Toronto s Growing Tech Sector DEFIXTURING. is the new fixturing

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1 Toronto s Growing Tech Sector DEFIXTURING is the new fixturing September 2015

2 Tech Sector On the Rise The technology sector accounted for 38% of Canadian office leases in the second quarter of 2015 and is having a major impact on the look and function of office space in Toronto. Until recently, the growing tech sector has pursued former industrial properties which had been transformed into Renovated and Converted (RC) office buildings. In Toronto, much of that demand has been satisfied by RC buildings in the Downtown West submarket. Given their popularity, it is no surprise that space in these buildings is becoming scarce and rents are beginning to rise. With brick and beam opportunities becoming limited, the tech sector is starting a new office trend in Toronto defixturing. Source: Allied Properties REIT

3 STRACHAN AVE DUFFERIN ST DUFFERIN ST KING ST W CHURCH ST JOHN ST YONGE ST Reinvisioning Traditional Office Space Vacancy in Downtown West Class RC space hovers around 2.5%-3.0% and quoted gross rents in certain buildings are breaking $40.00 per sq. ft. With limited options available, a handful of tenants have begun constructing their own creative office space in more traditional office buildings. Tech tenants are taking space in Class A and B towers in the downtown core and are building out their interiors to replicate those of classic RC buildings. In much the same way that landlords adaptively reused former industrial properties into RC office buildings, tenants are now adaptively reusing traditional interiors into creative premises. These offices boast exposed ceilings, finished concrete floors, and, where possible, exposed brick or cinder block walls. KING STREET WEST LIBERTY VILLAGE DUNDAS ST W DOWNTOWN WEST FRONT ST W LAKE ONTARIO GREATER CORE UNIVERSITY AVE QUEEN ST W FINANCIAL CORE The defixturing of traditional office space is fulfilling tenants aesthetic demands at rents comparable to those of the RC buildings they originally targeted. Traditional Class A and B buildings offer additional benefits including proximity to the Financial Core, access to the PATH, better transit options, and ample parking. Additionally, traditional office buildings have larger floor plates with layouts that adapt readily to efficient and creative spatial planning. Newer buildings also provide for more modern mechanical and electrical systems and better sound control. Market Sizes (Inventory) Downtown West 6.1 Million Sq. Ft. Liberty Village 2.0 Million Sq. Ft. Financial Core 24.4 Million Sq. Ft. Greater Core 19.4 Million Sq. Ft. Defixturing Tenants are rejecting sleek, modern fixturing in favour of rough, industrial-looking finishes that mimic the exposed interiors of adaptively reused buildings.

4 Defixturing Trailblazers Some creative and technology tenants who have been leaders in defixuturing are: Dundas Street West Queen Street West King Street West Bathurst Street Spadina Avenue University Avenue Queens Quay West LAKE ONTARIO The defixturing trend has even extended to some tenants in Professional, Scientific, and Technical Services as well as Finance, Insurance, and Real Estate industries. For example, advisory firm PwC has forgone drop ceilings in portions of its premises at 18 York Street and the Royal Bank of Canada has opted for exposed finishes at RBC Centre.

5 Landlords Respond To Tech Needs In response to the defixturing trend, a number of landlords of traditional office buildings are now catering to tenants demand for creative office space. For example, Crestpoint Real Estate Investment has long marketed its traditional, Class B building at 111 Peter Street as having the potential for an interior conversion. Similarly, Oxford Properties Group foresaw this trend a number of years ago, marketing its Class A renovation project at 111 Richmond Street West as having creative premises with exposed ceilings and concrete floors, ultimately landing Google as its lead tenant. The concept was so well-received that only one tenant requested a drop ceiling to be installed. Allied Properties REIT, the largest owner of RC space in Downtown West, is also catering to tenants looking for creative space in modern buildings by constructing 11 floors of new office space overtop its RC building at 134 Peter Street (QRC West). 111 Peter Street // Source: CBRE Limited 111 Richmond Street // Source: Allied Properties REIT 134 Peter Street (QRC West) // Source: Allied Properties REIT Lease negotiations typically revolve around fixturing costs and construction incentives, but the possibility of defixturing traditional office space may provide the edge that landlords are looking for and tenants are demanding.

6 Toronto Research Masha Dudelzak, MBA Research Manager t: e: CBRE Limited 145 King Street West Suite 600 Toronto, Ontario M5H 1J8 This disclaimer shall apply to CBRE Limited, Real Estate Brokerage, and to all other divisions of the Corporation ( CBRE ). The information set out herein, including, without limitation, any projections, images, opinions, assumptions and estimates obtained from third parties (the Information ) has not been verified by CBRE, and CBRE does not represent, warrant or guarantee the accuracy, correctness and completeness of the Information. CBRE does not accept or assume any responsibility or liability, direct or consequential, for the Information or the recipient s reliance upon the Information. The recipient of the Information should take such steps as the recipient may deem necessary to verify the Information prior to placing any reliance upon the Information. The Information may change and any property described in the Information may be withdrawn from the market at any time without notice or obligation to the recipient from CBRE. CBRE and the CBRE logo are the service marks of CBRE Limited and/or its affiliated or related companies in other countries. All other marks displayed on this document are the property of their respective owners. All Rights Reserved. Vector images designed by Freepik.