Manulife US REIT - Annual Report 2021

MANULIFE US REIT 50 • Net absorption was positive for the first time since the onset of COVID-19 inQ4 2021, reaching 5.4 million sq ft. • Flight-to-quality is intensifying and becoming the dominant story of the leasing market. 51 million sq ft of occupancy growth has occurred in office properties delivered since 2015, compared to 199 million sq ft of outflows elsewhere. • Sublease space further stabilised, while large- scale leasing increased by nearly 47% during Q4. This has brought average terms closer to normal, albeit still with additional runway for recovery. 2016 2018 2020 2017 2019 2021 Quarterly leasing activity (s.f.) 80 60 40 20 70 50 30 10 0 Leasing was up again in Q4, nearing 45 million sq ft Net absorption returned to positive territory in Q4 Net absorption (s.f.) 40 -10 30 -20 20 -30 10 -40 -50 0 2015 2017 2019 2016 2018 2020 2021 U.S. Office Overview The U.S. office market registered positive net absorption for the first time since the onset of COVID-19 during the fourth quarter. Despite the Delta and Omicron variants disrupting many elements of daily life and return-to- office policies still evolving, leasing velocity increased by 9.2% in Q4, lifting full-year leasing volume 14.6% above 2020 levels, while sublease space stabilised and vacancy plateaued in line with hitting an inflection point. At the same time, the broader macroeconomic recovery remained robust, with more than 6.1 million new jobs created over the course of the year, record consumer spending and major legislation introduced surrounding infrastructure investment. Given widespread vaccine availability, the development of new therapeutic treatments and leisure travel trending toward pre-COVID levels, optimism is growing for a continued bounce-back in 2022. Leasing activity rose by 9.2% in Q4 2021, bringing quarterly volumes to 71.3% of pre-pandemic rates. Gross leasing totalled 44.6million sq ft during the fourth quarter, bringing annual activity to 156.9 million sq ft, 14.6% above 2020 levels. Sunbelt markets such as Atlanta, Austin, Charlotte, Dallas, Miami, Nashville, Phoenix and Raleigh led activity, with many of these markets approaching pre-pandemic levels of leasing volume, while larger gateway cities continued to lag. Catalysing these geographies’ faster recovery has been a combination of more affordable housing and office real estate costs, combined with laxer regulatory standards for businesses and other positive quality of life attributes, such as shorter commutes and less congestion. Major tech, financial and professional services firms are now routinely setting up satellite campuses and even relocating their headquarters in some cases in these markets, seeking to not only reduce costs but also capture migrating talent. Tech remained the dominant leasing driver to wrap up 2021, representing 21% of quarterly activity. Big tech continues to be responsible for many of these gains, most notably with Meta’s (formerly Facebook) suite of leases in Silicon Valley, the San Francisco Peninsula and Seattle totalling 1.1 million sq ft. Finance, law firms and insurance tenants also leased more than 1 million sq ft each during the quarter, while life sciences outperformed once again and became the sixth-largest industry by deal volume. Across sectors, leases larger than 100,000 sq ft grew significantly faster than the market as a whole, rising by 46.6% over the quarter and representing 43.6% of activity. Additionally, another increase in deals longer than 10 years is underlining growing momentum from major tenants, leading term lengths to rise for a fourth consecutive quarter to 7.8 years on average. With 5.4 million sq ft of net occupancy growth, absorption was positive for the first time since the onset of the pandemic. Leading this were secondary growth markets, which saw a combined 2.6 million sq ft of expansion, with Seattle, Boston and New York also rebounding and the remaining gateway markets reporting slower negative net absorption than in previous quarters. Flight to quality accelerated once again in the fourth quarter, with buildings delivered since 2015 now recording more than 51 million sq ft of occupancy gains since Q2 Independent Market Report By JLL as at 31 December 2021