Space of Total Vacant Space

3,184,799

3,397,238

3,463,766

9.4%

11.7%

9.9%

396,559

341,209

Q2

Q3

3,712,164

2,000 1,000

Q3

298,011

Q4

Q1

2008

2009

Vacant sublease space has increased since the end of 2008 by 92 percent or approximately 170,000 square feet and currently amounts to 350,000 square feet, offering some worthwhile options for tenants looking for space in the market. On the other hand, direct vacant space grew at a much lower rate of

9.4% 349,382 Q4

22 percent, but added over 680,000 square feet.

The considerable growth in the vacant sublease space available pushed the sublet ratio up from six percent at the end of 2008 to 9.4 percent by the end of 2009, settling just below the GTA-wide average of 10.1 percent.

18-Month Occupancy Trend Total Office Space Inventory (SF)

Available Space (SF)

74,000

Total Occupied Space (SF)

% of Inventory Currently Occupied 98.0% 70,597

94.1%

94.0%

93.8%

67,229

67,293

67,324

67,381

68,544

90.3%

62,000 63,016

63,333

63,275

63,182

63,266

63,723

Q4

Q1

Q2

Q3

70,000 93.7%

66,000

Q3

2008

With the addition of four new office towers in the downtown market in 2009, office inventory increased by approximately 3.3 million square feet or five percent, from 67.3 million square feet to 70.6 million square feet, an annual increase not observed since the early 1990s. On a percentage basis,

2009

94.0%

92.3%

90.0% 86.0%

Q4

occupancy levels have decreased to 90.3 percent at the end of 2009 from 94.1 percent a year prior, but on quantity, occupied space has actually increased by nearly 400,000 square feet or 0.6 percent.

Greater Toronto Area | Downtown | 10

GTA Downtown

0

5.7% 185,525

6.0% 181,799

GTA Midtown Vacancy: 4.7% q

Net Absorption: (336,702) SF q

Asking Net Rent: $16.23/SF q

Net New Supply: 0 SF tu

Arrows indicate trends observed since summer 2009.

GTA Midtown Historical Performance & Forecast Net New Supply

$20.00

Asking Net Rent

Vacancy Rate FORECAST

Net Rent $ / Net New Supply (100,000 SF)

$18.00

10.0% 9.0%

$16.23

$16.00

8.0%

$14.00

7.0%

$12.00

6.0%

$10.00

4.7%

5.0%

$8.00

4.0%

$6.00

3.0%

$4.00 $2.00

2.0%

$0.00

1.0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Colliers International & Conference Board of Canada - Metropolitan Outlook Data as of December 3, 2009.

Up until the end of 2009, the GTA midtown market had not yet experienced the softness it went through in the last downturn during 2001-2003, when vacancy rates peaked at almost ten percent. This time around, the vacancy rate spiked to 6.1 percent earlier this year as 101 Bloor Street came back on to the Yonge-Bloor submarket, but nevertheless at the end of 2009, it averaged out to 4.7 percent, which was well below levels observed at the end of 2008.

In contrast, average asking net rents decreased by four percent during 2009 from $16.83 per square foot to $16.23 per square foot. This was primarily a function of the fact

that the majority of the space added to the market was located in buildings of lesser quality that quoted lower average asking net rent, and shifted the overall market average to the lower end of the spectrum.

For 2010, only minor changes are foreseen within this market. The vacancy rate is anticipated to increase marginally to five percent in the latter half of the year, while average asking net rent will decrease further to just above $16.00 per square foot by the end of 2010, and is expected increase thereafter.

Asking Net Rent 12-Month Change December 2008 December 2009

Yonge & Bloor 11% $18.85

During the last twelve months, only the Yonge-Bloor submarket reported a decrease of 11 percent in average asking net rent from $18.85 per square foot to $16.77 per square foot. Yonge-Eglinton’s average asking net rent increased only marginally, while Yonge-St.Clair’s average asking net rent grew by 5.5 percent to $17.14 per square foot, which is also the highest quoted average asking net rent among the GTA’s midtown submarkets.

$16.77

$2.00

$15.04 $15.09 Yonge & Eglinton 0.3%

$6.00 $10.00 $14.00

$16.24

$18.00

11 | Office Market Report & Forecast | Winter | 2010

$17.14 Yonge & St. Clair 5.5%

12 Month Net Absorption by Submarket Yonge & Eglinton Yonge & St. Clair Yonge & Bloor

The Yonge-Eglinton submarket was the only GTA midtown submarket reporting positive absorption for 2009. Even with almost 130,000 square feet of growth in occupied space, it was not able to offset the negative absorption experienced in the other two GTA midtown submarkets, resulting in negative absorption for the entire market of about 130,000 square feet.

130

(37)

Circle represents the distribution of occupied space within the GTA midtown submarkets as of December 2009.

(221)

(300)

(200)

(100)

0

100

200

Absorption (thousands of SF)

18-Month Vacancy Trend Total Vacant Area Vacant Space (1,000s SF)

12,000 99,246

Vacant Sublease Space (SF) 1,037,246

816,034

757,459

775,552

3.9%

5.4%

5.0%

40,771

41,122

38,768

Q2

Q3

8,000

4,000

9.2%

3.1% 25,061 0 Q3

% of Vacant Sublease Space of Total Vacant Space

91,548 Q4

2008

Q1

2009

While the vacant sublease market seemed somewhat nonexistent throughout 2009 as the GTA’s midtown sublet ratio ranged between 3.9 percent and 5.4 percent, the recent addition of nearly 50,000 square feet increased the ratio to 10.6 percent and surmounted the ratio observed in

814,554

10.6% 86,450 Q4

Q4 2008. However, on a per square foot basis, less vacant sublease space is available now as opposed to a year ago, with 86,500 square feet available in 2009 versus 91,500 square feet available in 2008.

GTA Midtown

18-Month Occupancy Trend Total Office Space Inventory (SF)

Total Occupied Space (SF)

% of Inventory Currently Occupied

100.0%

17,500 17,351

Available Space (SF)

17,351

17,351

17,346

17,346

17,346 96.0%

16,500

15,500

90.7%

90.2%

90.8%

15,745

15,654

15,757

Q4

Q1

Q3

91.5%

91.4%

15,863

15,860

89.5% 15,527

2008

With the recent increase of vacant space, occupancy levels dropped during the last quarter of 2009, averaging out to

Q2

2009

Q3

92.0% 88.0% 84.0%

Q4

89.5 percent, the second lowest observed occupancy level in comparison to other GTA markets.

Greater Toronto Area | Midtown | 12

GTA North Vacancy: 4.1% q

Net Absorption: 82,802 SF q

Asking Net Rent: $17.73/SF p

Net New Supply: 0 SF tu

Arrows indicate trends observed since summer 2009.

GTA North Historical Performance & Forecast Net New Supply

Net Rent $ / Net New Supply (100,000 SF)

$25.00

Asking Net Rent

Vacancy Rate FORECAST

12.0%

10.0%

$20.00

$17.73 8.0%

$15.00 6.0% 4.1%

$10.00

4.0% $5.00

2.0%

0.0%

$0.00 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Colliers International & Conference Board of Canada - Metropolitan Outlook Data as of December 3, 2009.

During 2009, vacancy in the GTA North peaked at 4.7 percent in Q2, decreasing in the second half of 2009 to 4.1 percent. Compared to the end of 2008, vacancy levels are still up by more than 110,000 square feet, but increased confidence in a more positive economic outlook suggests demand has mildly increased in recent months. In a larger context, this market continues to be the healthiest market among GTA office markets.

Average asking net rent seemed unimpressed with the instability in the economy and continued its climb to a level not observed since 2002-2003. Since Q4 2008, average asking net rent has increased by eight percent from $16.50 per square foot to $17.73 per square foot at the end of Q4

2009. This inverse impact is due to the fact that most of GTA North’s newly added space is located in Class A buildings in the North-Yonge corridor, which typically have higher asking rents and pull the average asking net rent towards the higher end of the spectrum.

With expected softness in the office employment market and new supply scheduled to be completed in Q2 2010 that is not fully pre-leased, vacancy is projected to increase again during 2010, peaking just below 5 percent by the end of 2010 and declining thereafter. Asking net rent levels are forecasted to decrease below $17.00 per square foot in 2010 and increase thereafter.

Asking Net Rent 12-Month Change Dufferin / Finch 8.3%

December 2008 December 2009

Keele/Hwy 401/ Yorkdale 0.3%

$9.36 $11.80

North Yonge $18.55 Corridor 9.0% $17.01

$8.65

$11.76

$4.00 $8.00

$13.02

$12.00

$17.52 $18.53 Vaughan 5.4%

$18.00

$16.61 Richmond Hill 27.5%

13 | Office Market Report & Forecast | Winter | 2010

Aside from Vaughan, all GTA North submarkets experienced an increase in average asking net rent.

Richmond Hill quoted the steepest increase of 27.5 percent from $13.02 per square foot to $16.61 per square foot, as some of the less expensive space in Class B buildings was taken off the market earlier this year. Adversely, Vaughan added more space in Class B and C buildings, dragging the average down by 5.4 percent, from $18.53 per square foot to $17.52 per square foot. The highest average asking rent at the end of 2009 in GTA North was quoted in the NorthYonge corridor at $18.55 per square foot.

12 Month Net Absorption by Submarket Vaughan Dufferin/Finch Richmond Hill Keele/Hwy 401/ Yorkdale North Yonge Corridor

Over the course of 2009, occupied space contracted in GTA North by approximately 25,000 square feet. While all other GTA North submarkets reported negative absorption, only Vaughan increased occupied space by almost 71,000 square feet, predominantly in Class A buildings. The largest decrease of 55,000 square feet was observed in the North-Yonge corridor.

70,671 (2,090) (14,230) (22,062)

Circle represents the distribution of occupied space within the GTA North submarkets as of December 2009.

(55,138) (120)

(70)

(20) 0

30

80

Absorption (thousands of SF)

18-Month Vacancy Trend Total Vacant Area

Vacant Sublease Space (SF)

Vacant Space (1,000s SF)

800 600

668,699

% of Vacant Sublease Space of Total Vacant Space 725,602

655,337

639,851

528,305 493,460

400 200 0

6.9% 34,190

Q3

9.7%

13.2%

14.4%

6.3% 33,032

64,756

95,779

94,261

Q4

Q1

Q2

Q3

2008

2009

Marketed vacant sublease space was still up by 78 percent compared to Q4 2008, but recently declined by 38 percent during Q4 2009. In contrast, direct vacant space increased by approximately 20,000 square feet during Q4 2009. At

9.2% 58,877 Q4

9.2 percent, the sublease ratio is below the GTA-wide average and, with a total of less than 60,000 square feet, continues to remain low. The majority of the space, approximately 26,000 square feet, was added in Class A buildings.

18-Month Occupancy Trend Total Office Space Inventory (SF)

15,600 15,200

15,255

15,255

15,358

15,358

% of Inventory Currently Occupied

15,427

14,609 14,385

14,000

Q3

Q4

100.0%

15,427 98.0% 94.5%

95.8%

14,800 94.3% 14,400

Total Occupied Space (SF)

94.1%

94.4%

94.0%

14,451

14,501

14,505

Q2

Q3

Q1

2008

The GTA North office inventory grew only marginally during 2009 and occupancy levels have remained at a healthy level throughout the entire year at about 94 to 95 percent of the

2009

96.0% 94.0%

14,584 92.0% 90.0%

Q4

inventory. Compared to other GTA markets, GTA North is continuously the market with the highest occupancy levels.

Greater Toronto Area | North | 14

GTA North

Available Space (SF)

16,000

GTA East Vacancy: 8.0%

q

Net Absorption: 103,191 SF q

Asking Net Rent: $12.60/SF q

Net New Supply: 0 SF tu

Arrows indicate trends observed since summer 2009.

GTA East Historical Performance & Forecast Net New Supply

Net Rent $ / Net New Supply (100,000 SF)

$16.00

Asking Net Rent

Vacancy Rate FORECAST

$14.00

15.0% 13.0%

$12.00

$12.60

11.0%

$10.00

9.0%

$8.00

8.0%

7.0%

$6.00 5.0%

$4.00

3.0%

$2.00

1.0%

$0.00 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Colliers International & Conference Board of Canada - Metropolitan Outlook Data as of December 3, 2009.

With an above-average vacancy rate of eight percent and below-average asking net rents at $12.60 per square foot, GTA East remains a softer market in the GTA. Looking at the GTA East’s vacancy performance, it has increased less than 200,000 square feet or seven percent since Q4 2008, but is equal to or below vacancy levels observed in the years prior to 2008. Average asking net rents decreased by five percent from $13.23 to $12.60 per square foot in the same time period.

With no new supply scheduled for completion during the next two years, but predicted increases in office unemployment for 2010 by the Conference Board of Canada, vacancy is anticipated to increase moderately until Q4 2010. Average asking net rent is expected to hover around levels observed at the end of 2009 and begin to increase after vacancy has started to decline again by the end of 2010.

Asking Net Rent 12-Month Change Consumers Road 1.2%

December 2008 December 2009

$12.31

Woodbine & Steeles 1.0% $12.67 $12.55 Toronto East 12.8%

$10.05

$10.35 Don Mills/ Eglinton $11.61 $10.85  7.1%

$8.77

$11.29 Scarborough $14.16 Town 20.3%

$12.16

Duncan Mill $13.69 24.4%

$10.44

$4.00 $6.00

$14.95

$8.00 $10.00 $13.68

$13.70 $14.00 Pickering/Oshawa 31.2%

$14.94 Markham 8.4%

15 | Office Market Report & Forecast | Winter | 2010

$14.63 Hwy 404/ Hwy 407  2.2%

The majority of the GTA East submarkets experienced a reduction in quoted asking net rents during the last twelve months, with some areas decreasing in the double digits.

The largest decrease was observed in Duncan Mill, dropping from $13.69 per square foot to $10.35 per square foot.

Only three submarkets reported an increase in asking net rents: Pickering-Oshawa, Don Mills-Eglinton and Highway 404-Highway 407. The highest net rents in GTA East appear in the Highway 404-Highway 407 submarket, a submarket featuring newer office buildings and easy access to the highway system.

12 Month Net Absorption by Submarket Markham Duncan Mill Pickering/Oshawa Don Mills/Eglinton Consumers Road Toronto East Woodbine & Steeles Scarborough Town Centre Hwys 404/407

For 2009, net absorption balanced out at almost -400,000 square feet, offsetting recent gains reported in Colliers’ Summer 2009 Office Market Report. Most of the space was left unoccupied during the latter half of 2009. The only submarket growing was Markham, by about 100,000 square feet, while all the other submarkets reported negative absorption. Highway 404-Highway 407 experienced the largest decline in occupied space.

106 (4) (5) (11) (25) (42) (63)

Circle represents the distribution of occupied space within the GTA East submarkets as of December 2009.

(131) (203) (250)

(150)

(50)

0

50

150

Absorption (thousands of SF)

18-Month Vacancy Trend Total Vacant Area

Vacant Sublease Space (SF)

Vacant Space (1,000s SF)

3,500 2,500 1,500

500

2,903,159 2,631,200

2,543,112

% of Vacant Sublease Space of Total Vacant Space 3,064,110

2,817,687

2,750,053

7.1% 6.1%

5.5%

4.0%

3.5% 3.0% 90,162

Q3

78,127

116,978

Q4

Q1

2008

218,563

166,725

Q2

Q3

2009

With 5.5 percent of vacant inventory being offered as sublease space, the sublease market continues to remain low in GTA East and remains well below the GTA average.

155,411 Q4

Nevertheless, during the last twelve months, sublease space almost doubled in this market, while direct vacant space increased by only seven percent.

18-Month Occupancy Trend Total Office Space Inventory (SF)

36,000

34,935

Available Space (SF)

34,935

Total Occupied Space (SF) 35.046

35,063

% of Inventory Currently Occupied 35,161

100.0% 35,161 96.0%

34,000 92.0% 32,000

89.7%

90.2%

31,348

31,498

89.3% 31,282

30,000

Q3

Q4

Q1

2008

About 88.5 percent of the office inventory in the GTA East is occupied. This ratio has steadily decreased throughout 2009,

88.0%

89.1%

88.6%

31,224

31,166

31,121 84.0%

Q2

Q3

Q4

2009

88.5%

falling below average occupancy levels in the GTA to the lowest occupancy level among the GTA office markets.

GTA East Greater Toronto Area | East | 16

GTA West Vacancy: 7.2%

p

Net Absorption: (537,331) SF q

Asking Net Rent: $14.51/SF q

Net New Supply: 189,513 SF q

Arrows indicate trends observed since summer 2009.

GTA West Historical Performance & Forecast Net New Supply

Net Rent $ / Net New Supply (100,000 SF)

$18.00

Asking Net Rent

Vacancy Rate FORECAST

$16.00

14.0% 12.0%

$14.00

$14.51

10.0%

$12.00 7.2%

$10.00

8.0%

$8.00

6.0%

$6.00

4.0%

$4.00 2.0%

$2.00

0.0%

$0.00 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Colliers International & Conference Board of Canada - Metropolitan Outlook Data as of December 3, 2009.

Over the last 12 months, vacancy in GTA West has increased significantly from 4.9 percent to 7.2 percent, providing many more options for tenants looking for space in this market. This increase is not just driven by lessening demand for office space but also by the addition of almost one million square feet of partially un-leased new office space. Most of the vacant space was added in Airport East and the Airport Corporate Centre.

On a whole, most of the newly added space is located within Class B buildings, while Class A and C added equal amounts onto the market. Vacancy rates at this level have not been observed since 2006 when the market was still recovering from the aftermath of the downturn in the early 2000s.

Average asking net rent responded with only a mild decrease of less than six percent, suggesting landlords have not yet adjusted their price expectations to new market conditions or are simply riding out the softness in the market. According to the Conference Board of Canada, office employment is forecasted to decrease in the first half of 2010 for the entire GTA. Considering this and the completion of another 550,000 square feet, the vacancy rate is expected to be driven up even further to a peak of 8.5 percent in Q3 2010 and decline thereafter. Average asking net rent is expected to decrease by five percent, settle at approximately $13.40 in 2010, and start to recover in 2011.

Asking Net Rent 12-Month Change Airport Corporate Centre 3.0% Airport East Sheridan $15.74 3.1% 10.7%$16.41 $14.10 $15.28 Airport West Oakville $13.65 $14.66 14.7% 10.9% $14.45 $15.63 $17.55 $12.33

December 2008 December 2009

Meadowvale 16.1% $18.24

$13.11

$15.30 $2.00 $4.00 $6.00

$12.02

$14.24

Bloor/ Islington 8.0%

$12.74 Mississauga $13.13$11.65 Brampton $14.82 City Centre $17.03 $12.00 5.6%  2.1% $13.50 $15.45 $14.43 $18.00 Hwy 40/Hurontario Burlington 2.7% 4.1% Cooksville 23.8% $17.38

17 | Office Market Report & Forecast | Winter | 2010

Only two out of the twelve GTA West submarkets quoted asking net rent above levels observed twelve months ago. Cooksville’s rent increased by almost 24 percent from $11.65 per square foot to $14.43 per square foot and Mississauga went up by two percent from $17.01 per square foot to $17.38 per square foot. All other submarkets experienced a drop in their asking net rent. Meadowvale’s rent dipped the most with a contraction of just over 16 percent. At the end of 2009, the highest rents of $17.38 per square foot were asked for in the Mississauga City Centre, a denser submarket connected to public transit and surrounded by many amenities.

GTA West

12 Month Net Absorption by Submarket Airport West Meadowvale Mississauga City Centre Oakville Cooksville Brampton Sheridan Hwy 401/Hurontario Bloor/Islington Burlington Airport Corporate Centre Airport East

461

The GTA West’s occupied space shrank by nearly 500,000 square feet throughout 2009, which is the first reduction within the last ten years, attesting to lesser demand for office space as economic instability lingers. Seven out of the 12 submarkets in the GTA West saw their occupied space contract, with the largest decline of 460,000 square feet reported in Airport East. The largest positive gain was achieved in Airport West with 460,000 square feet, balancing the losses experienced in Airport East.

165 98 4 2 (55) (61) (65) (123) (125) (338)

Circle represents the distribution of occupied space within GTA West as of December 2009.

(458)

(500)

(300)

(100) 0 100

300

500

Absorption (thousands of SF)

18-Month Vacancy Trend Total Vacant Area

Vacant Sublease Space (SF)

Vacant Space (1,000s SF)

3,500 2,500

2,939,541 2,216,847

2,323,294

340,702

Q3

3,167,302

3,296,655

2,571,792

18.6%

1,500 14.7% 500

% of Vacant Sublease Space of Total Vacant Space

13.3%

14.4%

13.9%

412,288

342,017

422,273

439,100

Q4

Q1

Q2

Q3

2008

2009

The GTA West market continues to quote the highest sublet ratio among the GTA office markets at 14.8 percent, although it has come down from a recent peak of 18.6 percent observed in Q4 2008. Despite the fact that sublease

14.8% 487,974 Q4

space has increased steadily throughout 2009 by almost 18 percent, the vacancy rate is more impacted by the growth of direct vacant space by over 1 million square feet, or 49 percent.

18-Month Occupancy Trend Total Office Space Inventory (SF)

Available Space (SF)

46,500

45,749

45,000 44,000 43,000

44,862

44,735

93.4%

92.8%

% of Inventory Currently Occupied 45,766

45,955

45,196

92.2%

100.0% 96.0%

91.7%

92.0% 90.3%

90.1%

41,946

41,330

41,408

Q2

Q3

88.0%

42,000 41,000

Total Occupied Space (SF)

41,904

41,521

Q3

Q4

41,659 Q1

2008

Diminishing demand for office space and the addition of new office supply impacted the occupancy levels. During 2009, the occupancy level has continuously decreased

2009

84.0%

Q4

from 93.4 percent to 90.1 percent, matching the overall occupancy level of the GTA.

Greater Toronto Area | West | 18

Colliers International Offices Serving the GTA: Downtown Office

West Office

North Office

One Queen Street East, Suite 2200

185 The West Mall, Suite 1600

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Toronto, Ontario

Toronto, Ontario

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Canada, M2J 4W9

416.777.2200

416.626.1600

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19 | Office Market Report & Forecast | Winter | 2010