Manulife US REIT - Annual Report 2021

MANULIFE US REIT 64 • Portland has one of the lowest unemployment rates on the West Coast of 3.2%, as it remains more insulated from the worst economic effects of the pandemic. Migration from higher-cost markets is helping to more quickly recover lost jobs. • The Sunset Corridor has been slow to rebound from the pandemic, with relatively light leasing and sales activity, but is well positioned over the long-term due to the presence of major anchors such as Intel and Nike. • Only one project is under construction and entirely pre-leased. With an inherent lag for new supply to be approved, break ground and deliver, proactive repositioning will help assets in the submarket to remain competitive. Office Market Trends The Sunset Corridor rounded off 2021 in a similarly slow fashion as 2020, albeit with a slowdown in the rate of occupancy loss and increase in vacancy. The submarket remains better positioned from a statistical perspective than during the previous downturn, but faces challenges with respect to competition with the CBD and premier suburban locations such as Lake Oswego as well as ageing office product and connectivity. Only one lease larger than 50,000 sq ft took place during the second half of the year, with Planar renewing 72,242 sq ft at 1195 NW Compton Drive. A sublease from Q5id and expansion by Skyworks rounded out notable leasing in the submarket this quarter, but activity is still well below pre-pandemic levels. However, the broader Portland Overall market statistics Forecast YTD net absorption (s.f.) -1,846,552 Under construction (s.f.) 860,400 Total vacancy (%) 18.6% Sublease vacancy (s.f.) 664,653 Asking rent ($ p.s.f.) US$34.04 Concessions Stable Vacancy continues to rise, but still below 2010 high 0.4 30% 10% 20% 0% 0.2 0.0 -0.2 -0.4 2008 2009 2012 2013 2016 2017 2010 2011 2014 2015 2018 2019 2020 2021 Net absorption (m.s.f.) Total vacancy (%) The Sunset Corridor has no speculative space underway 2022 2024 2023 2025 Sunset Corridor Rest of market 85,047 275,767 499,586 2008 2009 2012 2013 2016 2017 2010 2011 2014 2015 2018 2019 2020 2021 Cap rates have flatlined at just above 6% 9% 8% 7% 6% 5% 4% CBD Class A cap rate (%) Portland (Sunset Corridor) Table refers to overall market, while charts refer to Manulife submarkets Independent Market Report By JLL as at 31 December 2021