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Canadian Perspectives The DTZ Barnicke Report 2009

www.dtzbarnicke.com

Executive Reports

DTZ Barnicke’s Canadian Perspectives

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Canadian CEO’s Message

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Canadian Economic Overview

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Provincial Update

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(formerly Global Views) is an online corporate market report

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National Sector Reports Investment

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Office

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Industrial

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Retail

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Regional Markets Reports Victoria

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Nanaimo

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Vancouver

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Edmonton

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Calgary

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Regina

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Winnipeg

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London/Windsor/Sarnia

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Waterloo Wellington

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Niagara

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Greater Toronto Area

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Kingston

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Ottawa

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Montréal

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DTZ Barnicke

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Canadian Perspectives 2009

Canadian CEO’s Message

As the global financial markets came to a grinding halt in the latter part of 2008, subsidizing is exactly what took place. Bailouts, liquidity injections, nationalizations and interest rate cuts became commonplace as governments and central banks around the globe attempted to avoid an inevitable recession and keep credit flowing.

2008 was a prolific year of change as our global financial institutions and global property markets tumbled into turmoil, banks failed, investment banking powerhouses collapsed and near record stock market losses rocked consumer confidence. It was a year of uncertainty and a quest for the elusive answer as to when the bottom would be reached.

While it took Canada longer to feel the impact, as demand for our energy and natural resources remained somewhat buoyant, it was clear that Canada would not be immune to the global slowdown. However, to our benefit, Canadian financial institutions had not jumped onto the subprime mortgage bandwagon only to be flooded with toxic assets, unlike our neighbours to the south. As such, the country’s banking system remained more sound than other countries around the globe. In addition, through all the turmoil, Canadian commercial real estate markets remained more stable and retained greater value than those markets in the UK, Europe and most notably the United States.

This is old news now and the more burning question is what lies ahead for Canada and our markets from coast to coast for 2009 and beyond?

We at DTZ Barnicke believe that the period starting in 2009 and moving into 2010 will continue to be one of challenge and value adjustment in Canada as the financial services, automobile and energy sectors of the economy seek to find balance and begin to recover from the devastation experienced in the traditional credit markets in 2008.

During these times of change and challenge, demand for commercial real estate expertise and advisory services always increases. To meet the needs of our clients, we at DTZ Barnicke offer a wide range of advisory services to assist with both owner and user based decision making. Our service offering now includes national valuation services, financial based restructuring and the sourcing of mortgage funding.

With great challenges come great opportunities. Our commitment is to fully understand the needs and priorities of our clients in these changing times and be here to assist in seeking out the opportunities.

Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

Ronald Reagan

DTZ Barnicke

On behalf of DTZ Barnicke I hope you enjoy and benefit from Canadian Perspectives.

Christopher Ridabock CEO

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Canadian Perspectives 2009

Canadian Economic Overview

What a difference a year makes — or a day for that matter

The Canadian government stepped up in October as well as a precaution, creating the Insured Mortgage Purchase Program (IMPP) to support the country’s credit markets. Under this program, Canada Mortgage and Housing Corporation (CMHC) would purchase securities comprised of pools of insured residential mortgages from Canadian financial institutions.

Initially, the commitment was for $25 billion and this was subsequently increased to $75 billion as of mid-November.

2008 was a roller coaster ride for both the general economy and the real estate market, both commercial and residential, and had everyone asking – Where is the bottom? What started out as a US housing market correction became a global financial crisis in a matter of months, through the repackaging of risk. How exactly did we get here, and where are we headed?

Offsetting all of this downward economic pressure were significant interest rate cuts, which were the name of the game in 2008. The Bank of Canada dropped the target for the overnight rate a full 275 basis points to 1.5%, a fifty year low, over the course of the year. The most aggressive cuts came in the fall, where two rate cuts took place for a combined 75 basis point drop in October and an additional 75 basis point drop came in December.

Canada was not alone in cutting interest rates. On October 8th, there was a coordinated monetary policy action by a number of industrialized countries to address the global financial crisis. This involved a 50 basis point rate cut by the US Federal Reserve, Bank of England, European Central Bank and the Bank of Canada. Interest rates in the UK reached World War II lows by the end of the year. Further cuts are expected in 2009, as central banks looks to stimulate growth through expansionary monetary policy. However, if these rate cuts are not working what else do governments have in their arsenal to get credit flowing through the system again? If liquidity is not solving the problem the bigger question is can we live through the pain until the de-leveraging is over?

Financial failures of “too big to fail” banks, insurers and automakers — who’s next?

The collapse of Bear Stearns early in 2008 was echoed later in the year by the rapid downfall and federal intervention to shore up Fannie Mae and Freddie Mac, the cornerstones of the residential mortgage market in the US. Fannie Mae and Freddie Mac combined own or guarantee almost half of the $12 trillion US mortgage market. The downfall of Lehman Brothers, the rescue of Merrill Lynch by Bank of America, the rescue of Wachovia by Wells Fargo, the seizure of Washington Mutual (the nation’s largest savings and loan) subsequently acquired by JPMorgan Chase, the federal bailout of AIG (the world’s largest insurance company) and backstopping of Citigroup pointed to tumultuous times in the US financial market, which were felt around the globe. European governments stepped in with major bank bailouts of their own to keep the financial system operating.

Is there an end in sight to the never-ending wave of write downs and corporate failures? While the pace of financial failures appears to be abating, it is still too early to assess the effectiveness of these various actions by US and European governments. In the US, watch the Federal Reserve’s flow of funds data for tell-tale signs of a stabilization or increase in bank lending activity.

Wall Street hit a five year low in the latter part of 2008 as the wild ride continued. Recession fears battered the stock markets of both industrialized and emerging markets. Prospects of the beleaguered “Big Three” North American automakers requiring federal bailouts to stay afloat only added to the fear and misery. US automakers initially asked for a $25 billion lifeline, while the Canadian subsidiaries looked to secure $3.5 billion. In Canada alone, the “Big Three” directly employs roughly 28,000 workers. If you include the spin-off or indirect jobs related to the auto sector that number grows significantly. Failure of the automobile industry has implications for the industrial real estate market and general economy, particularly in Ontario, which is highly leveraged to this sector.

Soaring dollar and commodities — is the party over?

After soaring to an unprecedented US$1.10 in November 2007, the Canadian dollar flirted with parity for most of 2008 before pulling back in October and hovering in the US$0.80 range for the balance of the year. This provided some relief to Canadian manufacturers who have been struggling with the combined effect of a high dollar and soaring commodity prices.

The Canadian dollar was not alone in its decline in relation to the US dollar as almost all of the most actively traded currencies, except for the Japanese Yen, felt similar downward pressure as investors fled to the safety of US Treasury Bills.

Following the lead of quick European government action to backstop banks in the UK and Ireland, the US Treasury Department’s $700 billion Troubled Assets Relief Program (TARP) came into law in October 2008 in response to the financial crisis plaguing Wall Street. The intent of TARP was to take illiquid assets, such as mortgages in default, off the books of lenders. By November 2008, the Treasury Department had changed its plans, allocating roughly $250 billion from the bailout fund for direct injection into banks through purchase of their stocks, while a restructured agreement with AIG would see the creation of a facility to unwind some of that firm’s more toxic structured products, including both credit default swaps (CDS) and the collateralized debt obligations (CDOs) that these CDS backed.

DTZ Barnicke

Along with the pullback in currency values, 2008 saw a dramatic rise and fall in the commodities market. A mixture of rapidly growing demand for energy in still booming economies, such as India and China, a decline in the number of oil discoveries being made, political instability in top oil exporting countries, and to a degree investor speculation have all played a role in the rapid rise of energy prices. Crude oil prices peaked at $147 per

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Canadian Perspectives 2009

Canadian Economic Overview

barrel in July 2008 putting a strain on both consumers and manufacturers and fuelling inflationary fears. With slowing global demand for oil through the balance of 2008, prices declined by roughly $100 and left everyone wondering how low they could go. What was good for the consumer was bad for oil producers and energy investment and will be particularly bad for the province of Alberta, which has been recording stellar growth as a result of its resource wealth, as well as Newfoundland & Labrador. Falling prices and financing constraints resulted in projects being delayed or cancelled in the global oil producing markets, including Canada’s oil sands where roughly $40 billion in new oil sands spending has been deferred.

the squeeze of soft global economic conditions. A softening housing market will put a dent in the creation of construction jobs, which have underpinned a large part of overall employment growth over the past couple of years.

With the unsettling financial market, the outlook is not rosy for job creation in that sector either. However, the unemployment rate remains near historic lows at 6.3% and even with softening employment activity in 2009 it is forecast to remain below the historical average.

What will happen in 2009 and beyond? Global oil supply has not grown in three years and current per barrel prices are not conducive to large scale investment. Supply will fall but what of demand? Demand from emerging markets is only going to continue to grow and any pick-up in global economic growth will push oil prices higher and perhaps eventually to new record highs, as history has shown the peak of one cycle often becomes the trough of the next.

Fears of a global recession sent consumer confidence on a downward spiral across the globe in the fall of 2008. With consumers retrenching, the outlook for buoyant retail sales growth comes into question. Less spending by consumers leads to less consumer goods being manufactured, which leads to more job cuts, which continues the vicious cycle. While softening oil prices may have a positive impact on consumers’ disposable income, the fact that many have had their net worth substantially diminished on the stock market, have lost their job, and in the case of the US have gone into foreclosure on their homes, does not leave much to be confident about.

Consumers in Canada, however, have more to be confident about as they are typically less overleveraged than their American counterparts and, as mentioned above, employment and income gains have been stronger.

Despite this, consumers are showing signs of concern, as confidence dropped to its lowest level in nearly two decades according to the Conference Board of Canada.

Consumers and businesses tightening their belts — will exchange rates help?

Given that almost all of Canada’s crude oil exports are to the US, additional key statistics to watch include US crude oil consumption, US highway miles driven, and new vehicle sales. While all these figures are down at the moment, it is currently unclear how much of the decline is a result of the general economic downturn (an effect which could be short-lived) and how much of it reflects the recently recorded highs in oil prices. After oil prices spiked thirty years ago, Americans became energy-misers for much of the following decade, resulting in a sustained period of weak oil demand and prices. If Americans repeat this pattern, the negative implications for Canadian energy exports could last well beyond 2009. If SUV sales recover, highway miles driven rise, and US oil consumption turns up combined with a pick-up in global demand, then Canada’s energy industries can breathe a collective sigh of relief.

It is not just consumers tightening their belts. Non-residential business investment is forecast to decline though 2009. With financing a concern, many capital projects are being put temporarily on hold until market conditions settle. With a softening of the Canadian dollar, now would be a great time for reinvestment in equipment, machinery and productivity enhancing ventures on behalf of Canadian companies, but as the stock market continues its roller coaster ride, many companies are being forced into profit protection mode instead.

Job cuts — the tip of the iceberg?

Job losses in the US were felt throughout 2008. Some might say the only sectors poised to see job increases are government, health care, and debt collectors. All told, the US economy lost 1.9 million jobs over the course of 2008 with huge impacts for consumer confidence, retail spending and investment. While the cuts have yet to approach the levels seen in many recent US downturns (2.7 million jobs were lost between 2001 and 2003, while 2.8 million jobs were lost in the 1981-1982 recession), the rate of job loss increased dramatically in the final months of 2008, with continued losses expected through the first half of 2009.

In this regard, the declining value of the Canadian dollar may turn out to be a boon: if exchange rates against the US dollar remain near current levels or fall further, both retail sales and business investment could benefit.

In contrast, the labour market remained relatively strong in Canada with employment and wage gains throughout most of 2008 – but how long will this last? While there have been months where job losses have occurred over the past years, the net annual job gains have been consistently positive since 1993. While job losses were experienced at the end of 2008, they were not enough to offset gains earlier in the year. However, with employment taking its largest monthly decline since 1982 in the month of November, down 70,600 jobs, this set the tone for things to come in 2009.

Once again these losses were not across the board with Ontario taking the brunt of the decline.

Overall employment growth is forecast to be flat in 2009 with the manufacturing sector continuing to struggle, and the other sectors feeling

DTZ Barnicke

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Canadian Perspectives 2009

Canadian Economic Overview

So what of the beleaguered housing market, where all the troubles began?

Nonetheless, housing starts in Canada began to cool towards the end of 2008, a trend that is likely to continue through 2009 as the market re-aligns with demographic demand. Housing starts are forecast to dip below the 200,000 unit mark in 2009 for the first time in eight years. Overall resale activity also trended downwards, roughly 16% lower than 2007 with prices down 9.9% according to CREA. This trend is not generalized across the country, as markets that had become overheated are experiencing a cooling off, while other markets are still experiencing increased sales, starts and pricing.

Construction starts have plummeted, existing home sales have stabilized, and subprime lending activity has all but disappeared in the US, but prices have yet to hit a bottom. Different data sources estimate that home prices have fallen anywhere from 10% (FHFA) to 20% (Case-Shiller), with additional price declines of 10% expected. Why do prices continue to fall and thwart housing market stability? The main problem is increased foreclosure activity and the dumping of foreclosed properties back onto the market by lenders, thus continuing the vicious cycle of house price depreciation.

However, a strong seller’s market is starting to give way to a buyer’s market and this is expected to persist throughout 2009. The question remains will it be as long and as deep a correction as that experienced in the US and other markets across the globe?

There have been three distinct waves of foreclosure activity in the US. The first wave, led by flippers and speculators, began in late 2006. The second, dominated by households with resetting ARM and subprime “teaser” mortgage rates, led activity in 2007-2008. The current and third wave, however, is mostly economic, a reflection of job losses. The two preceding waves of activity, coupled with the supply of unsold new homes and bank-owned existing homes, have created a housing market so weak many newly unemployed households cannot sell their homes to stave off foreclosure, as they might have during a more “typical” recession. If US job losses continue in 2009, foreclosure rates will remain high, unless the new Obama administration forces lenders to make large-scale and dramatic loan modifications.

Such an action, however, may not be necessary.

It is important to remember that, despite all the talk of the housing market woes, less than 4% of US residential mortgages were seriously delinquent as of the end of the third quarter of 2008.

The fundamentals remain more solid for the Canadian housing market; however, most housing experts believe the boom is over. The good news for Canada is that the exposure to the subprime market or foreclosure activity is minimal in comparison to that of the US. Furthermore, US housing weakness has been concentrated in areas far from the US-Canadian border, with California, Arizona, Nevada and Florida accounting for more than half of foreclosure activity. The comparative economic and housing stability in markets in the US Northeast and Pacific Northwest regions, which have strong linkages with the biggest Canadian markets, is encouraging.

In addition, Canadian price appreciation can be more explained by economic fundamentals than pure speculation as seen in the price appreciation in the US as well as countries like the UK and Ireland.

DTZ Barnicke

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Canadian Perspectives 2009

Provincial Update

A tale of 10 provinces The regional disparities that have been evident in the Canadian economy over the past few years will continue in 2009. However, the gap has narrowed as no province will go unscathed in the current economic reality.

Saskatchewan is directly benefiting from outmigration from Alberta, with population growth the highest seen since the 1970’s. The housing market reached new highs in 2008 but a slight pull back is expected for 2009 as the effects of price escalations are felt by the consumer.

British Columbia The BC economy softened in 2008, with the lumber and forestry industries continuing to be a drag on overall growth prospects. The BC economy expanded by 1.2% in 2008 and similar meager growth is forecast for 2009, at 2.1%. The build-up to the 2010 Winter Olympics continues to be a catalyst for non-residential growth in the Province, along with natural gas development, offsetting a weakening housing market. According to CMHC, housing starts declined by close 9% in 2008 and forecast to decline 18.4% in 2009.

Manitoba Manitoba experienced another solid growth year.

The economy expanded by 3.1% in 2008 and is forecast to post growth of 2.3% in 2009. The diversification of Manitoba’s manufacturing sector and the strong resource presence have helped to shelter the province somewhat to the overall economic conditions. Unemployment reached a low of 4.2% in 2008 and is expected to remain in that range for 2009, which should continue to fuel retail sales.

Employment growth will slow in 2009 as the unemployment rate creeps up to 4.4%. Retail sales increased a mere 3.0% over 2007, as slowing employment and wage gains had a subtle impact on consumer confidence.

Alberta The bloom is off the rose in ‘wildrose’ country as growth prospects moderated in 2008 to more sustainable levels. The economy shifted gears, expanding by a moderate 2.2% in 2008 as a result of capacity constraints. The decline in energy prices experienced in the latter half of 2008 pose a downside risk to the 2009 growth forecast, which pegs Alberta at 3.0%.

According to CMHC, total starts were down 50% in 2008, as activity levels and cost of living became unsustainable; however, Alberta continues to lead the country in residential construction activity. Nonresidential construction activity also experienced a pull-back towards the end of 2008.

Alberta experienced, for the first time in a decade, net out-migration. Retail sales slowed as consumers retrenched, particularly for big-ticket items. The unemployment rate remained the lowest in the country at 3.5% but is expected to increase to 4.1% in 2009.

Saskatchewan Saskatchewan took over top spot on the growth charts for 2008 but can this momentum last through 2009? The economy expanded by 3.9% in 2008 and is forecast to see growth of 3.5% in 2009. Saskatchewan’s commodity boom has been driving investment in the province. In addition, an anticipated income tax cut in 2009 should continue to bolster retail sales.

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Housing starts hit a 20 year high in 2007 and kept reasonable pace in 2008 but ended the year down 7.5% mostly due to declines in multi-family starts.

Ontario From “have” to “have not”? Close manufacturing ties to US demand certainly played a role in the economic malaise plaguing Ontario as it flirted with a technical recession in 2008. Domestic demand and service sector growth have been buffering the impact of the manufacturing sector but can these continue to carry the weight in 2009 given challenges of their own? The economy showed no real growth in 2008 and is forecast to record growth of a mere 0.4% in 2009.

The residential market cooled slightly in 2008 on the single detached front but remained positive overall based on strong multi-family starts.

Continued cooling is expected in 2009. Existing home sales are also expected to trend downwards.

Unemployment edged upwards to 6.5% and is expected to continue to edge upwards in 2009.

Quebec Like Ontario, Quebec flirted with a technical recession in 2008. While less tied to the US economy due to a more broad-based manufacturing sector, Quebec exports still have strong links to the US consumer. The economy expanded by 0.7% in 2008 and is forecast to rebound to a mere 1.2% growth for 2009. Consumer and government expenditure have been shoring up weakness in other areas of the economy.

According to CMHC, new home construction will continue to moderate in 2009 in line with household formation. The unemployment rate increased to 7.5% in 2008 and will continue to rise in 2009. This will be a drag on consumer demand and retail sales growth in the province.

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New Brunswick Investment spending in the province bolstered growth in 2008 as the economy expanded by 2.0%. Resource development was a key driver in this growth and will continue to impact growth prospects over the near term. Forecast expansion of 2.5% in 2009 will be impacted by any further softening in resource pricing.

Unemployment hit 8.6% in 2008, healthy for the province amid skilled labour constraints for the number of projects underway. Population growth increased with net in-migration to the province fuelling demand for housing, but, this growth likely peaked in 2008.

Nova Scotia The economy of Nova Scotia benefited as an energy-producing province in 2008 but what effect will softening energy prices have for 2009? The economy expanded by 2.0% in 2008 and similar growth levels are forecast for 2009.

Unemployment dipped to 7.7% in 2008 and is expected to trend upwards to 8.0% for 2009.

Consumers benefited from income gains, reflected in retail sales which were up 5.5% over 2007.

Prince Edward Island The tourism sector continued to feel the impact of the sluggish US economy. PEI’s economy expanded by 1.9% in 2008 and is expected to soften further in 2009, recording 1.4% growth as momentum in the province slows. Despite this, labour markets remained resilient as the unemployment rate continued to hover at 10.4%.

Housing starts trended down in 2008 and this trend is expected again in 2009.

Newfoundland and Labrador Economic growth continues to be driven by the energy sector; however, declines in prices and production will have a significant impact on the growth forecast for the province. The economy expanded by 0.2% in 2008 and is expected to expand by 1.3% in 2009. After 15 years of decline, the population of Newfoundland and Labrador rose in 2008, stimulating consumer spending and housing demand in the province. Housing starts increased by 17% in 2008, marking the second year of positive activity. Starts are forecast to moderate in 2009 as population growth levels off once again.

The unemployment rate dipped to a below average rate of 13.1% in 2008 and is expected to dip further in 2009 before leveling off.

Canadian Perspectives 2009

National Investment Report

Setting the global stage

Publicly-traded debt via the CMBS market has all but disappeared, with global issuance down nearly 90 percent over the levels achieved in each of the prior two years. In Canada, where CMBS outstanding of $19 billion accounts for just over 1% of the global total, we have seen CMBS issuance fall from the range of $2 to $4 billion per annum that prevailed earlier in the decade to nil this year, with no new issuance in Canada in 2008. Canadians have good company in this area, however, as there was no new CMBS issuance in 2008 in Italy, France and Australia, either.

The credit crunch that began to materialize in 2007 became a global financial crisis in the second half of 2008 and the fallout will continue to be felt throughout 2009. What started out as bad subprime loans to US homeowners spread throughout the global financial system through the securitization and commoditization of risk affecting all credit related securities and triggering a global economic recession. The mighty have since fallen in the commercial real estate lending arena– Lehman Brothers, AIG, Merrill Lynch, Bear Stearns, Citibank, Fortis, HBOS, Royal Bank of Scotland and Hypo to name a few – leaving in their wake a significant reduction in available debt capital in the marketplace for real estate and all other asset classes. Governments have been responding with co-ordinated interest rate cuts, injections of liquidity and bailouts/ nationalization of major financial institutions after the Libor-OIS swap spread hit an all-time high at the end of September signaling that lending in the market had essentially ground to a halt.

With REITs sidelined and the CMBS market frozen worldwide, private equity and debt remain the main source of available capital today, but some major classes of private investors face hurdles of their own.

Pension funds, for example, have been a significant source of investment capital over the years and as such many of these funds have significant allocations to real estate. In 2008, pension funds saw the value of their entire portfolio decline significantly and could be facing an unfunded liability situation as a result. With the denominator effect in play many pension funds have become over-allocated in real estate and may be looking to adjust their portfolio holdings accordingly, or will remain on the sidelines for the near term.

Tremendous equity market volatility has led to a flight to quality with the yield on US Treasuries reaching historic lows as risk averse investors look for a safe haven in the midst of deteriorating financial conditions.

In the investment sales market, the timing of the market correction has been varied around the globe. The UK led the rapid re-pricing in the market after a steep run up in values became unsustainable, accentuated by the economic downturn. This was followed by the US, with emerging markets in Europe and Asia now adjusting as well. In the US, cap rates have increased roughly 75 basis points, equating to a 10-15% decline in asset value. In London this increase is more like 150 basis points with a 25% decline in value. Nonetheless, investment sales volume has now dropped everywhere. The market peaked in 2007 and throughout 2008 a correction took place across the globe with transaction volumes off over 60% worldwide, according to data from both DTZ and Real Capital Analytics. Expect much of the same for 2009.

The crisis works its way through the four quadrants Commercial real estate capital markets have not escaped the upheaval in global finance, with both public and private equity and debt affected.

For publicly-traded equity (REITs and listed companies) and debt (CMBS), market reaction has been swift around the globe. Major REIT indices around the globe have tumbled in lockstep and were down roughly 52% in 2008, after peaking in 2007. Canada has not been spared, as Canadian REIT stocks traded down for the year. Given the current value of REIT units it is difficult if not impossible for REITs to make an accretive acquisition.

Buyer-seller disconnect As a result of the ongoing market correction, a growing disconnect now exists between buyers and sellers in the marketplace. Those buyers with available capital are expecting “fire sale” pricing given the market perception that the “sky is falling”. Buyers are of the mindset – why buy today when it may be cheaper tomorrow - and are thus prepared to hold out for the best deal possible. Owners, on the other hand, are still holding on to the dream of record high asset values and having to face the dire realization that their portfolios are not worth as much in the market as they perceive them to be. Many of these owners do not need to sell their assets today, for the sole reason that most properties are cash flow positive, and are thus happy to sit tight until values recover.

Annual Global REIT Total Returns (US Dollars)

Other owners, however, may be forced to sell in order to raise equity to satisfy debt obligations or, in the case of government bailouts or receiverships, may be forced to liquidate entire portfolios. Pressured sellers are on the rise as debt laden investment entities look to shore up their balance sheets. Sale/leaseback agreements may increase in popularity as a means for corporations, distressed or not, to turn real estate holdings into necessary capital.

Source: FTSE EPRA/NAREIT Global Real Estate Index

DTZ Barnicke

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Canadian Perspectives 2009

National Investment Report

How does Canada fit into the picture?

In the booming Calgary market, office investment volume decreased 15% and retail decreased 16%. In sharp contrast, industrial activity increased 147% over 2007 while ICI land sales increased 80%. However, as much of the activity in the Calgary market is predicated on the strength of the energy sector it is expected that weaker oil prices will slow investment in the oil sands and moderate real estate investment activity in this market over the near term. Investment activity in Edmonton will also be affected by the decline in energy prices.

While Canada has not been immune to what’s happening around the globe, the nation entered into this correction on a much more solid footing that many other markets around the globe. Canada’s banking system remains more solid and the exposure to subprime far more muted.

Canada’s banks exhibit far more conservative lending practices on both the residential and commercial side, lessons learned from the last major downturn of the early 1990’s.

The largest transactions in the Calgary office market included IBM Corporate Park for $181.5 million; Energy Plaza for $176 million; and 205 Quarry Park Boulevard SE for $141 million. The largest industrial sales included the Versacold Portfolio of 8 Alberta properties for $111 million; Hopewell Business Park buildings C&D and Lincoln Park Place for $39.7 million; and Maynard Technology Centre for $36.4 million.

In contrast to market downturns experienced in the past, today we see much more conservative supply delivery, significant pre-leasing requirements and relatively low vacancy rates in most markets across the country. Adding stability to the market is the fact that ownership of Canadian commercial real estate is consolidated in the hands of the country’s largest institutional investors, particularly for office and retail property.

In Vancouver, office transactions declined 38% for the year with industrial down 7% and retail down 31%. Vancouver boasts low vacancy for both office and industrial which bodes well for continued market stability with the backdrop of limited new supply additions. The ramp-up to the 2010 Olympics has injected significant capital expenditure into the market.

With the exception of Calgary, and some would argue Toronto, there is very little overheating in the supply of new construction across the country. Calgary has added roughly 5.8 million square feet of new office supply, a mix of build to suit and spec, over the past two years and is set to add an additional 4.5 million square feet in 2009 and 3.1 million square feet between 2010 and 2011, the majority of this delivery in the Downtown market. Under construction supply is running at about 60% pre-leased; however, the Calgary market has seen some softening of demand and increasing of vacancy rates due to the general economic climate and retraction in energy prices that had been supporting the buoyancy of the oil and gas and related services sector. Toronto is on track to add 3.2 million square feet to the downtown Class A market in 2009, with an additional 1.1 million square feet scheduled for 2010-2011. New supply is running at roughly 63% pre-leased. Toronto has also experienced some softening of demand and an increase in market availability, particularly for sublease, going into 2009. Given the injection of supply, it will be the tenant appetite for the backfill space in both Calgary and Toronto which will determine the health of these markets over the near term, both from a leasing as well as an investment perspective, as income stream is a determining factor in asset valuation.

The largest transactions in the Vancouver office market included Richmond Riverfront Business Park for $38 million, Yaletown Centre for $20.5 million; and 6500 River Road for $18.5 million. The largest industrial transactions include $31785 Marshall Road for $27 million; 3231-3271 #6 Road for $19.4 million; and 836 Cliveden Avenue for $19.2 million.

Ottawa’s market stability continues to be buoyed by the public administration sector. Office transactions declined 21% for the year with industrial down 62%. The largest office market transactions included 171 Slater Street for $35 million; 1001 Farrar Road for $35 million; and 270 Albert Street for $34.8 million.

Perception in the marketplace is that cap rates have increased 75 to 100 basis points since 2007. Once transaction volume resumes we will have a much better sense of the extent to which the market has adjusted due to the economic climate.

Investment activity in all markets was down for the most part in 2008. In Toronto, the country’s largest market, office investment decreased 32%, industrial investment was down 46% while retail investment decreased 24%. ICI land sales were off only 16% however it is expected that land sales will suffer further declines as the cost of buying and holding land for the longer term is outweighed by the need for liquidity and capital today. Weaker industrial prospects will continue over the near term as manufacturing activity, particularly that tied to exports and the auto sector, continues to be challenged by the economic climate.

Looking ahead In general, markets in Canada did not experience the steep run up in values that were experienced in markets such as London and New York, nor were investors dependent on maximizing the proceeds of short term financing to fund a boom in the property market. While there will be some deterioration in underlying market fundamentals, it is anticipated that Canada will not experience the same degree of market correction seen in other parts of the globe. The energy driven markets of Calgary and Edmonton may be the exceptions.

The largest office transactions in the Toronto market included the 50% interest in Brookfield Place (TD Canada Trust Tower) for $424 million; the sale of North York City Centre for $161 million; and the sale of 1 Toronto Street/92 King Street for $122 million. The largest industrial sales included 8020-8030 Esquesing Line for $59 million; 325 Humber College Boulevard for $56 million; and 6580 & 6590 Millcreek Drive for $40 million.

DTZ Barnicke

In 2009, Canadian investors will suffer the same capital availability challenges felt in other markets around the globe. However, the dust will likely settle and the year may present a great opportunity to acquire property for well-capitalized private buyers, pension funds that are not over allocated to real estate already as well as select public entities. Buy side competition will be more limited as ‘cash will be king’.

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Canadian Perspectives 2009

National Office Report

While the overall national office market climate remained strong in 2008, some cracks are beginning to be seen. The global financial crisis will continue to play out in 2009, particularly in the Finance, Insurance and Real Estate sectors – key drivers of demand for office space across the country. The steep pull back in oil prices from the record peak reached in July 2008 is having negative implications on the demand for space in Calgary, and to some extent Edmonton, markets not unaccustomed to the effects stemming from the volatility of the oil market over the decades. National office vacancy rates declined 80 basis points to 6.2% in 2008, with average Financial Core Class A space registering 2.9%.

Declining demand and rising supply will have an impact on the market for 2009 but this impact will vary from city to city. With the economy facing recessionary conditions in 2009, we have already begun to see growing amount of sublease space across the country as many companies look to rightsize their operations and discard any surplus capacity. For example, in Toronto, sublets represented 20.9% of total vacancy in the downtown market, up from 15.6% at the start of the year. A similar trend is being seen in the downtowns of Calgary and Vancouver where sublets accounted for roughly 26% and 45% respectively.

While it is expected that the national office vacancy rate will rise in 2009, the solidity of Canada’s financial system should continue to provide some insulation as compared to what has been experienced south of the border.

Layoffs in the financial sector have not been significant to date. However, any negative changes to the stability of the financial services sector would certainly have significant effect on office leasing fundamentals, particularly in Toronto but echoed throughout the country.

Market conditions remain tight across the county — for how long?

For tenants and landlords alike, it is important to measure vacancy change in the context of where we’ve been as well as where we may be headed.

A ‘balanced’ market is said to typically be in the range of 8.0%. Most markets across the country ended 2008 well below this level.

The dynamics of new supply 2009 will be a dynamic year for new supply delivery as over 3.2 million square feet will be delivered to Downtown Toronto, the most significant injection of new development since the early 1990’s. An additional 1.1 million square feet is underway for 2010-2011 delivery.

This new supply in itself will certainly have implications on both vacancy and rental rates over the near term. Add to it the uncertainty of the current economic climate and there becomes some cause for concern. However, these conditions do not spell a downturn for the Toronto office market. The ownership structure is far more institutionalized and concentrated in fewer hands than during any other “correction” experienced in the past three cycles. Therefore the owners’ pockets today are deeper and thereby better equipped to weather periods of higher vacancy. While much of this new supply has been pre-leased, it is instead the demand for the backfill space that will determine the ultimate health of the market over the near term.

Financial Core Class A vacancy in Toronto continued a downward trend throughout most of 2008 but hit a wall by the end of the year, ending 2008 at 4.1%. Large block opportunities increased over the course of the year; however, many of these opportunities were for future, not immediate occupancy. This trend of moving from forward into neutral was echoed for the overall Greater Toronto Area as well.

In Calgary, overall vacancy came close to doubling once again this year, up 250 basis points to 5.5% as a result of the injection of new supply to the marketplace. Downtown Class A vacancy remains tight at 2.2%. Vancouver continued to experience tight market conditions in their downtown core (1.9%) leaving tenants little option but to explore suburban market offerings to accommodate growth. Overall vacancy in Vancouver ended the year at 5.9%. Despite the addition of new inventory to the Edmonton market, vacancy continued its declining trend ending the year at 4.0% overall with very few large contiguous blocks available. Activity in Montreal continued to show improvement at the start of the year but the delivery of new supply offset the market resulting in vacancy levels remaining flat for the year at 7.7%.

Vacancy levels increased overall in Ottawa to 6.7% as election activity temporarily slowed the public administration sector’s appetite for space and the economic downturn softened private sector demand.

A similar dynamic is at play in Calgary where over 2.9 million square feet was delivered to the market in 2008, 28% of which was located downtown.

An additional 4.5 million square feet will be delivered through the course of 2009, with 3.1 million square feet slated for 2010-2011. Demand for space will be impacted by the pull back in oil prices and corresponding slowing of business activity in the energy sector.

Other primary markets have new supply deliveries on the horizon but not to the same extent as Toronto and Calgary. This includes Vancouver (867,000 square feet), Montreal (614,000 square feet), Ottawa (383,000 square feet) and Edmonton (960,000 square feet).

Most secondary markets across the country remained well leased with rental rates experiencing steady growth. Markets such as Regina and Saskatoon, as well as secondary markets in the interior of British Columbia are extremely tight for space for tenant expansion or new tenant activity.

New construction delivery is conservative and typically only enough to meet existing demand, thus keeping supply at a bare minimum.

DTZ Barnicke

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Canadian Perspectives 2009

National Office Report

Is today’s economic climate and development cycle reminiscent of the early 1990’s?

The rental rate dilemma — deal or no deal?

Rental rates continued to hold in some but not all of the national office markets in 2008, driven by low vacancy and conservative new supply delivery. Tenants in Calgary and Edmonton, who faced “sticker shock” in 2007, received some relief in 2008 as rents began to stabilize. Tenants in Vancouver continued to face record high rental rates and with little new downtown supply forecast, rents will remain elevated over the near term.

In Ottawa, overall net rental rates softened in 2008 with rising vacancy and are expected to stabilize for 2009. Toronto rents increased marginally in 2008 but with new supply delivery in 2009 it is expected that rates will stabilize or soften slightly in response to market conditions. Rents in Montreal remained relatively stable.

Case in point – Toronto. During the period 1989-1991 over 22 million square feet of new office supply was delivered into the Toronto market, 7.8 million in downtown alone. This, combined with an economic recession, pushed overall Toronto office vacancy from 10% in 1989 to 22% in 1991, and downtown vacancy from 7% to 20%. In contrast, we expect to see 3.2 million square feet delivered to the downtown Toronto market in 2009 which will push vacancy from 4.6% to roughly 10% at the end of 2009 and with additional supply coming on in 2010-2011 vacancy will creep higher, to what extent will be determined by how long the downturn in the economy lasts.

Developer over-exuberance in the 1980’s led to oversupply going into the 1990’s. Financing was easy to come by in the previous cycle, reflected in the amount of building taking place within the more entrepreneurial ownership landscape that existed. Oversupply drove net effective rental rates in some cases to negative numbers as landlords competed aggressively to attract and retain tenants. Today, lending is far more conservative, property is held in fewer hands by well-funded institutions, and stronger pre-leasing is required before breaking ground on construction. As a result we have not seen any significant new supply since the early 1990’s in downtown Toronto. While we expect to see rents in some specific incidents to drop possibly 15-20% in 2009, this is due to the economic malaise that is being experienced in the overall market not oversupply of new product.

In general, rental rates are expected to stabilize or trend downwards in 2009 as slowing economic conditions and new supply delivery impacts the market. However rents will need to be looked at on a situational basis.

Landlords with strong occupancy levels will feel little pressure to concede on rental rates while those with more significant vacancy may need to adjust their rent levels to achieve their occupancy goals. In lieu of rent decreases, expect some landlords to increase inducements and free rent periods as a means of attracting tenancy.

How will tenants react?

There are different ways tenants will react in the market. With softened rental rates we may see a flight to quality, as some tenants take advantage of deals in the market and upgrade their space location by perhaps moving up the Building Class scale, by moving from the fringe to a more prominent location or changing sub-market completely. However, where companies are rightsizing their organizations in ‘survival mode’, any move may be looked upon unfavourably and ostentatious in light of other cost saving measures. Tenants that do not have an immediate need to move may choose to risk waiting on the sidelines for the market play out in 2009. The current economic climate makes it increasing difficult for tenants to get an accurate handle on how much space may be required if uncertainty surrounds the health of their organization.

Interest rates were far higher in 1990, hitting 14% forcing independent developers to re-think their developments plans, putting them on hold as the market softened or shelving them completely. The original Bay Adelaide Centre was one such victim. In addition, some lenders became owners of real estate when developers fell away. By comparison, interest rates today are at historic lows, however the credit crisis has put the ability to obtain financing in question. The marketplace is definitely waiting to see if any of the large scale development projects underway across the country will experience a slowdown or delay in construction activity or a temporary hiatus given the current climate. To date there has been much speculation but the only major project on temporary hold is Phase ll of the MaRS development in Toronto. Financing issues will likely defer proposed developments to the next building cycle, unless significant pre-leasing commitments can be obtained.

Similar to the investment and industrial markets, a pricing disconnect does exist between tenants and landlords where tenants are looking for “fire sale” pricing and landlords with quality offerings and low vacancy are reluctant to discount.

What is different in today’s market is that “force majeure” or “act of God” has taken on new meaning in construction and pre-leasing. Is the inability to secure financing in this economic environment enough to justify a breach of contract? Certainly something better left for the courts to decide, however, savvy tenants are looking for greater protections to ensure that delivery timelines are met and lease documentation contains stiff financial penalties if delivery time elapses. These protections are also being written in for tenants seeking to backfill space of tenants exiting for new construction supply as any delays to the exiting tenant impact move timelines for the new tenant as well.

DTZ Barnicke

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Canadian Perspectives 2009

National Industrial Report

The 2008 national industrial market showed mixed performance with stronger activity levels continuing in the western provinces and steadily weakening activity in the east, particularly in Ontario and Quebec. While both the Canadian dollar and oil prices have retrenched from recent highs, soft US demand for Canadian goods resulting from the credit crisis and faltering consumer confidence will have a significant impact on manufacturing output and the overall health of the industrial market in 2009.

the economy benefits significantly from the energy sector cities such as Calgary and Edmonton are striving to diversify their economies to provide a buffer from the energy swings.

The automotive sector has been a driver of industrial growth and activity, particularly in southern Ontario, both directly and in the spin off jobs created to service this sector as a whole. However, the troubles facing the domestic auto sector are certainly adding another level of anxiety to the marketplace as many companies with close ties to the sector are feeling significant strain as the necessity of a bailout for the “big three� North American automakers, becomes more real. Only time will tell what the fate of the North American automotive sector will be. Suffice it to say, not only are the automotive manufacturers themselves facing a dismal outlook for 2009, but so too are the suppliers which support them.

Market dynamics Despite upticks in vacancy, tight market conditions persist in the western markets. Limited supplies of serviced industrial land and strong user demand contribute to the near record low vacancy rates that continue to be seen in the Vancouver (2.3%), Calgary (3.2%) and Edmonton (1.4%) markets. Significant distribution related activity is also driving growth in both Regina (2.0%) and Winnipeg (2.3%), each recording vacancy declines in 2008. Vacancy continued an upward trend in the Toronto market (7.1%) as economic conditions in the province of Ontario softened and manufacturers continued to struggle. Vacancy was also on the rise in Montreal (8.5%), with a significant amount of space returning to the market in the form of older, lower clear height product. In Ottawa (3.6%), vacancy declined once again in 2008 with increased demand for, and shortage of supply of, high cube distribution space.

Declining container shipping volumes, as a result of the slowing global economy, will have an impact on port activity on both the east and west coasts of North America and related industrial development and transaction velocity in and around major port facilities. Intermodal shipping is likely to remain soft until a rebound is seen in the US economy.

Despite lower volumes, development at Port Metro Vancouver continues with additional capacity planned for Roberts Bank. Port Metro Vancouver represents the amalgamation of three regional ports making it the most diversified port in North America. Container traffic at the Port of Prince Rupert recorded solid growth in Q3 2008 at a time when US ports are losing volume. However, the port announced it has delayed expansion plans on its container terminal, which were supposed to take place in 2009, for at least 18 months. The Port of Montreal recorded container growth of roughly 10% for the first nine months of the year, stronger than both Halifax, which recorded a decline in cargo volumes for the year, and Vancouver, according to the Port Authority. The Port of Montreal is now benefiting from a weekly container ship link with the Port of Valencia in the Mediterranean, launched by Mediterranean Shipping Company (MSC).

Just as massive investments in the Alberta oil sands were really starting to pay off, crude prices dropped over $100 per barrel to below $40 by the end of 2008, a price which diminishes the economic potential for oil sand producers. As a result, many companies will delay or shelve development plans indefinitely. This will have ramifications for business activity in Edmonton, arguably the manufacturing hub of the energy sector, as well as Calgary where warehousing and distribution activities have been on the rise. Alberta has been through this boom bust cycle before and while

DTZ Barnicke

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Canadian Perspectives 2009

National Industrial Report

Rental rates With low vacancy and bullish landlords, rental rates have continued to feel upward pressure in markets such as Calgary, Edmonton and Vancouver.

Land values and construction costs appear to have peaked in 2008.

Rates will continue to feel upward pressure going into 2009; however with the amount of new supply delivered in 2008 and scheduled for delivery in 2009, combined with softer economic conditions, rental rate growth may stabilize over the near term. In Toronto and Montréal, rental rates have remained fairly flat and are expected to experience a moderate reduction in 2009, resulting from declining leasing activity, increasing vacancy, and the fact that available space is taking longer to lease.

In 2009, landlords will be facing competition not only from other property owners but also from their own tenants. With many companies beginning to downsize their operations in the face of the current economic realities, the sublease market is becoming quite active. Typically, these sublease offerings are marketed and transacted at below market rates placing pressure on landlords in markets with more available opportunities and on landlords with large holes to fill in their portfolios.

Serviced industrial and employment lands remain in short supply in most markets across the country. ICI land sales remained stronger in western Canada while in Toronto sales declined 16% for the year. Land sales in 2009 are forecast to slow across the country as developers’ need for liquidity in the market may defer them from tying up capital in a longer term hold such as land, and debt financing remains a challenge.

Companies or individuals looking to purchase land in this market environment may have to either wait for the economy to improve or find other sources for capital.

Development activity New construction remained strong in 2008 with roughly 20 million square feet of new supply delivered to the Canadian market. The market responded positively to new supply. In hot markets, such as Calgary and Edmonton, developers experienced very little vacant carry upon building completion.

Tenant challenges and opportunities The pace of new construction will slow considerably in 2009 as the financing of projects and the ability to attract tenants becomes more challenging. Similar to the office market, conservative lending practices have kept supply relatively in check over the years and reduced the risk of overbuilding.

Where tenants may have been weighing their options to buy versus lease industrial product in 2008 given the low interest rates, in 2009 the difficulties in gaining financing could sway the decision in favour of leasing. In addition, many owners/users may become pressured sellers as mortgage re-financings come due and they find they are not able to meet their debt obligations. Distressed owner/users may look to sale/ leaseback arrangements in order to free up the necessary capital to run their operations. There will also be a growing trend of space available for sublease in select markets as firms try to supplement their cash flow and rightsize their space requirements.

Speculative construction will likely come to a halt, with build to suit providing the main source of new industrial space over the near term.

Developers who do go ahead will likely be offering more aggressive rates to companies with Triple A covenant as these will be the only type of financeable leases. Many projects in the proposed or planned stages may not commence with development until the economy shows signs of improvement and tenant demand picks back up.

Tenants that do not have an immediate requirement may sit on the sidelines waiting for the market to “hit bottom” before making a move, or look to renegotiate their existing lease on a short term basis. Renewal activity has been on the increase in most markets as tenants take a wait and see approach. Other tenants may take advantage of the sublet market and secure space at below market rents.

Potentially impacting future new supply levels are the development charges levied in certain municipalities. For example, development charges levied by some municipalities in and around the Greater Toronto Area have been hiked to levels which could prove to be a substantial disincentive for development within the boundaries of those municipalities – in certain cases the charges levied exceed the initial land costs. A prime example would be the substantial increase in development charges in the Region of Halton, which were approved in mid-2008, and in the City of Guelph, which is undergoing review for a proposed substantive increase.

DTZ Barnicke

Similarly to the office market, a pricing disconnect will likely exist between tenants looking for “fire sale” pricing and landlords looking to avoid deep discounts. This pricing disconnect will also exist for purchasers/sellers of industrial real estate and will effectively decrease transaction volumes making it more difficult to determine the real market value of assets.

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Canadian Perspectives 2009

National Retail Report

With uncertainty in the job market, declining values in stock portfolios and plummeting house prices, consumer confidence in the U.S. declined to new lows in the fall of 2008. In an effort to boost sales, retailers slashed prices for the holiday season much sooner than usual trying to get the attention of a much more price sensitive consumer.

While retail sales in Canada have softened, we have not experienced the same degree of carnage our neighbours to the south have endured.

2008 ended with sales in Canada up an average of 2% over 2007.

8. Rents will decline in some areas. Linked directly to sales, rents will soften in 2009 but not necessarily in premium malls. The top 20 malls will be able to maintain rents because sales volumes are most reliable at these locations. If a retailer is cutting expansion plans from 20 new stores to five, they will always want to place new stores in the premium locations.

9. Greening - like other industries mall landlords are focused on the environment and this will continue in the future. Enterprising retailers are taking advantage of this trend, most notably Indigo’s new concept store Pistachio. This gift store sells recycled and environmentally friendly products. Plans are currently set for up to 10 new units in 2009.

Retail sales for 2009 are difficult to predict given the volatile economic climate but what is clear is that the retail landscape will change. The number of American retailers in danger of bankruptcy, or retrenching to survive continues to grow. This has implications for the Canadian retail scene where much of the growth comes from foreign expansion of U.S. and European retailers. Roughly one third of our retailers are based in the United States.

2006/2007 and early 2008 saw unprecedented numbers of new entrants to our malls and street fronts. The steady injection of new players will be greatly diminished over the next few years as most American retailers are planning no new stores until 2010 or beyond.

10. On-line sales strengthened again in 2008 and according to Statistics Canada on-line sales increased 61% between 2005 and 2007. Once feared by traditional retailers, the internet has emerged as a great supplement to conventional retailing.

11. Wal-Mart - the world’s largest company will likely outperform everyone else in 2009 as they are almost in a retail category all of their own.

12. Hot Retailers - yes, there are actually quite a number of hot retailers in all categories which bodes well for many landlords. Retailers that will continue to grow in 2009 include: Winners, Wal-Mart, STYLESENSE, Fossil, Pistachio, Indigo, Apple, Sephora, MAC, Shoppers Drug Mart, Murale, Aeropostale, Forever 21, Guess, Abercrombie, Hollister, American Eagle, Aritzia, lululemon, Coach, Bath & Body Works, Crate & Barrel, Williams Sonoma, Pottery Barn, West Elm, Lacoste, Richtree, Swarovski, Bell, Telus, Rogers, H&M, Zara, Dollarama, and The Bargain Shop. Canada’s financial institutions are also expanding their retail presence. This is by no means an exhaustive list, but it demonstrates the depth of the Canadian marketplace.

The marketplace will adapt and, although we will all be challenged, new opportunities will be created. The Canadian market is not overbuilt and good locations are still in short supply. Whereas, up until now, retail growth had been stifled due to limited available real estate, the inevitable store closures in 2009 will become opportunities for retailers with cash.

Fifteen things to watch for in 2009: 1. Luxury goods will be hardest hit. This is the easiest category for consumers to eliminate spending.

2. At the other end of the spectrum, value retailers will thrive. Dollar Stores, Wal-Mart, Winners and STYLESENSE are all positioned well. Extreme Value Retailers are buoyant as the Bargain Shop announced bold expansion plans for 65 new stores. In August of 2008, Bargain Shop purchased 93 of the former Saan Stores.

13. Premium Casual Restaurants like Earls, Richtree, Milestones and Moxies will continue to do well in 2009 as many consumers will elect not to patronize higher end restaurants. In the current economic climate with expense accounts are being scrutinized, bonuses reduced and incomes uncertain, high end restaurants will take a hit.

3. Emphasis on health and wellness is a strong trend among “boomers”.

Look for a continuing gain in popularity of organic and healthy alternatives both in terms of products carried by retailers and the types of retailers themselves.

14. Urban retailing - street front locations in downtown areas will remain in demand as condo towers continue to be added to the markets and achieve occupancy. With the amount of supply added to residential markets in recent years, many big box retailers are reinventing their store formats to cater to the urban environment.

4. Diversity will also play a role in redefining retail. With growing ethnic diversification we will continue to see retailers catering to the needs of first and second generation immigrants. One such example is T&T Supermarkets, Canada’s largest Asian Supermarket chain.

15. Home renovation stores, furniture, home furnishings, appliances, carpet and flooring, draperies, lighting and any home related retailer will see a drop in sales volume in 2009. With an uncertain job market and financing difficult to secure, the residential market will soften with corresponding decrease in sales for retailers catering to the residential market.

5. There will be fewer new entrants to the market in 2009. Brooks Brothers have made commitments for 2009 and 2010 and Anthropologie has made commitments for 2009. We understand Victoria’s Secret is considering Canada and a European specialty chain called Arthur is exploring opportunities.

Certain niche markets will do just fine in the coming year. Canadian banks are solid, there is limited exposure to the subprime crisis and our general economy has remained steady, although expected to experience recessionary conditions in 2009. Retailers in Canada have had the benefit of seeing the struggles of merchants in the United States throughout 2008 and know that the Canadian marketplace will not go unscathed. As such, Canadian retailers are preparing to weather the upcoming unstable economic conditions in 2009 by trimming expenses now, passing along sharper prices and offering improved levels of service to their customers.

6. Sales will soften, pinching retailer bottom lines. Certain costs are fixed and as sales volumes decline prices will be reduced, resulting in lower margins. Retailers will not spend as much on store design; freshening stores with new fixtures and cosmetic changes will only be done when it is absolutely required.

7. Grocery store sales will remain stable. Loblaws have overcome huge challenges and are back on track. As well, Sobeys, Metro and Safeway are enjoying steady performance.

DTZ Barnicke

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Canadian Perspectives 2009

Regional Markets Reports

DTZ Barnicke

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Canadian Perspectives 2009

Victoria 2008 Market Snapshot Office Inventory: 8 million sq ft Office Vacancy: 2.3% CBD Class A Vacancy: 1.0% Industrial Inventory: 8.3 million sq ft Industrial Vacancy: 0.8%

Economic Outlook

Population: 341,000 Employment: 191,000 Unemployment Rate: 3.3% Retail Sales: $4.0 billion Consumer Price Index: 2.3%

Source: DTZ Barnicke and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke and Conference Board Canada

Market Overview Victoria’s economy grew at a rate of 2.3% in 2008, a 150 basis point drop from 2007. Despite a decline in the goods sector, increasing demand in the services sector spurred by strong employment and income growth are driving the local economy. Growing domestic demand and investment into the tourism hub is being led by the $1.2 billion Bear Mountain development, the $150 million Uptown Shopping Centre redevelopment, the recently approved $1 billion City Centre Colwood redevelopment, and the LEED Platinum Dockside Green mixed use condominium.

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

2007 3.8% 1.0% 4.4% 3.3%

2008e 2.3% 1.1% 4.3% 3.3%

2009f 1.8% 0.8% 0.4% 4.4%

2010f 2.8% 0.8% 0.5% 4.5%

$38,772 $41,493 $42,890 $44,140 2,600 6.1% 1.1%

2,180 3.0% 2.3%

1,810 4.3% 2.0%

1,830 4.5% 1.8%

Source: Conference Board Canada. *Percentage change from previous year

Industrial Victoria’s industrial market performed extremely well in 2008 and, despite a slight rise, the vacancy remains below 1.0%. While significant new supply was added in 2008, the market witnessed approximately 333,000 square feet of absorption.

The relatively steady vacancy rate is owed to the fact that almost all new construction is built to suit in Victoria. As a result, absorption and vacancy move closely in alignment with the completion of any new supply. 2008 marked the fourth consecutive year in which vacant industrial product was essentially non-existent. Expect this trend to continue in 2009.

GDP growth in 2009 is forecast to decline further, to 1.8%, before rebounding to an average of 2.4% through 2010 to 2012.

2009 will see a slowdown in new developments greater than 20,000 square feet due to a shortage of land and economic uncertainty. This will pose a challenge to the expansion of businesses that require larger spaces at affordable rates.

Office The office market reached record low levels of vacancy in 2008 as the local economy continued to grow and no new office development came to market. An office vacancy rate of 2.3%, down roughly 70 basis points from 2007, was brought on by the absorption in Class B space as Class A options have all but been exhausted with vacancy hovering around 1.0%.

Growth in 2008 came from a balance of private and public sector tenancies, with service oriented and knowledge based industries leading the way.

Rising labour costs, and the limited amount of space in Victoria, pushed net rental rates to the $13 range in 2008. However, expect rental rates to remain stable in 2009 as demand cools slightly.

Investment Investment market activity remained positive for the first three quarters of 2008. Overall interest in all asset classes was very high, with multi-unit residential, prime retail, and office commanding the lowest cap rates, as low as 4% for some multi-unit product. Unlike most real estate investment climates in Canada, industrial and hotel products were also sought after by investors, due to the near zero vacancy rate for industrial space and the highly lucrative tourism industry. Since October 2008, there has been a decline in activity as buyers anticipate price reductions in 2009.

Pent-up demand has resulted in a tremendous amount of pre-leasing activity. In 2009, a total of 192,000 square feet is expected to come to market in the form of four buildings, two of which are LEED Certified. These include SoMA (10,000 square feet), Dockside Green (24,000 square feet), and The Raven Building (18,000 square feet). Expect these buildings to be nearly 100% pre-leased before completion, as existing businesses relocate or consolidate to newer more efficient space and pent-up demand is met.

Vacancy rates should rise slightly in 2009 due to the injection of new supply.

Despite rising vacancies, average net rental rate will continue to escalate as demand continues to grow and new, higher quality, product hits the market.

The combination of a diverse economy, limited availability of land and a key geographic location has resulted in an environment where demand far exceeds the supply of product. A low vacancy rate for all asset classes has most owners happy with consistent rent revenue and capital gains.

However, credit markets in 2009 may force some selling and cash rich investors will quickly seize the opportunities. Consequently, cap rates are expected to increase 50 basis points in 2009.

Looking further ahead, there are currently three buildings set for completion in 2010 and beyond. These are 800 Yates (180,000 square feet), the commercial tower of the Uptown (Town & Country Shopping Centre) development (80,000 square feet), and Gateway Green (140,000 square feet).

Retail Retail sales growth in 2008 was cut in half to 3.0% due to a decrease in non-Canadian tourism spending. Although the strength of the Canadian dollar hurt tourism in Victoria, a strong economy, lower unemployment rate and a greater income per capita cushioned retail sales domestically.

Big box stores will maintain a near 0% vacancy rate and shopping malls will remain in the 3% range in 2009, despite the arrival of additional inventory in the Uptown development. A rise in vacancy and a decline in rental rates are expected in 2009 for street level retail in the downtown region.

Retailer Urban Planet entered the market in 2008, Best Buy will be complete in 2009, and H&M and Sephora are expected take space in the Uptown Centre redevelopment in 2010. Unfortunately, in August 2008, retailer A&B Sound closed down due to declining music sales and competition brought on by the big box retailers.

DTZ Barnicke

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Canadian Perspectives 2009

Nanaimo 2008 Market Snapshot Population: 148,000 Office Inventory: 840,000 sq ft Office Vacancy: 12.0% Industrial Inventory: 1.9 million sq ft Industrial Vacancy: 2.0%

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates 

Source: DTZ Barnicke and Conference Board of Canada

Source: DTZ Barnicke

Market Overview The Regional District of Nanaimo’s economy experienced benchmark growth in the first three quarters of 2008 compared to previous years.

Despite a slowdown in the fourth quarter, the overall year was very positive.

Industrial Little change occurred in the industrial market over 2008. Inventory remained unchanged and vacancy held tight at roughly 2.0%. Although good space in all size ranges is difficult to find in this market, development activity remains quiet due to a combination of a shortage of zoned and serviced industrial land, land costs and construction cost that cannot be justified by existing rental rates. Rental rates did increase marginally in 2008, and are expected to continue this upward trend in 2009, but not enough to justify any new major industrial developments in 2009 and possibly 2010.

The growth of Nanaimo’s economy is still largely due to interprovincial and international migration, thanks to the allure of Nanaimo’s unique landscape and lifestyle. Population growth, as well as expansion in the tourism, education, and health care sectors drove investment in infrastructure, residential, and non-residential construction in 2008.

Investment Like much of Canada the investment story in Nanaimo up until September 2008 was strong demand for all asset types met by a limited supply of quality product for sale. Activity slowed dramatically for the balance of the year due to a reduction in the availability of financing and a general lack of investor confidence in the economic climate.

Migration is expected to continue to stimulate Nanaimo’s economy moving forward. Investment in education, such as the upgraded status of the Malaspina University–College to the Vancouver Island University (VIU), is attracting more enrollments, which will drive future multi-tenant residential developments. VIU has also announced the idea of a $100 million investment in the University’s surrounding area.

In 2009, investors will remain cautious with most activity on the buy side coming from cash rich local groups that can act quickly when opportunities present themselves. Most of the activity on the sell side will come from pressured vendors who must sell to meet debt covenants, as vendors not under pressure will ‘wait and see’ until a clearer picture of Canada’s medium term economic condition is known. Expect cap rates to trend higher in 2009.

Similar to Victoria’s economy, Nanaimo is displaying a level of resilience to the economic downturn due to its geographic location and the nature of two of its primary industries, education and health care, which are impacted less than other sectors by the slowing of the Canadian and global economy. Not entirely immune, Nanaimo is likely to experience reduced growth in 2009.

Office Overall office vacancy continued its downward trend, ending 2008 at roughly 12%. The increase in occupied space came primarily from the expansion of the Federal and Provincial governments, and the expansion of local professional firms. New supply additions in 2008 came in the form of a 27,300 square foot build to suit office project occupied mainly by the provincial government, and a mixed used development with 8,000 square feet of office space.

In 2008, the product most in demand was quality multi-tenant retail, followed closely by office and industrial product. In 2009, this trend is expected to continue. In addition, expect significant growth in the interest of multi-residential developments as Vancouver Island University continues to expand.

Retail The retail market experienced positive expansion in 2008, driven by steady population growth and low vacancy rates. New product came to market in the Woodgrove, Southgate, and Downtown nodes, but strong demand absorbed the new inventory quickly, placing further upward pressure on rental rates during the year.

Despite the two new office development completions in 2008, the market conditions continued to favour the landlord with rental rates trending slightly upwards. With no new developments scheduled for completion in 2009, the market should remain a landlord market with rental rates and market activity expected to remain at current levels.

Most of the growth came from the expansion of existing local and international retailers. One of the few new entrants to the Nanaimo market was Best Buy. Looking ahead to 2009, completion of Georgiaview Village will bring 25,200 square feet of new retail to the Woodgrove node and a new 45,000 square feet Rona store will be complete in the Southgate node. No new large brand names are expected to arrive in 2009; however, new retail announcements midway through 2009 may appear as the economic picture becomes clearer.

The discrepancy between current construction costs and market rents, as well as high land costs, will keep new supply in balance with demand. As such, any new office developments in the near future will likely be build to suit projects.

Overall vacancy and rental rates are forecast to remain fairly constant during 2009. The retail sales growth rate should rise as a weakened Canadian dollar encourages more foreign tourism to return to Nanaimo.

DTZ Barnicke

17

Canadian Perspectives 2009

Vancouver 2008 Market Snapshot Office Inventory: 39.3 million sq ft Office Vacancy: 5.9% CBD Class A Vacancy: 1.9% Industrial Inventory: 170.4 million sq ft Industrial Vacancy: 2.3%

Economic Outlook

Population: 2.3 million Employment: 1.2 million Unemployment Rate: 4.1% Retail Sales: $25.4 billion Consumer Price Index: 2.9%

Source: DTZ Barnicke and Conference Board of Canada

Real GDP* Population* Employment* 2009 Market Forecast Vacancy Rate Net Rental Rate Unemployment Rate Personal Income   Office per Capita   Industrial Total Housing Starts   Retail Retail Sales* Overall Cap Rates  CPI* Source: DTZ Barnicke and Conference Board Canada

2008e 1.3% 1.2% 0.9% 4.1%

2009f 2.4 1.4 1.2 5.0

2010f 3.2% 1.4% 2.1% 4.8%

$35,388 $36,796 $38,000 $39,320 20,700 5.2% 2.1%

20,300 0.2% 2.9%

16,800 3.9% 2.2%

17,100 4.9% 1.8%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview The economic growth rate declined for the third consecutive year, with GDP expansion of a mere 1.3% in 2008, down 170 basis points down from 2007.

The slowing of growth in Vancouver can be attributed to a slowdown in the goods-producing industries caused by the strength of the Canadian dollar, a reduction in the output of the forestry industry and a significant slowdown in the number of housing starts. Housing starts fell in 2008 from near record high levels experienced in 2007, and are expected to decline further in 2009.

Unemployment hit record low levels in 2008, but is expected to rise again in 2009. Due to a drop in consumer confidence, retail sales are forecast to decline in 2009.

also a factor. Difficulty in obtaining financing for sale transactions should result in an increase in lease transactions and put downward pressure on the vacancy rate throughout 2009.

Despite increasing vacancy in 2008, tight market conditions resulted in steady rental rate increases in most submarkets throughout the year. In some cases this created discrepancies between tenant expectations and landlord demands. As global economic changes continue to impact Vancouver, many landlords have begun adjusting asking rental rates and offering attractive inducements in order to secure short-term tenancies.

Expect these trends to continue into 2009.

Approximately 78 new industrial buildings were completed in 2008, bringing 4.8 million square feet to the market. An additional 62 buildings are scheduled for completion in 2009, and are expected to proceed as scheduled despite economic uncertainty. Looking forward expect speculative building developments to become increasingly rare, as developers seek to decrease risk. Build to suit and strata developments will continue to be the main source of new industrial supply in Metro Vancouver.

GDP growth is expected to remain steady in 2009 due to the offsetting effect of the decline in the Canadian dollar stimulating manufacturing and forestry. Also, significant investment in infrastructure and preparation for the Olympics will continue to drive nonresidential construction. Some of the largest projects include the $178 million Richmond speed skating oval, the $315 million Vancouver Olympic Village, the $883 million expansion to the Vancouver Convention and Exhibition Centre, the $110 million Harbourside Business Park, and the $2 billion Canada Line.

Investment Similar to the rest of Canada, Vancouver experienced a healthy investment market early in 2008, but began to show signs of slowing in early Q3.

Demand for quality product exceeded the supply which made finding good investment opportunities difficult. Simultaneously, a decline in the availability of credit made it difficult to raise the capital for those that could identify a worthy investment.

Office While the overall vacancy rate in 2008 was 5.3%, the Downtown core remained virtually fully occupied with a mere 1.9% vacancy. Finding space Downtown continues to be a challenge as a result of limited supply and no new developments. The Jameson House, with 55,000 square feet of office space slated to come onto the market in 2010, has now been put on hold due to market conditions.

Income producing assets and owner user properties became the most sought after product in the last half of 2008. Cap rates are expected to rise to the 7% or 8 % range in 2009 due to a decline in the number of qualified buyers and an increase in owners forced to sell given the credit market situation. This will create opportunity for cash rich buyers to purchase product at a discount. In turn, expect the majority of investment activity in 2009 to come from local private groups with large amounts of cash available for the sizable deposits needed.

In contrast to downtown, the suburban markets remained active with six new buildings coming to market in 2008, adding 416,000 square feet to the inventory. This new supply offset positive absorption and contributed to a 170 basis point rise in suburban office vacancy.

Retail The retail environment was extremely active in 2008, despite a significant decline in retail sales growth from 5.2% in 2007 to 0.2% in 2008. A large number of retailers have expanded their presence, including H&M, Canadian Tire, Best Buy, and Winners. With the growing interest in organic foods, health oriented grocers have expanded their locations including Whole Foods, Urban Fair, Capers and Choices.

In 2009, Metro Vancouver’s overall vacancy will climb slightly higher, due to an estimated 867,400 square feet of new supply expected to come to market, of which only 45% was pre-leased at the end of 2008. Rental rates in the downtown core will decrease slightly due to an expected increase in subleases coming onto the market in 2009. Suburban markets rates will also see a slight dip due to new supply delivery.

New retailers who entered the Vancouver market in 2008 included Apple, with an anchor store location in Pacific Centre, and Michael Kors in Oakridge Shopping Centre. In 2009 we will also see the doors open to the first Brooks Brothers, Pottery Barn Kids, and Holsiter locations. Zoning restrictions and community opposition have limited the growth of Wal-Mart locations within Vancouver’s city limits. However, in 2009 Wal-Mart will open its first location close to Boundary Road and Granview Highway.

A combination of record high rental rates in the Downtown core and improvements to Translink’s accessibility and commute times will have some downtown tenants considering a move to the less expensive suburban areas. Newly built LEED Certified buildings, such as The Broadway Tech Centre, are also attracting tenant interest due to the lower operating costs. Companies like Morneau Sobeco and The Internet Marketing Centre relocated from the Downtown core to the suburbs in 2008 and we expect more of this relocation activity in 2009.

Robson Street continues to be the most popular retail location in Vancouver and, as such, continues to command the highest retail lease rates, upwards of $200 per square foot. The Canada Line, a new light rapid transit system connecting the Vancouver airport with the Downtown Core, is attracting growth adjacent to completed and future stations. The future station at Cambie and Broadway has already attracted large tenants such as Save-onFoods, Canadian Tire, Whole Foods, and Home Depot. The completion of the line in 2009 is expected to continue to fuel retail expansion in the area.

Industrial Industrial vacancy increased slightly during 2008, from 2.1% to 2.3%. This marginal increase was due primarily to the fact that newer speculative developments did not lease up as quickly as expected. An overall slowdown in transaction activity and growth due to global economic conditions was DTZ Barnicke

2007 3.0% 1.3% 3.0% 4.0%

18

Canadian Perspectives 2009

Edmonton 2008 Market Snapshot Office Inventory: 23 million sq ft Office Vacancy: 4.0% CBD Class A Vacancy: 1.5% Industrial Inventory: 85.0 million sq ft Industrial Vacancy: 1.4%

Economic Outlook

Population: 1.1 million Employment: 617,000 Unemployment Rate: 3.7% Retail Sales: $19.4 billion Consumer Price Index: 3.9%

Source: DTZ Barnicke and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

2007 3.7% 2.8% 6.7% 3.8%

2008e 1.8% 2.2% 3.0% 3.7%

2009f 2.4% 1.6% 0.3% 4.0%

2010f 3.7% 1.5% 1.5% 3.8%

$42,777 $44,470 $45,622 $47,021 14,900 7.3% 4.8%

7,000 0.9% 3.9%

8,300 4.2% 2.6%

8,300 5.7% 1.9%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview The first half of 2008 looked to be on par with the moderate growth levels experienced in 2007; however, the markets began to retract in the second half of the year, mainly as a result of a sharp slide in crude oil prices and a significant slowdown in net migration, job growth and housing starts.

Consequently, GDP growth retracted 190 basis points from 2007 levels to 1.8%. The economy is forecast to rebound slightly in 2009 to 2.4%; however, the downside risk to this forecast is the price of oil remaining at lower than anticipated levels.

space will continue to be driven by distribution and oil and gas uses. However, the fastest growing area of demand is for yard storage space. Tenant demand will continue to be greatest in the 5,000 to 10,000 square foot range.

The expected rebound in 2009 can also be contributed to projects such as the South LRT extension, the $600 million mixed use Century Park, and the $250 million EPCOR office tower. In addition, growth in the services sector and greater growth in net migration will boost Edmonton’s expansion in 2009.

Investment 2008 started fairly strong; however, the investment climate deteriorated towards the end of the year as economic weakness and liquidity issues became more prevalent. Sales slowed due to a lack of product as well as a lack of financing. The Edmonton market remains bullish on strong local fundamentals, however, investors affected by liquidity issues and stock market losses are assuming a more defensive investment strategy.

Consequently, sales activity in 2008 was down more than 50% compared to 2007.

Although the vacancy rate is trending upwards, the industrial market is still very much a landlord’s market. Expect rental rates in 2009 to remain stable; however, in the second half of 2009 some landlords, in light of the growing competition, may begin to offer more free rent and incentives to attract tenants while maintaining existing net rental rates.

While the city directs funds to expand the financial, education, and medical sectors of the domestic economy, oil and natural gas continue to be the primary drivers of the city’s growth. Approximately $72 billion of energy related projects are currently active and over $100 billion is planned for the future of Alberta, much of which will take place in Edmonton and the surrounding area. However, with oil softening significantly from peak pricing early in the year, expect a short term retraction in investment in energy until crude oil prices return to higher levels.

Moving forward to 2009, sales activity is expected to rise slightly as motivated vendors sell their properties at reduced prices. Overall cap rates are forecast to rise to between 6.5% and 7.5% for high quality product, and as high as 8% to 9% for product of lower quality. Industrial and office product had the strongest demand in 2008 and will continue to be the most sought after product in 2009. The multi-unit residential sector will have to undergo re-pricing in 2009 to attract buyers, as demand has declined significantly due to oversupply and overpricing in the market. Expect to see a number of foreclosures in 2009.

Office Overall office vacancy reached 4.0% at the end of 2008, down 75 basis points from 2007 levels. The decline in vacancy is understated due to the seven new buildings that added 268,000 square feet to Edmonton’s office inventory in 2008. Both the downtown and suburban markets experienced significant growth, with the government and utility sectors expanding in Downtown and the construction and engineering firms expanding in the suburban markets.

Financing will be the greatest challenge in 2009; however, this will be an opportunity for cash rich investors to acquire distressed assets with positive long term outlooks.

With very few large contiguous blocks of space available, and more firms anticipating long term expansion, construction activity in Edmonton will be very strong moving forward, particularly in the suburbs. Despite the impacts of declining oil prices and ongoing labour shortages, the overall outlook is optimistic with 16 new buildings expected to be completed in 2009, which will add approximately 960,000 million square feet of inventory to the market. One of the most anticipated buildings is 10830 Jasper Avenue, historically known at the Professional Building, which will deliver 210,000 square feet of office space and is anticipated to achieve LEED Gold.

Retail Retail sales growth declined 640 basis points from 2007 and a staggering 1,300 basis points from 2006 levels, coming in at 0.9% for 2008. In 2009, this trend is expected to reverse as population growth trends upward and demand for services increase. Retail sales are expected to record a 4.2% gain in 2009.

The overall vacancy rate is expected to rise slightly in 2009 with the large amount of new inventory coming to market. In turn, expect rental rates in the downtown and suburban regions to remain stable for the first half of 2009 and begin to experience some downward pressure in the second half the year.

Despite the decline in retail sales, retail development in 2008 remained very healthy, both in the suburbs and downtown. In the suburbs, shopping centres anchored by grocers such as Sobey’s and Save-on-Foods gained traction.

In addition, the expansion of Southgate Centre shopping mall will bring an additional 129,000 square feet of space for lease in 2009. The face of downtown shopping is changing, drawing consumers to the downtown core and national retailers to street front locations.

Industrial The industrial market continued to perform extremely well in 2008 with approximately 1.1 million square feet of absorption. Twelve completions in 2008 added 1.3 million square feet to the market, resulting in a vacancy rate of 1.4%, a 28 basis points increase from 2007 levels.

Expect vacancy to rise to the 1.7% range in 2009, attributed to the tremendous amount of new supply anticipated to be delivered during the year. Roughly 11 buildings totaling 2.0 million square feet is anticipated, led by developments from GWL, GPM, Hopewell, and Bentall. Demand for this new DTZ Barnicke

Tenants were challenged by record high rental rates in 2008. However, it is expected that 2009 will bring stabilized rental rates as more retail space comes on stream.

19

Canadian Perspectives 2009

Calgary 2008 Market Snapshot Office Inventory: 52.1 million sq ft Office Vacancy: 5.5% CBD Class A Vacancy: 2.2% Industrial Inventory: 108.8 million sq ft Industrial Vacancy: 3.2%

Economic Outlook

Population: 1.1 million Employment: 702,000 Unemployment Rate: 3.4% Retail Sales: $22.2 billion Consumer Price Index: 3.7%

Source: DTZ Barnicke, Altus InSite, and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

2007 3.8% 3.5% 3.9% 3.2%

2008e 1.7% 2.8% 3.1% 3.4%

2009f 2.4% 2.0% 0.8% 3.6%

2010f 3.5% 1.9% 1.6% 3.6%

$52,201 $54,267 $55,595 $57,150 13,500 7.0% 5.0%

12,300 1.5% 3.7%

8,700 4.5% 2.6%

8,800 6.0% 1.9%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview Calgary’s reign as one of the nation’s top growth leaders ended in 2008 as the economy expanded by a mere 1.7%, a far cry from the growth rates experienced over the past few years. This decline in economic activity was due primarily to a reduction in mining output and negative growth in the local manufacturing and construction sectors. Calgary is forecast to rebound and take the lead once again, although economic expansion will be at more sustainable levels.

Industrial Industrial vacancy increased 120 basis points to 3.2% in 2008. Although absorption for 2008 was 2.3 million square feet, vacancy increased as a result of the volume of new supply that came on stream throughout the year. After a weak year in various types of energy related and leisure market manufacturing, due to declining demand from the US and a strengthened dollar, it is forecast that industrial vacancy in Calgary will increase further in 2009 to 4.6% and absorption will slow to 1.0 million square feet. However, Calgary remains a favoured location for logistics firms seeking to distribute product throughout Western Canada and Calgary will continue to benefit from population growth.

In 2009, a large part of growth in Calgary will come from the wholesale and retail trade sector. Unfortunately, the services sector in Calgary that supports Alberta’s energy industry, and is largely responsible for Calgary’s past booming growth, will be another victim of crude oil prices which have declined over $100 per barrel from the high-water mark reached in July 2008. Nexen, Canadian Natural Resources, Suncor, Petro-Canada, and EnCana Corp have already announced budget cuts, which will undoubtedly affect Calgary’s services sector growth in 2009. Overall activity in Calgary in 2009 weighs heavily on investment in energy in Alberta and the impact the weakened dollar and receding global economy will have on drilling and exploration activity

Although overall demand for industrial space is declining, demand for superior, more efficient space exists. To meet this demand there are several large developments in the pipeline from Sunlife, Trammell Crow, Hopewell, WAM, and ING. However, with on-going labour shortages and a global economic slowdown, builders of speculative industrial developments have been quick to react by pushing back delivery timelines or temporarily shelving development plans until the market improves.

In 2009, the rise in vacancy and the stabilization of construction costs will put some downward pressure on rental rates for older properties. Newer properties, with lower operating costs, higher clear heights, located near transportation arteries and offering overall improved efficiency will likely sustain 2008 rates through 2009. Much of the demand is moving to the north of Calgary, at or near the Airport, which continues its expansion as one of North America’s hubs.

Office Overall office vacancy reached 5.5% at the end of 2008, up 250 basis points from 2007 levels while Downtown Core Class A vacancy came in at 2.2%. The increase was largely due to the addition of almost 3 million square feet of new supply to the market. Although the overall vacancy rate nearly doubled from the end of 2007, the growth in occupied space was approximately two million square feet as much of the space coming on stream had been pre-leased.

Investment The Calgary investment market in early 2008 was as buoyant as it had been throughout 2007. As the year progressed and oil prices declined further, added caution became the buyer’s new standard for Calgary. With vacancy rates moving upward and some sublet space entering the market, the demand for Class B and C office buildings declined as did the demand for smaller strip malls and community shopping centres. Cap rates have moved upward by 100 to 175 basis points, but even with the subsequent movement in pricing the pace of the market has been dramatically slower.

Over 8.0 million square feet of new office space is set for completion between 2009 and 2011. Pre-leasing levels of 60% have helped alleviate pent-up demand in an otherwise tight market. Energy, large scale engineering and support services to the energy sector drive demand for office space in Calgary. With the recent pullback in energy prices many energy companies have already, or will soon be, scaling back their plans and capital budgets for 2009 which will impact the overall demand for office space in the Calgary market for 2009 and beyond. As such, we expect vacancy to trend higher in 2009 as demand softens and new inventory comes on stream. How quickly the market is able to absorb the new supply and backfill space will determine the overall health and future pricing of the Calgary office market.

First class office buildings remain the product category of choice for international buyers and domestic funds; however, most owners being national in scope and well funded have not been motivated to sell. Most experts feel that the readjustment in oil prices are a painful but temporary slide and once some stability and understanding of global financial markets and the US market conditions become less cloudy, oil prices will begin to slowly trend upwards. When this happens, the focus and spotlight will remain on the downtown Calgary towers now in inventory or soon to be added, all of which are A to AA quality and partially or substantially leased.

Tight credit markets have already had a significant impact on a number of projects in the proposed stage, or infancy of construction, that have not secured all of the necessary construction financing.

Fortunately, most of the significant development is well underway and likely to be completed on schedule.

Retail A number of new retailers from the US are targeting Calgary for new locations and there is continued interest to find new locations. Suburban Calgary continues its growth to the north, west and south of the city as new developments continue to open outwards to the new Calgary ring road. One of the most anticipated developments to take advantage of the improved accessibility brought by the ring road is Ivanhoe Cambridge’s Cross Iron Mills “mega-hybrid” shopping centre. The 1.5 million square foot development is scheduled for a 2009 completion and will include 16 anchor tenants, 180 specialty shops, and will be attached to a new Casino, racetrack, and entertainment complex.

While tenants continued to face some sticker shock in 2008, rental rates have stabilized as a result of increased competition in the marketplace as vacancy increases. Rental rates are expected to experience downward pressure in 2009 as more supply comes on stream. Landlords will also face competition from the growing number of sublease offerings in the market.

DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

20

Canadian Perspectives 2009

Regina 2008 Market Snapshot Office Inventory: 3.2 million sq ft Office Vacancy: 2.5% CBD Class A Vacancy: 0.7% Industrial Inventory: 14.7 million sq ft Industrial Vacancy: 2.0%

Economic Outlook

Population: 205,000 Employment: 113,000 Unemployment Rate: 4.1% Retail Sales: $4.1 billion Consumer Price Index: 3.4%

Source: DTZ Barnicke, Altus InSite, and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

2007 2.6% 1.4% 0.2% 4.9%

2008e 4.9% 1.9% 4.2% 4.1%

2009f 3.2% 1.6% 2.3% 4.6%

2010f 2.9% 1.1% -1.0% 4.7%

$37,222 $38,991 $40,238 $40,922 1,400 10.8% 2.6%

1,440 9.5% 3.4%

1,200 6.8% 2.8%

1,210 4.9% 1.9%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview Regina’s economy posted solid GDP growth of roughly 4.9% for 2008, one of the strongest in the country, benefiting from the provincial boom. The rapid increase of Regina’s population, due to a balance of inter-provincial and international in-migration brought on by tremendous growth in construction and employment opportunities, is reflected in housing market activity. Regina’s long term growth plans, capitalizing on its resource rich lands and its central location, have resulted in a number of projects including a $120 million investment into the municipal wastewater treatment plant; renovations to IPSCO Place; a $93 million multimodal hub and infrastructure project; and a $1.9 billion expansion of the Consumers’ Co-operative Refineries operation in Regina.

Industrial Industrial vacancy fell to 2% and average net rental rates rose to approximately $7 in 2008. Tremendous growth in Saskatchewan, as a central transportation hub in Western Canada, spurred by the CP intermodal hub and Loblaw’s eventual 1 million square foot distribution facility (500,000 square feet of initial development) has driven demand for industrial space in Regina.

Four new building completions in 2008 brought 250,000 square feet of new industrial space to the market with five buildings scheduled for completion in 2009 bringing an additional 300,000 square feet of space to market. With a shortage of leasing opportunities in excess of 50,000 square feet, expect more growth in new construction in 2009.

In order to meet the demand for industrial space, Regina has annexed two large parcels of land in the northwest and west quadrants of the city. The land is predicted to have the capacity to satisfy industrial land demand until 2030. The Saskatchewan Government announced an unprecedented $1.5 billion commitment to infrastructure in the province that will help make the development of the parcels of land possible.

Investment Saskatchewan’s diversified mix of resources including oil, potash, steel, minerals and agriculture has allowed Regina a level of immunity to the global economic downturn, however softened commodity prices are a downside risk. Buyers are abundant, but sellers have been holding their assets, making 2008 a relatively quiet year for investment activity. Record low levels of vacancy have landlords quite content with steady guaranteed revenue streams. Consequently, willing sellers are opting to hold their assets, knowing there are very few opportunities to reinvest in quality product.

It is expected that GDP growth will pull back to 3.2% in 2009 and average 2.6% between 2010 and 2012 as migration activity moderates. In 2009 and moving forward, economic indicators such as housing starts, retail sales and total employment will return to more sustainable levels of growth, but will still exceed the average levels experienced by other Canadian cities.

Office As growth continued to be the story in Saskatchewan, office vacancy declined further in 2008 to end the year at 2.4%. Much of the growth came from the expansion of existing tenants and is expected to continue through 2009 with growing demand from existing and new tenants from professional service, information technology, energy and resource firms.

A moderate level of growth will also come from provincial and federal government organizations.

While all asset classes are in equal demand, the market is dominated by local cash rich buyers that can mobilize quickly on promising buying opportunities, giving REITs and large institutions less opportunity.

Cap rates for all assets ranged between 8% and 9% in 2008 and are anticipated to remain stable in 2009. Expect 2009 to be another challenging year for buyers, where demand far exceeds supply.

Retail Retail sales in 2008 reached a high of roughly of $4.1 billion, a 9.5% increase from 2007. After a three year average growth rate of 9.6%, retail sales are expected to slow in 2009 to 6.8%, in keeping with economic conditions. However, there is a upside risk of stronger than estimated sales due to the recent provincial budget announcement, including historic tax cuts, debt reduction, and record spending on health care, schools and infrastructure. Tax breaks and government investment should further boost consumer spending in 2009.

Despite labour shortages, the construction of new developments is moving along well, only a few months behind the original scheduled completion dates. During 2008, the Broad Street Crossing’s office building was completed, bringing an additional 27,000 square feet to the office market.

In 2009, the Regina Research Park Provincial Lab will bring 68,000 square feet of space to tenants specializing in the energy sector and the former Superstore on 1621 Albert Street will be converted into a multiuse development with the potential for 99,000 square feet of office space depending on the tenant mix. Already, 100% of the Broad Street Crossing building is leased and 40% of the buildings set for completion in 2009 have been pre-leased. In addition, it is likely two new developments will be announced in 2009.

In order to meet consumer demand, two large mixed use developments are currently under development and pre-leasing. The first is by Harvard Developments in Regina’s Grassland Community and the second is Century West Developments’ City Centre complex.

Low vacancy and rapid pre-leasing will have rental rates rising throughout 2009 in this landlord market.

DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

21

Canadian Perspectives 2009

Winnipeg 2008 Market Snapshot Office Inventory: 17.0 million sq ft Office Vacancy: 4.9% CBD Class A Vacancy: 6.1% Industrial Inventory: 76.0 million sq ft Industrial Vacancy: 2.3%

Economic Outlook

Population: 720,000 Employment: 395,000 Unemployment Rate: 4.2% Retail Sales: $9.5 billion Consumer Price Index: 2.8%

Source: DTZ Barnicke and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

2007 3.7% 0.7% 2.2% 4.7%

2008e 2.7% 1.1% 1.2% 4.2%

2009f 2.5% 1.1% 1.4% 4.4%

2010f 2.9% 1.0% 1.2% 4.6%

$35,123 $36,638 $38,022 $39,221 3,400 5.8% 2.1%

3,000 7.3% 2.8%

2,900 5.1% 2.7%

3,300 4.8% 1.9%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview Winnipeg’s economy expanded by 2.7% in 2008, placing it third overall in the nation, behind Regina and Saskatoon. The growing demand for Manitoba’s low-cost hydroelectric energy, and the province’s capacity to produce energy using biomass, wind and geothermal is spurring the economy. Complementing this is the city’s high tech manufacturing, agriculture and mining industries. A diversified and growing economy has renewed interest in working in Manitoba, driving population growth and contributing to the 14.5% increase in average residential detached house prices to $219,382. Another landmark development which will strengthen Winnipeg’s presence is the Canadian Museum for Human Rights, a $265 million project set to commence when funding is in place. Already, over $90 million in donations from the private sector has been collected, plus $160 million from different government bodies.

Industrial Winnipeg’s industrial market experienced a banner year in 2008 with 255,000 square feet of newly completed space and the absorption of approximately 700,000 square feet. Consequently, the vacancy rate fell 120 basis points to 2.3% compared to 2007.

Projections show Winnipeg’s GDP growth will slow to 2.5% in 2009, but there is an opportunity for Winnipeg to exceed this expectation if the Canadian dollar remains in the $0.85 US dollar range and the US continues its pursuit for energy independence from the Middle East and turns to Manitoba to do so in the northern states.

Although crude oil prices have pulled back significantly from the $147 high experienced in July 2008, the threat of rising oil prices and the growing importance/adoption of just-in-time inventory continues to position Winnipeg as a key distribution hub. In 2009, expect growth in occupied space to continue in Winnipeg’s industrial market albeit at a slower pace.

Vacancy rates should remain stable but may rise marginally to around 3.0%. New spec construction for 2009 will be very limited (less than 200,000 square feet) therefore there should be good absorption in these developments as there will be very little competition.

Office Winnipeg’s overall office market vacancy rate fell 80 basis points to 4.9% in 2008, with vacancy in the downtown Class A market falling 30 basis points to 5.7%. As a result, Winnipeg remained a landlord market with net rental rates increasing $0.47 to $12.63 downtown, and increasing between $0.15 and $0.30 throughout the rest of the Winnipeg market.

A large contributor to the positive absorption of office space in 2008 was the expansion of consulting and engineering firms due to large construction projects such as the $350 million airport expansion, the expansion of the Nelson River hydroelectric project and other government projects.

Investment 2008 was an active year with more buyers than available product. Multi tenant office warehouse space was the most sought after product, while retail shopping centres attracted the least attention. Demand in 2009 will remain strong for the same asset classes but, as the availability of credit in Canada declines, many challenges are expected to trend investment activity downwards.

2008 saw the completion of Winnipeg’s largest new office building, the $278 million, LEED Gold, Manitoba Hydro headquarters. This 690,000 square foot office development will be home to Manitoba Hydro’s 2,150 employees consolidated from throughout Manitoba.

Cap rates for 2008 ranged between 8% and 8.5% and are expected to rise to 9.0% in 2009.

Little growth is expected in the office market for 2009. No major new construction projects or completions are expected to take place and existing tenants that service the city and the city’s businesses have already expanded to meet Winnipeg’s growth. While the market will remain challenging for tenants seeking larger opportunities, tenants seeking small subleases will have an opportunity at attractive rates.

Retail Retail sales surged 7.3% in 2008, thanks to a growing population with more disposable income. Annual retail sales growth is forecast to return to more sustainable levels in 2009 and onward for an average annual percentage change of 4.8% per year from 2009 to 2012.

The retail market has been particularly strong in the Southwest area of Winnipeg. Chartered banks, Manitoba Liquor Control Commission (MLCC), Shoppers Drug Mart and Starbucks increased their presence during 2008.

While downtown Winnipeg experienced higher vacancy rates compared to other areas in the retail sector, overall the retail market is expected to remain stable in 2009.

DTZ Barnicke

22

Canadian Perspectives 2009

London/Windsor/Sarnia 2008 Market Snapshot Office Inventory: 5.5 million sq ft Office Vacancy: 14.0% CBD Class A Vacancy: 16.1% Industrial Inventory: 32.5 million sq ft Industrial Vacancy: 9.8%

Population: 472,000 Employment: 247,000 Unemployment Rate: 6.5% Retail Sales: $6.2 billion Consumer Price Index: 1.2%

Source: DTZ Barnicke and Conference Board of Canada

Economic Outlook

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

2007 1.8% 0.5% 0.7% 6.1%

2008e 1.3% 0.5% -0.1% 6.5%

2009f 2.4% 0.6% 2.3% 6.3%

2010f 2.5% 0.7% 1.1% 6.3%

$35,196 $35,886 $37,318 $38,565 3,100 3.4% 1.8%

2,400 4.8% 1.2%

2,300 4.9% 2.0%

2,300 4.8% 2.0%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview London’s economy has been on a declining trend. While GDP expanded by roughly 1.3% in 2008, slower activity in the services sector and continued weakness in the goods producing industries are having an effect. London’s manufacturing sector has been impacted by the strong Canadian dollar and exposure to the struggling North American automotive industry. Both issues point to downside risk in the near term forecast. Propping up the economy is wholesale and retail trade and non-residential construction. Looking forward to 2009, economic growth of 2.4% is forecast with an average of 2.5% per annum from 2010 to 2012.

Industrial London’s industrial market also felt the effects brought on by the retreat of manufacturing businesses and exposure to the struggling automotive industry. While the outlook for a recovery in manufacturing in the short term is bleak, efforts have been put into place to fill the vacant industrial space with other industries, such as food processing and woodworking.

Also contributing to the negative absorption is the completion of four new buildings during 2008 which brought 950,000 square feet to market, including two buildings built on spec by ING Real Estate and by O.R.E. Development. Given that these spec buildings did not meet their target occupancy levels, it is unlikely there will be any new completions in 2009.

Office Economic uncertainty during 2008 resulted in a shift in demand for office product. While the overall office vacancy rate increased to roughly 14%, the trend was not consistent across all classes of product as demand for Class B remained strong resulting in a decline in vacancy for this product class.

Moving forward, overall vacancy is expected to increase marginally again in 2009 due to the ongoing trend of tenants seeking smaller more cost efficient Class B space.

The vacancy rate increased 230 basis points to 9.8% but, despite the increase, rental rates also increased $0.30 to around $5.45. In this tenant market, it will prove difficult for landlords to maintain these rates, particularly landlords of older space, situated far from major highways, and offering product with less than 24 foot clear height.

Investment The investment market remained active in 2008 for multi-unit residential, retail with grocery anchors and high quality office space for the first three quarters of 2008, with more buyers than quality product being offered.

For the balance of the year there was a significant slowdown in investment activity, as found in most markets across the country, due to tight credit availability. 2009 may see increased activity as some investors holding quality product may need to liquidate their inventory to cash rich investors.

Despite rising vacancy, average net rental rates rose slightly to approximately $10.55 during 2008 and are expected to remain stable throughout 2009, although tenants will impose some pressure on rate reductions. No new supply is planned for 2009, with the exception of the Westmount Mall, which is in the process of converting 50,000 square feet of retail space to office space as demand calls for it. This is a move to copy the highly successful business model of the downtown Galleria Mall.

The most active investors in 2008 were private investors, beating out many REITs in picking up highly sought after properties such as the Bell Building and the City Centre towers. Cap rates during 2008 ranged between 6% and 8%. Moving into 2009, expect cap rates to continue this upward trend.

Retail Consistent growth in population and personal income is driving new retail development and expansion as some retailers are still not represented in the community. While new developments are attracting new retail concepts, and retail spending in London is expected to expand by 4.8% in 2008, the development of new retail centers, particularly big box power centers, may begin to slow in 2009 due to rising vacancies and a highly competitive environment for existing retailers.

While development activity remains quiet in the shopping mall category, big box development in northwest and southwest London continues to expand.

SmartCentres recently announced two new sites for pre-leasing in south London, both anchored by Wal-Mart.

DTZ Barnicke

23

Canadian Perspectives 2009

Waterloo Wellington 2008 Market Snapshot Office Inventory: 6.0 million sq ft Office Vacancy: 6.5% CBD Class A Vacancy: 5.0% Industrial Inventory: 100.0 million sq ft Industrial Vacancy: 8.0%

Population: 473,000* Employment: 240,000* Unemployment Rate: 5.7%* Retail Sales: $5.7 billion* Consumer Price Index: 1.2%*

*Data for Kitchener CMA. Source: DTZ Barnicke and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

Source: Conference Board Canada. *Percentage change from previous year

Market Overview Like much of Ontario, the Waterloo Wellington region continues to face difficulties in its manufacturing sector, especially those companies related to the automotive industry. Consequently, the economy expanded by only 1.2% in 2008, backed by on-going growth in the financial services, education and technology sectors.

Given the oversupply of industrial space, no new construction is anticipated for 2009; however, some of the existing vacant industrial space may be adapted for office and retail space.

Investment 2008 was a banner year for investment in real estate in the Waterloo Wellington region and it is expected that activity levels will remain steady in 2009. Not unlike the rest of the country though, the tight credit market will force some inventory to be sold at reduced prices and cap rates will rise.

GDP in 2009 is estimated to expand by 2.6%, and by an average of 3.5% through 2010 to 2012, as the manufacturing sector continues to diversify, tech and financial services continue to grow, and non-residential construction picks up. All of which will stimulate population growth in the region over the next few years.

The most sought after product continues to be multi-unit residential, driven by the expansion of Wilfrid Laurier University and The University of Waterloo, resulting in more student enrollments and increased demand for housing. In 2009, multi-unit residential will command the lowest cap rates among the asset classes, with rates ranging between 7% and 8%. Activity in office product was strong in 2008 with the Cora Group selling their office portfolio to Realex Properties for $141.5 million and Co-operators Insurance selling their office portfolio to Skyline Development Inc. for $45 million. In 2009, cap rates for office product are expected to rise to between 8% and 9%.

Talks continue for the first phase of a light rail transit system in the Region of Waterloo that would cost over $306 million. The project is aimed not only to improve commuting, but to meet the province’s initiative to have 40% of new homes built in urban areas by 2015.

Office 2008 was a strong year for the office market with vacancy declining 240 basis points to 6.5%, despite eight buildings completions bringing 350,000 square feet of new space to the market. With similar downward pressure on vacancy rates expected to continue throughout 2009, expect additional product completions totaling over 350,000 square feet. Class A office space commanded an average net rental rate of $18 in 2008, but tightening vacancy and increasing land and labour costs are expected to push net rates above $20 in 2009.

The product least in demand for 2008 was industrial space. This trend is likely to continue through 2009, with cap rates expected to rise by as much as 200 basis points to 10%.

Demand for quality investment product in regions along the outer border of the GTA Greenbelt will continue to grow in 2009 as investors pursue properties with a lower cost base and higher cap rates than properties located within the Greenbelt.

Growth is coming from a mix of expansion and new tenancy from financial and technology firms. Much of the expansion is occurring at the UW Research + Tech Park, where Research In Motion (RIM) will be occupying an additional 81,000 square feet. Google, CGI Group Inc, Navtech and Miller Thompson LLP are just some of the tenants in the Tech Park driving demand for more office space in that location. As a result, expect another building to begin construction in 2009 within the Park to meet the demand.

Retail Retail sales grew by 4.8% in 2008 and are expected to grow by 4.9% in 2009. The Waterloo Wellington Region is one of very few surveyed cities in Canada that is expected to exceed 2008 growth in 2009.

The most notable trend in the office market, heading into 2009, is the adaptive re-use and redevelopment of former industrial facilities into mixed use developments. The conversion of the former Lang Tanning building to the Tannery District (Downtown Kitchener) and the conversion of historic Bauer Industries building to the Bauer Buildings (Uptown Waterloo) are two highly anticipated developments set for completion in early 2009.

2009 is a highly anticipated year for retail activity, with several big box super centres, shopping malls, and mixed use developments set for completion.

SmartCentres will be completing their 400,000 square foot centre in North Waterloo and Lowes will open in the Ira Needles development in West Waterloo. In addition, the Bauer Buildings, with fully leased retail space including popular grocer Vincenzo’s, will open in Q2 2009 as will The Tannery District. The mixed use Sportsworld Crossing development has already experienced strong leasing activity from brands such as Reebok, Nike, and Calvin Klein in its first phase, with two more phases planned for the 16 acre site.

Industrial Industrial vacancy increased 320 basis points to 8.0% in 2008 and is expected to climb further in 2009. Ongoing weakness in the manufacturing sector has resulted in plant closures and shift reductions that have left a large amount of industrial space vacant and very few tenants looking.

The tremendous amount of activity and rapid absorption of retail space will have an upward effect on rental rates in 2009, particularly for the newer, large format, centres. Also, a decline in the availability of land zoned for retail development represents another challenge which will place upward pressure on rents moving forward.

Net rental rates at the end of 2008 were around $5.50 per square foot, a rate that has not declined proportionately to the decline in demand. It is estimated that under current economic conditions a rate reduction of between 40% and 50% would be required to reverse the trend of negative absorption. 2009 will be a year of adjustments, as landlords gradually work their way to the rates required to fill or sell their inventory.

DTZ Barnicke

Economic Outlook Data for Kitchener CMA 2007 2008e 2009f 2010f Real GDP* 2.3% 1.2% 3.6% 2.6% Population* 1.0% 1.1% 1.4% 1.4% Employment* -0.4% 1.4% 1.4% 1.2% Unemployment Rate 5.6% 5.7% 6.1% 6.0% Personal Income $36,507 $37,416 $39,570 $38,394 per Capita Total Housing Starts 2,700 2,500 2,800 2,500 Retail Sales* 3.9% 4.8% 5.9% 4.9% CPI* 1.8% 1.2% 2.0% 2.0%

24

Canadian Perspectives 2009

Niagara 2008 Market Snapshot Office Inventory: 170,000 sq ft Office Vacancy: 18.0% CBD Class A Vacancy: 14.0% Industrial Inventory: 16.0 million sq ft Industrial Vacancy: 17.0%

Economic Outlook

Population: 395,000 Employment: 199,000 Unemployment Rate: 7.0% Retail Sales: $4.4 billion Consumer Price Index: 1.2%

Source: DTZ Barnicke and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

2007 1.0% -0.2% 1.8% 6.8%

2008e 0.8% -0.1% 2.7% 7.0%

2009f 2.1% 0.1% -1.1% 7.1%

2010f 2.3% 0.1% 0.8% 7.1%

$33,337 $34,649 $35,442 $36,722 1,100 3.4% 1.8%

1,200 4.6% 1.2%

1,100 4.6% 2.0%

1,000 4.6% 2.0%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview 2008 was another difficult year for the tourism and manufacturing sectors in the Region of Niagara due to the strong Canadian dollar for the first three quarters of 2008 and ongoing global competition. As a result, the economy of Niagara expanded a mere 0.8% in 2008. It is forecast that the region’s GDP will expand by 2.1% in 2009, with output growth being boosted by non-residential investment. The $500 million power plant by AbitibiBowater, the $19.5 million Welland Tunnel, and the $985 million Niagara Tunnel are currently underway and more recently the $90 million Niagara Health and Bioscience Research Complex will create jobs and give the Region of Niagara’s manufacturing industry a real boost. However, this forecast is tied to a rebound in the manufacturing sector, which if not realized will result in another year of lagging growth for the region.

Despite the challenges that Niagara’s industrial market faces, the region is still considered one of the most cost effective border business locations.

Combined with a Canadian dollar down 20% from average levels experienced in 2008, we can expect to see the expansion of established businesses following the example of Stanpac and J. Oskam Steel Fabricators, who decided to expand their operations in Niagara in Q4 2008.

Office Office market vacancy increased 400 basis points to 18% during 2008, with negative absorption in all classes of office space. The negative absorption was due to a reduction in the space requirements of large call centres, some movement of government employees out of Niagara and into other regional offices and general corporate downsizing. On the positive side, the Royal Bank of Canada moved into 10,000 square feet of new office space in the downtown CBD and Clarica increased their occupied space and renewed for an additional five years. 2009 is expected to be a slow year for the office market, with no foreseeable new tenant additions. Any growth in the office market is expected to come from existing tenants undergoing expansion or relocation. Vacancy will likely continue to rise moderately in all office classes with the exception of Class B, which should remain stable in 2009. Net rental rates will follow suit and decline for Class A and C space, while Class B rates will remain stable. In this tenant market, rental rates are forecast to decrease by as much as 5% to 7%.

Yields remained constant, between 8.5% and 9% throughout 2008, and are expected to remain stable through 2009. The underlying problem is sourcing good investment grade product.

Investment Despite escalating vacancy rates for office and industrial product, the investment market remained stable with ongoing interest for all product types, especially for quality retail plazas. Active buyers include RioCan, SmartCentres, Villarboit, Counsel Corporation and a number of smaller local buyers.

Retail Big box power centres continue to dominate the growth of the retail sector, with growth along high traffic highway interchanges. Consequently, vacancies in established power centres are becoming increasingly difficult to fill as tenants move to larger and better situated locations.

Brands such as Canadian Tire, Sobeys, LCBO, Shoppers Drug Mart, Starbucks, Tim Hortons, and Williams Coffee Pubs are undergoing expansion throughout the Niagara region with new store openings.

The weakening of the Canadian dollar will have a positive impact on the retail market as Canadian shoppers will be more inclined to shop within their border. Despite the increase in local expenditures, rents are expected to decrease between 10% and 15% as vacancy rates increase with the influx of new power centres and retail re-developments.

There was only one new building completion in 2008, adding 28,000 square feet to the office market, and two speculative buildings under construction which will add 46,000 square feet when completed. No additional construction is expected throughout 2009 until the market improves.

More landlords will be taking initiatives to improve the efficiency of their buildings to compete in this highly competitive market for tenants.

Industrial The industrial market underwent a tremendous shift in 2008 with approximately 1.2 million square feet of space coming on the market due to the closing of Hayes Dana, World Kitchens, Cornelius Hot Tubs, John Deere and the relocation of GEON and Can Gro back to the US. Adding to the increase of available space is the trend of smaller companies taking advantage of low interest rates to purchase their own building. This shift in demand lifted the vacancy rate 800 basis points to 17% during 2008.

Moving forward into 2009, vacancy rates are expected to continue trending upward as more companies consolidate their industrial space. As well, the sublet market is also expected to be very active in 2009 as more companies rightsize their operations.

Competitive landlords in 2009 will have to offer short term leases, high ceiling heights, below market rents, and locations near major highways in order to attract tenancy. Due to the discrepancy between rents and construction costs, new construction has been isolated to build to suit projects in industrial park infill sites for established companies.

DTZ Barnicke

25

Canadian Perspectives 2009

Greater Toronto Area 2008 Market Snapshot Office Inventory: 124.2 million sq ft Office Vacancy: 7.0% CBD Class A Vacancy: 4.1% Industrial Inventory: 680.5 million sq ft Industrial Vacancy: 7.1%

Population: 5.5 million Employment: 2.9 million Unemployment Rate: 6.8% Retail Sales: $61.3 billion Consumer Price Index: 2.9%

Source: DTZ Barnicke and Conference Board of Canada

Economic Outlook

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

2007 2.7 1.6 2.3 6.8%

2008e 0.4 1.6 1.7 6.8%

2009f 0.8 1.8 -0.3 7.8%

2010f 3.9 1.9 2.3 7.6%

$37,684 $38,746 $39,209 $40,505 33,300 5.3 1.9

41,800 5.7 2.9

32,900 3.6 1.9

35,200 6.0 1.8

Source: Conference Board Canada. *Percentage change from previous year

Market Overview Economic growth in the Greater Toronto Area (GTA) came to a halt in 2008, with GDP growth registering a mere 0.4%, a 230 basis point decline from 2007, a rate not seen since the recession of the early 1990’s. This decline can be attributed to the failing manufacturing industry, as 2008 represented the fourth consecutive year of negative growth in this sector and the largest decline in the last four years.

health of the market in 2009-2010. Vacancy will increase to approximately 9.5% in 2009 given new supply levels and softening demand given the current economic climate.

In the GTA West region, Mississauga, Meadowvale, Oakville and Burlington all experienced a decline in vacancy of 190 basis points or more during 2008. Oakville led the pack with vacancy decreasing to 3.1%. Vacancy in Brampton and Toronto West increased slightly and the Airport region remained constant. Overall, the GTA West region ended 2008 with a vacancy rate of 7.9%, down 66 basis points from 2007.

While residential construction has historically played a large part in bolstering the Toronto economy, in the last quarter of 2008 residential construction investment and building permit values fell significantly and are not expected to recover in 2009.

The GTA North East region had a strong year with positive growth in all submarkets with the exception of Don Mills/Eglinton. Markham, Richmond Hill, Scarborough and the DVP/401 submarkets each experienced declining vacancy in 2008 with vacancy in Richmond Hill and Scarborough leading the way with a decline of approximately 310 basis points. However, despite steady activity levels in Scarborough, the submarket maintained the highest vacancy in the GTA at 14.6%. Overall, the GTA North East region ended 2008 with a vacancy rate of 11.0%, down 134 basis points from 2007.

On-going growth in the services sector continues to buffer the economy from entering into a state of negative growth; however, the question remains how long will this buffer continue. While investment in non-residential construction is also declining, there is still a tremendous amount of construction activity carrying through 2009 in the form of office towers, hotel condominiums, and other multi-residential developments.

In 2009, expect economic growth to remain at similar levels due to a continued decline in the manufacturing sector as global demand for goods manufactured in the Toronto area recedes further as the global economic slowdown continues. Offsetting the effects of declining demand will be the weakened Canadian dollar, which may attract some business activity that was lost in 2008 when the Canadian dollar was near par with the US dollar.

Net rental rates remained flat in 2008 with an overall average of $18.40, for all space classes. Downtown Toronto commanded the highest overall net rental rate at $26.35, with an average of $31.00 for Class A space in the core business district. Average net rental rates in Midtown and Uptown Toronto were approximately $17.50 and $16.00 respectively. In the surrounding suburban areas, rent varied significantly by submarket, but overall GTA West rental rates averaged $14.60 while GTA North East averaged $12.50. Given softer demand and increased vacancy, rental rates will remain stable or begin to feel downward pressure in 2009. However, rents will need to be looked at on a situational basis as landlords with strong occupancy levels will not have the same pressures to adjust rents as those facing significant vacancy in their building or portfolio. As a means of attracting and retaining tenancy, landlords may also increase their inducement packages and are more likely to accommodate growth and contraction of existing tenants within their portfolio.

Office The GTA office market performed extremely well, both in Downtown and the surrounding suburbs, for the first three quarters of 2008 with approximately 1.17 million square feet of absorption, reducing the overall vacancy rate 90 basis points to 6.4%, a historical low for the GTA office market. However, much of the gains were lost in the fourth quarter as the trend reversed and absorption was negative for the first time since Q3 2006. Consequently, the overall vacancy rate ended the year at 7.0%, only 35 basis points lower than 2007 vacancy levels. Expect overall vacancy to trend higher in 2009, largely due to new supply delivery but also due to slowing demand given an anticipated softer economic climate and the potential for increased employee layoffs. Tenants are looking at options to reduce occupancy costs including consolidations, early renewals and subletting of excess space.

Another factor potentially impacting rental rates will be the volume of sublease opportunities in the market, which is on the rise. During 2008, the percentage of available space for sublease increased from 16.0% to 20.8% of total vacancy as many tenants began to re-evaluate their space requirements due to the changing economic climate, while others brought their existing space to market in anticipation of relocation to new premises in advance of lease expiry. In 2009, expect sublet opportunities to increase further.

In 2009, the Downtown Toronto skyline will change dramatically as four new buildings come to completion over the course of the year including the Bay Adelaide Centre (1.1 million square feet), Telus Tower (780,000 square feet), Maple Leaf Square (202,000 square feet), and finally the RBC Centre (1.2 million square feet).

Tenants have responded well to the new supply with pre-lease commitments approximating 60%.

However, with the exception of Telus, all of the pre-leased tenants are relocating from within the Downtown area and it will be the demand for the backfill space that will determine the overall DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

Very few new office building completions came to market in 2008 and, with the exception of the four major towers set for completion in 2009, office building construction is expected to remain relatively flat over the near term. Financing issues will likely defer proposed developments to the next building cycle, unless significant pre-leasing commitments can be obtained.

26

Canadian Perspectives 2009

Greater Toronto Area

Industrial A Canadian dollar flirting with parity for the first three quarters of the year, a struggling US economy and a global slowdown took its toll on the Greater Toronto industrial market in 2008, but not as bad as many would have thought. The majority of the downturn was felt in the manufacturing and automotive sectors while the distribution and warehousing companies continued to do well and expand their operations in select submarkets.

Investment The supply of quality product for sale could not meet the demands of buyers in 2008. The most sought after products are owned and held by the life companies, REITs, pension funds and other large publicly traded property management groups, forcing buyers to look for value investment in neighboring secondary markets such as Kingston, Kitchener, and London.

For the relatively few opportunities that did present themselves in 2008, the market was quick to respond and transactions were completed swiftly.

Industrial development remained steady in 2008. Product greater than 200,000 square feet continues to be built, with ongoing demand from distribution and warehousing companies. In addition, organizations looking to rationalize their space requirements and consolidate activities under one roof to gain efficiency are also driving construction demand. In 2009, expect industrial construction slow as the financing of projects and the ability to attract tenants becomes more challenging. New construction activity will favour design build rather than speculative construction.

In addition, a rise in development charges across the GTA will further challenge new industrial growth.

However, in the third quarter of 2008, the number of active buyers and sellers declined significantly as the credit crunch took many investors out of the game and signs of rising cap rates left sellers reluctant to part with inventory at reduced prices. Transaction volume decreased in 2008 across all product classes and is expected to remain flat in 2009. Many owners will become pressured sellers in order to raise equity to satisfy debt obligations in an environment where financing remains difficult to obtain. With reduced buy side competition given the lack of available capital in the market, expect some great opportunities for well capitalized buyers.

Overall Industrial vacancy in the GTA increased 120 basis points during 2008 to end the year at 7.1%. Industrial activity in the GTA West region remained relatively stable, with a 50 basis point rise in vacancy to 8.0%. Metro Toronto vacancy increased 167 basis points to 5.6%, while vacancy in the GTA North region increased 153 basis points to 9.9%. The GTA East showed the best performance, with the vacancy increasing a mere 16 basis points to 5.3%.

Office product and multi tenant shopping centers continue to be the most desired investment, while industrial product continues to lag due to an overall negative outlook on the future growth of Toronto’s manufacturing sector.

Multi-residential product is also losing favour with investors and the days of long line ups for the pre-sales of luxury condominiums seem very distant.

Retail Retail sales in the GTA increased 5.7% in 2008, a 40 basis point improvement over 2007 retail sales activity. Over 100,000 new people join Toronto’s population each year and this will continue to have a tremendous positive impact on retail sales both in Downtown and in the suburbs, despite the slowing economy. Both Yorkdale and Toronto Eaton Centre now enjoy sales volumes in excess of $1,000 per square foot.

Although overall vacancy increased, net rental rates for industrial property rose slightly over the course of 2008. The average industrial net rental rate in Greater Toronto was $5.96 per square foot, with lows between $4.60 and $5.00 per square foot found in York, North York, Etobicoke, Scarborough and Ajax. Average mid range rates of between $5.00 and $6.00 per square foot were found in Brampton, Burlington, Milton, Mississauga, Newmarket, Oshawa and Pickering. The highest average rates were found in East York, Markham, Richmond Hill, Vaughan and Oakville, between $6.00 and $7.00 per square foot. With increased vacancy forecast for 2009, expect net rental rates to experience downward pressure. In addition, similar to the office market, sublease opportunities are on the rise which will also exert pressure on landlord asking rates.

Growing international migration and rising personal income have driven the expansion of all retail formats, including large format stores, shopping centers, and street level boutique and luxury retailers. Fairview Mall, Pickering Town Centre, Royal Bank Plaza all completed major renovations in 2008. Renovations continue on the Scarborough Town Centre and Maple View Mall will undergo renovation and expansion in 2009. In addition, Cadillac Fairview’s Shops at Don Mills, Ontario’s first outdoor lifestyle centre, will open in April 2009.

A surplus of industrial opportunities exists in the 50,000 to 100,000 square foot range and many of these opportunities are taking much longer to lease than in previous years; a strong indicator as to the state of the manufacturing sector, as manufacturers in the GTA typically occupy buildings in this size range. Difficulty in obtaining financing for sale transactions should result in an increased preference towards lease transactions in the market for those organizations looking to make a move.

New to the market in 2008 was US home furnishings retailer Crate & Barrel which opened its first international location at Yorkdale Shopping Centre and STYLESENSE, Winner’s new shoe concept store, which opened at Vaughan Mills and Oakville Place. 2009, will see US clothing retailer Brooks Brothers establish their first Canadian locations in Toronto.

While domestic demand for goods has been healthy, the GTA industrial market relies heavily on the strength of international market demand, particularly from the US. Although the recent decline of the Canadian dollar is good news for manufacturers, and may re-spark global interest in Canadian manufactured goods, the outlook for global demand appears weak over the near term. Expect vacancy to continue to trend upwards in 2009 as softer economic conditions, reduced tenant demand, further plant closures and additional manufacturing job losses continue to impact the industrial market.

The future of the automotive industry in Ontario will have the greatest impact on just how far vacancy climbs and rental rates fall in the GTA DTZ Barnicke

Retail sales in 2009 are forecast to slow considerably given economic conditions, impacting the bottom line of most retailers. Expect to see a slowing in demand for retail locations by US retailers already in the market and a reduction of new entrants to the market until the economic climate shows signs of improvement. The closing of locations tenanted by US retailers may provide expansion opportunities for other cash rich retailers looking to expand in the GTA.

27

Canadian Perspectives 2009

Kingston 2008 Market Snapshot Office Inventory: 1.8 million sq ft Office Vacancy: 10.3% CBD Class A Vacancy: 9.3% Industrial Inventory: 7.2 million sq ft Industrial Vacancy: 14.3%

Economic Outlook

Population: 155,000 Employment: 79,000 Unemployment Rate: 5.5% Retail Sales: $1.8 billion Consumer Price Index: 1.2%

Source: DTZ Barnicke and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office  Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

2007 2.5% -0.4% 1.3% 5.4%

2008e 1.7% -0.2% 0.8% 5.5%

2009f 1.9% 0.2% 1.0% 5.6%

2010f 2.2% 0.3% 0.7% 5.5%

$35,926 $37,080 $38,148 $39,381 900 4.5% 1.8%

600 5.1% 1.2%

700 4.4% 2.0%

700 4.5% 2.0%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview Kingston’s economy expanded 1.7% in 2008, a slight decline from 2007 levels. This decline was due primarily to the ongoing softening in manufacturing activity resulting from the overall strength of the Canadian dollar and a slide in residential construction caused by three consecutive years of negative population growth. Offsetting this weakness, service sector growth has been strong with job creation and income growth stimulating retail trade. Complementing the services sector has been the ongoing growth recorded in the non-residential investment and construction sector.

Investment The investment market in Kingston has been divided, with stable activity for assets less than $5 million and a significant decline in activity for higher valued assets. Investment activity overall is expected to remain muted until the economic uncertainty is lifted and credit markets rebound.

Multi-residential product is the most in demand, while buyers for land and office assets have been scarce. Expect demand in 2009 to remain the same with most of the activity coming from private investors that can act swiftly on deals for quality product.

The economy is forecast to expand by 1.9% in 2009 and 2.2% in 2010. Some of the major projects continuing into 2009 include the $230 million Queen’s Centre and campus revitalization; $190 million budgeted for underground and roads infrastructure upgrades; $115 million Ravensview water treatment upgrade; and an $80 million investment in waterfront living. The Wolfe Island Wind Project, an 86 turbine wind farm estimated to cost $410 million, will also give the construction sector a boost.

Cap rates in 2008 increased to between 9% and 10% for all asset classes, with the exception of multi-residential which maintained cap rates as low as 7.5%. Yields in 2009 are expected to remain stable.

Retail Retail sales for 2008 increased by 5.1% over 2007 levels. Like much of the country, Q4 2008 saw a slowdown in retailers expanding or starting up due to economic uncertainty and a sentiment that the market has reached a point of saturation. The first three quarters of the year were active with retailers like Shopper’s Drug Mart vacating shopping centres for freestanding buildings and the construction of an Urban Outfitters in downtown. At the King’s Crossing Fashion Outlet and Power Centre development, which has over 105,000 square feet dedicated to fashion outlets and 545,000 square feet for other mixed uses with 26 acres available for further expansion over the next two years, retailers such as Puma, Calvin Klein and Adidas will have a presence.

Office Overall office vacancy increased 160 basis points to 10.3% in 2008. The rise in vacancy can be explained by a combination of decreasing space requirements as a result of corporate downsizing, consolidation and a general slowdown in business activity. Vacancy in 2009 is expected to remain on an upward trend, but at a slower rate as employment growth is expected to increase in order to support the growing investment in infrastructure and thus offset negative growth from further downsizing and consolidation in weaker sectors.

As a result of increasing vacancy, average net rental rates fell to $12.48 from $14.00 in this tenant market. Rates are expected to remain stable in 2009 as no new completions are expected. The discrepancy between rental rates and construction cost is too much for developers to justify any new construction at this time. With no new supply, companies searching for 10,000 square feet or more will find more challenges. On the other hand, smaller tenants have more options available, and some are even moving to industrial office parks where rents are lower.

Ongoing interest in outlet centres, big box developments and street level shopping will keep rental rates stable throughout 2009. However, older shopping malls will experience a decline in rates or be repurposed for office or service oriented space.

Industrial Industrial market vacancy increased 280 basis points to 14.3% due to the introduction of new supply and a decline in demand for manufactured goods in Canada, particularly in the automotive sector. Although vacancy rates have increased so too have the average net rental rates. Net rental rates increased from $6.30 to $6.85 in 2008, and are expected to remain stable throughout 2009 for newer inventory in the below 25,000 square foot range, but soften for space that is larger than 25,000 square feet.

Most of the absorption is coming from smaller R&D and knowledge based industries that are expanding or have been newly attracted to the region due to the vast amount of infrastructure and energy projects that require more engineers and consultants. The rest of the activity in the industrial market can be explained by tenants that have moved out of older and less efficient industrial space in a flight to quality.

New construction activity will slow in 2009; however, there are still several proposed developments waiting to attain significant enough pre-leasing to justify breaking ground.

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Canadian Perspectives 2009

Ottawa 2008 Market Snapshot Office Inventory: 34.4 million sq ft Office Vacancy: 6.7% CBD Class A Vacancy: 1.7% Industrial Inventory: 21.6 million sq ft Industrial Vacancy: 5.5%

Economic Outlook

Population: 1.2 million Employment: 667,000 Unemployment Rate: 5.0% Retail Sales: $15.0 billion Consumer Price Index: 2.7%

Source: DTZ Barnicke and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate   Office   Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

2007 2.5% 0.5% 1.3% 5.2%

2008e 1.2% 0.6% 2.4% 5.0%

2009f 1.2% 0.8% -0.7% 5.7%

2010f 2.9% 0.9% 1.8% 5.5%

$40,523 $42,043 $42,888 $44,503 9,300 4.3% 1.9%

9,900 5.9% 2.7%

8,100 4.0% 2.1%

7,200 4.9% 1.8%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview Despite the economic slowdown, Ottawa’s economy posted modest growth across all economic sectors in 2008 and this trend is expected to continue through 2009. The four year expansion trend in the high tech manufacturing sector came to an end in 2008, and activity in the construction industry also weakened. The public administration sector remains the main driver of the local economy. Ottawa’s economy grew by only 1.2% in 2008, its weakest performance in 12 years; however economic growth is forecast to improve to 2.9% in 2010. Retail sales remain strong, increasing by 5.9% in 2008 and forecast to increase by 4.0% in 2009. Housing starts increased for the second straight year, with 9,900 units. New residential construction is expected to ease off to levels more in line with underlying household formation in 2009 with another 8,100 units expected.

sectors for product with high ceiling and lots of shipping doors in the east end of Ottawa; unfortunately there continues to be shortage of such space.

Rental rates held firm in 2008. The Ottawa industrial market is predominantly a landlords market, except for the Kanata tech manufacturing submarket.

Rental rates are expected to remain stable in 2009.

Investment Due to the stabilizing factor of the federal government, Ottawa continues to be one of the most preferred locations in Canada by investors. However, with the credit crisis in the US, investment activity levels slowed dramatically in 2008. Sales volumes are down 50% from 2007. We do not expect to see much change in 2009, until the global economy rebounds from the current credit crisis.

Office Office vacancy increased 100 basis points to 6.7%, as a result of the economic downturn. Despite an expected softening in demand from the private sector, vacancy rates are expected to decrease in 2009, due to continued strong demand for space by the federal government. Net absorption was negative 542,000 square feet through the first three quarters of 2008, mainly as a result of high tech manufacturing and call centres relocating their operations offshore due to the high Canadian dollar. Absorption levels are expected to improve in 2009, as the federal government is expected to lease significant blocks of space scheduled to come onto the market.

Products most in demand are industrial and downtown office land, regional shopping centres and single tenant industrial buildings. The least sought after products are suburban Class B office and hotels. Cap rates trended upward in the second half of 2008, and we expect this trend to continue through 2009. Challenges for sellers in 2009 will be to find willing buyers with cash available.

Retail Retail activity was robust in 2008. Total retail space grew by 9% in 2008 to 31 million square feet, while overall vacancy remained steady at 3%. Rental rates continued to escalate, with the average net rent approaching $20.00 per square foot.

At the end of 2008, the federal government published a request for information on the availability of up to 3.9 million square feet of rentable office space in the National Capital Region to meet four separate requirements, aimed to address key issues such as the need for swing space, the need to renovate aging properties, the replacement of expiring leases, and the implementation of the latest standards for green buildings and accessibility in federal government buildings. The four requirements can be met in existing or newly constructed buildings, with lease terms of between 15 and 25 years, starting around fall 2011. It will be interesting to see which properties the government will vacate and which properties developers and landlords will submit to the government, and ultimately how Ottawa’s office market is impacted by the anticipated leasing activity over the next two years.

Power centres continue to grow in the suburbs. Approximately 212,000 square feet of new retail space was built in 2008. Some retail developers are shifting their focus to smaller scale suburban infill projects. Currently, there is 218,000 square feet of new retail under construction (66% of which is strip plaza development).

New retailers to market in 2008 included Lucky Brand Jeans, Coach, Sephora, Marciano, Aeropostale and Murale. Lowe’s is expected to open up to three stores in the Ottawa area in 2009.

The global credit crisis and its effect on consumer confidence and spending will be a challenge for retailers in 2009; however, Ottawa’s high concentration of public servants (1 in 5) will help stabilize the local retail market. Some retailers and developers are adopting a ‘wait-and-see’ approach on new developments and expansion plans.

Construction activity slowed in 2008, with only one completion totaling 146,000 square feet. Minto Place Tower 4 at 180 Kent Street (383,000 square feet) will be completed Downtown in Q2 2009 where five of 19 floors have already been pre-leased. EDC announced they will relocate to a new 450,000 square foot head office to be built by Brocollini Construction and Canderel Developments at 150 Slater Street, with occupancy scheduled for late 2011.

Overall net rental rates decreased in 2008, while additional rents have increased. Slowly rising vacancy and the influx of large block vacancies have put downward pressure on rental rates in 2008. We expect net rents to stabilize in 2009.

Industrial Industrial vacancy decreased 70 basis points in 2008 to 3.6%, as occupied space increased by 205,000 square feet. Vacancy rates are expected to rise slightly in 2009, due to continued uncertainty in the economy coupled with the completion of several new buildings and the release of existing space in the western suburban markets. Despite the slowdown in the manufacturing sector, demand remains strong from the transport, storage and distribution DTZ Barnicke

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Canadian Perspectives 2009

Montréal 2008 Market Snapshot Office Inventory: 78.7 million sq ft Office Vacancy: 7.7% CBD Class A Vacancy:6.6% Industrial Inventory: 329.0 million sq ft Industrial Vacancy: 8.5%

Economic Outlook

Population: 3.7 million Employment: 1,892,000 Unemployment Rate: 7.3% Retail Sales: $42.5 billion Consumer Price Index: 2.5%

Source: DTZ Barnicke and Conference Board of Canada

2009 Market Forecast Vacancy Rate Net Rental Rate  Office  Industrial   Retail Overall Cap Rates  Source: DTZ Barnicke

Real GDP* Population* Employment* Unemployment Rate Personal Income per Capita Total Housing Starts Retail Sales* CPI*

2007 2.5% 0.7% 2.5% 7.0%

2008e 0.7% 0.7% -0.5% 7.3%

2009f 1.1% 0.8% -1.0% 7.7%

2010f 2.9% 0.9% 1.3% 7.6%

$34,162 $35,003 $35,530 $36,718 23,200 3.4% 1.6%

23,300 4.0% 2.5%

19,000 3.9% 1.7%

18,100 4.9% 1.9%

Source: Conference Board Canada. *Percentage change from previous year

Market Overview Montréal’s economy expanded by 0.7% in 2008, marking its slowest year of growth compared to the last five years.

Ongoing decline in the manufacturing sector has been brought on by slowing demand from a receding global economy and a stronger Canadian dollar. Fortunately, Montréal’s reputation for R&D performance continues to support the economy, generating growth in the life sciences, information technology, telecommunications, and professional services industries.

In 2008, developers who took on the risk to build new and efficient multi-tenant speculative buildings, such as Groupe Montoni’s five building development on Kieran Street, experienced success in the market. However, in 2009 speculative developments are expected to slow in anticipation of an inactive year. Due to low lease rates, high construction cost and economic uncertainty, very few developers are undertaking speculative construction or improving existing space. Consequently, tenants are pursuing new build to suit projects to meet their needs, accelerating the growth in vacant inventory.

The aerospace industry remains an exceptional performer in the manufacturing sector. Companies like Bombardier are experiencing tremendous growth due to growing demand from emerging markets like China despite the global economic turmoil. Bombardier is attracting significant demand for its CSeries planes, which are assembled at the Mirabel Airport, outside of Montréal.

Most of the existing developments are situated on the Island, where the government has offered a tax abatement of up to 100% for three years to those who build new industrial facilities in that region.

Expect 2009 overall gross rental rates to remain steady as net rental rates decline, but taxes, maintenance and insurance costs escalate. This trend will further strengthen the demand for more cost efficient space and increase the perceived obsolescence of older industrial buildings. Many obsolete, multi-level, industrial buildings are being considered for conversions to loft style office space.

Also driving the economy in Montréal is investment in infrastructure, healthcare and tourism, including $3.6 billion on various hospitals; $1.5 billion on the Turcot interchange; $750 million on the Notre-Dame Street modernization project; and $1.9 billion on the Quartier des spectacles project. Non-residential construction and a slight revitalization in manufacturing due to a weakened dollar are expected to boost GDP growth to 1.1% in 2009.

Investment The 2008 investment climate for Montréal was not much different than the rest of Canada. While the beginning of the year was as equally active as 2007, with talks of demand exceeding supply, the second half of 2008 experienced a significant slowdown brought on by a shortage of accessible capital. The limited supply and high cost of capital has forced many investors to the sidelines and simultaneously forced vendors to sell some or all of their portfolios at reduced prices.

Office 2008 began well with a 90 basis point drop in vacancy in Q1. Unfortunately for the remainder of the year, the vacancy rate climbed back to Q4 2007 levels at 8.4% partly due to the completion of five new buildings adding 890,000 square feet to the total inventory.

Looking forward, overall vacancy rates are expected to climb slightly in 2009, with the exception of Class C space, which will see a slight decline in vacancy as tenants seek lower rates in response to economic uncertainty.

Overall activity will slow in 2009 as tenants withdraw from early renewals or new deals, until a clearer picture of the future economy is determined.

Cap rate compression trends reversed in 2008 and cap rates for all assets are expected to rise in 2009, with industrial space increasing the most and high quality office space the least. 2009 will be a challenge for vendors who were once used to the idea of sub 6% cap rates and a great buying opportunity for those with the cash or access to debt to buy product at reduced prices.

Significant projects in 2009 will be the 200,000 square foot, LEED Certified, Tour Catania; the 235,000 square foot second phase of the Bell Campus; 90,000 square foot Parc d’affaires sur le Golf; and 5455 de Gaspé Street with up to 600,000 square feet. With the exception of a few projects, a discrepancy between rental rates and construction cost continues to make it difficult to justify new office tower projects. Consequently, there is a growing trend of old industrial buildings being converted to loft style office space. This space is being brought to market at comparatively low rental rates and could further deter any new development plans as the converted industrial space places more downward pressure on overall rental rates.

Retail Despite slower economic growth and declining tourism spending brought on by a strengthened Canadian dollar, retail sales in Montréal grew by 4.0% in 2008, a 60 basis point increase over 2007. In 2009, retail sales are expected to increase once again then stabilize for the next three years.

Despite the strong sales numbers, the only new major retailer to the market was H&M, and little expansion occurred from international retailers. New retail developments such as Griffithtown and the highly anticipated LacMirabel were both abandoned due to trouble securing financing. Also, the redevelopment of Champlain Mall has been suspended.

Rental rates in 2009 for Class B and C product will depend heavily on the rate at which industrial building conversions take place. Although at historically low vacancy levels, rental rates for Class A product will not increase in 2009, but rather will remain stable due to economic uncertainty.

The growing consumer spending combined with a lack of international expansion and a halt in new developments is creating a lucrative environment for established retailers. There is now an excellent opportunity for local retailers to expand and capture market share. Expect stable sales per square foot in 2009 and rental rates to decline slightly as demand stems mainly from local retailers.

Industrial Industrial vacancy rates continued to rise in 2008 and the story is expected to remain the same for 2009. Most of the vacant space is coming from older buildings, specifically space with lower than 24’ clear heights. Buildings with 16’ clear heights and less are quickly becoming obsolete in the market.

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Canadian Perspectives 2009

Ottawa

Waterloo Wellington

Due to the stabilizing factor of the federal government, Ottawa continues to be one of the most preferred locations in Canada by investors.

Being part of Canada’s Technology Triangle, Waterloo has the best of both worlds. Surrounded by green farmland and fresh air, the city is a modern, vigorous business and technology community.

DTZ Barnicke Canadian Perspectives 2009

The City of Waterloo

London

Winnipeg

London is a city with a proud tradition of enterprise, innovation and creativity. A great place to do business, many strategic initiatives are underway to ensure we continue to flourish - economically, socially and culturally.

Winnipeg has a highly diverse economy, a bonus in terms of economic stability. In recent studies by Moody’s Investor Service and the Conference Board of Canada, Winnipeg has been viewed to have a very diverse economic structure.

City of London

Destination Winnipeg

Vancouver Niagara Niagara's commitment to supporting business development has resulted in over $6 billion in recent capital investment proposals. Niagara is expected to remain among the growth leaders in the country.

Zoning restrictions and community opposition have limited the growth of big box retailers in Vancouver, however in 2009 Wal-Mart will be opening its first location in Vancouver.

DTZ Barnicke Canadian Perspectives 2009

Montréal The growing consumer spending met with a lack of international expansion and a halt in new developments is creating a lucrative environment for established retailers.

DTZ Barnicke Canadian Perspectives 2009

Niagara Economic Development Corporation

Calgary

Regina is a growing, progressive community, with a strong, diversified economy and a quality of life that is exceptional.

Nexen, Canadian Natural Resources, Suncor, PetroCanada, and EnCana Corp have already announced budget cuts, which will undoubtedly affect Calgary’s services sector growth in 2009.

Regina Regional Economic Development Authority

DTZ Barnicke Canadian Perspectives 2009

Regina

Edmonton Growth in the services sector and growth in net migration will boost Edmonton’s expansion in 2009.

DTZ Barnicke Canadian Perspectives 2009

Victoria

Halifax a growth engine for many surrounding communities that benefit from a strong cluster of business and transportation services.

Victoria’s industrial market performed extremely well in 2008 and despite a slight rise, the vacancy remains below 1.0%.

DTZ Barnicke Canadian Perspectives 2009

Halifax Regional Municipality

Kingston Most of the absorption is coming from smaller R&D and knowledge based industries that are expanding or have been newly attracted to the region due to the vast amount of infrastructure and energy projects that require more engineers and consultants.

Greater Toronto Area Toronto is at the core of one of the fastest growing economic regions in North America. It has nurtured a broad range of economic clusters that characterize a global city region.

DTZ Barnicke Canadian Perspectives 2009

City of Toronto

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Canadian Perspectives 2009

Contact us Christopher Ridabock CEO Tel: +1 (416) 863 1215 Email: info@dtzbarnicke.com DTZ Barnicke Limited 2500 - 401 Bay Street Toronto Ontario, Canada, M5H 2Y4 Visit our website www.dtzbarnicke.com

Disclaimer and confidentiality clause This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ Barnicke can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ Barnicke. Š DTZ Barnicke Limted, Real Estate Brokerage 2009