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Colliers North American Office Highlights Q4-12

Colliers North American Office Highlights Q4-12

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Published by Coy Davidson
North American Office Market Report
North American Office Market Report

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Published by: Coy Davidson on Feb 25, 2013
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HIGHLIGHTS
NORTH AMERICA
WWW.COLLIERS.COM
Q4 2012 | OFFICE
KEY TAKEAWAYS
The North American and U.S. oce vacancy rates declined urther during Q  to .%and .%, respectively.
This was the ourth consecutive quarter o improvement or the .billion square eet o inventory in the  North American oce markets tracked by Colliers.
The market uncertainty and volatility o H inhibited neither oce leasing or transactionactivity.
Q North American net absorption o . MSF was more than double Q’s . MSF. total net absorption was . MSF (roughly the oce inventory o Ft. Lauderdale), the bestsince the – nancial crisis.
Major oce property transactions totaled $. billion in , and surged at year-end .
 Q’s $. billion in oce building sales surpassed all prior quarters in , according to RealCapital Analytics.
MARKET INDICATORS
Relative to prior period
NORTH AMERICAN OFFICE MARKET
Summary Statistics, Q 
USQUSQ*CanadaQCanadaQ*
VACANCYNET ABSORPTION
   
CONSTRUCTIONRENTAL RATE*ProjectedConstruction is the change in Under Construction
Sq. Ft. By Region
2.00000000
 
1.00000002.00000000Total_OSF-Vacant_OSFVacant_OSF
Absorption Per Market (SF)
q3 '12 - q4 '12 
2,500,0001,250,000250,000-250,000-1,250,000-2,500,0002 billion1 billion200 mil.Occupied Sq. Ft.Vacant Sq. Ft.
 
NORTH AMERICAN OFFICE VACANCY, INVENTORY AND ABSORPTION
Q USCANNA
VACANCY RATE
14.63%
.%.%
Change From Q 
-.%-.%-.%
ABSORPTION (MSF)
...
NEW CONSTRUCTION (MSF)
...
UNDER CONSTRUCTION (MSF)
...
ASKING RENTS PER SFUSCAN
Downtown Class A
$.$.
Change rom Q 
.%.%
Suburban Class A
$.$.
Change rom Q 
.%.%
Unlocking 2013 OfceProperty Perormance
What will be the right combination in 2013?
K.C. CONWAY, MAI, CRE
EMD | Market Analytics
 
P. | COLLIERS INTERNATIONAL
HIGHLIGHTS
| Q4 2012 | OFFICE | NORTH AMERICA
KEY TAKEAWAYS
(continued)
Capital is migrating out o the risk curve or investment in oce building assets in search o yield.
This trend, reported by Colliers in previous reports, was corroborated by the recent Association o Foreign Investors in Real Estate report in which our o the top ve markets or investmentwere in the U.S., including Houston or the rst time.
“ICEE” oce markets are still hot.
Intellectual Capital, Energy and Education (ICEE) markets continue to capture a disproportionate share o NorthAmerican oce absorption. During , two-thirds o the  North American MSAs with the greatest absorption are characterized asICEE markets. We see this trend continuing in  as technology, energy and knowledge gateway centers remain the dominant generators ooce-related employment.
Medical Oce has been a sleeper oce sub-property type that saw a % growth in transaction activity in CY  to $. billion,
or just shy othe % total $. billion in CY  oce property sales. And, approximately hal o the  MSF o oce space under construction in the U.S. atthe onset o  is or medical-related use.
Recovery in housing is an overlooked oce demand driver that will gain additional traction in .
-
183.2
 -
130.9
 -
14.4
 -
0.50.013.3
 
24.4138.9
 
190.2
 
203.3330.0365.7-300.0-200.0-100.00.0100.0200.0300.0400.0Ottawa, ONVancouver, BCVictoria, BCHalifax, NSWinnipeg, MBEdmonton, ABWaterloo Region, ONSaskatoon, SKRegina, SKToronto, ONCalgary, ABMontréal, QCThousands
CANADIAN OFFICE ABSORPTION BY MARKET Q4 2012
IN THIS QUARTER’S REPORT, WE TAKE A LOOK AT THECOMBINATION TO UNLOCKING VALUE IN :
RIGHT :In  look or North Americanvacancy to drop below %, ueled byanother  MSF o absorption.LEFT :total oce transactions above$ billionRIGHT :CMBS oce propertydelinquencies rate below %LEFT ICEE:Oce job growth in Tech/Energy/Education MSAs outperormsFIRE MSAs or a third consecutive yearRIGHT MO:Medical Oce is the emergingleader among oce sub-property sectors
0.000.000.050.070.080.130.190.300.361.561.662.78
0.00.51.01.52.02.53.0Edmonton, ABVictoria, BCSaskatoon, SKWaterloo Region, ONRegina, SKWinnipeg, MBHalifax, NSMontréal, QCOttawa, ONVancouver, BCCalgary, ABToronto, ONMillions
CANADIAN OFFICE UNDER CONSTRUCTION BY MARKET Q4 2012
Note: Q data reported or Winnipeg, MB
See page  or details
 
HIGHLIGHTS
| Q4 2012 | OFFICE | NORTH AMERICA
COLLIERS INTERNATIONAL | P.
North American Downtown Markets:Excluding renewals, of the leases signedthis quarter, did most tenants:
Hold Steady69.1%Expand16.2%Contract14.7%
North American Downtown Markets:What was the trend in Free Rent (in months)oered by CBD landlords this quarter?
Same80.9%Less14.7%More4.4%
North American Downtown Markets:What was the trend for tenantimprovement allowances oered byCBD landlords this quarter?
Hold Steady91.2%Contract2.9%Expand5.9%
North American Suburban Markets:Excluding renewals, of the leases signedthis quarter in your CBD/downtown,did most tenants:
Hold Steady60.3%Expand30.9%Contract8.8%
IN BRIEF: OFFICE OUTLOOK 
 nished—and  began—as Colliers observed in all : with progress on all ronts.North American Oce Vacancy alls to just .% at YE .Net leasing activity best in ve years: i) . MSF in Q ; and ii) . MSF or CY A % surge in oce building sales surpasses  transaction volume (,+ propertiestotaling approximately $ billion during )Despite the harmul summer “UV (Uncertainty & Volatility) rays” during H, and lingering anxietysurrounding the U.S. scal debt crisis, ongoing Eurozone recession, the cost and logistics oimplementing Obamacare, and anemic job growth (,/month) or two consecutive years, ocereal estate is persevering and returning to a state o balance. However, the recovery is broadening,both in the actors that have driven it over the past  months, as well as the markets that it’s reaching.No longer is the recovery conned to the CBDs o the “sexy six” core MSAs o New York, Boston,Chicago, Los Angeles, San Francisco and Seattle; it’s expanding to suburban submarkets andsecondary MSAs. Real Capital Analytics’
Ofce Year In Review 
report noted a  percent increase insuburban oce building sales during , and a  percent increase in oce building sales outsidethe six core MSAs. While this new interest is driven by a dearth o assets in the core MSAs and thesearch or yield in response to Federal Reserve monetary policy and cap rate compression, it has beenoce job growth in technology, energy and primary-education ocused MSAs (what Colliers coined theIntellectual Capital, Energy and Education, or “ICEE” markets in ) that has dened which secondarymarkets were participating in this broadening recovery in the oce property sector thus ar.In , two other positive inuences will impact this expansion: the housing recovery and growth inmedical oce demand. Both are broad-based across the U.S. and will have more o an efect onsuburban oce submarkets than CBDs. Why? First, proessional services associated with a rise innew home construction and existing home sales activity will rebuild in proximity to this increasinghousing activity in the suburbs. Second, our healthcare delivery model is shiting rom one concentratedon expensive urban hospital campuses to less capital-intensive, suburban outpatient acilities.The ICEE, housing, and medical oce actors, along with the continuing search or yield by investors,add up to M.O.T.S (More Oce To Secondaries) in . As the diagram below depicts, risingabsorption and modest new supply are driving vacancy down, and the requisite conditions to improveNOI are in place to absorb any interest rate risk in H.
U.S. OFFICE MARKET Q –Q 
 
16.1115.5715.3615.1415.0314.9614.88
14.83
14.63-2.04.06.08.010.012.0
14.0
16.0-2.04.06.08.010.012.014.016.018.020.0Q4Q120112012Q2Q3Q4Q1 Q2Q3Q4
    V   a   c   a   n   c   y    % 
Absorption MSFCompletions MSFVacancy %

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