MARKET COVERAGE

Atlantic Region Economic Overview
Halifax and the surrounding area have benefited from robust consumer spending, a boost in natural gas output and a return to full-year production at Stora Enso, resulting in economic growth of 2.2% in 2007. With these last two factors absent in 2008, economic growth is expected to be somewhat weaker at about 1.8%.

Development of the Deep Panuke project, growth in the aerospace and defence sector and higher retail sales will help offset the slowdown, but the strong dollar and weak US economy will continue to challenge manufacturers and the tourism sector. Housing markets improved in 2007 and are expected to again show moderate rowth with starts up a forecase 1.0% in 2008.


Sales & Investments
The overall investment climate is strong across all sectors, limited only by the supply of suitable product. On the buy side, the market has been dominated by local and national private equity however there has been some interest from life insurance companies. On the sell side, private sellers have been the norm.

Threre is strong demand for all product types, particularly for high quality income opportunities. While the level of activity has decreased somewhat this year, this reflects the increased institutionalization of larger properties, the bump in interest rates and the continued high expectations of sellers. This trend should continue in 2008. With debt being scarcer, more expensive, and reduced loan to value lender restrictions we forecast an increase in cap rates and an opportunity for cash to mortgage buyers.

HRM Office Market
Market vacancy decreased 1.0% in 2007 to 6.7% and is predicted to drop to 6% by the end of 2008. Absorption for 2007 was a positive 150,000 square feet. The completion of the new building for Research in Motion and leasing activity by the Halifax Herald will cause a bump in the absorption for 2008.

Tenant demand remains stable with new demand coming from technology and financial services firms new to metro Halifax. The rental rate increase that began in 2007 will continue throughout 2008 as demand edges up. However, there is enough vacancy to protect against a large upswing in rental rates for 2008. The major challenge in 2008 will be for large tenants requiring expansion to find accommodation in the downtown core.'

A number of new buildings remain on the drawing board, awaiting preleasing by tenants who may be unable to expand with their existing landlord and who can afford a higher rental level. The environmental agenda is a growing trend with LEED certified building being planned.

HRM Industrial Market
The industrial market has been very active. Though a few large and financially strong landlords dominate the market, several new buildings have been built and partially preleased. While absorption in 2007 was in excess of 200,000 square feet, more than twice that of 2006, vacancy increased to 7.7% as a result of the new supply. Anticipate vacancy in 2008 to moderate somewhat with absorption catching up to supply. Demand is broadly based reflecting the diversity of the metro economy.

Rental rates for new construction are reaching new highs; however, older existing buildings will be able to hold their rates by having a price advantage. New buildings are being built to accomodate large tenants, differentiating themselves from older existing product. The largest challenge to the industrial market going forward is the significant shortage of serviced land in the region.


Retail Market Highlights
The retail landscape changed dramatically in Metro Halifax in 2007. The stable economy fuelled demand for more sophisticated goods and services. This is especially evident in Halifax where wage gains, tight retail vacancy levels and increased retail sales continue to attract national retailer interest.

The opening of the major new retail centre at Dartmouth Crossing increased the retail inventory in greater Halifax. As well, the smaller Bedford Commons will bring additional big box activity to the Bedford area. Big box centres continue to be developed throughout Atlantic Canada in an attempt to saturate smaller population markets. Expect a slowdown in the construction of new retail premises in 2008.