Property Market Overview 1st Quarter 2010

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1 c o l l i e r s i n t e r n at i o n a l p h i l i p p i n e s m a r k e t ov e rv i e w A p r i l Property Market Overview 1st Quarter 2010 Market Indicators EXECUTIVE SUMMARY Property Indicators: A Better Year Exports improved by 42% in the first two months to put the economy on track to achieve a 4% GDP growth this year. Inflation in 1Q10 are also within expectations despite rising oil prices in the world market. traditional office users remains anemic. By contrast a significant uptick in expansion demand from BPO locators was experienced in the first quarter - continuing acceleration experienced since mid Residential: Rents Stable, For Now OFFICE LUXURY RESIDENTIAL RETAIL trends 4q09 1Q10 Implied land values in the major business districts were steady in the first three months of the year as the rental market stabilized. The number of HLURB licenses issued continues to decline with the 12-month moving average as of 1Q10 standing at 88,180 units, down from its peak at 128,042 units a year earlier. Office: Correction Hits Trough No new office buildings will complete in this year, with only 150,000 sq m expected to complete in other Metro Manila locations. This compares with new supply of +500,000 sq m in both 2008 and 2009 and illustrates the impact of project deferment decisions. Four residential condominiums are scheduled to complete in this year, but the supply pipeline is even stronger in other Metro Manila submarkets, particularly Bonifacio Global City. While new developments in the pipeline will increase pressure on rents and occupancy, 1Q10 vacancy rates remain encouraging. Renewed demand from expatriates is supporting the luxury residential rental segment. Average rents for luxury 3BR units in the are so far stable, but expectations point to long run adjustments for rental rates due to the affordability of pre-selling projects and the growing supply of condominiums in many business districts across the capital. Rents remained stable through the first quarter. Many landlords are now looking to withdraw incentives and rates are expected to begin to trend upwards with full year rental growth expected at 5% - 10%. is expected to lag in the recovery as expansion demand from

2 Retail: Prepping Up for REIT The office sector is finally on an uptick as expansion demand continues to pick up in the last six months. There is an optimism that this positive trend will persist in the next twelve months, and industry players are quick to acknowledge and to take advantage of this momentum. At an aggregate of five million sq m, malls in Metro Manila account for 70% of the entire mall stock in the Philippines. Although only one major mall project, SM Novaliches, is expected to complete this year in Metro Manila, there are various provincial developments in the pipeline. M e t r o M a n i l a - w i d e m a l l v a c a n c y continues to fall and is now at 8.9%. Strong take-up from non-traditional mall locators should continue to boost demand for retail spaces. Motor manufacturers and distributors had a great first quarter, with a 36% increase in vehicle sales, especially in the commercial segment. Remittances were also strong, increasing by 7.7% in January-February behind the strong deployment of OFWs abroad. economic indicators Gross National Product Gross Domestic Product Personal Consumption Expenditure Gov t. Expenditure Investments Exports Imports Agriculture Industry Services Inflation Budget Deficit (billion Pesos) P:US$ (Average) Average 91-Day T-Bill Rates % 6.2% 5.8% 1.4% 7.2% 14.4% 5.8% 5.3% 4.7% 7.6% 5.5% P187.1 P % 5.6% 5.0% 4.9% 4.0% -6.0% 4.2% 2.4% 1.8% 4.9% 6.4% 7.6% P146.8 P % 6.1% 5.4% 5.5% 6.1% 2.7% 11.2% 1.9% 3.8% 4.5% 6.7% 6.2% P62.2 P % 7.8% 7.3% 6.0% 10.0% 9.3% 3.1% -5.4% 5.1% 6.6% 8.7% 2.8% P12.4 P % 6.2% 3.8% 4.7% 3.2% 1.7% -1.9% 2.4% 3.2% 4.9% 3.3% 9.3% P68.1 P % 3.0% 0.9% 3.8% 8.5% -9.9% -14.2% -5.8% 0.1% -2.0% 3.2% 3.2% P270 P % Source: National Statistical Coordination Board 2 Colliers International

3 ECONOMY The year started with favorable indicators pointing to better economic performance for the remainder of Election-related private consumption and the notable growth in exports should put the economy back on track. For the first two months of the year, exports rose by 42% to US$7 billion compared to less than US$5 billion in the same period last year. Electronic sector exports grew by 50%. On the flipside, export growth may temper as the peso continues to strengthen with some analysts expecting a move towards P43:US$1.00. Despite world oil prices rising again to US$80 per barrel, local inflation rates were contained for the first three months of the year. March and April inflation rates are both 4.4%, which is within the BSP target range of 3.8% to 4.8% for the two months. However, JPMorgan notes that year-on-year inflation will likely continue its upward trajectory, and expects inflation to peak at 6.5%. leaving annual inflation forecast at 5.3%. LAND VALUES Implied land values in the marginally declined to P270,000 per square meter as commercial rents reached its trough. This translates to an accommodation value of P17,000 per developable sq m. Expect land values to correct towards June, after which prices become stable as interests for Makati properties pick up. On the other hand, land values in Ortigas Center is at P120,000 per sq m with accommodation values ranging from P10,000 to as high as P14,000 per developable sq m. Bonifacio Global City (BGC) lots are still priced at an average of P14,000 per developable sq m, but might increase by 3% to 5% over the next 12 months due to incessant demand for lots in this area. This is further supported by the fact that infrastructure works at North Bonifacio are almost complete. and Ortigas Center Average Land Value comparative land values Peso/sq m 1Q10 4Q09 % Change 1Q11F % Change makati cbd 258, , , , % 252, , % ortigas center 91, ,000 92, , % 92, , % Colliers International 3

4 hlurb License to Sell (Cumulative) UNITS Jan - Mar Jan - mar % Change Socialised Housing Low Cost Housing Mid Income Housing High Rise Residential Commercial Condominium Farmlot Memorial Park Industrial Subdivision Commercial Subdivision Total (Philippines) 11,986 17,000 6,405 9, , ,419 13,486 13,481 14,753 11, , , % 26.1% -56.6% -21.6% -81.7% 161.1% -83.6% 0.0% 49.5% -55.8% Source: Housing and Land Use Regulatory Board LICENSE TO SELL For the first quarter of the year, a total of 57,419 units received licenses to sell issued by the HLURB. This represents a 56% decline in the number of units compared to the same period last year. This decline is expected as HLURB licenses to sell represent a lagging indicator of the number of projects launched in the last six months. The drop in licenses issued reflects the wait-and-see attitude of developers and real estate builders even through the second half of 2009 after a lackluster first half performance of the residential and commercial sectors. The moving 12-month average number of licenses issued has been on a decline since its peak of 128,042 units in 1Q09 to 88,180 units in 1Q10. HLURB License to Sell 12-Month Moving Average The number of high rise residential condominiums registered as of March 2010 continued to decline by 21.6% to 9,374 units from 11,959 units in the same period a year before. Some of the notable projects during this period include One Shangri-La Place, One Central, Circulo Verde, Avida Towers Alabang, and ADB Avenue Tower. For 1Q10, the socialized housing segment received licenses to sell for 11,986 units, fewer by 11.1% compared to the same period last year. On the other hand, the low cost housing segment received licenses for 17,000 units. Projects in this segment include Greenplace Homes with 541 lots in Imus, Cavite, Lessandra Bacoor 3 with 367 units in Bacoor, Cavite, and Metroville Complex with 363 units in Binan, Laguna. forecast office supply Source: Housing and Land Use Regulatory Board OFFICE SECTOR Supply While more than a million square meters of new space was added to Metro Manila s office inventory in 2008 and 2009 only 180,000 sq m of new space will complete this year. No completions are anticipated in the this year with developers focusing on other sub-markets, notably Fort Bonifacio. As at end 2009 there was some 500,000 sq m of vacant office space in the Metro Manila market but this will be readily absorbed over the next 18 months. This has encouraged developers to bring forward new and deferred projects and the recent increase in ground-breakings is expected to accelerate through Location End Makati cbd 2,699,696 57,353 ortigas 1,095,623 45,396 Fort bonifacio 413,020 72,673 83,793 49,920 eastwood 220,103 32,876 39,840 35,765 alabang 234,305 27,701 OTHERs* 657,012 60,000 total 5,319, , , ,038 *Manila, Pasay, Mandaluyong, Quezon City 4 Colliers International

5 Office Supply and Demand vs metro manila Office STOCK Demand As expected, demand continued to pick up in the first three months of Inquiries for expansion, particularly in the business process outsourcing (BPO) sector increased threefold in 1Q10 compared to the same period last year. Vacancy levels in most sub-markets fell but only marginally in the where Premium Grade building vacancy remains at 12% due to anemic demand from traditional office users. For 1Q10, Grade A vacancy eased to 7.1% from 8.9% in 4Q09. Grade B vacancy on the other hand inched higher to 6.2% from 6% last quarter. Office VACANCY RATES The total net take-up for the first quarter in is 7,389 sq m, up from -12,427 sq m in 4Q09 and 3,000 sq m in the same period last year. Rents Average rents in were stable through Q1 2010, ending a period of six successive quarterly declines from mid As would be anticipated at this point in the cycle, with the more positive outlook for business prospects this year up-grading demand is beginning to come through. This is principally focused on new buildings outside the. Landlords are now looking to reduce tenant s incentives in all locations and this should lead to rents beginning to track upwards in the near term. Overall rental growth of 5% to 10% is expected in 2010, with the at the lower end of the range. Office RENTS (based on net usable area) Comparative Office Vacancy Rates 1Q10 4Q09 1q11F Premium 12.00% 12.11% Grade A 7.07% 8.86% Grade B & Below 6.20% 6.04% All Grades 7.05% 7.32% 5.76% Colliers International 5

6 NOTABLE LEASING DEALS BUILDING AREA TENANT SIZE (SQ m) 8 Park Avenue B Fort Legend Towers Tara Building 6750 Ayala Avenue McKinley Hill BGC Makati UST Global (Software-IT) Chinatrust (Banking/Financial) Landbank (Banking/Financial) NV Besix SA (IT-BPO) 2,130 4, ,100 Comparative Office Rental Rates (based on net useable AREA) PESO / sq m / MONTH 1Q10 4Q09 % Change 1Q11F % Change Premium % % Grade A % % Grade B % % As of 1Q10, average rent in Premium Grade offices was relatively unchanged at P790 per sq m monthly (per net useable area). The same goes for Grade A and Grade B offices which are virtually unchanged at P630 per sq m and P415 per sq m, respectively. Office CAPITAL VALUES Capital Values Tracking changes in rental rates last year, capital values marginally declined. For 1Q10, capital values for office spaces declined by less than 1%. Premium Grade offices are currently priced at an average of P98,000 per sq m. Grade A office capital values on the other hand maintains its current price at P74,000 per sq m and Grade B capital values stand at P52,000 per sq m. Expect minor changes in office capital values over the next 12 months as rental growth looks less promising in compared to other locations in Metro Manila. Comparative Office capital values (based on net useable AREA) PESO / sq m 1Q10 4Q09 % Change 1Q11F % Change Premium 89, ,261 91, , % 92, , % Grade A 63,000-85,000 65,465-83, % 65,650-89, % Grade B 44,000-60,000 44,538-60, % 45,000-61, % 6 Colliers International

7 Residential Condominium Stock Residential Supply and Demand RESIDENTIAL SECTOR Supply Four residential condominiums are scheduled to complete in Makati CBD this year. These are Ayala Land s Residences at Greenbelt (San Lorenzo) and The Columns at Legaspi, Century Properties Grand Soho Makati, and Megaworld s Greenbelt Chancellor. By the end of this year, the total residential condominium stock in the CBD will be 13,466 units. Over 6,000 new condominium units will complete in the in the next four years alone. On the other hand, the supply pipeline for residential developments remain the strongest in Bonifacio (BGC and McKinley Hill) with more than 8,000 units expected to complete until Ortigas Center will have around 2,500 new condominium units over the next three years. Expect more condominium developments to pour in as developers continue to beef up their project portfolios to take advantage of strong demand moving forward. Rents As of 1Q10, average rents for luxury 3BR units in is virtually unchanged at P540 per sq m or P135,000 monthly for a 250-sq m unit. It should be noted however that newer condominiums like Shang Grand Tower and The Residences at Greenbelt charges much higher on a per sq m basis, but only a few units are greater than 250 sq m. The luxury 3BR market is primarily driven by demand from expatriates who have started looking at bigger units again. Residential Vacancy Rates Demand Vacancy in residential condominiums improved further to 6.9% in 1Q10 from the previous quarter s 7.5%. The lack of new supply, coupled with increasing demand from expatriates, supported the decline in vacancy rates particularly for luxury condominiums. On the flipside, this situation may change after the completion of new condominiums; new supply in the rental and secondary market is expected to push vacancy levels back to 8% to 9% in the next 18 months. Residential Condominium Stock units 1Q10 4Q09 % Change 1Q11F % Change Luxury 5,420 5, % 6, % Others 6,595 6, % 6, % All Grades 12,015 12, % 13, % Colliers International 7

8 forecast Residential new supply LOCATION Total Makati cbd - 1,451 2, ,141 5,999 rockwell - 1, ,971 fort bonifacio 1,964 1,823 3,154 1, ,201 Ortigas 1, , ,692 eastwood ,694 total 3,452 5,626 7, ,557 Average rents in Rockwell Center, on the other hand, is currently at the rate of P680 per sq m or P153,000 per month for a 225-sq m unit. Average rates are also steady at Bonifacio Global City where luxury 3BR units are leased at an average of P177,000 per month for a 290-sq m unit. Rents for smaller condominium units in these locations are much more expensive on a per sq m basis, but demand for small units remains thin. It will be interesting to see how rents adjust when more condominium units enter the secondary and rental market in the next 18 months. Capital Values Currently, capital values of existing condominiums in the can be sold at an average of P99,191 per sq m. There are no changes in prices of existing condominiums given that no new developments completed over the past 12 months. As new developments complete, expect average capital values to improve by 3% to 5%. Comparative Residential Vacancy Rates 1Q10 4Q09 1Q11F Luxury 4.4% 4.8% Others 8.9% 9.8% All Grades 6.9% 7.5% 8.1%, rockwell, bonifacio global city Prime 3BR Rents Average capital values of condominiums in Rockwell Center is P104,000 per sq m. Newer buildings in the area are pegged as high as P120,000 per sq m. After the completion of One Rockwell, expect average capital values to increase to around P110,000 per sq m, with a high of P130,000 per sq m. Rockwell s newest pre-selling project, Edades, sells for at least P125,000 per sq m. metro manila Comparative luxury 3BR Rental Rates PESO / sq m / MONTH 1Q10 4Q09 % Change 1Q11F % Change Makati cbd % % rockwell % % bgc % % 8 Colliers International

9 Comparative Residential Lease Rates Three-Bedroom, Semi-furnished Apartment Ridge / Roxas Triangle Rental Range Average Size Salcedo Village Rental Range Average Size Legaspi Village Rental Range Average Size Rockwell Rental Range Average Size Fort Bonifacio Rental Range Average Size minimum average maximum % Change (YTD) 50, , , , , , , , , , , , , , , % 0.93% 1.76% 1.35% 0.00% As of 1Q10, capital values of existing residential condominiums in Bonifacio Global City remains unchanged at P101,600 per sq m. With six new condominium towers expected to complete this year, average capital values should increase gradually over the next 18 months., rockwell, bonifacio global city luxury 3BR CAPITAL VALUES More residential projects are expected to be launched this year as demand picks up. On a per square meter basis, condominium units in Metro Manila are becoming much more expensive, but in terms of total contract price (sometimes starting at P1.5 million) pre-selling condominium units are still affordable. Moreover, pre-selling units are seen to be more affordable due to the low interest rate environment and attractive payment terms. This buying trend will continue and while developers are at it, expect more residential developments targeting all segments of the market to continue. Metro manila Prime 3BR Capital Values PESO / sq m 1Q10 4Q09 % Change 1Q11F % Change makati cbd 67, ,469 67, , % 71, , % rockwell 90, ,874 90, , % 92, , % bgc 84, ,860 84, , % 87, , % Colliers International 9

10 RETAIL SECTOR Supply With more than 70 malls, the stock of retail malls in Metro Manila currently stands at 4,999,186 sq m. This accounts for 70% of the total stock in the Philippines. Although only one major mall project, SM Novaliches, is expected to complete this year in Metro Manila, there are various provincial developments in the pipeline. We anticipate more mall developments outside the country s capital to accommodate the rising demand for retail spaces in major cities across the country. Dominated by the big three mall developers (SM Prime, Robinsons, and Ayala), the retail segment is primed for REIT listing this year. Their steady income stream makes mall assets a perfect fit for REIT vehicles. By the end of this year, SM Prime will be operating 40 malls across the country, and they will be using the REIT to raise more funds for developments. Robinsons Land and Ayala Land are also poised to take advantage of the new REIT law for their own expansion plans. Metro Manila Retail Vacancy 1Q10 4Q09 1Q09 metro manila 9.2% 9.2% 13.5% Metro Manila Retail Supply and Demand Demand Metro Manila-wide mall vacancy as of 1Q10 is at 8.9%, down from 9.2% at the end The steady decline in vacancy rates shows the continued strong take-up of retail spaces even for newer malls. Demand is expected to further improve, considering the establishment of new local brands and the influx of international chains coming in the Philippines. Non-traditional retail space locators - clinics, activities and lifestyle services - are likewise filling mall spaces. On top of these, there is potential demand from BPO locators in provincial malls. Metro Manila Retail Stock Metro Manila Retail Vacancy Rates Retail Stock Metro Manila sq m 1Q10 4Q09 % Change 1Q11F % Change Super Regional 2,938,562 2,938, % 2,938, % Regional 1,010,294 1,010, % 1,065, % District/Neighborhood 1,050,331 1,050, % 1,050, % All Malls 4,999,187 4,999, % 5,054, % 10 Colliers International

11 Comparative Effective Retail Rents PESO / sq m / MONTH 1Q09 4Q09 % Change 1Q11F % Change ayala center 1,120 1, % 1, % ortigas 1,030 1, % 1, % Rents Average rents for Ayala Center in are currently at an average of P1,120 per sq m, up from P1,100 per sq m in December. On the other hand, malls in Ortigas Center charges an average of P1,030 per sq m monthly for mall retail spaces. Smaller retail spaces are usually a bit pricier at around P1,500 per sq m especially in prime mall locations. OFW Remittances Spending Indicators For the first three months of the year, vehicle sales grew by 36% year-on-year to record 38,711 units sold. The Chamber of Automotive Manufacturers of the Philippines (CAMPI) are revising current sales growth forecasts and assumptions to incorporate the positive results in 1Q10. Certainly, the market is more confident this year, as commercial vehicle sales increased by 40% to 25,701 units, accounting for almost 70% of the entire number of vehicles sold for the period. This indicates how perceptions have turned positive and how consumers have responded to improving economic conditions - which in turn can be an indication of how well the residential and retail markets will perform this year. Overseas Filipino Worker (OFW) remittances grew by 7.1% yearon-year to US$2.8 billion for the first two months of this year compared to US$2.5 billion in the same period last year. Growth is still supported by the steady deployment of Filipino workers *As of February 2010 Source: Banko Sentral ng Pilipinas which also grew by 15% and reached 1.44 billion last year. Continued increase in access to formal remittance channels also helped boost the remittances figure. OFW remittances are expected to grow by more than 10% this year. Quarterly Vehicle sales OFW Deployment Source: Chamber of Automotive Manufacturers of the Philippines Inc. Source: Philippine Overseas Employment Agency, National Statistical Coordination Board For more information about this topic please contact our Research or Consultancy and Valuation. You may log on to our website at Colliers International 11

12 Notes: 294 offices in 61 countries on 6 continents USA 94 Canada 22 Latin America 17 Asia Pacific 64 EMEA 97 Revenue in 2008 Over US$1.6 billion Property Management 1.1 billion sq ft 12,700 Professionals Contact information philippines: Ramon Jose E. Aguirre Research Manager 10F Tower 2 RCBC Plaza Ayala Ave. Makati City, Philippines 1226 Tel: ext rj.aguirre@colliers.com David A. Young Managing Director 10F Tower 2 RCBC Plaza Ayala Ave. Makati City, Philippines 1226 Tel ext david.a.young@colliers.com This report and other research materials may be found on our website at Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. Colliers International is a worldwide affiliation of independently owned and operated companies.