Calgary Industrial Market Report

Spring 2008

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Market Overview
Given the slowing trend of Calgarys economy, uncertainty around natural gas prices, and an unclear picture of how the U.S. economy will perform in 2008, development and lease rates are expected to maintain their current levels rather than continue to increase as they have in the past few years. Calgary remains as one of the hottest economies in Canada and the growth and demand in the industrial market reflect that. Calgarys raw land supply continues to be scarce, limiting developers, investors and users to Eastlake and the 84th Street Corridor, where land prices have continued to rise, reflecting this scarcity. However, for the first time in several years, private developers will be bringing forward large tracks of developable, serviced land over the next few years. This will add a number of exciting new dynamics to the industrial development and leasing market in years to come.

Vacancy
Avison Youngs Calgary Industrial Landlord Vacancy Index for first quarter 2008 is 2.31%, exclusive of single tenant properties. This is up from the 0.81% in third quarter 2007 and 1.56% at the end of the fourth quarter of 2007. This increase is primarily due to two newly completed buildings coming on-stream with large pockets of vacancy. It is worth noting that of the over 1.2 million square feet of new industrial space completed in 2007, less than 300,000 square feet (23%) remain vacant. With the expected continuing demand for industrial space in Calgary, this vacancy is still considered quite low, and Calgary remains in the top five of the tightest industrial markets in North America.

Vacancy Index: 2.31% Average Asking Lease Rates ($PSF): 0 10,000 sqft: 10 50,000 sqft: 50,000 sqft+: $12.08 $10.75 $7.86

Average Operating Costs ($PSF): 0 10,000 sqft: $3.42 10 50,000 sqft: $2.81 50,000 sqft+: $2.24

Rental Rates
Average rental rates continue to climb for industrial properties in Calgary. For less than 10,000 square feet tenants can expect to pay an average of $12.08 per square foot net, for space between 10,000 and 50,000 square feet the average is $10.75 per square foot net and when looking at space greater than 50,000 square feet the average is $7.86 per square foot net. A general lack of options for tenants has continued the upward pressure on rental rates, however with a large number of new buildings being recently completed or to be completed soon, this pressure is anticipated to moderate towards a more stable market. When it comes to operating costs for less than 10,000 square feet tenants can expect to pay an average of $3.42 per square foot on top of their rent, for space between 10,000 and 50,000 square feet the average is $2.81 per square foot and when looking at space greater than 50,000 square feet the average is $2.24 per square foot.

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Notable Industrial Lease Deals SOUTHEAST CALGARY

Tenant 3E Logistics Rona Iron Mountain Canada* Exel Canada Ltd.* WTS Distributors Inc. Area Leased (S.F.) 190,370 169,175 144,890 89,960 78,698 Building 4760 - 72 Ave SE 5667 - 69 Ave SE 5350 - 86 Ave SE 5350 - 86 Ave SE 7151 - 44 St SE TENANT Whirl Pool Harmony Distribution Resolve Logistics CocaCola Anixter

NORTHEAST CALGARY
AREA LEASED (S.F.) 439,164 356,028 78,400 75,000 54,750 BUILDING Stoney Industrial Ctr II Stoney Industrial Ctr I 89 Freeport Blvd NE 89 Freeport Blvd NE 52 Aero Drive NE

* Indicates transactions Avison Young Commercial Real Estate was involved with.

Land Availability and Pricing

A lack of suitable, presently serviced industrial land is pushing development outside of the city limits and is having a significant impact on our industrial market. Locations such as the new Kingsland Business Park in Airdrie, CrossIron Mills in Balzac and Wrangler Park in the M.D. of Rocky View are the sites of a significant portion of new construction. Developers are showing a keen interest in moving north along the Calgary Edmonton trade corridor, in order to achieve better financial returns and cheaper land options. Serviced industrial land prices saw a significant increase in 2007, with the average now being $611,000 per acre, well above the average price of $480,000 per acre recorded in 2006. Prices continue to increase because there is very little serviced industrial land available inside the city. Meanwhile, unserviced industrial land prices comparatively have leveledoff. The average price per acre in 2007 was $211,000, up from the average price of $154,000 per acre in 2006.

Notable Serviced Industrial Land Sales

DATE (YMD)

07-10-01 07-08-28 07-11-08 07-07-29 08-01-23

ADDRESS

4900 - 102 Avenue SE 2728 - 50 Avenue SE 3503 - 114 Avenue SE 11500 - 35th Street SE 3670 - 63 Avenue NE
ADDRESS

PRICE

$3,958,240 $1,650,000 $1,627,500 $1,191,750 $1,150,000

PRICE

$/ACRE $572,083 $568,966 $750,000 $525,000 $483,193 $/ACRE $310,477 $167,694 $286,200 $77,273 $588,652

I-XL Masonry Supplies Ltd. 1341283 Alberta Ltd. Gamehost Income Fund Deerfoot Inn & Casino Inc. Golden Group Inc.
PURCHASER

PURCHASER

The City of Calgary Private Investor Telsec Dev Ltd. Telsec Dev Ltd. AAA Holdings Ltd.
VENDOR

VENDOR

Notable Unserviced Industrial Land Sales

DATE (YMD)

07-09-24 07-12-07 07-10-26 08-01-09 08-01-07

12905 Centre St NW 11575 - 14 Street NE 5505/5543 - 72 Ave SE 9420 - 6 Street NE

1510 Country Hills Blvd NE

$26,222,900 $12,000,000 $8,514,450 $8,500,000 $8,300,000

Apex G.P. Ltd.,et al Intreo Corporation Opus Industrial Prop The Calgary Airport Auth Hyatt Auto Sales Ltd.

Private Investor Bar-O W-Ranches Private Investor Stock Feed & Seed
William Glesby Hldgs Ltd.

New Industrial Development

There seems to be much discussion surrounding the question if buildings are not built, will there be enough space? Alternatively, are we overbuilding any specific type of product, especially big bay industrial space? To date, prudent decisions have been made by developers and the continuing increase in supply is well matched to future demand. That being said, there is still a very limited quantity of small bay industrial being constructed for lease. As a result the industrial condominium market is meeting more of this demand.

All information is the property of Avison Young and RealNet Canada Inc. While every effort has been made to ensure the accuracy of this information, it is not guaranteed by Avison Young or RealNet.

There are currently nine industrial projects, containing 14 buildings, under construction in Calgary, containing a total of 3.4 million square feet. An additional 2.3 million square feet are available for pre-leasing in ten different projects and three newly proposed projects will be able to offer a further 15 million square feet.

Industrial Building Sales and Investment

Records continue to be broken in red-hot Calgary and the industrial market is no exception. A benchmark setting 168 sales of industrial properties, with prices of $500,000 or greater, were recorded in 2007. This is 39 sales ahead the previous record number of transactions recorded in 2006. The total combined dollar volume of sales for 2007 was $546.8 million, up $92.6 million (20%) from 2006, which had 129 sales, and up $301.1 million (123%) from 2005, which had 103 sales.

The largest industrial property acquisition, taking place since mid 2007, was H & R REITs purchase of the Atlas Cold Storage facility at 5555 78th Avenue SE for $31.6 million ($321 per square foot). This purchase was part of a portfolio of twelve refrigerated distribution facilities located in six provinces across Canada. The overall portfolio involved 1.7 million square feet with a total purchase price of $215 million. The cold storage properties will be leased-back to Eimskip Atlas Canada Inc. Average price per square foot on sales of industrial properties have leveled off after steadily increasing over the past couple of years. The current average price per square foot for industrial properties (excluding condos) is $119. If you break that down into the different sizes of buildings we see that those buildings greater than 50,000 square feet sell for an average of $100 per square foot, those between 10,000 and 50,000 sell for an average of $150 per square foot and those buildings less than 10,000 square feet sell for an average of $189 per square foot.

Notable Industrial Building Sales Date (YMD) Address 07-10-09 5555 - 78 Avenue SE 07-11-13 7140 - 40 Street SE 07-11-14 11133 - 40 Street SE 07-12-07 5667 - 69 Avenue SE 07-12-06 4207 - 17 Street SE

Total Price $31,566,903 $29,857,142 $19,107,864 $16,012,203 $15,389,500

$/SQ.FT. $321 $83 $76 $95 $180

Vendor Atlas Cold Storage Canada Gienow Management Inc. WAM Development Group Hopewell Development Corp. Business Condominiums Inc. Staverly Holdings Ltd.

Purchaser H & R REIT H.I.G. Capital LLC CREIT CREIT

Industrial Condominiums
The increase in the number of businesses wanting to purchase their own space in industrial condominium projects has led to a significant upsurge in the number of industrial condominium complexes being constructed in and around the city. This type of product is not being restricted to the small bay tenants anymore either. Developers are now looking into the possibility of meeting the demand for single-user industrial condominium bays greater than 15,000 square feet. Prices are currently averaging between $185 and $200 per square foot for typical bays (less than 4,000 square feet) inside the City of Calgary. While in areas surrounding the city the average price is between $160 and $175 per square foot. In addition to lower prices, industrial condominiums in areas surrounding Calgary can provide another advantage, they have the ability to include private outdoor yardspace with each unit.

Featured Avison Young Listings - Industrial

52nd Street SE
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52nd Street SE

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48th Street SE

106th

South Glenmore Distribution Centre Up to 109,250 Square Feet

South Foothills Lease Opportunity

10905 - 48th Street SE Up to 92,550 Square Feet

11

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SE

Eastlake Lease Opportunity

3 Kingsview Road SE (Airdrie) Up to 24,474 Square Feet Airdrie Lease Opportunity

10 Wrangler Place SE 3,000 Square Foot Bays Patton Condominium Opportunity

777 - 64th Avenue SE Up to 41,000 Square Feet

Burns Lease Opportunity

10555 - 48th Street SE 3,353 to 3,411 Square Foot Bays Eastlake Condominium Opportunity

Calgary Industrial Leasing & Investment Team

Pali Bedi, Partner 403.232.4311 pbedi@ay-ab.com Norman Lippitt, Partner 403.232.4303 nlippitt@ay-ab.com Steve Vesuwalla, Partner 403.232.4306 svesuwalla@ay-ab.com Alex Wihak, Assistant (to Ed Dorosz) 403.232.4338 awihak@ay-ab.com

Jeff Buziak, Negotiator 403.232.4335 jbuziak@ay-ab.com

Bruce Bynoe, Partner 403.232.4302 bbynoe@ay-ab.com

Fred Clemens, Associate 403.232.4312 fclemens@ay-ab.com Ed Dorosz, Negotiator 403.232.4316 edorosz@ay-ab.com Kristen Heimdahl, Assistant (to Steve Vesuwalla) 403.232.4309 kheimdahl@ay-ab.com
Noah Hughes, Negotiator 403.232.4324 nhughes@ay-ab.com

Graphics
Penelope Johnson, Graphics Coordinator pjohnson@ay-ab.com

Research
Susan Thompson, Research Manager sthompson@ay-ab.com Maria Ferreira, Research Assistant mferreira@ay-ab.com