Second Quarter Asia Pacific Property Digest

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1 Second Quarter 21 Asia Pacific Property Digest

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3 On Point Asia Pacific Property Digest Second Quarter 21 3 Dear Reader, Property market fundamentals continue to improve across Asia Pacific, underpinned by stronger economic conditions and business confidence. Take up of space is strengthening and more markets have moved to the upturn phase of the rental cycle. Capital values started to recover earlier than rentals and are now increasing in most markets. Feature commentaries in this edition of the Asia Pacific Property Digest include an inaugural article by Alastair Hughes, Asia Pacific CEO for Jones Lang LaSalle, as well as topical articles on the property markets in China, Seoul, Bangkok and Australia. In addition to our regular market coverage, featured markets this quarter comprise Osaka, Qingdao and Pune office; Manila, Pune and Wellington retail; and Taipei industrial. I hope you find this edition of value in navigating the dynamic real estate markets of Asia Pacific. As always, we welcome your feedback. Regards, Dr Jane Murray Head of Research Asia Pacific Feature Articles Asia Pacific Economy and Property Market 4 Asia Pacific CEO Commentary 8 North Asia 1 Greater China 12 South East Asia 14 Australasia 16 Office Tokyo 18 Osaka 19 Seoul 2 Beijing 21 Shanghai 22 Guangzhou 23 Qingdao 24 Hong Kong 25 Taipei 26 Bangkok 27 Ho Chi Minh City 28 Manila 29 Kuala Lumpur 3 Singapore 31 Jakarta 32 Delhi NCR 33 Mumbai 34 Bangalore 35 Pune 36 Sydney 37 Melbourne 38 Brisbane 39 Auckland 4 Retail Beijing 41 Shanghai 42 Guangzhou 43 Hong Kong 44 Bangkok 45 Kuala Lumpur 46 Singapore 47 Jakarta 48 Manila 49 Delhi NCR 5 Mumbai 51 Bangalore 52 Pune 53 Australia Sub-Regional 54 Auckland 55 Wellington 56 Residential Beijing 57 Shanghai 58 Hong Kong 59 Macau 6 Bangkok 61 Kuala Lumpur 62 Singapore 63 Industrial Tokyo 64 Beijing 65 Shanghai 66 Guangzhou 67 Hong Kong 68 Taipei 69 Singapore 7 Sydney 71 Melbourne 72 Cover picture: Bank of China Tower, Hong Kong

4 4 On Point Asia Pacific Property Digest Second Quarter 21 Asia Pacific Economy The Region Continues to Outperform Dr Jane Murray Head of Research - Asia Pacific The regional economy continues to enjoy broad-based growth in both domestic and external sectors. Stronger domestic conditions are feeding through to employment growth in a number of countries including Hong Kong, Singapore, South Korea and Australia, while in China, urban employment increased by around 5 million in 1H1. On the other hand, labour market conditions remain weak in Japan, where a quarter of a million jobs have been lost in the first half of this year. On the external front, world trade volumes have continued to strengthen, and in May were just 3% below the peak level reached in April 28, according to CPB Netherlands Bureau for Economic Policy Analysis. The region is facing some headwinds, however, with mixed signals regarding the health of the global economy. Within Asia Pacific, inflationary pressures have been building in some countries and there is a major focus on China as it manages its growth slowdown to more sustainable levels. Broad based growth across the region China: Real GDP growth slowed to 1.3% y-o-y in 2Q1 from 11.9% y-o-y in the previous quarter. While exports continue to grow strongly, climbing by 43.1% y-o-y in the first half of the year, other indicators have started to slow. The latest Purchasing Managers for July shows that industrial production, while still expanding, has slowed considerably over recent months. Following tightening measures by the government in April, property sales volumes have fallen and the most recent data indicates that the rapid run up in residential prices looks to have come to an end. The State Information Center, a government think tank, expects China s economy to grow by 9.5% in 21, a figure in line with long-term average growth. Japan: Real GDP grew by 5.% q-o-q (annualised) in 1Q1, slightly up on the 4.6% growth in the previous quarter. Economic conditions remain mixed. On the one hand, the latest Bank of Japan Tankan survey indicated that the confidence of large Japanese manufacturers improved for the fifth straight quarter in June. At the same time, retail sales have started to trend down as the boost from the earlier fiscal stimulus measures wanes. Likewise, export growth decelerated to 27.7% y-o-y in June, the lowest this year, largely due to a slowdown in shipments to Europe. The government expects its economy to grow by around 2.6% for the year ended March 211. South Korea: On the back of strong exports and manufacturing, South Korea s real GDP grew 7.2% y-o-y in 2Q1, following 8.1% growth the previous quarter. The central bank currently expects the economy to grow by 5.9% in 21. Singapore: Preliminary data from April and May indicates that the Singapore economy may have grown by a very strong 19.3% y-o-y in the second quarter, mainly due to a sharp expansion in the manufacturing sector. The government now expects its economy to grow by between 13% and 15% in 21, a major upward revision from its earlier forecast of 7% to 9%. Hong Kong: Real GDP grew by 8.2% y-o-y in 1Q1 due to ongoing strength in the trade sector and consumer spending. The government expects its economy to expand by 4 to 5% in 21 on broad-based strength. Figure 1: Real GDP Growth y-o-y (%) Source: Global Insight Figure 2: Consumer Price Inflation y-o-y (%) Source: Global Insight India Vietnam Indonesia Philippines Thailand Australia China China Singapore India Thailand Malaysia Taiwan Vietnam South Korea Indonesia Hong Kong Philippines Japan Australia New Zealand (July 21 Forecast) South Korea New Zealand Hong Kong Singapore Malaysia Taiwan Japan (July 21 Forecast)

5 On Point Asia Pacific Property Digest Second Quarter 21 5 Key Performance Indicators GDP (%) Short-Term Interest Rate (%) CPI (%) Unemployment Rate (%) Real Private Consumption (%) Industrial Production 29 21F 29 21F 29 21F 29 21F 29 21F 29 21F China Hong Kong NA NA Taiwan Japan South Korea Philippines Singapore Malaysia Thailand Indonesia Vietnam India Australia New Zealand World Source: Global Insight, July 21 India: Growth accelerated to 8.6% y-o-y in 1Q1 from 6.% y-o-y in 4Q9. The manufacturing sector grew 16.3% y-o-y in 1Q1 but the agricultural sector stagnated due to the poor monsoon last year. The central bank expects the economy to grow by 8.5% y-o-y for the year ended March 211. Australia: The economy continues to deliver solid results, with growth of 2.7% for the year to March. The unemployment rate stood at 5.1% in June, down 7 bps from the peak in mid-29. However, growth in retail spending has slowed since November 29, due in part to the diminishing impact of earlier stimulus measures including direct cash payments to households. The central bank currently projects growth of around 3.3% in 21 and 3.8% in 211, expecting business investment to help offset the scaling back in public spending. Most countries have started tightening Inflationary pressure remains high in some countries. In India, headline wholesale price inflation firmed up to 1.% y-o-y in May, while measures of CPI inflation reached at least 13.% y-o-y on the back of high food prices. China s CPI inflation rate slowed to 2.9% y-o-y in June from 3.1% in May, but may increase again over the short term due to the impact of higher food prices. Most regional central banks have started raising interest rates or implemented other tightening measures. The largest increases have been by Australia and India, which have raised rates by 15 bps and 1 bps respectively in the current cycle. Several countries, including South Korea, Taiwan, Thailand and New Zealand commenced monetary tightening in 2Q1. China has raised banks reserve requirements by 1 bps since January, the most recent rise being 5 basis points in May. Solid regional growth for 21 Regional economic growth is on track to be significantly higher this year than the recent historical average. Following growth of 1.6% in 29, the AP economy is forecast to expand by 6.5% this year, compared with global growth of 3.8%, according to Global Insight s latest forecasts in July. For 211, the region is expected to grow by a more moderate rate of 5.2%, in line with average growth. Downside risks to growth remain. Financial markets remain volatile on varying signs regarding the state of the global economy and the Asia Pacific region has a large exposure to any fall in demand for exports from other regions. Closer to home, governments need to carefully manage economic growth and increasing price pressures. Nonetheless, with solid economic results recorded for the first half of the year, Asia Pacific looks set to once again significantly outperform in 21.

6 6 On Point Asia Pacific Property Digest Second Quarter 21 Asia Pacific Property Market More Signs of Recovery Property market fundamentals continue to improve across Asia Pacific, underpinned by stronger economic conditions and business confidence. Take up of space continues to strengthen and in some markets corporate occupiers are finding that space is in short supply. Consequently, the leasing market is turning more in favour of landlords and more markets have moved to the upturn phase of the rental cycle. Capital values started to recover earlier than rentals and have now bottomed in most markets. The investment market was quieter in the second quarter, although the slowdown is expected to be short-lived. More markets move to rental upswing Office sector: In 2Q1, aggregate net absorption of office space across Asia Pacific s Tier I cities increased by 13% q-o-q to 1.3 million sqm. In the major financial centres, contractions in space came to an end with the exception of Tokyo, and returning space is dwindling in most markets. Relocation and upgrading demand continue to underpin the bulk of leasing activity, though there have been more instances of expansion in markets such as Hong Kong, Singapore and the Tier I cities of China and India. With hiring activity now resuming in many markets, expansion demand is expected to strengthen as occupiers position for future growth. Rents are nearing or past the trough in most regional markets, with residual declines in a few centres including Tokyo, Seoul, Taipei and some Indian cities. In 2Q1, net effective rents in Singapore increased for the first time since 3Q8 (+2.9% q-o-q in Raffles Place). Rents in Greater China strengthened further, led by Hong Kong (+9.3% in Central) and Shanghai (+5.5% in Pudong). In Australia, rents have started to recover in a few markets, notably Melbourne CBD where net effective rents have increased by 9.6% in the first half of the year. Looking forward, Hong Kong, Shanghai and Singapore are likely to lead the recovery across the region, with rental increases of between 1 and 3% in 21, and growth momentum is expected to pick up in Tokyo and some Indian markets starting 211. Residential sector: In 2Q1, leasing demand began to pick up in the luxury and high-end residential markets in Greater China and Singapore, but remained subdued in most South East Asian markets. Luxury rents in Hong Kong and Singapore saw the biggest increase of 6-7% q-o-q, while rents in Chinese Tier I cities generally rose by about 2% q-o-q. With corporate expansion resuming and an increasing number of expatriates in markets such as Hong Kong and China, luxury rentals have entered a cyclical upswing with single digit growth expected for most markets over the next 12 months. Hong Kong is likely to see even stronger growth. Industrial sector: in 2Q1, the regional industrial market improved further on the back of encouraging trade and retail sales figures. Retailers and third party logistics operators drove expansion demand for logistics space in Greater China, where rents have started to increase. Singapore has also seen a turnaround in rents for high-tech space. Capital values move upward despite reduced investment activity Investment activity in AP was more subdued in 2Q1 for a variety of reasons including concerns about the impact of tightening measures by China and the lack of large portfolio deals that were a feature of the previous quarter. Direct commercial property transaction volumes for Asia Pacific amounted to USD 16 billion, a decline of 32% q-o-q. However, overall volumes were still up by 24% on a y-o-y basis. Japan, the region s largest investment market, accounted for close to 4% of total volumes, followed by Hong Kong, Australia and Taiwan. Domestic and intra-asian investors continue to underpin the bulk of buying activity. With further improvements in market fundamentals, a renewed uptick in investor activity is expected in 2H1, and transaction volumes are expected to increase by around 3% for the full year compared with 29. Figure 3: Rental and Changes, 2Q1 vs 2Q9 5% 4% Retail sector: In general, improving labour market conditions and stronger consumer confidence are underpinning retailer demand in the region. for new mall space has been especially strong in China as international brands continue to open new stores. As a result, rents were either stable or increased in most retail markets in 2Q1. As in previous quarters, markets in Greater China saw the largest increase in rents (Beijing +4.9% q-o-q, Guangzhou +3.3%, Hong Kong overall +1.8%). Most markets are expected to record positive rental growth over the next few quarters, although most Indian markets are expected to either remain largely flat or post residual declines due to the large supply-demand imbalance. y-o-y change (%) 3% 2% 1% % -1% -2% -3% Hong Kong Shanghai Changes shown are for CBDs Sydney Seoul Mumbai Singapore Tokyo Change Change

7 On Point Asia Pacific Property Digest Second Quarter 21 7 Rental Property Clocks, 2Q1 Grade A Office Prime Retail Guangzhou Hong Kong Growth Slowing Rents Rising Rents Falling Decline Slowing Osaka Kuala Lumpur Seoul Bangkok, Auckland Shanghai, Melbourne Manila Ho Chi Minh City Singapore Chennai^, Bangalore^ Beijing Tokyo, Taipei, Sydney Delhi^, Jakarta, Brisbane Mumbai^ ^ CBD & SBD * For Prime Shopping Malls Growth Slowing Rents Rising Singapore Hong Kong Beijing, Shanghai Guangzhou, Melbourne SE Queensland Bangkok, Manila, Sydney Rents Falling Decline Slowing Tokyo Mumbai Kuala Lumpur, Jakarta Auckland Chennai Delhi, Bangalore Prime Residential Industrial Bangkok Growth Slowing Rents Falling Growth Slowing Rents Falling Rents Rising Decline Slowing Kuala Lumpur Rents Rising Decline Slowing Hong Kong Beijing, Singapore Shanghai Manila *For High-end Residential Properties Jakarta Beijing Brisbane Shanghai, Singapore (High Tech), Tokyo, Sydney Hong Kong Melbourne Singapore (Conventional) *Business Parks (Singapore) Logistics Space (Hong Kong, Shanghai, Beijing, Tokyo Bay Area) Most major markets outside of North Asia saw either stable or increasing capital values in 2Q1. Tier I cities in Greater China registered the largest price gains over the quarter, notably Guangzhou (+9.6% q-o-q), followed by Hong Kong (+7.9% in Central) and Shanghai (+7.4% in Pudong). Capital values in Singapore (Raffles Place) increased by 5.9% q-o-q, and values in Melbourne CBD rose 2.9% q-o-q. Looking forward, capital values are expected to grow largely in line with rentals in 2H1 as investors have already priced in strengthening rentals. Further improvement in fundamentals and activity levels expected Although there is still a degree of uncertainty regarding the economic and financial backdrop, property markets in Asia Pacific are expected to record further improvement in fundamentals and activity levels over the rest of 21. With further strengthening in leasing demand, rental growth should pick up over the rest of 21, with growth accelerating from 211 onwards. Capital values are expected to increase further, largely in line with rentals over the short term. About the Author Dr Jane Murray joined Jones Lang LaSalle in 1998 and in 25 was appointed as Head of Research - Asia Pacific. In this role, Jane leads a team of over 1 professional researchers in the region, which forms part of a network of around 3 researchers in 6 countries around the globe. The Asia Pacific Research team produces a range of outputs to assist the clients of the Firm with their decision making, including comprehensive market monitoring and analysis across major institutional-grade real estate markets in the region; forecasts of key real estate indicators; consultancy projects; thought leading research papers on topical issues as well as regular publications.

8 8 On Point Asia Pacific Property Digest Second Quarter 21 Investment Markets Pause Despite Improving Fundamentals Investor sentiment weakened in Q2 as investors tried to assimilate the issues confronting Europe and America and assess the impact of a managed slowdown in China. Asia Pacific saw a 32% decline in investment transactions on Q1 as buyer caution met seller resilience. However, compared to the second quarter of last year, Q2 total investment volumes were up by 24%, with most of the markets in Asia Pacific recording an increase (see chart). We do not believe the current pause will last long as there are too many loans in play that need a solution and too much cash looking for a home. In Hong Kong business growth is meeting limited supply in the CBD and so far this year rents are up about 13%. Our team there engineered two of the largest moves for AXA and ING totaling over 45,-sq ft. AP Commercial Real Estate Investment Volumes: 2Q1 vs 2Q9 698% 117% 64% 181% 31% 27% 66% 46% 21% 47% US$ billion Figures exclude transactions below USD 5mil and land acquisitions, July 21 2Q9 2Q1 35% The underlying rental fundamentals in most Asia Pacific markets are compelling and we have seen the net absorption of quality space increase by 13% compared to Q1. This steady demand is relentlessly soaking up supply of the better space in the office markets. The majority of businesses are moving in order to consolidate their operations and to pick up good quality space at a good time in the rental cycle, a smaller number are moving for expansion purposes. Gradually rising demand and falling supply has led to a floor being reached in most rental markets and many have now turned the corner, a few examples: 12, sq ft of transactions carried out on behalf of ING, including the relocation of 6% of ING s regional business totalling 7, sq ft from Hong Kong s Core Central to the International Commerce Centre in Kowloon West In Singapore the rental market has stabilised and prime office rents rose nearly 3% in Q2. There is a flight to quality and much of the new stock is pre-committed. Our team helped complete the largest deal of the year in the city: for ANZ, a 2,-sq ft relocation to the Ocean Financial Centre.

9 On Point Asia Pacific Property Digest Second Quarter 21 9 The Shanghai market faces significant supply but rents are rising because much of the Pudong pipeline is already pre-committed. We recently helped UOB complete a 54,-sq ft relocation and DBS to find 14,-sq ft premises in Shanghai. The markets in Australia remain relatively well balanced, with strong take up of space during the last twelve months. In Melbourne, one of the first Australian markets to see rents recover, we completed 177,-sq ft of leasing deals at the Melbourne Central Tower with Members Equity Bank and Allianz Australia. Asian buyers currently dominate the market, often because they have fewer legacy issues from the debt fuelled spending spree of 27. If fundamentals continue to improve, it won t be long before more international money wants to join the party. Our expertise is matching buyers with sellers and sourcing global capital and we are confident that there will be plenty of activity between now and the end of the year. With occupational markets on a sound footing and the investment markets poised for growth Q3 will be interesting. Market fundamentals support a reasonably positive outlook and I am sure that investors will increasingly want to get involved. Despite a reduction in overall investment volumes in Q2, our teams were very active in the market and closed over 1 capital market transactions including a large retail investment in Taiwan, the largest business park ever sold in China, a record price achieved for a prime residential lot in Hong Kong and one of the largest investment sales in Seoul this year. Alastair Hughes CEO, Asia Pacific 48, sq ft, 13-storey retail building located in the prime Ximending shopping area of Taipei, sold to Asia Pacific Land, a leading Hong Kong based private equity fund for USD 95 million

10 1 On Point Asia Pacific Property Digest Second Quarter 21 Impacts of Mega Projects in Seoul Darren Krakowiak Head of Tenant Representation and Research Jones Lang LaSalle Korea Many Asia Pacific office markets experienced a slowdown in construction activity during the Global Financial Crisis (GFC). However, in Seoul the construction pipeline has continued to expand over the past 18 months, albeit with delays in a small number of projects. There are currently 24 new prime and Grade A projects in Seoul s three main business districts slated to complete construction between now and 214, representing a 41% increase on current stock levels. Construction of new projects has remained resilient in part because of the relatively benign impact on the availability and continuity of financing in Korea during the global credit crunch, and the solid financial position of Korea s major conglomerates and their engineering and construction divisions. Most of Korea s large firms still have strong balance sheets to finance projects and have demonstrated resilience to the economic downturn through rebounding requirements for office space, giving developers of new projects confidence that new space will be absorbed. Other factors that have driven the ongoing construction include the need for global-standard office accommodation in Seoul and the spurt in the finalisation of long-running site assemblies earmarked for development. The consolidation of small land parcels in prime areas into larger development sites takes considerable time, adding to the eagerness for construction to kick-off once the long process has been completed. Considering these large sites, there are eight mega projects (i.e. developments containing more than 1, square metres of office space) currently under construction in the Seoul CBD and Yoido. These mega projects will be in a league of their own and will influence the on-going evolution of the Seoul office market and occupier trends. New projects will have technical and environmental specifications, and integrated facilities, which will lift the overall quality of prime buildings in Seoul. For example, these projects will have certified green building ratings, advanced HVAC systems, more generous floor-to-ceiling heights and raised floors. They will also have a higher provision of car parking and elevators in proportion to office space. To analyse the existing and new product, this paper considers the two most prominent projects that fit the description of a mega project, namely Center 1 in the CBD and the International Finance Centre (IFC) in Yoido, and compares them with the five best prime buildings currently in the Seoul CBD (see Table 1). Table 1: Existing Buildings vs New Buildings Existing Buildings* New Buildings** Ceiling Height (m) Provision of Passenger Elevators 9 1 (Number of Elevators per 1, pyung) Provision of Car Parks (Number of Car Parks per 1, pyung) * Best five prime office building in Seoul ** Includes Center 1 and SIFC (One IFC)

11 On Point Asia Pacific Property Digest Second Quarter Moreover, both Parc 1 and IFC will contain a global-brand hotel and western-style shopping malls within an integrated mixed-use development. Center 1 will not contain a hotel, but will include four levels of retail. None of the five best existing prime buildings in the Seoul CBD contain a hotel and all only have a relatively small provision of retail facilities, typically limited to food & beverage and/ or a book store. The demonstrable advantages that new projects will have in meeting occupiers increasingly sophisticated requirements should encourage owners of existing CBD buildings to consider upgrading their assets. While a handful of major CBD buildings have undergone major refurbishments in 29/21 (such as Seoul Square and Kyobo Life Building), the majority have not seen any major capital improvement in over a decade. This is understandable given the low vacancy rate in recent years (i.e. average vacancy in Seoul CBD was 2% between 25 and 28), which provided little incentive for landlords to upgrade their buildings. However, in the face of new competition and rising office vacancy, owners of existing prime buildings that do not upgrade their buildings could see their rentals fall, due to the gap between the quality of their buildings and new developments. Furthermore, tenants may move to new buildings as they take part in a broad flight to quality as their evolving needs are not being met in their current location. Another possible impact of these new projects is the migration of some large tenants from the CBD to Yoido. Although Yoido currently lags the Seoul CBD in terms of the overall provision of quality office space, amenity for office workers and a critical mass of tenants, this will change. The new mega-projects in Yoido, such as IFC and Parc 1, will provide new hotels, restaurants and retailing to the precinct, greatly increasing the quality and quantity of amenities. The building specification of new developments in Yoido will redress the current lack of quality office space that meets the standards of MNCs. As more tenants are attracted to these projects by competitive rentals and potential tax incentives from the Seoul Metropolitan Government, a critical mass of tenants will emerge. Other factors such as the location of Financial Supervisory Service, the Financial Services Commission and the Seoul stock exchange in Yoido, the already strong presence of domestic securities and asset management firms, and improvements in transport infrastructure will further add to Yoido s growing attractiveness for occupiers, particularly those in the finance sector. Currently, no large CBD occupiers have announced their intention to relocate to Yoido (although some are understood to be considering the move). This means that some landlords in the CBD have not considered the prospect of existing tenants moving to Yoido as a serious risk to their occupancy profile. Nevertheless, landlords in the CBD should view their tenants as an increasingly valuable commodity in a market with increasing office supply. Even if Yoido is not considered a threat to some landlords, the significant amount of new space in the CBD means there is a risk of tenants relocating within the CBD. Jones Lang LaSalle expects to see forward-looking landlords undertaking new strategies to retain and attract tenants, beyond the current strategy which is typically limited to offering incentives in the form of rent-free periods. While the long-term success of Yoido as an increasingly important business district within Seoul seems assured, given its strong support from the Seoul Metropolitan Government, this does not necessarily have to be a threat to landlords in the CBD. Building improvements, other forms of incentives and active management of tenancy lists are some ways in which existing landlords can limit the impact that new supply will have on their assets. About the Author Darren Krakowiak is the Head of Tenant Representation and the Head of Research at Jones Lang LaSalle Korea. He moved to Seoul in 27, after joining the Firm s Melbourne office in 25. Darren has nine years of experience in providing occupiers and investors with strategic real estate advice.

12 12 On Point Asia Pacific Property Digest Second Quarter 21 Will China s Residential Policy Drive a Shift in Capital Allocation? Michael Kilbaner Head of Research, China Will restrictive policies on investment in China s Residential market drive capital into Commercial assets? On April 15th China unveiled the most restrictive residential property market policies yet seen in order to arrest the further increase of home prices across the country. In particular, the down-payment requirement for buyers of apartments larger than 9 sqm was increased from 2% to 3% and for buyers of second and additional homes from 3% to 5% or 6%. Two days later, focusing specifically on limiting buyers of multiple homes, the Central government announced that in cities experiencing rapid price appreciation, banks could cease making mortgage loans to buyers of third homes or more and also to buyers who were unable to provide evidence of having paid income or social welfare taxes in that city for the prior year. The Central government has also made local officials and banks accountable for controlling the market and as a result we have seen many cities and provinces announce their own local action plans for implementing the new policies and stopping the rise in home prices. In the months that have followed these and earlier moves to tighten policy in December and January, the market has plunged into a wait-and-see period that is notable for the dramatic decline in transaction volumes. In Shanghai for example, primary sales transactions are at 5 year lows, down 6% year to date compared to 29 (Figure 1). Looking forward, we expect to see an increase in transaction volumes in 2H1 driven by an increase in launches of new residential projects after the record level of construction starts in 4Q9 and as a result of covenants in some land sales late last year that require developers to begin construction and pre-sale on a quick timetable. We also see the potential for banks to begin making loans more readily available to first time home buyers purchasing small and medium sized apartments. Under official policy, these correct buyers should still be able to receive a mortgage loan with a 2% down payment and a mortgage rate set at a 3% discount to the base lending rate. In practice, however, banks are requiring 25 3% down payments and setting mortgage rates at a 15-2% discount even for these first time home buyers. Permitting the banks to lend to first time home buyers, along with more new project launches should contribute to a rebound in transaction volumes as we move into the second half of the year, even as we expect to see no change, either tighter or looser, in official residential property policy. Given the important role that residential real estate plays in the capital allocation of domestic Chinese investors, in an environment where they have limited investment alternatives, the expectation for residential market policy to remain restrictive for the foreseeable future has many people talking about a potential shift in investment patterns toward commercial real estate assets. If the purchase of Figure 1: Shanghai Commodity Housing Bi-monthly Primary Sales Volume 1,2 1, 8 28 bi monthy sales average: 48,sqm 29 bi monthy sales average: 795,sqm 21 bi monthy sales average: 31,sqm Jan 8 Apr 8 Jul 8 Source: Shanghai Real Estate Trading Center Oct 8 Jan 9 Apr 9 Jul 9 Oct 9 Jan 1 Apr 1 Jul 1 Shanghai Primary Sales Volume (Commodity Housing)

13 On Point Asia Pacific Property Digest Second Quarter multiple residential properties is going to remain restricted by the government, but commercial real estate does not face the same policy headwinds, is now the right time to be looking at buying in the office sector? Relatively attractive commercial property yields While en bloc office property transactions have been executed at 5.5% - 6% net yields this year in Shanghai and Beijing, the strata title office sector investor seems comfortable buying assets at least 1 basis points tighter across Tier II and III cities. But even these tight levels look attractive in comparison to residential investments. Residential property investors who often pay 1% cash for their purchases and then leave them empty think of apartments as an asset akin to gold, i.e. an inflation protecting store of value that does not produce income. These investors have clearly been comfortable with the 2% yields characteristic of China s residential market, so picking up 1 to 3 basis points in strata title office assets may be compelling. Not much evidence yet of increased commercial investment activity According to latest data from the investment bank CLSA (Figure 2), investors made up 16.2% of buyers in China s primary residential market in 2Q1, down from a peak of 22.5% in 4Q9, although still slightly higher than the 15% of buyers that investors represented during the last market nadir in March 28. It s clear that investors have stepped back from the residential market for the time being, as they have in previous quiet periods in the market. But so far the evidence is limited regarding an increase in capital flowing into the commercial property market (Figure 3). On the other hand, there is plenty of anecdotal evidence that domestic Chinese investors are ramping up their buying activity in off shore residential markets such as Hong Kong, Singapore, Sydney, Vancouver, London, and Los Angeles among others. Residential developers are looking to shed non-core office and retail assets to raise cash until residential transaction volumes rebound. We expect to see many of the office assets marketed on a strata title basis to SMEs and individual investors. Those investors will be looking at the relatively better commercial property market policy environment and the more attractive yields in the sector and we think they will ultimately find it compelling due to their limited investment alternatives. Figure 2: Residential Investors Have Moved Back to the Sideline Buyer Type (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Source: CLSA Asia Pacific Markets Figure 3: Monthly Strata Title Office Transactions (Primary Sales) Transaction Volume (sqm) 4, 35, 3, 25, 2, 15, 1, 5, Source: CRIC 19.% 2.5% 22.5% 21.7% 16.2% 2Q9 3Q9 4Q9 1Q1 2Q1 Investors Upgraders First-time buyers Transaction Volume (sqm) - - Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Shanghai (LHS) Beijing (LHS) Tier II City Average (RHS) 7, 6, 5, 4, 3, 2, 1, About the Author Michael Klibaner works with a team of 3 researchers in seven offices in China covering 2 Tier I, II, and III markets across the office, retail, residential, and industrial sectors. With 16 years of business experience, the last 6 in China, Michael has an extensive background in finance and consulting. Michael is the Chairman of AmCham Shanghai s Real Estate Committee and a frequent commentator on China s property markets.

14 14 On Point Asia Pacific Property Digest Second Quarter 21 Bangkok s Evolving Office Market Dan Tantisunthorn Head of Research, Thailand Bangkok s Decentralising Office Market In the two months of protests prior to the dispersion by government forces on 19 May, a core Bangkok office zone faced continued disruption as certain buildings became inaccessible. The political turmoil in which these protests were rooted has persisted for more than four years, a condition that has stifled the demand for office space in a period of prolonged uncertainty. Similar to other markets around the world, the Bangkok office market has also been negatively impacted by the global financial crisis. While the capital has held up through these challenges, several trends have continued to emerge, reshaping the city s office market. Impact of recent demonstrations on CBD office market As certain buildings became inaccessible during 2Q1, occupiers scrambled to find temporary space in buildings across the city. Those that were able to find suitable space were able to carry on with limited business interruption. While occupiers may take into account the risk associated with the part of the CBD impacted by the demonstrations, they are unlikely to relocate for this reason alone. The biggest factors driving such decisions will be affordability and the increasing adoption of the city s mass transit infrastructure. Proportion of Bangkok Office by Zone The CBD as the core grade A office market A common question of visitors and even residents concerns the location and borders of Bangkok s central business district. In fact, borders were drawn decades ago for the city s CBD, largely determined by where multinational companies, embassies, high-end retail and five star hotels have been historically located. This area currently accounts for just 35% of all prime and non-prime grade commercial office supply. The type of buildings that multinationals prefer to occupy is no longer confined within the borders of the CBD. Outer West 2% Outer East 5% Outer North 5% City Fringe North 1% City Fringe South 4% Inner East 7% Inner North 28% CBD South 25% CBD North 1% Central East 13% Research, July 21

15 On Point Asia Pacific Property Digest Second Quarter Mass transit reshapes Bangkok office market Since the introduction and increased public use of the Bangkok Transit System (BTS) skytrain in 1999 and the Mass Rapid Transit (MRT) underground train in 24, the proximity to mass transit stations has become a key consideration in the relocation of many occupiers. There is a strong correlation between rental levels and proximity to such stations. With a scarcity of sites within the CBD and the need to be in proximity to these stations, the development of prime grade office buildings in recent years has moved beyond the existing borders of the CBD. Buildings which exemplify this trend are Interchange 21 and Exchange Tower. Both buildings are in the Central East at the intersection of Asoke and Sukhumvit Roads, which offers both BTS and MRT stations. The Central East has traditionally been considered a secondary office location, servicing primarily residential and retail, but the proportion of office space which is grade A in this district has risen from 41% to 47% since 26. The aforementioned prime grade buildings in this zone have been able to secure multinational tenants, for example, Citibank and ACE Insurance have relocated to Interchange 21. These buildings also command rents above the CBD grade A average, which in turn is 16% higher than overall grade A rents. Another district, the Inner North, actually accounts for the highest density of office space in Bangkok. Occupiers are primarily domestic companies, in industries like telecommunications, banking, energy and manufacturing, and there is a lower proportion of grade A space. However, Thailand s largest energy company, PTT, recently completed the landmark Energy Complex here, and many of PTT s affiliate companies will relocate from other commercial office buildings to Energy Complex. The country s largest asset management company, SCBAM, also relocated from the CBD to its headquarters in the Inner North Another project due to rise in Bangkok s Inner North is the Capital Market Center, which is being developed by AIA in conjunction with the Stock Exchange of Thailand (SET). In addition to housing the SET headquarters, this office complex is conceptually targeted at occupiers from the finance and securities industries and will be located in proximity to the Thailand Cultural Center MRT station. Whether the types of companies being targeted are willing to relocate this far out of the CBD, however, remains untested. Grade A office market will continue to evolve While the overall Bangkok office market last year experienced the first contraction in demand since the Asian Financial Crisis in 1998, demand for prime grade space has remained positive and shown signs of again increasing this year. Weakening overall new demand (and the contraction in 29) has led to a 7% decline in average rents since 29. Occupiers have been able to take advantage of these lower rents, in many cases upgrading to the CBD or other areas of Bangkok from their previous non-prime space locations. With the CBD no longer the only option, multinational tenants will continue to migrate to high-quality office buildings that offer good road and mass transit infrastructure, proximity to amenities, good security and value for money. Summary of Bangkok Market Conditions All Bangkok CBD Grade A Grade A Stock (sqm) as at end million 1.2 million 2.6 million 29 Net Absorption -33, 38,561 63,58 28 Net Absorption 96, ,978 Average Gross Rent as at end-29 (THB per sqm per month) Rent Change (y-o-y) -2.2% -1.3% -3.% Research, July 21 About the Author As Head of Research for Thailand since 26, Dan Tantisunthorn leads a team of analysts in Bangkok producing regular and special local research publications on the Thai real estate markets and economics, and contributes to regional research publications. In addition, Dan undertakes market research, feasibility and consultancy projects for Jones Lang LaSalle Thailand, having led such assignments in Bangkok, Phuket, Koh Samui, Pattaya and Phnom Penh.

16 16 On Point Asia Pacific Property Digest Second Quarter 21 The Australian Office Recovery Profile Dr David Rees Head of Research & Consulting, Australia The cyclical upturn in Australia s office markets commenced early in 21. Supported by a rebound in the pace of economic activity and a revival in investor confidence, sales and leasing activity have increased. Office sales (> AUD 5 million) worth AUD 2.5 billion were recorded in the first six months of 21, compared with AUD 3.9 billion for the full year in 29. A remarkable 45, sqm of net absorption was recorded across CBD markets in the four quarters to June 21, compared with the ten-year average of 245, sqm. The highest level of net absorption for 2Q1 was recorded in Perth (59,5 sqm) followed by Canberra (43,4 sqm) and Sydney (34,7 sqm). Adelaide and Melbourne recorded little change while in Brisbane a negative 2,3 sqm was recorded. The strong overall result stands up well against the background of global financial market volatility and the national debate regarding a proposed new tax on the mining industry which caused some mining companies to temporarily delay expansion plans in Perth and Brisbane. As further evidence of returning confidence by tenants, sublease availability continued to decline in most CBD markets during 2Q1. Against this favourable backdrop, however, the pace and duration of the recovery will vary significantly between office markets around Australia. After almost a decade when Australia s office markets boomed (2 to 27) and then declined (28 to 29) in unison, the key theme through 21 and 211 will be the diversity in the performance of different markets across Australia. and Approximately one million sqm of new construction is forecast to complete across Australia s CBD office markets in the period 21 to 212, equivalent to 6.6% of existing stock. However, the impact of new supply varies across markets with Sydney (3.9%) and Melbourne (2.8%) at one end of the spectrum: Perth (15.6%) and Canberra (16.2%) are at the other. While a significant proportion of this space is precommitted in markets such as Perth, the implication is that trends in vacancy will diverge across markets through 21 and beyond. Adding further impetus to the divergence across markets is the fact that the underlying economies of the CBD markets are forecast to perform differently over the next few years. For example, Access Economics forecasts that the New South Wales economy will grow at an average annual pace of 3.% (21 to 212) while Western Australia will expand by 4.6% per annum. For owners, tenants and potential investors these divergent trends have strong implications for the timing of leasing, refurbishment and construction decisions. It is no longer the case that one size fits all across Australia s office markets. Rents & Incentives Diversity in the supply and demand outlook feeds through into rents, yields and incentives. The Melbourne CBD market recorded 7.% growth in gross effective rents during the first six months of 21, while in Canberra a 5.1% decline was recorded. Broadly, a reduction in incentives is likely to be the key driver of rental growth through 21 and 211. Early in the downturn, tenants were able to negotiate generous incentive deals. As confidence returns to office markets and vacancy rates stabilise, the pendulum is swinging back towards owners and incentives will decline, although the pace of recovery will vary between markets.

17 On Point Asia Pacific Property Digest Second Quarter Figure 1: National CBD Office Markets: Net Absorption & Vacancy (sqm) Vacancy Rate 3, 12% 25, 2, 15, 1, 5, 1% 8% 6% 4% 2% % -5, -1, -2% -4% Net Absorption Vacancy Research Figure 2: National Office Markets Sub-Lease Vacancy Sub-Lease (% Total Stock) 4% 3% 2% introduce an added element of uncertainty into decision making and provide a reason for tenants and landlords to delay decisions. Therefore we may see a temporary slowdown in the pace of activity in office, and other real estate, markets around Australia over the first half of 3Q1. The long term outlook, however, is positive. Two years ago most real estate owners and investors in Australia were preparing for one of the sharpest market downturns in decades. In fact, the recent downturn has been one of the mildest, comparable with the experience of the early 198s cycle. Overall, CBD office vacancy rates are likely to peak at around 9% on average in the final quarter of 21. This low vacancy peak, combined with the latest strong readings on net absorption, has implications for investment performance over the next two years. Typically an office market recovery is initiated by rising demand for space, followed, after some interval, by rising rents as markets gradually tighten. It is unusual for a cyclical upturn to commence with vacancy below 1%. It follows that rental growth should emerge quite early in the current upturn. The current office market cycle is quite different from the downturn of the early 199s. History is a useful, but not infallible, guide to the future. 1% % 1991 Annual Quarterly Q9 3Q9 1Q1 Sydney Research Melbourne Brisbane Perth Adelaide The long term outlook for rents across Australia s office markets further emphasises the theme of divergent trends. Historically, the Sydney CBD market boasted the highest rent in Australia, followed by Melbourne. Currently both Brisbane and Perth have higher prime rents than Melbourne and this situation is expected to persist over the foreseeable future, implying a long term re-rating of these markets. Also, interestingly, Canberra is about to become the third largest office market in Australia, as defined by net lettable area. The Outlook A Federal election is scheduled to be held on 21 August. There is little reason to believe that the outcome will have any long term impact on Australian office markets. However, elections inevitably About the Author Dr David Rees is head of the Jones Lang LaSalle Research and Consulting team. He is responsible for the analysis of commercial real estate markets across Australia, the dissemination of market research data, forecasts and strategic analysis. In addition to regular research reports, the team provides specific advice on investment and strategic opportunities to a growing list of Australian and international clients. David is an economist and statistician by training with extensive experience across all financial markets - equities, commodities, real estate and fixed interest.

18 18 On Point Asia Pacific Property Digest Second Quarter 21 Tokyo: Grade A Office Japan s real GDP growth rate for 1Q1 reached 1.2% q-o-q, or 5.% in annualised terms, recording strong growth for the second consecutive quarter. Meanwhile, the unemployment rate for May was 5.2%, having remained fairly flat since January. According to the Bank of Japan s (BOJ) June Tankan survey, the diffusion index (DI) for large manufacturers was +1. This is a substantial improvement from the 14 figure recorded in the previous survey conducted in March. While upgrade demand from IT-related companies has been relatively active in the Roppongi sub-market, the overall tenant movement was driven by consolidations or withdrawals, which in part increased vacancy. In addition, given current rental levels, some tenants were able to upgrade whilst decreasing their rentals. Vacancy stood at 7.4% in 2Q1, rising.6 points q-o-q. The rise was due partly to corporate contraction and consolidations. Major leasing transactions announced in 2Q1 included IT company Gree s headquarters relocation to Roppongi Hills Mori Tower Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 In 2Q1, no new Grade A office buildings came into the market. A couple of large-sized developments, both of which are due in 212, have started construction phase II of Otemachi Chain of Redevelopments (A tower GFA: 11, sqm; B tower GFA: 132,5 sqm) in Marunouchi sub-market and Harumi 2-chome 2-4 District Project (GFA: 47,6 sqm) in Minato-ku. The average rental in 2Q1 decreased 1.4% q-o-q or 16.% y-o-y to JPY 28,643 per tsubo per month or JPY 13,973 per sqm per annum. This is the fifth consecutive quarter of decline, however, smaller declines indicate that rental levels are approaching the bottom of the cycle. Mori Trust Sogo REIT acquired 5% joint ownership of Tokyo Shiodome Building (GFA: 191, sqm) for JPY 11,, on a yield of 4.5%. The property includes a hotel portion which is operated by the Conrad Tokyo. The BOJ s Monthly Report of Recent Economic and Financial Developments for June indicated that the Japanese economy is likely to recover at a moderate pace. The Tankan s DI for large manufactures is also forecast to improve two points to +3 in the September survey. Meanwhile, demand is expected to remain weak given the absence of strong drivers from particular industries. However, with the implementation of the Tokyo Metropolitan Environmental Security Ordinance in April, which imposes a mandatory reduction of the environmental impact of real estate, we expect new demand related to sustainable properties to strengthen gradually. In terms of new supply, the total volume for 21 will be modest compared to the past five-years. Thus, we expect overall rental and capital values to remain mostly flat for the coming year For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rate are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ gross, on NLA F Take Up (net) Future JPY 28,643 per tsubo per month Decline slowing Vacancy Rate 1 Percent

19 On Point Asia Pacific Property Digest Second Quarter Osaka: Grade A Office According to the Cabinet Office s Regional Economic Trend Report for May, the Greater Osaka region s economy has been showing signs of improvement. In the Bank of Japan (BOJ) June Tankan survey, the diffusion index (DI) for large manufacturers for the Greater Osaka region was +1, having returned to positive for the first time in two years. In 2Q1, increased demand for Grade B offices was seen due to the impact of the economic downturn as well as Osaka s status as a preferred location for companies establishing branch offices. In the Grade A office market, Itochu announced their forward commitment for eight floors in the North Gate Building (GFA: 21, sqm; office NLA: 21, sqm; typical floor plate: 1,5 sqm) which is due to complete in 211. Itochu will relocate its Osaka headquarters alongside Midosuji for reasons including office environment upgrading. The vacancy rate for the Osaka Grade A office market was 8.% in 2Q1, rising 1.3 percentage points from the previous quarter Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 The amount of new supply coming into the Osaka Grade A office market in the five years between 29 and 213 is expected to be substantial. The large amount of supply due to enter is a concern and has resulted in the suspension of the Osaka Post Office Reconstruction Project (GFA: 213, sqm), which was initially due in In 2Q1, two office buildings entered the market, increasing the total stock by about 7%. The first building, Umeda Hankyu Bldg. Office Tower (GFA: 254, sqm; office NLA: 66,3 sqm), is an office/retail complex that adjoins several hub stations, including Umeda of Osaka Metro Line. Some of the tower s tenants such as Kuraray have started operations in the office portion designated in the upper floors. The second building, Hommachi Garden City (GFA: 5, sqm; office NLA: 16, sqm), which was recognised as an urban regeneration special area development, was completed as the second super high-rise building developed in the height-controlled areas alongside Midosuji. Iwatani s headquarters will occupy the core of the building s office portion between the third and tenth floors. In the upper floors, St Regis Hotel will start operations in October. Rents in the Osaka Grade A office market averaged JPY 11,195 per tsubo per month (JPY 4,638 per sqm per annum), decreasing 3.% q-o-q and 2.9% y-o-y. This was the eighth consecutive quarter of decline, however, in a positive sign that the bottom of the cycle may be approaching, rental declines have slowed for the fourth consecutive quarter. Osaka capital companies are expanding into Tokyo s real estate market as part of their growth strategies. Daibiru Corporation acquired more than 8% Aoyama Rise Square (GFA: 25, sqm) for JPY 37.9 billion. According to the BOJ s June Tankan for the Greater Osaka region, the DI for large manufacturers is forecast to continue to increase to +2. Under such an environment, tenant demand is expected to make a modest recovery, but it will likely be offset by the volume of supply coming in. Hence, vacancy is expected to rise, while rental values will likely decrease. Accordingly, capital values are expected to trend downwards For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rate are 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ gross, on NLA F Take Up (net) Future JPY 11,195 per tsubo per month Decline Slowing 8 Vacancy Rate Percent

20 2 On Point Asia Pacific Property Digest Second Quarter 21 Seoul: Prime and Grade A Office Tenant demand across Seoul was patchy in 2Q1. However, the addition of two new Grade A office buildings in the CBD, with high pre-commitment levels, lifted overall net absorption to 65,9 sqm. Only the CBD recorded positive net absorption of 72,6 sqm, while Yoido and Gangnam recorded negative net take-up of 5,1 sqm and 1,6 sqm, respectively. Some tenants contracted throughout the quarter, with the largest contraction coming from KT, a telecommunications company. KT vacated approximately 9,3 sqm from Posteel Tower in Gangnam and consolidated into one of its existing lower-cost offices located in Songpa. Despite a relatively large amount of net take-up, the overall vacancy increased slightly to 5.5% in 2Q1, the highest level seen in seven years. Prime vacancy increased by.8 percentage points to 2.9% over the quarter, while Grade A vacancy fell to 9.1%. By precinct, vacancy in the CBD recorded no change (i.e. 9.4%), while vacancies in Yoido and Gangnam edged a little higher to 1.6% and 3.4%, respectively, in 2Q1. Two Grade A projects in the CBD reached practical completion over the quarter. L Tower, located in Namdaemoon-ro, added 4,1 sqm of office space, while Jeong Dong Building added 39,1 sqm of office space to the Grade A office market. These developments secured high pre commitment levels, with L Tower fully pre-committed by LG U+ and Jeong Dong Building was 8% occupied upon completion. Looking ahead, 41,5 sqm of prime and Grade A office space is slated for completion for the remainder of 21. Due to an increase in prime vacancy, prime net effective rents fell by.9% q-o-q and 2.2% y-o-y. Conversely, Grade A net effective rents increased by.4% q-o-q but fell 1.3% y-o-y. Although some office buildings have increased their rent-free period to five months on a three-year lease, the overall rent-free period continued to average around two months on a three-year lease for prime and Grade A assets. Due to concerns over the large supply pipeline, only seven major transactions, totalling KRW billion, were recorded in 2Q1. However, the strength of pricing on securely leased assets shows that investor sentiment remains healthy. This was amply demonstrated by the largest sales transaction recorded in the quarter, the Eugene Investment & Securities Building. Deka Immobilien GmbH, a German fund manager, sold the building to the Korean Public Officials Benefit Association for KRW billion on an initial yield of approximately 5.65%. This transaction in Yoido demonstrates the evaporation of the long-standing premium paid for office buildings in the CBD and Gangnam over Yoido. Indicative yields in the CBD and Gangnam were unchanged in 2Q1; however, yields in Yoido tightened by 25 basis points. Prime yields currently sit at 6.25%, while Grade A yields average 6.5% across all three precincts. Going forward, the supply pipeline will continue to dictate trends across the Seoul office market. Vacancy is expected to rise over the next 12 months, placing downward pressure on rents. However, due to the rigidity of office rents in Seoul, further depreciations in rents are projected to be modest. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q Indicators are for Prime and Grade A. For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ prime net effective, on NLA Take Up (net) Future KRW 149,83 per pyung pm Rents falling F Vacancy Rate Percent

21 On Point Asia Pacific Property Digest Second Quarter Beijing: Office Leasing demand in Beijing s office market was robust while rents increased steadily as the Chinese economy recovered. The leasing market remained active with net absorption growing from 59,8 sqm in 1Q1 to 158,72 sqm in 2Q1. The most active areas were the CBD and Finance Street area, where net absorption totalled 111,915 sqm and 28,353 sqm, respectively. From a leasing market perspective, domestic and foreign financial companies still prefer the Finance Street area to other areas. For example, Fangzheng Securities signed a 1,4 sqm lease in Fortune Resource International Center, and a European financial consulting company leased 6 sqm in Winland International Financial Centre. Financial institutions and law firms continued to lease large amounts of space in 2Q1, for instance, Bank of Beijing leased 1, sqm in the Suhuang Building located in Zhongguancun, and Fangda Law Firm signed a lease for about 3, sqm in China World Trade Tower 3. Foreign companies also completed several leasing transactions over the quarter. For instance, Pacific Alliance and Aecom leased space in China Central Place and Office Park Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 Pangu Plaza, located in the Olympic Green Area, was the only Grade A office building completed this quarter, adding 6, sqm to Beijing s office stock. Because of the active leasing market and the limited supply, vacancy rates were driven down 3.% q-o-q to 22.8%. Vacancy in the CBD declined sharply, decreasing 8.1% to 37.5% in 2Q1. Grade A office rentals rose in 2Q1, increasing 3.% q-o-q to RMB 249 per sqm per month (net effective rent based on NFA). CBD rents increased moderately by 1.2% q- o-q to RMB 247 per sqm per month (net effective rent based on NFA). Since space for lease is limited in the Finance Street area, rentals in the area have grown faster than any other submarket in Beijing, growing 7.% q-o-q to RMB 38 per month per sqm. The rents in the Finance Street Area are the most expensive in Beijing. 1,2 1, F Take Up (net) Future Vacancy Rate Percent Jones Lang LaSalle anticipates a total of 1. million sqm of new space to come online in 21, including the 492,1 sqm of new supply that entered the market in 1H1. While there will be pressure for vacancy to increase in 2H1, we expect demand to continue recovering strongly. We expect vacancy to remain fairly static, ending the year at around 26%, slightly below the level a year earlier. Rents should record moderate growth for the remainder of the year given the strong demand recovery and its current low level. For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net effective, on NLA RMB 249 psm pm Rents rising 2

22 22 On Point Asia Pacific Property Digest Second Quarter 21 Shanghai: Office Leasing momentum from the prior two quarters continued into 2Q1, as demand stayed strong and occupancy levels in new buildings continued to rise. In Pudong, besides the sustained robust demand from domestic companies, foreign financial companies started to become more active as well. UOB leased 5, sqm in Lujiazui Information Center and obtained the signage rights to the building. Hang Seng Bank purchased approximately 7, sqm of office and retail space for self-use in HSBC Tower and also obtained the naming and signage rights to the building. Puxi s recovery accelerated with upgrading demand appearing and more MNCs starting to expand. For example, a foreign pharmaceutical company pre-leased 6, sqm in Wheelock Square, relocating from a Grade B office in Puxi. In the decentralised Grade A market, recently built buildings such as the InterContinental Centre and International Capital Plaza also benefited from tenants upgrading to higher-quality office space. These two buildings achieved approximately 35% and 6% commitment rates respectively. Both sides of the river saw new supply in 2Q1. In Puxi, Wheelock Square in Jing an district was completed this quarter, adding a GFA of 111,312 sqm to the market. A total of 12 floors were already leased at the time of completion, representing 25% of the building. Wheelock Square was the first completion in Puxi since 3Q8 and the level of inquiry continues to increase. The delivery of the building relieved tight supply conditions in the Puxi Premium Grade A sector. In Pudong, 21st Century Tower reached completion, with a GFA of 39,379 sqm of office space. The building will be 1% owner occupied, primarily by banks including Bank of Ningbo, but owners may lease some of their excess space back to the market. In the decentralised Grade A market, Chang Feng International Tower in Putuo district was handed over, adding a GFA of 36, sqm to the market. Increased demand boosted landlords pricing power in Shanghai, with the average rent across the city continuing to rise to RMB 6.6 per sqm per day, a 3.9% q-o-q increase. In Pudong, thanks to sustained strong demand and high occupancy levels in many buildings, the average rent rose to RMB 6.7 per sqm per day in 2Q1, a 4.9% q-o-q increase. In Puxi, the average rent increased by 3.2% q-o-q to RMB 6.5 per sqm per day on the back of growing interest from MNC tenants. The last quarter in which Puxi had a rental increase of more than 3% was more than two years ago, in 1Q8. Premium Grade A offices on both sides of the river continued to outperform Grade A in general, with 6.9% q-o-q and 3.8% q-o-q increases recorded in Pudong and Puxi, respectively. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q F Take Up (net) Future Vacancy Rate For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rate are as at 1H1 while future supply is for 2H Percent Looking ahead, four new buildings in Pudong are expected to reach completion by year end 21, including Hong Jia Building, Grand Office Tower, Ping An Tower, and Golden Landmark. The total GFA of these four buildings is 259,87 sqm. Strong leasing demand is expected to continue in the Pudong market from the expansion of both domestic and foreign tenants. Driven by the demand momentum, Pudong rents will continue to rise for the rest of 21 and into 211. Additionally, over half of the space to be completed through year end 211 in Pudong is committed to owner-occupiers. In Puxi, two new Premium Grade-A offices, Wheelock Square and Henderson Metropolitan, are expected to enjoy growing demand from upgrading tenants in 2H1 as more MNCs move forward with China investment plans. Puxi rents are expected to rise on the back of improved leasing momentum. ^ Stage in Cycle No. of Quarters Since Last Trough ^ effective, on GFA RMB 6.6 psm per day Rents rising 3

23 On Point Asia Pacific Property Digest Second Quarter Guangzhou: Grade A Office Improvements in the global economy continued to draw MNCs back into the Grade A office leasing market in 2Q1. With restrictions on real estate budgets easing, a number of MNCs took the opportunity to relocate and upgrade into newer office buildings in Zhujiang New Town. Wrigley, for example, leased 7, sqm in R&F Center; GE leased 7, sqm in G.T. Land Plaza I; and Monster (China HR) opened their first office in Guangzhou (2,4 sqm), also in R&F Center. In spite of the greater number of MNCs returning to the market, leasing activity remained largely underpinned by requirements of domestic companies. Securities companies were among the most active, seeking offices to facilitate expansion requirements; typically in Zhujiang New Town. CITIC Securities and Guangzhou Securities, for example, leased 1,83 sqm and 915 sqm, respectively in the newly completed Poly Centre; Zheshang Securities leased 1,7 sqm in Chanzen Centre; and Haitong Securities leased 1, sqm in G.T. Land Plaza II Tower South. The pick-up in demand along with the completion of new supply helped lift quarterly net absorption up to 72, sqm and further tightened vacancy rates. As at end-2q1, the overall vacancy rate was down to 14.3% Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 Investment activity in the city s Grade A office market remained relatively stagnant for the second successive quarter. Transactions completed in the market primarily involved local buyers purchasing strata-titled offices for self-use. The Poly Centre, a 58,73-sqm office building developed by Poly Real Estate, was the only new Grade A office building completed in 2Q1. Situated in Zhujiang New Town, over two thirds of the building was already pre-leased upon completion Percent High pre-leasing rates in upcoming new buildings and declining vacancy rates allowed landlords to continue to push asking rents higher and scale back on incentives such as rent free periods. At end-2q1, average effective rent stood at RMB 164 per sqm per month, 4.9% higher than at end-1q F Take Up (net) Future Vacancy Rate 1 Capital values grew by 9.6% q-o-q in 2Q1. Vendors continued to raise asking prices, leveraging on the steady performance of the strata-title sales market and limited supply of quality properties available for sale. The average unit rate is now at a new record high for the Guangzhou office market, exceeding the previous peak set in 3Q8. For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. The gradual recovery of the global economy and a greater emphasis on growth in the local economy are expected to underpin demand growth in the office market over the next 12-months. However, with close to 1.5 million sqm of new high quality supply still to be completed over the next 18-months, landlords will come under increasing pressure to begin lowering rents to attract and retain tenants. Though landlords may continue to squeeze tenants in the near term, we expect this trend to begin reversing as some of the upcoming new buildings, with low pre-commitment rates, near completion. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net effective, on NFA RMB 164 psm pm Growth slowing 4

24 24 On Point Asia Pacific Property Digest Second Quarter 21 Qingdao: Office The Qingdao office market experienced a significant revival in leasing activity over 1H1. Domestic companies have been the key drivers for the recovery, although Multinational Corporations (MNCs) have also been increasingly active in the leasing market as global economic conditions improve. The vacancy rate for Grade A properties decreased.9% q-o-q to 35.9%. This vacancy rate includes COSCO Plaza and Porche Centre, located on Hong Kong Middle Road and Donghai Road. The Shangri-La Centre s occupancy rate reached 4% with approximately 2,15 sqm of office space being leased in 2Q1. New occupiers of the Shangri-La Centre include Fullerton, Hamburg SUED, China Resources and more. Domestic companies still dominate the market, occupying 7% of the space in the whole leasing market. Financial institutions and insurance firms continue to lease large amounts of space, and have contributed significantly to the increase in activity in 1H1. The vacancy rate for Grade B buildings decreased in 2Q1 from 2.% to 17.6%. In 2Q1, the Qingdao Fudu Plaza completed. It is a Grade B office building in Shinan District and it brought approximately 16, sqm of new office space to the Qingdao market. The total stock of Grade A office space remained unchanged due to no new Grade A office supply in 1Q1. The Agora is a project currently underway and due to complete in 2H1. It consists of a Grade A office tower, totalling 9,45 sqm, luxury apartments, and a new shopping centre. It is being developed by IMC Group from Singapore. Initially, the developer planned to hold the property and lease it; however, they are now considering selling all, or part, of the office tower, and the retail podium. Regardless of the improved economic conditions, the developer is under pressure to lease the large amount of vacant space, which will prove difficult as more new buildings are completed. Landlords bargaining power increased in 2Q1 as demand improved. The improvement in demand was primarily driven by domestic companies, especially those in the financial sector. This resulted in the average rent across the city rising.7% q-o-q to RMB 79.5 per sqm per month. The average rental of Grade A buildings increased by 1.% q-o-q to reach RMB 125 per sqm per month. The average capital value for Grade A offices increased by 1.% q-o-q to RMB 19,739 per sqm. Due to poor market conditions, during 28 and 29, many owners wanting to sell Grade B office space in Shinan District adopted to wait and see attitude. However, with the market recovering and prices increasing, some have begun to offer their properties for sale. The average asking price for Grade B office space rose in 2Q1, with average capital value increasing by 2.8% q-o-q to RMB 14,167 per sqm. Office supply is still on the rise with approximately 121,8 sqm of Grade A and 126,8 sqm of Grade B office space due to complete in 2H1. While the positive impact of the economic recovery has begun to be felt throughout the market and business recovery was observed in various industries, the large amount of new supply coming online over the next 12 months will likely lead to higher vacancy. Landlords of new buildings will remain under substantial pressure, providing tenants with further opportunities to take advantage of leasing incentives provided by the landlords. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rate are as at 1H1 while future supply is for 2H1. (Grade A) ^ RMB 125 psm pm Stage in Cycle Rental slightly increase No. of Quarters Since 5 Last Peak ^ net effective, on NLA F Take Up (net) Future Vacancy Rate Percent

25 On Point Asia Pacific Property Digest Second Quarter Hong Kong: Office Leasing requirements were broadly based. Bank of America Merrill Lynch relocated part of their operations to One International Finance Centre, leasing 47,568 sq ft (lettable), while ANZ expanded internally by 13,962 sq ft (lettable) in Lincoln House. Fashion brands were also active with Burberry relocating from Wanchai into 24,661 sq ft (lettable) in The Lee Gardens and Valentino relocating from Sheung Wan to a whole floor (1,589 sq ft, gross) in 248 Queen s Road East. Kowloon East attracted the greatest amount of leasing activity as companies continued to seek cost-effective offices to cater expansion and consolidation requirements. PricewaterhouseCoopers and Manulife for example each expanded internally within Manulife Financial Centre, leasing an additional 65,376 sq ft (gross) and 31,42 sq ft (gross), respectively. Nike leased about 82,4 sq ft (gross) in Exchange Tower, relocating from Tsimshatsui. Overall, net take-up amounted to about 1.5 million sq ft (net) in 2Q1; 15% higher than in the previous quarter. Although the Kowloon office markets contributed the lion s share, accounting for about 862, sq ft (net), a large portion was attributed to the completion of International Commerce Centre Phase III, which was over 8% preleased upon completion. The strong take-up rate pushed overall vacancy down from 6.2% at end-1q1 to 5.5% by end-2q Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 The investment market was highlighted by the en bloc sale of Manulife Tower in Fortress Hill for HKD 2.3 billion and the sale of 4 floors in Cosco Tower in Sheung Wan for HKD million. The third and final phase of International Commerce Centre (457,1 sq ft, net) was the only new supply completed in 2Q Percent Rents increased across all submarkets during 2Q1. Underpinned by demand from the finance industry, rents in Central grew by 9.3% q-o-q. Meanwhile, rents in Hong Kong East and Tsimshatsui returned to growth, rising by 4.5% q-o-q and 7.% q-o-q, respectively. Capital values continued to grow across all submarkets, with the average in Central reaching a new record high. Overall capital values grew by 5.7% q-o-q while those in Central grew by 7.9% q-o-q. Looking ahead, demand over the near term is expected to be largely driven by occupiers seeking to consolidate and/or expand their offices. However, with landlords now aggressively pushing rents higher, we expect to see a growing number of occupiers seek relief through relocations, especially away from Central, although tight vacancy will ensure Central landlords firmness on rentals. The European sovereign debt crisis remains a major concern but its impact on office demand in Hong Kong is expected to be limited. In the investment market, the healthy prospect of further rental growth together with a shrinking supply pipeline will encourage more investors to enter the market despite capital values already at or near record highs F Take Up (net) Future For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net effective, on NFA HKD 46.4 psf pm Rents rising 3 Vacancy Rate

26 26 On Point Asia Pacific Property Digest Second Quarter 21 Taipei: Overall More leasing transactions were seen in 2Q1 compared to 1Q1. While most were renewals, there were also some new leases in the Xinyi and Dunhua South submarkets. Some tenants located in Xinyi and the Non-Core CBD areas are moving to the city fringe due to cost considerations, resulting in a 1.1% q-o-q increase in the overall vacancy rate to 16.1%. This is the third consecutive quarter of positive take-up since the onset of the global financial crisis. Nonetheless, take-up totalled only 7 ping (2,314 sqm). Contributing to the weak take-up has been the relocation of back offices to the city fringe. With still fragile demand for Grade A office space, we anticipate that take-up will continue to shrink in 2H1. New supply of 75, ping (24,793 sqm) entered the market in 2Q1. This supply came from the rebuilt Taipei Financial Center (TFC) in Dunhua North, which was damaged during the 921 earthquake in We expect that certain floors of this strata-titled property will be taken up by owner occupiers in 2H Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 The average gross rent in Taipei increased.5% q-o-q to reach NTD 2,379 per ping per month (USD per sqm per month). However, gross effective rents declined by 1.5% q-o-q to NTD 2,214 per ping per month (USD 2.86 per sqm per month). Effective rents declined because landlords were offering more incentives such as longer rent free periods. Overall, the recovery in the Grade A office market is lagging behind the broader economic recovery. There remains some uncertainty regarding the global economic recovery stemming from the European sovereign debt crisis and a fragile economic recovery in the US. Many large companies are still cost conscious and seeking to reduce rental costs. Many companies are likely to remain at their current locations and seek rental reductions on renewals. This trend will be likely to limit rental growth going forward. We are optimistic about the signing of the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China. We foresee that the agreement would directly benefit the manufacturing, textiles and petroleum chemical sectors. The Taipei office market will benefit from the growth in these sectors, and combined with an Asian wide economic recovery may see positive take-up in F Take Up (net) Future Vacancy Rate 3 For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rate are as at 1H1 while future supply is for 2H Percent ^ Stage in Cycle No. of Quarters Since Last Peak ^ gross achievable, on GFA NTD 2,379 per ping pm Rents flat 7

27 On Point Asia Pacific Property Digest Second Quarter Bangkok: CBD Grade A Office Political demonstrations in April and May caused business interruptions in Central Bangkok. After dispersing the demonstrators, the government implemented a curfew, which was later lifted, but a state of emergency remained in effect. Nevertheless, conditions returned to almost normal in June, and occupiers movements continued to progress while leasing activity resumed. Net absorption totaled 6,789 sqm in 2Q1. The contraction in demand is largely a result of the relocation of SCB Securities and SCB Asset Management to SCB Park (Inner North). Downsizing and consolidations were limited during the period. Another major relocation was Citibank s transfer to Interchange 21 on Asoke Road. However, the move s negative impact on net absorption was not reflected due to adjustments made to the CBD Grade A office stock, which included the downgrading of Saeng Thong Thani, Citibank s previous location. New lettings and expansions, meanwhile, did occur over the quarter. The largest movement was Tokio Marine Sri Muang Insurance, which occupied one floor (2,2 sqm) in U Chu Liang building to accommodate its life insurance agency unit Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 As of 1H1, net absorption totaled 1,217 sqm and vacancy increased to 19.5%. CBD Grade A office supply decreased to 1.25 million sqm in 2Q1 due to the downgrading of some existing office buildings whose quality is not considered as truly prime for occupiers. New supply from Sivatel is likely to be ready for occupation by end-21, as is Sathorn Square. As a result, approximately 77,6 sqm of additional office space will enter the market, raising the total CBD Grade A supply to 1.33 million sqm Percent Despite the political situation in May, notional yields remained unchanged at 7.8% in 2Q1. The average gross rental dropped to THB 635 per sqm per month, a.5% decline q-o-q, capital values fell by.8% q-o-q to average THB 71,18 per sqm. A new office property fund, Thai Commercial Investment Fund (TCIF), was established and listed on the Stock Exchange of Thailand in 2Q1. The underlying assets are Nation Tower and Nation Building I II, which were purchased for THB 1.9 billion from Chor Chana-Ananpanich Co Ltd F 5 Take Up (net) Future Vacancy Rate For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. Economic recovery is expected to continue in 21 despite the recent political crisis. The Thai economy expanded robustly in 1Q1 by 12.%. Exports and private investment will remain the key drivers for growth, although tourism will be adversely affected over the medium term. New office demand will gradually be realised through 2H1 but at a slower pace than new supply, which is expected to increase by approximately 77,6 sqm towards the year end. So far, there are no pre-commitments for this new space. As a result, the vacancy rate is forecast to peak at over 2% between end-21 and 211. This will continue to put downward pressure on rents, while rent-free periods are likely to be extended. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net, on NLA THB 6,34 psm pa Decline slowing 12

28 28 On Point Asia Pacific Property Digest Second Quarter 21 Ho Chi Minh City: Office Leasing demand in the Ho Chi Minh City Grade A office market in 2Q1 was lower than in 1Q1 due to the upcoming release of new stock. Tenants were expecting further rental declines and they were reluctant to increase their space commitments. Most of the take-up was in buildings which were completed in 4Q9 and from precommitments in previous quarters. The second quarter witnessed 5,471 sqm of net absorption, bringing the total in 1H1 to 12,639 sqm, which is higher than the total net absorption for the whole year 29 (1,585 sqm). Vacancy declined from 15.7% in 1Q1 to 1.6% in 2Q1. Continuing the trend from 1Q1, the majority of leasing transactions in 2Q1 were lease renewals and restructuring, relocations and expansions of existing occupiers. Most enterprises are still cautious and have not started expanding aggressively. Some are still looking to mitigate costs due to the uncertainty in the economy and financial market. Though Vincom Center officially opened at the end of April, the office towers (63,86 sqm) are not ready for occupancy. It is expected to be completed by 4Q1 together with Bitexco Financial Tower (37,71 sqm). With only limited pre-commitments to these buildings, much of the space may come online vacant. No new supply is expected to enter the market in 211. However, significant supply is expected to come from three projects in 212: Times Square (3, sqm), Meridien Saigon (14, sqm) and Saigon M&C (49,98 sqm). If all of these projects complete on time, the total stock of Grade A office will increase to 274,365 sqm by 212. Rents for Grade A office space in 2Q1 declined 4.4% q-o-q after holding steadily in the previous quarter. The decline in rent is attributed to the new supply of space coming into the market later in the year. Landlords were lowering their rental expectations and providing attractive terms to retain existing tenants and increase occupancy. In total, there is 15,869 sqm of Grade A office supply in Ho Chi Minh City. However, the supply of Grade A space will almost double with the completion of Vincom Center (63,86 sqm) and Bitexco Financial Tower (37,71 sqm) in 2H1. Even if the economy recovers, the market is unlikely to absorb this space in the short term. Therefore, vacancy will increase while rents are likely to decline. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q F Take Up (net) Future Vacancy Rate For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H Percent ^ Stage in Cycle No. of Quarters Since Last Peak ^ net effective, on NLA USD 576 psm pa Decline slowing 7 NA

29 On Point Asia Pacific Property Digest Second Quarter Manila: Makati CBD Prime and Grade A office rentals in the Makati CBD and Bonifacio Global City areas increased slightly in 2Q1. Despite the completion of two new office buildings, there is still a constraint on the supply of office space brought about by the continued delay of several office projects. The limited amount of new office stock, combined with the fresh demand from offshoring and outsourcing (O&O) companies is causing rental levels to rise The total net absorption in 2Q1 significantly declined to 32,857 sqm from 41,573 sqm in the previous quarter. Several key office deals were put on hold in anticipation of the outcome of the national elections in May which resulted in the low net absorption There has been a trend for tenants in the Makati CBD to relocate to other emerging business districts such as Bonifacio Global City. This is because these emerging districts offer larger space for tenants and lower rentals while still providing good infrastructure and support facilities. Some key leasing transactions include three O&O companies in the Makati CBD, which leased 2,86 sqm at Solaris One, 1,743 sqm in The Enterprise Center and 3,484 sqm at Ecoplaza. In Bonifacio Global City, an O&O company leased 1,42 sqm at Fort Legend, while two media agencies at Picadilly Star leased 1,499 sqm and 2,674 sqm of office space, respectively. The total office stock increased by 51,238 sqm in 2Q1, owing to the completion of 8/1 Upper Mckinley and Ayala Land s BGC BPO Building. The completion of One Global Place and World Finance Plaza, which were both scheduled in 2Q1, was delayed to 3Q1. These two upcoming developments will add 43,12 sqm of space to the total supply. The introduction of new office stock drove up the overall vacancy rate in the Makati CBD and Bonifacio Global City to 8.7% in 2Q1. The average rental in 2Q1 increased by.4% q-o-q to PHP 7,464 per sqm per annum. However, this rental is down 2.4% y-o-y. This slight increase may be attributed to fairly good demand for office space during the quarter. Likewise, capital values increased to PHP 73,5 per sqm in 2Q1, while investment yields remained stable between 1.1% and 1.3%. base: 4Q5 = 1 8 4Q5 4Q6 4Q7 4Q8 4Q9 4Q Take Up (net) Future F Vacancy Rate For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H Percent The Philippine economy is still exhibiting a modest recovery, which is projected to carry on into the succeeding quarters. In particular, demand in the office property market is anticipated to pick-up, buoyed by the success of the recent election and renewed growth from the O&O sector. This growth is expected to cause upward pressure on rental levels in the forthcoming quarters. The future supply of prime and Grade A offices is estimated to reach 79,94 sqm in the next twelve months. This includes office buildings One Global Place, World Finance Plaza, W Office and TKS Building. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net effective, on NLA PHP 7,464 psm pa Rents rising 2

30 3 On Point Asia Pacific Property Digest Second Quarter 21 Kuala Lumpur: Office Underpinned by steady demand, vacancy in the Kuala Lumpur office market increased marginally to 11.7% in 2Q1. In 2Q1, net absorption totalled 49,77 sqm. Notable leasing transactions included: Padiberas Nasional Bhd (BERNAS) relocating from CP Tower in the suburbs (Petaling Jaya) to the city centre occupying space at Menara HLA in the Golden Triangle, Haliburton Oil & Gas and Exact Software Sdn Bhd taking up space at G Tower in the Golden Triangle. Generally, demand for office space in the city centre was fairly moderate and dominated by local companies. Following a revision to the monitored portfolio of office buildings, the existing supply of prime office buildings in the city centre was reduced to 1.7 million sqm in 2Q1. In 2Q1, HSBC Annexe (Quill 6), a 24-storey prime office building with a net lettable area of 24,619 sqm located in the CBD locality was completed. The building will be occupied solely by HSBC Bank as part of its expansion. Four office buildings (Menara Worldwide, Hanpshire Place, Menara MAIWP and Cap Square Tower) with a total net lettable area of 136, sqm are expected to be completed during 2H Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 Source: Jones Lang Wootton 3 15 The lack of demand growth from the private sector and the increasing supply available in the city centre has prompted some landlords to lower rentals. The average net rental declined by 1.1% q-o-q and 1.9% y-o-y. The average capital value was stable at RM 7,714 per sqm in 2Q Percent Menara Olympia, a 31-storey prime office building located in the CBD was sold by Olympia Industries Bhd to Jelita Timur Sdn Bhd in 2Q1 (sale pending approval). The sale price was RM2 million for this 42,271 sqm (NLA) building, equating to RM 44 per sq. ft. The average vacancy rate in the city centre is expected to rise over the next twelve months as demand is not expected to match supply. More landlords are expected to reduce rents in the short term as vacancy rises F Take Up (net) Future Vacancy Rate Source: Jones Lang Wootton For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. Investors are expected to remain cautious in buying office buildings due to the limited prospects of significant rental growth in the short to medium term. Currently, the market is dominated by local investors as there is a lack of foreign interest and this trend is expected to continue in the short term. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net, on NLA MYR 624 psm pa Rents decreasing 5

31 On Point Asia Pacific Property Digest Second Quarter Singapore: Office Market Buoyant economic data continued to lead to a more optimistic outlook for the Singapore office market in 2Q1. In the quarterly Business Expectations Survey conducted by the Economic Development Board between March and mid-april 21, 7% of financial services firms expect better business prospects for the six-month period ending September 21, while the remaining 3% expect the outlook to stay the same. The vacancy rate in the CBD core area decreased significantly in 2Q1 to about 7% from over 9% in 1Q1. In particular, the prime Grade A segment of the CBD core area saw vacancy reach a low 2.% compared to 3.% in the previous quarter. The decline in vacancy was due to fairly good take-up across the board, especially in investment grade and recently completed buildings. For instance, leasing activity picked up at 71 Robinson Road with the recent commitment by Sungard to lease 3, sq ft, while several other new buildings such as Straits Trading Building, BEA Building and Twenty Anson have attained occupancy levels well in excess of 9% Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 Increased activity was also evident on the pre-leasing front. The upcoming Marina Bay Financial Centre (MBFC) phase I was reportedly almost fully pre-leased prior to full completion. Ocean Financial Centre recently announced its pre-commitment level at over 6% with ANZ and BNP Paribas joining the list of future occupiers. 5 Collyer Quay also secured SEB, Bain & Co. and Allen & Overy among its first tenants. Office supply remained stable in 2Q1 with no major additions recorded. Although MBFC tower I, which is part of MBFC phase I, has already obtained its Temporary Occupation Permit (TOP) from the Urban Redevelopment Authority (URA) earlier this year, the entire MBFC phase I will only be recognised as completed in 3Q1 upon completion of MBFC tower II Percent Office rental growth in Singapore turned positive in 2Q1, with most landlords in the market able to achieve higher rental rates. Net effective rentals in Raffles Place increased by a modest 2.9% to average SGD 796 per sqm per annum in 2Q1 following a decline of 1.4% in 1Q1. Capital values in Raffles Place also recovered, increasing 5.9% q-o-q while yields firmed slightly. Nevertheless, investment activity during 2Q1 was limited to some small strata-titled transactions F 5 Take Up (net) Future Vacancy Rate For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rate are as at 1H1 while future supply is for 2H1. While vacancy is expected to increase in 211 due to the large amount of supply coming on-stream, some older less competitive buildings may be taken out of stock for redevelopment. Should the economic recovery remain on track, a steady level of demand is likely to be seen and this should support moderate rental growth over the next 12 months. Capital values are likely to increase accordingly and yields could face further compression going forward. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net effective, on NLA SGD 796 psm pa Rents rising 7

32 32 On Point Asia Pacific Property Digest Second Quarter 21 Jakarta: Investment-Grade Office After witnessing a good start during the first quarter of 21, the Jakarta office market continued to record significant leasing activity in 2Q1. Leasing activity continued to grow, helped by tenant relocations and expansions. Leasing enquiries for new office space came mostly from energy, engineering, finance and banking companies. Overall, net take-up in 2Q1 totalled around 32, sqm from around 35, sqm in the previous quarter. This brought the total take-up in 1H1 to approximately 68, sqm, which is nearly double what was recorded in 1H9. The largest contributor to the quarterly absorption came from Danone s relocation to Cyber 2. New tenants also started to occupy the newly completed project Equity Tower, whilst IBM completed its relocation to Plaza Tower. However, with the additional office space coming from Equity Tower, the vacancy rate rose from 19.1% to 2.6%. One office project, Equity Tower, was completed in 2Q1. This property accounted for additional supply of nearly 75, sqm of office space, which drove the total office inventory to 1.97 million sqm from 1.89 million sqm in the previous quarter. Bakrie Tower, which was anticipated to start occupancy around mid 21, was still in the finishing stage. Expected to complete by 3Q1, this project will add 55, sqm of new office space to the market. As competition amongst CBD offices remained stiff and a higher vacancy was recorded this quarter, most landlords held their existing rental rates. Newly completed projects continued to offer better-quality office space with attractive rentals to draw newcomers. However, while most projects kept their rentals unchanged, Menara Sudirman and Jakarta Stock Exchange Building introduced newer rates following an increase in occupancy. Rents in these buildings went up by an average of 1 15% q-o-q. As such the average rent across the market increased by 1.6% q-o-q to USD 122 per sqm per annum. For the next two years, demand is expected to increase alongside the optimistic economic outlook and more positive business sentiment. Until 211, the take-up is projected to hover around 12, 125, sqm per annum. Bakrie Tower is the only project scheduled for completion in 3Q1, and it is expected to bring 55, sqm of strata title office space. The abundant supply of Grade A buildings in the CBD office market and the additional supply from the completion of Bakrie Tower are expected to keep rental growth in check at around 2 3% in 21. The average vacancy rate is expected to reach around 2% by end-21. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q Take Up (net) Future F Vacancy Rate For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H Percent ^ Stage in Cycle No. of Quarters Since Last Peak ^ net effective, on NLA USD 122 psm pa Decline slowing 7

33 On Point Asia Pacific Property Digest Second Quarter Delhi NCR: Grade A Office The Delhi CBD and SBD did not witness any significant activity in 2Q1. in the CBD was limited to queries from corporate firms and companies that require a small floor plates. At the same time, there was no occupier exodus from the CBD. At present, occupiers showed less interest in the CBD compared to SBD. Limited availability of Grade A space in the CBD has been inducing new occupiers to evaluate options in the SBD. In particular, space available for lease at relatively affordable rents along with good connectivity has generated active occupier interest at Jasola, SBD. However, we foresee leasing activity in the CBD to improve in the future, led by some ongoing refurbishment in the area by the city administrative authority. The CBD did not witness much leasing activity, with vacancy stable at 1.3% in 2Q1. The SBD witnessed a few leases in 2Q1, with most of them concentrated in Jasola. This resulted in a net absorption of 45, sq ft (4,18 sqm). As a result, vacancy in the SBD dipped from 19.7% in 1Q1 to 18.7% in 2Q1. The aggregate vacancy in the CBD and SBD of Delhi declined marginally from 13.9% in 1Q1 to 13.3% in 2Q1, with the entire absorption concentrated in the SBD Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 are for the CBD. Key transactions in the prime city in 2Q1 include: Climate Works Foundation leasing 8, sq ft (743 sqm) in Capital Court in Vasant Vihar, SBD; and Agilent Technologies leasing 12, sq ft (1,115 sqm) in Splendour Forum in Jasola, SBD. Neither the CBD nor the SBD witnessed new supply in 2Q1. Omaxe Square in Jasola (SBD), which was expected to be operational in 2Q1, postponed its completion to 3Q1. Wipro is the key tenant in the building. The total office stock in the CBD stands at 2.13 million sq ft (197,745 sqm), while the total office stock in the SBD stands at 4.7 million sq ft (437,388 sqm). Both the CBD and SBD micro-markets have witnessed stable rents since 4Q9. This stabilisation has been induced by a substantial rental correction in 29. Rents in Grade A office space in the CBD held steady at INR 2 23 per sq ft per month during 2Q1. In SBD, rents remained at INR 14 per sq ft per month. Rents in Delhi City are 4 5% below their peak in 3Q8. With rents stable in 2Q1, the market has almost bottomed in Delhi s CBD and SBD. While we foresee landlords increasing rentals going forward, occupiers will still seek opportunities. We foresee increased leasing activity in the CBD and SBD micro-markets as highlighted by an increase in occupier interest primarily led by opportunistic demand. This will lead to lower vacancy in these micro-markets. The demand for office space in the CBD may not be a direct function of rents, hence, moving ahead it may not directly compete for tenants with cost effective suburban destinations. However, the SBD is expected to face competition from Delhi s Suburbs, which offer good quality space options at highly competitive rents are for the CBD + SBD. For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. (CBD) ^ INR 225 psf pm Stage in Cycle Decline slowing No. of Quarters Since 7 Last Peak ^ gross, on GFA F Take Up (net) Future Vacancy Rate Percent

34 34 On Point Asia Pacific Property Digest Second Quarter 21 Mumbai: Grade A Office The Mumbai office market witnessed a strengthening of demand during 2Q1. In the prime micro-markets of the city rents stabilised while leasing activity and enquiries for office space increased. In 2Q1, Mumbai witnessed two major land transactions at prices that were even higher than those recorded during 27. These events reflect the improved confidence of developers in the city that arose from improved economic conditions and rising demand for real estate. Mumbai s prime micro-markets recorded a total net absorption of about 1 million sq ft (92,264 sqm), the majority of which was generated by the banking, financial services and insurance (BFSI) industry and other front offices occupiers. The total number of office market transactions in the city increased in 1H1. A considerable number of outright purchases were recorded including those of Edelweiss and J&K Bank which acquired one building each in SBD BKC with areas of 18, sq ft (16,722 sqm) and 65, sq ft (6,38 sqm), respectively. Key transactions in 2Q1 include the following: DBS leasing 14, sq ft (1,3 sqm) in Fort House, CBD; HDFC Standard Life Insurance purchasing 95, sq ft (8,825 sqm) in Lodha Execlus, SBD Central; and Amway leasing 22, sq ft (2,43 sqm) in Nataraj, SBD North. Two buildings became operational in 2Q1 adding about 1.4 million sq ft (13,64 sqm) of office space to the prime micro-markets of Mumbai. Phase II of One Indiabulls Centre (8, sq ft or 74,323 sqm) in SBD Central became operational during 2Q1. Notable tenants in this building include Morgan Stanley and Bloomberg. Kohinoor City, the sole completion in SBD BKC, added 6, sq ft (55,742 sqm). At end of 2Q1, the total operational stock in Mumbai s prime micromarkets stood at 25.9 million sq ft (2.4 million sqm) with an overall vacancy level of 8.7%. Mumbai s micro-markets witnessed q-o-q rental movements ranging from 3% to 2% during 2Q1, with rents in CBD remaining unchanged. The impending stability in rents is reflected in the leasing transactions occurring across Mumbai s prime micromarkets. In general, rental values remained stable at 1Q1 levels across the various precincts of Mumbai. Capital values in the prime micro-markets increased on the back of strengthening demand. The average yield across these precincts was 1.8%. Rental values in the prime micro-markets of Mumbai are expected to remain stable over the next 12 months. With the improving economic scenario and strengthening demand for commercial space, the number of leases and sales is expected to increase in the coming quarters. The increasing demand will provide some relief to developers, but a substantial supply pipeline will keep rents under pressure in the short term Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 are for the CBD are for the CBD and SBD. For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. (CBD) ^ INR 23 psf pm Stage in Cycle Decline slowing No. of Quarters Since 7 Last Peak ^ gross, on GFA F Take Up (net) Future Vacancy Rate Percent

35 On Point Asia Pacific Property Digest Second Quarter Bangalore: Grade A Office for office space in Bangalore continued to increase in 2Q1 due to strengthening business sentiment. This was indicated by the increase in hiring activity and expansion of corporate firms within the city. Bangalore s CBD and SBD witnessed a total net absorption of 611,723 sq ft (56,831 sqm) in 2Q1. Most of the demand in the SBD was driven by the IT/ ITES sector which remained the prime driver of demand in the city. Meanwhile, the CBD witnessed demand primarily from the BFSI sector. Key transactions in 2Q1 include the following: Samsung leasing 5, sq ft (4,645 sqm) in JP Techno Park, Millers Road, CBD; Accenture leasing 14,721 sq ft (11,76 sqm) in Pri Tech Park, Outer Ring Road, SBD; LG leasing 35, sq ft (32,516 sqm) in Embassy Business Park, Outer Ring Road, SBD; Sonus Networks leasing 15, sq ft (13,935 sqm) in Prestige Shantiniketan, Whitefield; and Capgemini leasing 25, sq ft (23,226 sqm) in Brigade Metropolis Summit I, Whitefield. A total of 474,618 sq ft (44,93 sqm) of office stock was added to the CBD and SBD micro-markets of Bangalore in 2Q1. The market witnessed the completion of three buildings: Prestige Nebula II with a built up area of 5, sq ft (4,645 sqm), Prestige Delta with a built up area of 4, sq ft (3,716 sqm) in CBD and Building-6B in Pri Tech Park with built up area of 384,618 sq ft (35,732 sqm) along Outer Ring Road in SBD. In 2Q1, the average rent for office space in the CBD and the SBD remained stable at INR 74 per sq ft per month and INR 38 per sq ft per month, respectively. Rents failed to increase over the last three quarters as the large pipeline kept them under pressure. Over the same period, investment yields in the CBD and SBD remained unchanged as rental and capital values remained stable. Improving economic indicators suggest that demand for office space will increase over the next 12 months in Bangalore. However, supply is expected to exceed demand, thus keeping an upward pressure on vacancy. As rental values have already declined significantly since the onset of the downturn in mid-28 and demand is rebounding, any further rental correction seems unlikely. However, the leasing market is expected to remain in favour of tenants due to the strong supply pipeline in Bangalore Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 are for the CBD Take Up (net) Future are for the CBD and SBD. For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. (CBD) ^ INR 74 psf pm Stage in Cycle Decline slowing No. of Quarters Since 6 Last Peak ^ gross, on GFA F Vacancy Rate Percent

36 36 On Point Asia Pacific Property Digest Second Quarter 21 Pune: Grade A Office Leasing activity in the Pune market gained momentum in 2Q1 as a total of 888,528 sq ft (82,547 sqm) of office space was absorbed. The SBD micro-market continued to witness the major share (59%) of total net absorption in 2Q1. Meanwhile, the Suburbs followed with a share of about 29% of the total absorption, followed by the CBD which accounted for about 12% of the total net absorption. One of the most notable trends observed in 2Q1 was the revival of SEZ demand which accounted for nearly 7% of the total absorption in the city. This was unlike previous quarters where most of the demand was for STPI buildings. The overall vacancy declined by 1 basis points from 16.7% in 1Q1 to 15.7% in 2Q1, due to an increase in absorption during this period. Key transactions in 2Q1 include: John Deere leasing 3, sq ft (2,787 sqm) in Onyx, CBD; Vodafone leasing 17,88 sq ft (1,22 sqm) in Eon Cluster D, SBD; and Calsoft leasing 31, sq ft (2,88 sqm) in SR Iriz, SBD Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 are for the CBD. In 2Q1, Pune witnessed the completion of three projects with a total built up area of 75, sq ft (69,677 sqm). With these completions, the total stock of Pune s office space stood at 25. million sq ft (2.3 million sqm) by the end of 2Q1. The completions include Eminence Infotech Park in SBD by Naik Navre Associates, with a built up area of 14, sq ft (13,6 sqm). The other two completions were at Hinjewadi in the Suburbs. These include Embassy Tech Park, a STPI building by Dynasty Group, with a built up area of 36, sq ft (33,445 sqm) and a building with a built up area of 25, sq ft (23,226 sqm) in Blue Ridge IT SEZ by Paranjape Percent Rents remained stable in 1Q1 and 2Q1 indicating that rentals across the micromarkets have reached the bottom of the cycle, with less scope for any further decline. The average rental in the CBD stood at INR 56 per sq ft per month in 2Q1, holding for two consecutive quarters. At the beginning of 21, sellers cautiously increased their asking prices, which resulted in a marginal increase in capital values across all the micro-markets in 1Q1. After this, capital values remained stable in 2Q1. Yields across all the micro-markets remained stable in 2Q1 as a result of stable rental and capital values. The recent increase in transaction activity indicates a strengthening of demand over the past six months. This positive trend is expected to continue in the coming quarters. for SEZ units is expected to take a significant leap in the coming quarters, and the SBD along with the Suburbs are expected to contribute significantly to the absorption because of their huge share in the operational and under-construction stock. We expect developers to test the market s appetite for a price increase in 2H1. The prevailing quoted values for Grade A properties are already hinting towards an upward bias F Take Up (net) Future are for the CBD and SBD. For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. (CBD) ^ INR 56 psf pm Stage in Cycle Decline slowing No. of Quarters Since 7 Last Peak Rental information is for the CBD only. ^ gross, on GFA Vacancy Rate 3

37 On Point Asia Pacific Property Digest Second Quarter Sydney: CBD Office After some encouraging improvement during the start of the year, leasing enquiry levels stabilised over the second quarter of 21 in the Sydney CBD. Total vacancy increased marginally over 2Q1 as several projects completed. Vacancy in the Sydney CBD now sits at 7.9%, equating to approximately 376, sqm. Despite the weaker enquiry levels and higher vacancy, Sydney CBD recorded solid net absorption (34,7 sqm) over 2Q1. This equates to approximately 78,6 sqm of net absorption for the year and is also the fourth consecutive quarter of positive net absorption for the Sydney CBD office market. Four projects reached practical completion in the Sydney CBD during 2Q1. A total of 51,2 sqm of office space has been added to stock. However, only 18,5 sqm was pre-committed. Total completions over the year now equate to 86, sqm. This is already the highest amount of completions recorded in the Sydney CBD office market since 25. A further 51,1 sqm of new and refurbished developments are currently under construction and are expected to complete during the second half of the year. This includes the new office tower at 42 George Street (37,8 sqm) and the refurbishment of 2 Bond Street. Total stock additions in the Sydney CBD office market are expected to reach approximately 137,2 sqm for 21. Prime gross effective rents in Sydney CBD were again static in Q2/21. Prime gross effective rents have now hovered around AUD 541 per sqm per annum for the fifth consecutive quarter. Prime outgoings increased by 2.% over the quarter and average AUD 16 per sqm per annum. Incentives are still averaging 34 months for a ten year lease, equating to approximately 28.%. The static rental profile in Sydney CBD and the high incentives offered by landlords bode well for tenants who are looking to secure office space at favourable terms. The issue of sovereign wealth debt lingering in Europe has again put a dent on investor sentiment. Over the quarter, prime equivalent yields in the Sydney CBD were static with the range still between 6.5% and 7.75%. Reflecting the fickle nature of investor sentiment, secondary yields softened by 25 basis points in the upper end during 2Q1 after sharpening by 5 basis points in 1Q1. The secondary yield range is now between 7.75% and 8.5%. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q F Take Up (net) Future Vacancy Rate 2 For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H Percent The availability of large contiguous space and the number of options available to tenants continues to dilute any rental growth in the Sydney CBD office market. This is expected to continue over the course of 21 with a number of projects due to complete over the latter part of the year. Prime gross effective rents are then expected to experience growth by 211 and 212. In turn the flat rental profile is expected to keep investment yields flat in 21. Yields are then anticipated to sharpen by 211 and 212 in anticipation of rental growth. ^ Stage in Cycle No. of Quarters Since Last Peak ^ gross effective, on NLA AUD 542 psm pa Rents holding firm 8

38 38 On Point Asia Pacific Property Digest Second Quarter 21 Melbourne: CBD Office The recent deterioration in business confidence did not adversely impact tenant demand in 2Q1. Leasing activity increased and major tenant moves included the National Broadband Network (4,462 sqm) at 11 LaTrobe Street and the expansion of ANZ (4,421 sqm) at 57 Bourke Street. Despite an increase in activity, net absorption was flat (-7 sqm). The flat result was partly explained by the relocation of the Transport Accident Commission (8, sqm) from the CBD to Geelong. This move is part of the State Government s blueprint to move a number of government jobs to regional areas. The headline vacancy rate remained at 6.3% in 2Q1, below the 1-year average of 7.%. With businesses seeking to upgrade or consolidate, prime vacancy tightened to 4.8%, while secondary moved out to 8.4%. There were no completions recorded in 2Q1. In the second half of 21, there are two developments scheduled to complete totalling 7,8 sqm. The pre-commitment rate for 21 increased to 84%, as Origin Energy (25, sqm) committed to 8% of the space in the refurbishment of 321 Exhibition Street Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 The Melbourne CBD has started the next development cycle with the commencement of Quattro (Stage 1) at 735 Collins Street (38, sqm) in 2Q1. With a number of active pre-commitment requirements in the market, further project commencements are expected over the next 12 months With leasing activity improving, vacancy low and limited options for prime contiguous space, there was a further increase in face rents and a reduction in leasing incentives in 2Q1. Consequently, prime gross effective rents increased by 1.7% to AUD 397 per sqm per annum. Indicative prime equivalent investment yields tightened by 25 basis points at the upper end to now range from 7.% and 8.5% in 2Q1. Secondary yields tightened by 25 basis points to now sit between 7.5% and 9.75%. Recent sales evidence has supported the compression in secondary yields. In 2Q1, a private investor purchased 356 Collins Street for AUD 28.5 million, reflecting an initial yield of 7.59%. The positive rental outlook for the Melbourne CBD office market has not gone unnoticed by domestic institutions and offshore investors. There are at least three large assets (greater than AUD 1 million) in due diligence and the transactions are expected to be announced in 3Q F Take Up (net) Future Vacancy Rate For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H Percent The lead indicators for the Melbourne CBD continue to improve. Victoria continues to generate strong employment numbers and positive results from job advertisement surveys support the demand for office space. With prime grade vacancy below 5% and minimal completions to 212, prime gross effective rents are forecast to record a period of above trend growth over the next 12 months. Prime yields recorded the first quarter of compression in this cycle in 2Q1. Over the next 12 months, further yield compression is forecast as yields tighten in anticipation of above trend rental growth. ^ Stage in Cycle No. of Quarters Since Last Trough ^ gross effective, on NLA AUD 397 psm pa Rents rising 4

39 On Point Asia Pacific Property Digest Second Quarter Brisbane: CBD Office The Brisbane CBD office market recorded negative net absorption of 2,35 sqm in 2Q1, but a healthy 2,6 sqm has been absorbed over the first half of the year. The negative quarterly net absorption largely reflects Queensland Gas Company relinquishing 5,64 sqm that they pre-committed to in 4 George Street before committing to another new development, plus 5,75 sqm relinquished by Queensland Rail in Mincom Central as a result of their move last quarter into space at 295 Ann Street. Sentiment in the leasing market improved substantially in early 21, but has softened slightly more recently due to renewed global economic uncertainty and uncertainty about the taxing of major resources projects (that has now been resolved in a deal between the Federal government and major mining companies). There were no additions to stock in 2Q1. Three developments totalling 129,82 sqm remain under construction, with only Dexus 123 Albert Street development (38, sqm) due to complete in 21. Conditions remain very challenging for developers and it is unlikely that any further developments will commence over the next few quarters given the amount of supply already under construction and high pre-commitment hurdles required by financiers. The vacancy rate has stabilised over recent quarters. After rising 6.4 percentage points over 29, the Brisbane CBD vacancy rate has only risen by.3 percentage points over the first half of 21 to be 1.6%. Prime CBD face rents fell.4% in 2Q1 to AUD 672 per sqm per annum. There was also a further increase in the average level of leasing incentives to 27 months rent-free on a 1 year lease, resulting in a 3.5% decline in prime gross effective rents. Secondary face rents fell slightly in the quarter, but average incentives were unchanged at 3 months on a 1 year lease. This resulted in a 1.5% decline in secondary gross effective rents. Prime investment yields were unchanged in the quarter to range between 7.25% and 8.%. The secondary yield range tightened 25 basis points at the upper end to be 8.5% to 9.5%. There were no major ( AUD 5. million) transactions recorded in 2Q1, although a number of major assets appear close to transacting. This includes the Santos House development completed last year that is in due diligence. Solid levels of tenant demand have helped the Brisbane CBD office market to stabilise over recent quarters and we expect the next 12 months to be a period of consolidation for the market. While some backfill space will come into the market over the next twelve months, we expect vacancy will be fairly stable. Likewise, rents are likely to now be very close to a trough and we expect very little change over the next twelve months. Prime Brisbane CBD yields have now been fairly stable over the past year and capital values are also approaching a trough now that rental levels are starting to stabilise. We expect there to remain strong investment interest from both major local institutional investors and offshore groups in quality stock with longer lease terms. However, interest remains very weak for assets with a shorter lease expiry profile. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q Take Up (net) Future For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rates are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ gross effective, on NLA AUD 474 psm pa Rents falling F Vacancy Rate Percent

40 4 On Point Asia Pacific Property Digest Second Quarter 21 Auckland: CBD Office Market Occupier demand for office space in the Auckland CBD Core and Frame sectors remained relatively steady over 2Q1 as economic conditions and confidence in the business environment strengthened since 4Q9. The vacancy rate has increased from 12.9% in 4Q9 to 13% in 2Q1. This is a positive sign for the market, which has been plagued by the significant increase in vacant space that appeared since the GFC. The amount of vacant office space in the CBD Core and Frame market is at 128,7 sqm, which is at a 9-year high. Closer analysis reveals a large portion of the vacant space is in Quality B premises, with around 46% of total vacant space. Our current forecast suggests the Auckland CBD office vacancy rate could reach just over 18% in 213 if demand and supply expectations remain correct. in the CBD office market remained relatively steady over 2Q1. However, over the next 12 months, approximately 28, sqm will be added to the survey through the completion of the East Building at Britomart. Ernst and Young, Westpac and Southern Cross Medical Society will occupy the premises. In 213, there could be up to 3, sqm of space completed with the ANZ development on Customs St West. The ASB development of 18, sqm, which will also be completed in 213, sits outside the CBD Core and Frame precincts and will be included in the Viaduct Harbour precinct. Manson TCLM s development of the low-rise office park for Telecom continues with completion expected in late 21. This will provide a further 3, sqm of leased office space in the Viaduct Harbour precinct. Rising vacancy and decreasing occupier demand is leading to a continued decline in net face rents, while incentives continue to increase. This is leading to a greater decrease in net effective rents, which have decreased by around 1% over the last year. Net effective rents for prime buildings currently average around NZD 368 per sqm per annum, with incentives around 1% 17%. Prime Core initial investment yields were stable in 2Q1 averaging 8.63%. Investors remain cautious and influenced by wider economic and financial fragility locally and abroad, the rising cost of debt, the changes to depreciation announced in the recent Budget and possibility of changes to fit-out are also influencing factors. The CBD office sector is likely to experience further challenges ahead, especially if proposed developments are undertaken as scheduled. On the positive side, business growth is expected to occur over the short term with GDP forecast to start increasing sooner than previously expected. A two-tier recovery is emerging with rents at the lower end decreasing more than the top end. Average face rents are likely to continue decreasing, however, at a slower rate than previously experienced and landlords will concentrate on holding up face rents as much as possible. Incentives are expected to increase as landlords look to try and secure quality long-term tenants. Investors will be on the look out for property that ticks all the boxes, de-risks the purchase, and/or provides possible upside through add-value potential. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q F Take Up (net) Future For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rate are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net, on NLA Vacancy Rate NZD 368 psm pa Decline slowing Percent

41 On Point Asia Pacific Property Digest Second Quarter Beijing: Urban Retail As the economy recovered in Beijing, retail demand became increasingly active, showing steady growth. Amongst those driving this growth were international luxury brands expanding in the Beijing market. These included the Italian brand Emporio Armani, which will soon open a 1,6 sqm (GFA) flagship store in Sanlitun North Village, and Burberry, which opened a store in Ping an IFC Mall during its soft opening. Gucci, another luxury brand, is currently completing a fit-out in Ping an IFC Mall. Supermarkets and F&B have contributed greatly to the steady growth in retail. BLT supermarket will open a store in Fortune Mall, after signing contracts with China World Trade Mall (phase III) and Huaxi Le Mall in 1Q1. In Chaoyang Joycity, approximately 7 F&B restaurants are expected to open, such as Golden Triopod, Herbal Café, Wish and Golden Jaguar Group. High-end restaurants grew especially fast this quarter. Shanghai Xiao Nan Guo, for instance, will soon open restaurants in Ping an IFC Mall and Chaoyang Joycity. The strong growth in F&B can be attributed to further improvements in living standards and cross cultural interactions. Chain cosmetics and personal care stores, which are prized by landlords, maintained rapid expansion. Sephora and Manning opened stores in Chaoyang Joycity and Yintai Mall, respectively. In 2Q1, two shopping malls, Chaoyang Joycity located on Chaoyang North Road and Cuiwei Plaza (phase II) near the Gongzhufen area, were launched in Beijing with GFAs of 23, sqm and 37,6 sqm, respectively, increasing the total stock of the overall market to 3,57,748 sqm. Attracted by the operator s reputation from COFCO Joycity, the lease pre-commitment rate in Chaoyang Joycity reached 9%, which serves as an example of a new neighbourhood shopping mall which has enjoyed high demand. Although retail demand continues to pickup, this year s new supply influx and the large amount of existing stock continues to put pressure on rentals, ensuring continued favourable conditions for retailers during rental negotiations. The average rentals for the overall market have increased at a moderate rate of 5% q-o-q. Retailer demand will continue to grow steadily in the second half of 21. Four shopping malls are expected to launch in 3Q1, the peak season for Beijing retail sales. Rentals will continue to see steady growth, however, vacancy will rise slightly over the latter half of 21. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q1 1, F Future For 25 to 29, completions are year end annual. For 21,completions is as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net effective, on NLA RMB 573 psm pm Rents rising 2

42 42 On Point Asia Pacific Property Digest Second Quarter 21 Shanghai: Retail in the Shanghai retail market remained heated in 2Q1. More retailers such as Louis Vuitton, Zegna, Gucci, Dior, Tiffany, Hermes and Prada opened in the emerging luxury shopping destinations of Huaihai Road, the Bund and Shanghai ifc Mall. Other retailers actively followed in their steps with international fast fashion giant Inditex Group, parent of Zara, opening multiple new locations for its various brands in newly-completed projects. The German electronics retailer MediaMarkt has secured more than 1, sqm for their first flagship store on Huaihai Road. The eye-catching Uniqlo flagship store on Nanjing West Road made its debut in mid-may, enjoying long lines of customers waiting to enter during the first several days. No prime retail project was delivered other than the Tom Lee Building, which accommodates the Uniqlo flagship store. The refurbishment of three prime properties Hong Kong Plaza, Lippo Plaza and Yu Fashion Garden reached completion, and Shanghai ifc Mall had a soft-opening this quarter. Several brands started operating on the ground floor of Shanghai ifc Mall in April and May, but the grand opening is scheduled for the fourth quarter. In Hong Kong Plaza and Lippo Plaza, a few brands have opened already, with more expected in the following months. Yu Fashion Garden, previously known as Dragon Gate Mall, located in the Yu Garden retail precinct, has been repositioned as a trendy shopping destination with international brands such as Marks & Spencer, Zara, H&M, Pull & Bear and Bershka all committed to the project. In addition, two shopping malls were delivered in the decentralized retail market in 2Q1. Star Mall, with a total GFA of around 5, sqm, is positioned as a mass market lifestyle shopping center. Meanwhile, IMAGO opened at Wuning Road and Puxiong Road. With a total GFA of 11, sqm, it is a mixed use project with a 48, sqm shopping centre. The target consumer is young and trendy clientele. Currently, contracted tenants include ZARA, Bershka, Stradivarius, Pull and Bear, which are all under Inditex Group, as well as Charles and Keith, Ajisen Ramen, and Will s Gym. The average ground floor rent in Shanghai s prime retail market remained stable in 2Q1 with only a minor q-o-q growth of.1% to RMB 49.5 per sqm per day. The vacancy rate decreased further to only.8%, which was a 11 basis points decline compared with the previous quarter. This decline can be attributed to the increasing commitment rate in Huaihai Road properties such as Joffre 688 and Infiniti. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. 12-month Outlook Looking ahead, projects such as Shanghai ifc Mall, Hong Kong Plaza, Lippo Plaza, Phase 2 of Concord Plaza are expected to begin full operation in the second half of the year, as will Lotus Plaza in the decentralized market. The outlook for the food and beverage trade is especially strong for the rest of the year due to the high volume of Expo tourists. Rental growth is expected to be relatively slow over the next tweleve months, and the market vacancy rate is expected to increase slightly as new projects begin operation. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net, on NLA RMB 49.5 psm per day Rents rising 4

43 On Point Asia Pacific Property Digest Second Quarter Guangzhou: Retail Market Traditional holidays around the Qingming and Dragon Boat Festivals and May Day celebrations all contributed to stronger retail sales in 2Q1. After growing by 15.3% y-o-y in 1Q1, sales of consumer goods quickened to 18.1% y-o-y through the first five months of the year. The robust growth in retail sales helped drive demand for retailing premises within the city, with the overall vacancy rate for prime shopping malls tightening down to 3.5% by end-2q1. Activity in the leasing market was largely dominated by foreign brands specialising in fashion apparel. Hong Kong based young fashion retailer I.T. and local footwear retailer MUX opened new stores in Tee Mall; Travel luggage specialists Samsonite, women s apparel brand Marc Cain and Danish jewellery and accessories brand PILGRIM leased retailing space in Sky Galleria; while footwear specialists Clarks and BeLLE (M.A.P. by BeLLE), along with Lacoste, opened new stores in China Plaza. Department stores were again active in the leasing market. Grandbuy Department Store continued with its aggressive expansion plans, leasing 14,13-sqm at Beijing Road after agreeing to an option to lease 26, sqm in Happy Valley in Zhujiang New Town earlier in the year. Zhonghua Department Store leased the whole of the fifth floor in China Plaza. Thailand s Central Department Store secured a lease in Guangzhou Saint Fortune Shopping Mall in Panyu district while the operating rights to the retail portion of Central Commercial Plaza were awarded to a Hong Kong based consortium led by Mr Allan Zeman. No new prime shopping mall projects were completed in Guangzhou during 2Q1. The supply drought in recent quarters is likely to end with the opening of Taikoo Hui, OneLink Walk and Seasons Mall ahead of the Asian Games later this year. Tightening vacancy rates in existing malls and solid pre-commitment rates in upcoming new developments such OneLink Walk and Taikoo Hui along with the strong growth in retail sales allowed landlords to push rents higher in 2Q1. As at end-2q1, prime shopping mall rents stood, on average, at RMB 9,43 per sqm per annum, 3.3% higher than the previous quarter. Although there were fewer transactions completed in 2Q1, the investment market continued to draw strong interest from buyers, especially for strata-titled properties in suburban areas. With rents rising and yields remaining broadly stable, prices grew, on average, by 3.3% q-o-q in 2Q1. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. for retailing space in Guangzhou s prime shopping malls is expected to remain steady over the next 12-months. Though the vacancy rate is expected to rise sharply on the back of a record volume of new supply, landlords are likely to take a cue from the strong pre-commitment rates in upcoming developments when setting rents. As such, prime shopping mall rents are expected to continue growing over the next 12 months, though likely at a relatively slower pace than experienced in the year thus far. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net, on NFA RMB 9,43 psm pa Rents rising 4

44 44 On Point Asia Pacific Property Digest Second Quarter 21 Hong Kong: Retail Sustained economic growth, increasing tourist arrivals and improving consumer confidence all fuelled Hong Kong s retail market in 2Q1. Hong Kong scored 76.6 in MasterCard s of Consumer Confidence for 1H1, rising sharply from a score of 6. six months ago and 24.7 a year earlier. In the first five months of 21, tourist arrivals grew 19.9% y-o-y while total retail sales soared 18.3% y-o-y with big-ticket items like motor vehicles and jewellery & watches increasing the most. In 2Q1, a number of overseas retailers opened new stores in Hong Kong for the first time. For example, watch retailer Skagen Denmark opened a flagship store in isquare; Galliano fashion boutique opened a store in Harbour City; and fashion retailer Forever 21 pre-leased 5, sq ft in Capitol Centre for their first store in the city. In addition to these new market entrants, existing local and overseas operators, such as Citibank and Burberry, also snapped up shops in prime retailing areas. Investment demand for retail premises remained robust through 2Q1 with several properties transacting for over HKD 1 million. Notable transactions included the sale of: B/F, LG/F, UG/F, roof top and advertising space of Wings Building at Queen s Road Central (about 17,94 sq ft gross) for HKD 438 million; G/F, 1/F and advertising space on the 4/F of 26-3 Canal Road West (about 26,1 sq ft gross) for HKD 22 million; and 2/F & 3/F of Ginza Plaza at 2A Sai Yeung Choi Street South (about 14, sq ft gross) for HKD 28 million. The ONE, Chinese Estates redevelopment of the former Tung Ying Building in Tsimshatsui was issued with an Occupation Permit in 2Q1. The 43,613 sq ft vertical retail development is already over 9% pre-leased and is expected to officially open later this year. Meanwhile, a number of landlords announced upgrading plans. Hongkong Land, for instance, will renovate the retail podium of Prince s Building; Fortune REIT will renovate and upgrade their City One Shatin retail complex, which includes City One Plaza and Ngan Shing Commercial Centre; while Sino Land will reposition China Hong Kong City as an outlet mall. Rents of high street shops and overall prime shopping centres grew by a relatively faster 4.3% q-o-q and 1.8% q-o-q, respectively, in 2Q1. Capital values of high street shops grew by 4.3% q-o-q, keeping yields relatively unchanged through the quarter. The promising outlook for the economy over the next 12-months will lend support to the city s retailing sector. The World Cup period in June and July is expected to provide a short-term stimulus to pubs and bars while strengthening consumer sentiment will prompt more retailers to enact expansion plans and provide a platform for further rental growth. On this basis, we believe that retail property rents will grow by a total of 1-15% in 21. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q1 RV (Street Shop) CV (Street Shop) RV (Premium Prime Shopping Centres) RV (Overall Prime Shopping Centres) For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. (Prime Street Shops) ^ HKD psf pm Stage in Cycle Rents rising No. of Quarters Since 5 Last Trough ^ net, on GFA (Premium Prime Shopping Centres) ^ HKD psf pm Stage in Cycle Rents rising No. of Quarters Since 5 Last Trough ^ net, on LFA (Overall Prime Shopping Centres) ^ HKD 97. psf pm Stage in Cycle Rents rising No. of Quarters Since 3 Last Trough ^ net, on LFA Prime Street Shops Premium Prime Shopping Centres Overall Prime Shopping Centres F Future Prime Street Shops

45 On Point Asia Pacific Property Digest Second Quarter Bangkok: Retail Market As anti-government protesters occupied Bangkok s prime Ratchaprasong shopping district through much of the second quarter, retail centres in the less central areas reportedly benefited as fewer shoppers braved entering the occupied zone. After protest leaders surrendered and protesters dispersed, retail centres were the target of arson, and the city operated under a state of emergency for several days in the aftermath. Over the last month of 2Q1, confidence was gradually restored, with shoppers drawn out on hope that life in the city could return to normal. While demand was diverted during the localised demonstrations, traffic rebounded once centres in the Ratchaprasong area reopened. Siam Paragon reported 5, visitors on the day it re-opened on 25 May. As certain branches had to remain closed due to the damage incurred after the government broke up the demonstrations, some retailers expect to see continued strong performance in the alternate locations. The vacancy rate in Bangkok s prime retail market remained unchanged at 5.6% due to the good take-up at new projects completed during the quarter and the removal of supply offsetting the temporary closure of space damaged after the arson attacks Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 Monopoly Park on Rama 3 Road and Block L in Siam Square were the only projects completed during 2Q1. Central World, Center One and Big C Supercenter, all of which were damaged by arson after the government crackdown on protesters, were withdrawn from stock until repairs and renovations are completed. Operator CPN expects Central World to be fully operational within the next 12 months, although one department store Isetan in the complex has already re-opened its doors for business. A little over 97, sqm of new retail space should be completed by year end and this includes Paradise Park, the retail portion in Sathorn Square and Millennium Mall. Paradise Park was formerly known as Seri Center, and the 9, sqm of retail space has been undergoing renovation and is expected to be completed late this year. Meanwhile, the operator of The Platinum Fashion Mall, another complex on the fringe of the Ratchaprasong zone, announced that it has postponed until next year the opening of an expansion phase (which includes 1, sqm of retail). The centre, which is also dependent on tourist traffic, has reportedly already leased about 7% of the space being added. The average prime retail market rent continued to increase to THB 2,36 per sqm per annum, up.3% q-o-q. Similar with rents, capital values for prime retail space moved higher to THB 155,466 per sqm, up 1.3% q-o-q. Investment yields declined to %. Strong export growth and renewed faith in the government s ability to implement further investment have kept confidence up in the face of the recent political turmoil. Both private and public institutions have been revising GDP forecasts upwards to reach the % range. With solid demand expected for the coming supply pipeline, the pick up in consumption is expected to benefit retail For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net, on NLA THB 2,36 psm pa Rents rising 5 Future 1F

46 46 On Point Asia Pacific Property Digest Second Quarter 21 Kuala Lumpur: Prime Retail In the city centre, the average vacancy rate declined marginally by.5 percentage points to 8.4%, mainly contributed by the opening of retail outlets in the recently refurbished Lot 1. In the suburbs, the average vacancy rate declined by 1.6 percentage points to 5.9% as the Empire Gallery which was completed at the end of 1Q1 commenced operations at the beginning of 2Q1. Leasing activity included: Major retailers commenced operations in Lot 1 including Debenhams opening its second store in KL, National Geographic opening its first store in Malaysia and Zara opening its sixth store in KL. Mini anchor tenants, fashion, beauty & personal care and F&B outlets in Empire Gallery included Fitness First, Jaya Grocer, Toys R Us, Tangs, Charles & Keith, Guess, La Senza, Miss Read, Warehouse, Levi s, Braun Buffel, Crocs, Crabtree & Evelyn, Kiehl s, Shu Uemura, Kenny Rogers Roasters, Italianes, O Brien Irish Sandwich, Coffee BeanTea & Leaf and Madam Kwan. There were no new completions in 2Q1. Two city centre retail malls namely the Intermark Retail podium (15,794 sqm) and the Farenheit 88 (27,871 sqm) are expected to open in 2H1. In the suburbs, one project, SSTwo Mall (43,664 sqm) is expected to be completed in 2H1. Rents and capital values were stable in 2Q1. With improved retailer and consumer sentiment, rents of prime retail space are expected to increase in 21. Some centre owners are fortunate to have full occupancy and a waiting list of tenants which affords them excellent opportunities to drive rental growth. In early June 21, Sunway City sold the Sunway Pyramid mall (157,728 sqm) to Sunway REIT for a reported MYR 2.3 billion (MYR 14,585 per sqm). At the end of June 21, Capital Malls Malaysia Trust (CMMT) acquired 62% of Sungai Wang Plaza (41,85 sqm) and The Mines (66,849 sqm) from Vast Winners Sdn Bhd and Mutual Streams Sdn Bhd for a total price of MYR 724 million (MYR 17,298 per sqm ) and MYR 53 million (MYR 7,933 per sqm) respectively. These properties were acquired for a real estate investment trust (REIT) owned by the vendors/purchasers of the retail centres. base: 4Q5 = 1 Source: Jones Lang Wootton Q5 4Q6 4Q7 4Q8 4Q9 4Q F Future Source: Jones Lang Wootton For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. Consumer and retailer sentiment is expected to improve further as the economy regains momentum. Growth in consumer spending will be driven by the positive economic outlook, increased spending by tourists and the attractive sales and shopping carnivals to be held during 2H1. Thus, with limited new supply in the development pipeline, vacancy in the city centre is expected to remain stable. Existing prime retail centres will continue to fare well due to the strong support from the growing, affluent immediate catchment population and the attractive retail concepts. More retailers are looking to broaden their market share by opening up outlets in new centres, but remain cautious and generally will only expand in selected locations with ready and large population catchments. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net, on NLA MYR 3,289 psm pa Rents stablising 5

47 On Point Asia Pacific Property Digest Second Quarter Singapore: Retail Rental values stabilised in 2Q1, with most malls recording healthy occupancy rates. The seasonally adjusted retail sales index (excluding motor vehicles sales) in April grew by 7.4% y-o-y. This figure was a slight improvement from March, where retail sales increased by 7.2% y-o-y Tourist arrivals totalled 946, in May, registering a growth of 3.3% y-o-y. The average vacancy rate for malls in the Orchard shopping area dropped to 2.1% in 2Q1 from 2.4% in 1Q1. Due to a lack of new supply in 2Q1, net absorption stood at only 2,68 sqm The Marina area also recorded a decrease in vacancy levels from 3.5% in 1Q1 to 3.4% in 2Q1. Net absorption totalled 459 sqm as there was no new supply. Vacancy in the Suburban market remained low at.5% in 2Q1, recording a.2% drop from 1Q1. Net absorption went up from 855 sqm in 1Q1 to 1,395 sqm in 2Q1. As there is no new supply in this quarter, this increase can be attributed to higher take up rates in existing malls. 8 4Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 New supply in 2Q1 came from The Shoppes at Marina Bay Sands with an estimated NLA of 38,4 sqm. This supply, however, is not included in our basket due to its niche retail market. of retail space for the rest of the year from the Marina area will include Marina Bay Link Mall, additions to the retail space in Raffles City Shopping Centre and the retail component at the Fullerton Bay Hotel. Within the Orchard sub-market, Grand Park Orchard Knightsbridge is expected to complete in 3Q1. Despite limited new supply in the Orchard area, Grade A prime-level rental values remained flat due to newly completed malls such as ION Orchard, 313@Somerset and Orchard Central. Capital values in the Orchard area grew on average by 1.% from 2Q1. No major investment transactions were recorded in 2Q1. However, optimism in the market picked up, as evidenced by Tanglin Shopping Centre s second attempt at a collective sale. In addition, CapitaLand and Sun Hung Kai Properties will be undertaking facelift works to the underpass connecting Tangs Plaza and ION Orchard. The works will entail widening and adding retail space F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. The competition for malls in the Marina area is expected to further intensify as new supply comes on-stream. The suburban market is expected to continue to perform well due to the attractive tenant mix in upcoming malls. Backed by a stronger regional economic outlook, rents for all the three sub-markets are expected to stabilise if not grow moderately. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net effective, on NLA SGD 4,255 psm pa Rents rising 2

48 48 On Point Asia Pacific Property Digest Second Quarter 21 Jakarta: Upper-Class Retail The Jakarta retail market experienced a slight improvement during 2Q1. Leasing activity was more active compared with 1Q1, as confidence amongst retailers rose on the back of a gradual economic recovery and positive business environment. While major retailers adopted a watch and wait attitude, smaller retailers, particularly specialty stores, were more active in the market and contributed to a significant portion of the demand this quarter. New enquiries came mostly from F&B and fashion retailers, such as Benihana, Level One and Ranch Market in Grand Indonesia; Kitchenette and Dante Coffee in Plaza Indonesia Extension; DTF in Plaza Indonesia and Sopra in Pacific Place. Compared to 1Q1, net absorption surged to around 7,7 sqm, pushing vacancy down to 9.8% from 1.5% in the previous quarter as no additional retail stock entered the market in 2Q1. No new upper-grade retail developments were completed in 2Q1. Two projects Epicentrum Walk and phase II of the renovation of Pluit Village which were initially scheduled for opening early this year are still in their finishing stages. Both projects are expected to have their grand opening before the year-end festivities. Upon the completion of these two projects, together with that of Gandaria Main Street in the South Jakarta area, the market will witness a total of 167, sqm of new retail space before the year closes. This is expected to bring the total inventory in the market up to around 1.27 million sqm Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 2 Despite the increase in leasing activity, retail rents within upper-grade shopping malls in Jakarta remained stable. Between April and June, effective rents in the uppergrade retail market remained unchanged given the downward pressure from large tenants and stiff competition among the malls. In some projects, landlords continued to offer rental discounts, longer fit-out periods and more flexible payment terms to lure retailers. Pondok Indah Mall was the only project during this quarter that introduced higher rents as part of its seasonal adjustment. Overall, the average rental in 2Q1 increased slightly by.6% q-o-q to around IDR 4.41 million per sqm per annum F Future As economic and demographic factors all point towards strong consumer growth and confidence in the future, the retail market is expected to recover gradually for the rest of 21. Despite rising market activity, rental growth is anticipated to be overshadowed by the large future supply. As such, vacancy is projected to climb to 14.4% by end- 21. Riding on higher consumption and more lifestyle oriented spending in the city, lifestyle retailers are expected to benefit and some may expand. Effective rents in Jakarta s upper-grade malls are projected to decrease further by year-end before picking up gradually next year, along with the gradual expansion in the retail market. For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net effective, on NLA IDR 4,411,422 psm pa Decline slowing 6

49 On Point Asia Pacific Property Digest Second Quarter Manila: Retail Increased consumer spending on the back of sustained growth in remittances from Overseas Filipinos (OFs), served as the main driver for the growing demand for retail space in 2Q1. Tighter competition and growing demand for retail space has prompted a number of shopping centres within Manila to undertake redevelopment in efforts to expand retail offerings and enhance the shopping experience. In addition, lifestyle centres, combined with traditional retail formats with leisure areas, are slowly gaining ground within the retail property market. Net absorption totalled 19,43 sqm in 2Q1, up from 17,77 sqm recorded in 1Q1. for retail space was relatively solid, fuelled by increased spending stemming from increased remittances from OFs. A mix of new foreign and local brands penetrated the market, adding to the burgeoning demand for retail space. A trend which has emerged has been the growth of nontraditional tenants such as O&O, fitness centres and worship areas which now account for a greater share of retail space within shopping malls. The retail market has benefited from the growth of the O&O industry. Retail establishments have extended operating hours or adjusted opening hours to capture the O&O working population Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 5 No new projects were completed in 2Q1. However, SM City Novaliches is expected to complete and bring 55,85 sqm of retail space by 3Q1. Vacancy dipped to 3.5% in 2Q1 due to the lack of new retail developments as well as the redevelopment of a number of key retail centres, constricting the supply of available retail space. This constraint brought about heightened competition for retail space among retailers. Net effective rents increased by 3.% q-o-q to PHP 12,747 per sqm per annum. The increase in rents may be attributed to limited available space in the market and growing demand for retail space by tenants. Capital values exhibited the same trend as rental levels, gaining.7% q-o-q to average PHP 141,22 per sqm in 2Q1. Meanwhile, investment yields settled within the range of % F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. The retail market is projected to be positive, on back of a moderate recovery of the Philippine economy. The construction of new shopping malls in Manila is expected to slow as competition in the urban areas tightens. Part of the future stock of retail space in Manila is expansion of existing retail developments. Retail developers are moving into the peripheral areas of Manila, targeting the untapped market in select high-growth areas. The shift of the O&O industry outside of Manila may provide opportunities for provincial malls, allowing idle or underperforming retail space to be converted into office space to maximize revenue. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net effective, on NLA PHP 12,747 psm pa Rents rising 1 Rental levels are expected to rise due to the limited supply of new retail space in Manila. In total, approximately 524,852 sqm of retail space is due to enter the market between 211 and 215.

50 5 On Point Asia Pacific Property Digest Second Quarter 21 Delhi: Prime Retail As the economic recovery gathered pace and market sentiment stabilised, retailers began to expand throughout the region. However, the rise in demand was still restricted to a few successful malls in each micro-market with promising footfall. Most retail developers continue to seek hypermarkets and multiplex retailers to make under-construction projects operational. The average vacancy across all micro-markets increased from 21.3% in 1Q1 to 24.3% in 2Q1. Net absorption in the NCR retail market in 2Q1 totalled 179,994 sqm (16,722 sq ft), compared to 121,74 sq ft (11,31 sqm) recorded in the previous quarter. The strong absorption was attributed to pre-committed space in newly operational malls. The Delhi NCR retail market witnessed the completion of two suburban malls in 2Q1. This included the Opulent mall by SVP Group, which has a built-up area of 35, sq ft (32,516 sqm). The mall is located in Ghaziabad (eastern suburb of Delhi) and has leased out a considerable amount of space to anchors such as Easy Day (Bharti s large format departmental store in the NCR) and PVR (Multiplex operator). The retail market also witnessed the completion of Star Mall by DLF, which has a built-up area of 28, sq ft (26,13 sqm). The mall has been striving to attract retailers and now houses a multiplex operator, DT Cinemas and other small-sized stores. With several malls structurally ready or at the ready-for-fit-outs stage, the NCR is expected to witness a voluminous supply by end-21. Unlike last year, retail leasing activity would continue to move along a positive trajectory in 21, leading to a large number of malls becoming operational. However, the majority of these malls would commence operations with only a few retailers and this will push overall vacancy upwards. Investors and developers in Prime Others and Suburbs continued to offer marginal reductions in rents to help secure tenants for their long-vacant properties. However, rental growth expectations have begun to rise in selected malls in the Prime South micro-market. These are the better performing assets which witnessed relatively larger footfalls during recessionary times as well. Mall rents fell by 1.3% q-o-q in Prime South (compared with 3.% in 1Q1), 4.5% in Prime Others (compared with 4.3% in 1Q1) and 6.% in the Suburbs (compared with 1.% in 1Q1). The retail market continues to be in the rents-decline-slowing phase of the cycle, with leasing activity picking up Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 are for Prime South are for all micro markets F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. Backed by strong economic projections and consumption, retailers have resumed expansion plans for the NCR. Malls with good location & tenant-mix, are professionally managed and are built by experienced developers will be able to capitalize on this. A limited supply and high demand scenario in Prime South can lead to rental increases over the next 3-4 quarters. However, with most of the 3.5 million sq ft (324,929 sqm) of upcoming retail supply concentrated in Prime Others and Suburbs, rents will remain under pressure in these two micro-markets. (Prime South) ^ INR 225 psf pm Stage in Cycle Decline slowing No. of Quarters Since 7 Last Peak ^ gross, on GFA

51 On Point Asia Pacific Property Digest Second Quarter Mumbai: Prime Retail Despite improved business sentiment and strengthening domestic consumption, net absorption in Mumbai s retail real estate market remained very low. This was primarily due to a lack of new malls and low leasing activity in operational malls in 2Q1. The city witnessed net absorption of approximately 28, sq ft (2,615 sqm) in operational malls in 2Q1 compared to 573,761 sq ft (53,34 sqm) during the previous quarter. The bulk of absorption in the current quarter occurred within Mumbai s Suburban market, which has a high concentration of malls that are newly operational or underconstruction. The city s prime retail micro-markets are at saturation, with no new supply in the pipeline and limited space available for lease in operational malls. Leasing transactions in Mumbai s retail market during 2Q1 included: Future Group leasing 1, sq ft (9,29 sqm) in Infiniti II Mall, Malad, Suburbs; Rhysetta leasing 1,1 sq ft (94 sqm) in phase II of Growel 11, Kandivali, Suburbs; and Rhysetta leasing 547 sq ft (51 sqm) in Mega Mall, Andheri, Suburbs. No mall completions were recorded in Mumbai during 2Q1. The city has a total of million sq ft (1.17 million sqm ) of operational retail space with a vacancy of 22.8% which dropped marginally by 2 basis points from 1Q1 levels. Rents did not move during 2Q1. The average rent recorded in the Prime South micro-market was INR 225 per sq ft per month. Similarly, capital values have remained constant across all of Mumbai s micro-markets during 2Q1, resulting in unchanged yields. for retail space in the city is expected to improve as we move further into 21. Strengthening consumer confidence and improving economic conditions will result in higher consumption and are expected to drive the retail real estate market in the city. Approximately 2.7 million sq ft (249,445 sqm) of additional mall space is expected to become operational by end-21, all of which will be located in the suburban districts of the city. This significant future supply in Mumbai s retail market is expected to keep rents under pressure throughout the year. Although the country s major retailers including Future Group, Reliance Group, Aditya Birla Group and Trent have all announced expansion plans, this will likely materialise only in the medium term (two to three years). Going forward, retailers are expected to remain extremely sensitive to costs and will only focus on real estate options that are most economically viable Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 are for Prime South are for all micro markets. For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. (Prime South) ^ INR 225 psf pm Stage in Cycle Decline slowing No. of Quarters Since 7 Last Peak ^ gross, on GFA F Future

52 52 On Point Asia Pacific Property Digest Second Quarter 21 Bangalore: Retail Market Vacancy in malls in the Prime City micro-market decreased from.7% in 1Q1 to.% in 2Q1. Vacancy within malls in the Secondary micro-market marginally decreased from 2.5% in 1Q1 to 2.3% in 2Q1. Vacancy in suburban malls remained stable at 17.2% in 2Q1. The upcoming malls in the Secondary micro-market witnessed some pre-leasing activity in 2Q1. Key transactions in 2Q1 included the following: Central leasing 2, sq ft (18,581 sqm) in Soul Space Sprit Mall along Outer Ring Road; Croma leasing 1, sq ft (929 sqm) along Inner Ring Road, high street; Lilliput leasing 6,9 sq ft (641 sqm) along 1ft Road, Indiranagar, high street; and Nike leasing 3, sq ft (279 sqm) along Brigade Road, high street. There were no new completions during 2Q1 in Bangalore. The malls that were scheduled to complete in 2Q1 were postponed as the market is witnessing an oversupply situation in the Secondary micro-market and developers are struggling to lease space. The Prime City and Secondary micro-markets in Bangalore witnessed no correction in rents in 2Q1. The average rent for malls in Prime City remained at INR 178 per sq ft per month in 2Q1. Meanwhile, the average rent for malls in the Secondary micromarket was INR 85 per sq ft in 2Q1. The average rent for suburban malls remained at INR 48 per sq ft per month. Capital values across all micro markets of Bangalore remained stable at 1Q1 levels in 2Q Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 are for Prime City Existing malls in Prime City will continue to witness steady demand and may see rental growth in 2H1, primarily due to low prevailing vacancy coupled with negligible upcoming supply. Malls scheduled for completion over the next 12 months in the Secondary and Suburban micro-markets will have a challenging time attracting retailers in an increasingly competitive market. About 7.12 million sq ft (661,47 sqm) of retail mall space is expected to be operational across all of Bangalore s micro markets between 21 and 212. Rental values across malls in the Prime City will remain unchanged due to the lack of upcoming supply for a number of quarters. Meanwhile rents in malls in the Secondary micro-market of Bangalore are expected to remain under pressure due to the huge supply pipeline and inadequate demand. Landlords are offering revenue-sharing arrangements instead of fixed rents, subsidising fit-out costs and waiving the minimum guarantee as options to attract tenants F Future are for all micro markets. For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. (Prime City) ^ INR 178 psf pm Stage in Cycle Decline slowing No. of Quarters Since 6 Last Peak ^ gross, on GFA

53 On Point Asia Pacific Property Digest Second Quarter Pune: Prime Retail In 2Q1, a total of 43,82 sq ft (4,71 sqm) of retail space was leased across high streets and malls. However, the net absorption in the malls totalled 11,883 sq ft ( 1,14 sqm) due to the exodus of a few retailers from the Kakade Center Port Mall in Prime City at Ganesh Khind Road. As a result the overall vacancy increased marginally by 8 basis points to 15.5% in 2Q1. At present, Pune lacks readily available quality mall space, and this has been the primary reason for the lack in demand from retailers. Key transactions in 2Q1 include: Staples leasing 6,176 sq ft (574 sqm) in SGS Magnum Mall, Moledina Road, Prime City; Cinemax leasing 32, sq ft (2,973 sqm) in Kumar Pacific Mall, Shankar Seth Road, Prime City; and Timeout leasing 5,344 sq ft (496 sqm) in Jewel Square, Koregaon Park, Prime City. With no new completions recorded in 2Q1, Pune s organised retail stock remained at 1.5 million sq ft (144,186 sqm). After the completion of the much-awaited Jewel Square in 4Q9, Pune s retail market has not witnessed any new completions. A total of 1 million sq ft (92,93 sqm) of retail space comprising three malls is expected to be operational by end-21. The major ones include K Raheja s Inorbit Mall along Nagar Road and Kumar Pacific by Kumar Properties along Shaker Sheth Road. Mall rents remained stable at 1Q1 levels in 2Q1 due to limited availability of leasable space. Moreover, minimum guarantee and revenue-sharing models are gaining preference by retailers. All major malls in the Prime City (Magnum Mall and Jewel Square) are almost occupied, and rents remained stable at an average of INR 15 per sq ft per month. The average capital value across both Prime City and Secondary micro-markets have been steady for one year since 2Q9, indicating a stabilisation in asset pricing. Over the next 6 12 months, net absorption is expected to improve with the completion of the much-awaited Inorbit Mall and Market City Mall along Nagar Road in the Secondary micro-market. Both malls have achieved good pre-commitments from retailers, and are expected to commence operations with high occupancy levels. We foresee a marginal increase in overall rental values over the next 3 4 quarters primarily due to the expected increase in leasing activity in the aforementioned malls and the lack of ready-to-occupy quality space Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 are for Prime City are for all micro markets. For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. (Prime City) ^ INR 15 psf pm Stage in Cycle Decline slowing No. of Quarters Since 7 Last Peak ^ gross, on GFA F Future

54 54 On Point Asia Pacific Property Digest Second Quarter 21 Australia: Sub-Regional Shopping Centres The general retail environment softened somewhat over the past few months, reflecting the impact of interest rate rises earlier in the year and renewed global economic uncertainty. Retail turnover growth has been moderate over recent months, while consumer sentiment slid significantly in May and June, but has recovered somewhat in July. Reflecting consumer behaviour, the recovery in tenant demand that has emerged over recent quarters stalled in 2Q1, as many retailers tempered their short-term expectations. Nevertheless, there remains a wide discrepancy in expansion intentions among retailers. One sub-regional project completed in 2Q1 and this is the only project to have completed in 21 to date. This was AMP s 18, sqm extension of their Mt Ommaney Shopping Centre in Brisbane, which completed almost completely leased to tenants including Coles, Target, Aldi and JB Hi Fi. While the supply pipeline remains subdued, it appears to be reaching a trough and three projects totalling 34,18 sqm commenced in 2Q1. This brought the total amount of sub-regional space under construction to 19,1 sqm, with just under 6, sqm due to complete over the remainder of 21. The average sub-regional vacancy rate across all monitored markets in 2Q1 was 2.7%, which is unchanged since the last survey in 4Q9. Vacancy fell in Adelaide and Perth, but was offset by moderate increases in Sydney, Melbourne and South East Queensland. Sub-Regional specialty rental growth slowed in 2Q1 reflecting the general softening in the market in the quarter. Average rents across all markets grew just.2% in the quarter, compared to.9% growth last quarter. Average sub-regional rents have increased by 1.6% over the past year. There was some tightening in sub-regional yields recorded in 2Q1 across most markets reflecting a deeper buyer pool as larger domestic investors re-appear as potential buyers. The yield range for sub-regional assets across all markets firmed 25 basis points at both ends to be 6.5% to 9.%. Two sub-regional assets transacted in the quarter for a total of AUD 158. million. - Sydney base: 4Q5 = 1 - Sydney Q5 4Q6 4Q7 4Q8 4Q9 4Q F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. The retail sector appears to be going through a post-stimulus lull at present, but low unemployment, strong population and wages growth should support spending at a solid level over the next 12 months. Consequently, we expect steady levels of demand and relatively stable vacancy over the next twelve months. However, continued pressure on some retailers is likely to keep rental growth subdued and we anticipate a relatively benign outlook for yields. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net, on GFA AUD 964 psm pa Rents rising 24 NA

55 On Point Asia Pacific Property Digest Second Quarter Auckland: Retail Market Many retailers are becoming increasingly confident that the worst of the downturn is over. However, retailers submit that the increase in consumer confidence has not yet reached the tills, with recent retail sales data released by StatisticsNZ supporting the view that New Zealanders remain budget conscious. Total net absorption across the CBD and Suburban markets was 9 sqm over 2Q1. While the result is relatively flat, it is weaker than net absorption of 8,77 sqm recorded in 4Q9, which suggests the retail sector is still experiencing some challenges. There were no new additions to supply in the CBD and Suburban sectors over 2Q1, with the total space remaining at 242, sqm. Looking forward, there is expected to be an increase in supply with the addition of a six-level carpark building with street-level retail on the old Oriental Markets site in Britomart. Les Mills has signed for approximately 2, sqm of the 3, sqm for a term of 2 years. The premises should be completed by late Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 Prime CBD rents were stable over 2Q1 as confidence in the retail sector started to increase. However, the landlords ability to increase rents remains challenging as consumers remain budget conscious and retailers cautious. The average Prime CBD rent over the last five years has increased by 11.5%, or 2.3% per annum, which is above inflation over the same period. The forecast increase in economic activity, decline in unemployment and the general confidence exhibited in the economy over the last six months is likely to flow through to the retail sector quicker than was forecast in 4Q9. As a result, we expect retail rents in the Prime sectors to increase over the next 12 months. However, rental growth is expected to be slow at first. Auckland Prime CBD and Suburban retail yields have held steady at 7.63% and 8.25% respectively over 2Q1, as investors remain confident, albeit cautious, of current conditions in the retail sector. Confidence in the retail sector, albeit fragile, continues to increase on the back of a projected economic recovery and the lead up to the 211 Rugby World Cup. While consumer confidence has also been increasing, this has yet to fully translate into increased spending as people remain budget conscious. This suggests a relatively quiet short-term outlook for the retail sector that is trading in challenging conditions. However, the unemployment rate has decreased from recent highs and confidence in employment levels are rising. The expected increase in inflation due to the increase in GST from 12.5% to 15%, the introduction of the ETS and the increase in ACC levies, will be a concern for retailers with a rent review in 211 that is set to CPI levels. Treasury forecast that CPI could reach 5.9% over the 211 March year. sqm 9, 8, 7, 6, 5, 4, 3, 2, 1, For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net, on NLA F Future NZD 1,488 psm pa Decline slowing 6

56 56 On Point Asia Pacific Property Digest Second Quarter 21 Wellington: CBD Retail Market Occupier demand in the Wellington retail market continued to soften over 2Q1, with the vacancy rate now at 5.3%. The vacancy rate has ranged between 4.5% to 6.5% over the last two years, which is still relatively low given the effect that the slowdown in economic conditions has had on discretionary spending. While there has been an increase in the overall vacancy rate, there is still a relatively limited amount of retail space available in Wellington s CBD. This is further exacerbated for retailers who only want prime locations. Net absorption in the CBD and Southern CBD areas was -1,2 sqm as occupier demand was slightly softer over 2Q1. Total stock for the CBD is currently 111,5 sqm. Additions to supply have been relatively limited, averaging approximately 7 sqm a year over the last 16 years. The completion of a number of developments over the next few years could provide up to 4, sqm of ground floor retail space. This will provide retailers with more options over the next few years, however, the space will be outside of the traditional CBD Q4 4Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 Average ground frontage Lambton Quay rents declined by 2.5% over 2Q1, however, the rate of decline has reduced over this period. Prime Lambton Quay is still keenly sought after and if space continues to remain vacant, it is expected that rents will need to decrease and/or incentives will need to increase in order to attract retailers. While secondary CBD yields stabilised at an average of 1.38%, Prime CBD yields firmed by 25 basis points over 2Q1. Since the peak in yields in mid 27 when yields compressed to record lows, Prime CBD yields and Secondary CBD yields have softened by 37 and 125 basis points respectively. Over the last decade, the vacancy rate has varied between 2% and 8%. This indicates that there is a relatively low amount of variance, with the vacancy rate expected to be steady around current levels over the short term. While consumers remain budget conscious, retailers are more confident that prosperous times are ahead. This is supported by the recent decline in the unemployment rate, and the increase in economic activity. As a result, we expect that top-end rents are likely to increase over the next 12 months. Investor activity in the retail sector will continue to be subdued until market confidence grows, albeit it is likely to be much slower than many would like. Policy changes to Tax and GST may have a dampening effect, however, as business and consumer confidence builds, prosperity and discretionary spending is likely to follow. The expected increase in inflation due to the increase in GST from 12.5% to 15%, the introduction of the ETS and the increase in ACC levies, will be a concern for retailers with a rent review in 211 that is set to CPI levels. Treasury forecast that CPI could reach 5.9% over the 211 March year. sqm 5, 4, 3, 2, 1, 1, 2, For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net, on NLA F Future NZD 1,988 psm pa Decline slowing 6

57 On Point Asia Pacific Property Digest Second Quarter Beijing: Residential Following the recovery in 1Q1, the high end residential leasing market became very active in 2Q1. increased significantly, resulting in higher occupancy rates for most projects and giving landlords more bargaining power when asking for higher rents. Following the introduction of government policies aimed at cooling the sales market, some prospective purchasers are now adopting a wait and see attitude until there is greater clarity in the direction of sales market. This is proving beneficial for the leasing market as some of these prospective purchasers have now turned to the leasing market to meet their accommodation needs. Furthermore, helping to bolster leasing demand in the serviced apartment, luxury apartment and luxury villa market, was the arrival of new employees from abroad to multinational corporations. Only one serviced apartment project entered the leasing market in 2Q1. This project was Oakwood Residence Beijing, located in the Dongzhimen area which has 46 units. In addition, a total of 3 serviced apartment buildings left the leasing market in 4Q9 and 1Q1, forcing existing tenants to relocate to other serviced apartments and leading to a supply shortage. Strong demand and limited new supply resulted in lower vacancy rates for most projects. Vacancy for serviced apartments, luxury apartments and luxury villas dropped 3.8, 3.5 and 2.1 percentage points to 16.8%, 16.4% and 15.3%, respectively. In 2Q1, net effective rents for serviced apartments, luxury apartments and luxury villas increased 7.8%, 4.6% and 2.8% q-o-q to RMB 164.6, RMB 9.9 and RMB 19.4 per sqm per month, respectively. With the majority of developers maintaining healthy cash flows, pressure to lower prices remains moderate. Most developers are holding or increasing their prices and continuing with a wait-and-see approach. As a result, transaction prices for luxury apartments increased 6.1% q-o-q to RMB 39,983 per sqm, and transaction prices for luxury villas increased 2.5% q-o-q to RMB 4,619 per sqm. Jones Lang LaSalle expects the high end residential leasing market to continue its current trend in the second half of the year. Leasing volumes will remain robust and rents will steadily increase. The State Council announced a series of property-sector tightening measures on April 15, which were intended to curb investment demand for housing by restricting lending on properties purchased for investment. The second quarter of 21 showed a strong drop-off in investment demand, along with lower transaction volumes. Going forward, Jones Lang LaSalle expects the current housing measures to persist in the second half of the year, with potential buyers continuing to adopt a wait-and-see approach. To this end, transaction volumes will remain low, with some developers offering more price discounts to promote project sales. base: 4Q5 = 1 Units Q5 4Q6 4Q7 4Q8 4Q9 4Q1 12, 1, 8, 6, 4, 2, F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. (Luxury Residential) ^ RMB 97.1 psm pm Stage in Cycle Rents rising No. of Quarters Since 2 Last Trough ^ gross, on GFA

58 58 On Point Asia Pacific Property Digest Second Quarter 21 Shanghai: Luxury Residential Responding to continuously rising housing prices seen in many cities in 1Q1, the central government rolled out a series of new tightening measures in mid-april which focused on the demand side of the market. Reacting to the regulatory changes, most buyers chose to stay on the sidelines to gauge the impact on housing prices. Ongoing speculation over the rollout of a real estate tax on residential properties led to further deterioration in market sentiment. As a result, the sales market virtually ground to a halt in May and June, highlighted by plunging sales volume in Shanghai s primary market. New commodity housing sold in May was only 314,287 sqm, 69.6% lower than in April and a record low level over the past five years. The luxury residential market remained quiet through the quarter with projects we track registering few transactions. For instance, 1 Xinhua Road in Changning District and Bound of Bund in Huangpu District both saw no transactions in 2Q1. In contrast, the luxury rental market saw a surge in leasing demand, particularly from visitors to the Expo, resulting in a substantial decline in vacancy of 3.9 percentage points for luxury apartments this quarter. One new luxury project was launched for pre-sale and two serviced apartment projects reached completion. In April, Hong Kong New World put 39 units in Dynasty on the Bund in Luwan District onto the market for sale and sold 33 units at an average price of RMB 59,888 per sqm by the end of June. The Ascott on Huaihai Road in Luwan District (formerly known as Hong Kong Plaza) and Oakwood Residence in Putuo District debuted on 1 May, adding 27 units and 112 units, respectively, to the serviced apartment leasing market. Though sales slowed significantly in 2Q1, few developers of luxury residential projects in Shanghai chose to lower their prices to spur sales. Meanwhile, the secondary market has not yet seen panic sales by nervous investors. Capital values of luxury apartments were largely unchanged at RMB 55,213 per sqm on average in 2Q1. In the luxury rental market, because of the surge in leasing demand from visitors for the Expo coupled with a sharp decline in vacancies, rental growth for luxury apartments accelerated from last quarter s 1.% q-o-q to 3.5% q-o-q in 2Q1. In the residential investment market, domestic investors continued to show strong appetite for en-bloc acquisitions. Belgravia Place, a serviced apartment project in Changning District owned by Grosvenor and SEB, was sold to a domestic investor for an undisclosed price. In the overall residential market, we expect the current impasse to be broken soon. Price levels are expected to fall modestly over the next several months as developers are expected to seek stronger cash flow and reduce prices in exchange for greater volume. Sales are also expected to rebound as the housing market enters the traditional high season in September and October as buyers, especially first time buyers, return to the market. However, in the luxury market, we expect developers in Shanghai will hold prices firm, as new supply remains extremely limited. The luxury leasing market will enjoy strong demand for short to medium stays until the Expo concludes in October. Meanwhile, long-term leasing demand from expatriates will see continuous improvement with the gradual increase in expatriate deployments. base: 4Q5 = 1 Units Q5 4Q6 4Q7 4Q8 4Q9 4Q1 1,5 1,25 1, For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Trough ^ gross, on GFA F RMB psm pm Rents rising 2 Future

59 On Point Asia Pacific Property Digest Second Quarter Hong Kong: Luxury Residential The higher stamp duty for luxury residential property transactions, which came into effect on April 1, had limited immediate impact on purchasing demand in April and May. However, the sales market did experience a mild consolidation in June after the introduction of new measures (effective June 1), aimed at enhancing the transparency around flat sales in the primary market. These measures led developers to withhold new launches and review sales strategies. The total number of residential sale and purchase agreements registered in 2Q1 amounted to 32,38, 2.6% less than in 1Q1. With fewer new launches, the primary sales market was relatively quiet in 2Q1. Attention was focused largely around the launch of The Hermitage in Tai Kok Tsui where about 25% of the 964 units were sold. In spite of the fewer number of sales in the market, several luxury properties still sold for record-breaking prices in 2Q1. Six detached houses at 6-16 Peel Rise on the Peak were bulk sold for HKD 1.98 billion (accommodation value of HKD 61,717 per sq ft) while 35 Barker Road was sold en bloc for HKD 1.82 billion (accommodation value of HKD 68,229 per sq ft). Three sites on the Application List were sold at public auctions during the quarter. TCTL 37 in Tung Chung and FSSTL 117 in Fanling were sold to Nan Fung Group for HKD 3.42 billion and Hong Kong Ferry for HKD 1.33 billion, respectively. Also, Sun Hung Kai Properties topped the bidding for KIL in Ho Man Tin, paying the second-highest price on record for a development site in Hong Kong, fetching a total of HKD 1.9 billion. The Ho Man Tin site was the first of six luxury residential sites earmarked for irregular land auctions by the government. The luxury residential leasing market continued to perform strongly in 2Q1 with demand from expatriates continuing to show improvement and lending to further rental growth. Though demand was up, there were still few indications of companies increasing housing budgets. A total of 4,975 residential units were completed in the first five months of 21, 69 of which were luxury units. The mild consolidation of transaction volumes in 2Q1 contributed to luxury residential capital values growing at a relatively slower.3% q-o-q. Growing demand in the leasing market led landlords to push rentals up by a further 5.8% q-o-q. In spite of the large shadow cast by the European sovereign debt crisis over the global economy, the recovery of the Hong Kong economy is expected to remain intact. Capital values are expected to be supported by low interest rates and tight future supply, while rents are expected to continue to moderately rise as demand gathers momentum. base: 4Q5 = 1 Units Q5 4Q6 4Q7 4Q8 4Q9 4Q1 1, F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. ^ HKD 35.2 psf pm Stage in Cycle Rents rising No. of Quarters Since 5 Last Trough ^ net, on GFA * The index basket was re-audited 3Q9.

60 6 On Point Asia Pacific Property Digest Second Quarter 21 Macau: High-End Residential The rising concerns over another economic crisis in Europe, which led to a stock market consolidation, coupled with the Central government s efforts to cool the Mainland Chinese property market, all combined to affect market sentiment in Macau s residential market in 2Q1. In general, demand weakened through 2Q1 although some local investors continued to show keen interests in Macau s high-end residential properties. In one of the more notable examples, two high-floor units in One Central Residences were sold to local investors for HKD 1, per sq ft (gross). Also in One Central Residences, UK investor Macau Property Opportunities Fund (MPOF) launched for lease THE WATERSIDE (the previous Tower 6 of One Central Residences) during the quarter, asking HKD 2 to HKD 3 per sq ft (gross) per month. The leasing of stratified units in Le Royal Arc and The Manhattan were active in 2Q1; with monthly rentals in the range of HKD 13 to 15 per sq ft (gross). A total of 1,923 residential units were completed in 2Q1, including those in The Praia (1,288 units), The Pacifica Garden (288 units) and Millennium Court (347 units). For the remainder of the year, we expect another 2,67 residential units to be completed, bringing the full-year total to 4,53 units. The slowdown in investment activity resulted in a mild correction in residential prices, with those for high-end residential properties falling by 3.8% q-o-q in 2Q1. In contrast, the gradual rebound in leasing demand helped hold high-end residential rents relatively stable, up.3% q-o-q in 2Q1. As such, investment yields edged up 1 basis points to 2.3%. It is expected that Macau s economy will continue to ride on a strong rising trend in the next 12 months, leveraging not only on its trophy gaming sector, but also on the potential growth in fixed asset investment upon the reactivation of the various construction projects on the Cotai Strip. The labour market outlook will continue to improve and the number of expatriates is also expected to increase, a key driver for high-end residential leasing demand in Macau. Strong economic growth, low interest rates and strengthening leasing demand are all pointing to a sustained level of investment demand growth in the 12 months ahead. In general, we expect residential capital values to climb by a further 1% in 2H1. However, it is not without risks. The uncertainties in the western economies will likely remain in place, at least in the next 6-12 months. Any instability in the global financial sector could leave the Asian markets, including Macau, with great pressure. base: 4Q5 = 1 Units Q5 4Q6 4Q7 4Q8 4Q9 4Q1 5, 4, 3, 2, 1, F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net, on GFA HKD 6.9 psf pm Rents stablising 4

61 On Point Asia Pacific Property Digest Second Quarter Bangkok: High-End Condominium Market Ongoing demonstrations in central Bangkok through much of the second quarter crimped residential demand, particularly from expatriates and foreign investors who have become even more sensitive to domestic political issues. As the political turmoil weakened demand and more new rental supply came into the market, the pursuit for tenants intensified and rents came under further pressure. The political unrest, concentrated across the Ratchaprasong area of Bangkok s CBD, rose to beyond what many expected. The government eventually used force to disperse the protesters in mid-may. With travel advisories from many countries in effect, many tenants had to temporarily relocate accommodation as demonstrations became violent. Residents and tenants have since been able to return to their homes, and the area remains one of the most prestigious addresses in Bangkok. While confidence locally has gradually been restored, foreign investors and tourists are likely to remain wary of the situation over the medium term. Sansiri launched yet another high-end project, KEYNE, during 2Q1, offering 28 units priced between THB 14, and 165, per sqm and located between Sukhumvit 34 and 36, close to the Thonglor BTS station. Listed-developer Sansiri reported a very high percentage of units being booked in this project during the quarter Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 In 2Q1, only one high-end project was completed. Prive by Sansiri is located on Soi Ruamrudee and comprises 78 units. Thereafter, around 95 units will be completed across the market by the end of 21, bringing the total high-end stock to 21,5 units. On the back of poor demand resulting from the demonstrations and new supply entering the rental market, the average rent in 2Q1 declined by another 2.4% q-o-q from THB 4,534 per sqm per annum in 1Q1 to THB 4,425 per sqm per annum. The average resale price marginally decreased by.2% q-o-q from THB 97,24 per sqm to THB 97,221 per sqm as investment yields stood between 4.6% and 4.9% in 2Q1. Units 5, 4, 3, 2, 1, F Future Condominiums located near mass transit stations are still in high demand, although asking prices for those in prime locations in the CBD and the Sukhumvit area remain relatively high. Foreign buyers, who were in the past put off due to the global financial crisis, continue to hesitate due to the heightened concerns about the country s political situation. For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. With around 3,15 new units scheduled for completion by end-21, rents and resale prices are expected to face continued downward pressure. Interest rates have yet to rise significantly, and yields are expected to range between 4.4% and 4.7% without accounting for potential vacancy. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net effective, on NLA THB 4,425 psm pa Rents falling 15

62 62 On Point Asia Pacific Property Digest Second Quarter 21 Kuala Lumpur: Luxury Residential Incoming supply likely to curb capital appreciation in the short term. In 2Q1, the major launches include the Pearl and Kiaramas Danai. The Pearl, is a freehold development sited on 1.79 acres, on Jalan Stonor, in the renowned KLCC locality. The development comprises 179 units in 1 block with 41 storeys. There are 6 units per floor and all units have 3 car park bays. The purchasers are a mix of locals and foreigners (mainly from Singapore and Hong Kong). The developer, Flora Bliss Property Development Sdn Bhd, soft launched the development at the end of 29 to corporate counterparts and close contacts and so 6% of the units have been sold. Kiaramas Danai Block A, is a freehold development sited on 4 acres, on Jalan Desa Kiara, Mont Kiara. The development comprises 274 units in 2 blocks of 33 storeys. In May 21, the first block comprising of 137 units was launched. There are 4 units per floor and all units have 3 car park bays. The developer, Asia Quests good reputation and attractive discounts have enabled them to secure a good sales rate of 85%. increased from 16,925 units to 17,122 units with the completion of The Binjai on the park (171 units) in the KLCC locality and Iringan Hijau (26 units) in the U-Thant area in 2Q1. Underpinned by steady demand, an additional 1,642 units are expected to come on stream during the remainder of 21 and a further 5,117 units in Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = 1 Source: Jones Lang Wootton 4, 3, The luxury condominium investment market has stabilised and activity is no longer highly speculative. Generally, capital values remained stable in 2Q1, however, due to the introduction of newer / better quality condominiums in the monitored stock, the average capital value increased from MYR 6,588 per sqm in 1Q1 to MYR 6,76 per sqm in 2Q1. However, rentals have come under pressure and decreased marginally to MYR 447 per sqm pa in 2Q1 due to the supply-demand imbalance. The luxury condominium market is expected to perform well over the next twelve months as it rides on a surge in supply and demand picks up as the economy strengthens. Despite this, incentives such as price rebates, low down payment, zero interest during construction, free legal fees and disbursements for SPA are expected to continue in 2H1. However, as the market improves further these incentives are likely to be phased out. Units 2, 1, F Future Source: Jones Lang Wootton For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. Capital values are expected to remain stable in the short term while rentals may come under downward pressure due to large supply and high vacancy. ^ Stage in Cycle No. of Quarters Since Last Peak ^ gross, on NLA MYR 447 psm pa Rents falling 7

63 On Point Asia Pacific Property Digest Second Quarter Singapore: Residential Prices for residential properties continued to trend up in 2Q1 on the back of encouraging sales volume, although market sentiment weakened as market players, developers and buyers alike, turned cautious on heightened uncertainty arising from the euro zone debt crisis. The second quarter of 21 witnessed slower sales as the new sales volume fell to 427 units 1 in the prime market. There were fewer new launches that achieved the kind of take-up seen in the previous quarter, indicating a softening in buyers sentiment. Some of the projects that received encouraging response in 2Q1 included Gilstead 2, with 75% of its released units sold, and Starlight Suites, with all 22 units sold. In the resale market, 611 units were transacted in 2Q1. Although this translates into a 19% q-o-q drop in sales volume compared to 1Q1, this is still about 4% higher than the historical average of 437 units transacted per quarter from 2 to 29, suggesting that while sentiment weakened, it remains positive. Fewer projects were launched in the prime market as developers adopted a wait-andsee attitude, contributing to a lower new sales volume in 2Q1. Small units continued to dominate the scene amidst affordability concerns. Significantly more physical completions came into the prime market in 21, totalling about 9 units. Moreover, these completions are larger projects, which included Eleven (273 units), Belle Vue Residences (176 units) and Waterfall Gardens (132 units). The growth of capital values picked up in 2Q1, supported by an improvement in rental income and higher price expectations. The average capital value for luxury residential properties rose by 8.2% q-o-q to SGD 26,91 per sqm, while that for typical prime properties grew by 7.6% q-o-q to SGD 14,531 per sqm. As leasing activity remained active on the back of sustained hiring momentum by companies, rentals continued to show improvement in 2Q1. The average luxury prime rental value rose by 6.5% q-o-q to SGD 572 per sqm per annum, while the average typical prime rental value grew by 7.3% q-o-q to SGD 424 per sqm per annum. Going forward, the slower buying momentum is expected to remain as buyers wait for more certainty in the market s direction and capital value increases are thus expected to moderate. However, there remains an upside potential for luxury prime properties as capital values are on average 8.4% below their previous peak. In the meantime, policy risks are likely to be reduced given that market activity and capital value increases have slowed. In the leasing market, the substantial amount of completions entering the market is expected to keep rental growth in check. However, a further upside to rental growth can be expected for the good quality projects. base: 4Q5 = 1 Units Q5 4Q6 4Q7 4Q8 4Q9 4Q1 RV (Prime) CV (Prime) RV (Luxury) CV (Luxury) 3, 2,5 2, 1,5 1, F Future For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. (Luxury) ^ SGD 572 psm pa Stage in Cycle Rents rising No. of Quarters Since 2 Last Trough ^ net effective, on GFA (1) Based on the number of caveats lodged by purchasers retrieved from Urban Redevelopment Authority (URA) Real Estate Information System (REALIS) on 5 July 21.

64 64 On Point Asia Pacific Property Digest Second Quarter 21 Tokyo: Industrial Logistics In 2Q1, trade and production volumes overall continued to trend upwards. According to the May Trade Statistics, the quantitative indicator (25=1) for exports was 94.8, a 31.9% increase y-o-y; while for imports, the figure was 94.1, a growth of 22.2% y-o-y. Meanwhile, the industrial production index (25=1) for May decreased.1% m-o-m but increased 2.2% y-o-y to 95.9, more than five quarters of strong performance. Relatively stable demand for sophisticated logistics facilities continued in 2Q1. This was supported by political initiatives such as the Ministry of Land, Infrastructure, Transport and Tourism s drive to develop efficient distribution networks as well as the increased number of corporates aiming to lower distribution costs through the use of third-party logistics (3PL) services. In addition, e-commerce businesses were actively taking up space. Take-up announced during 2Q1 included e-commerce service provider Rakuten occupying 25, sqm at Prologis Park Ichikawa I (GFA: 151, sqm; completion: 28; multi-tenant), which is located in the fringes of the Tokyo Bay area. Container Throughput - Tokyo TEUs (Million) Q5 2Q6 2Q7 2Q8 2Q9 TEUs shipped per quarter Source: Bureau of Port and Harbour, Tokyo Metropolitan Government In 2Q1, Prologis Park Ebina (GFA: 35, sqm) was completed in the Inland Tokyo area for the exclusive use of 3PL provider Kirin Logistics. The facility will be used as a distribution hub for a factory situated in the vicinity. With the revival of a suspended project, the market showed further signs of recovery. In the Inland Tokyo areas, Prologis Park Kawajima (GFA: 17, sqm; built-to-suit), a project temporarily suspended in August 28, has once again started construction and is due for completion in June 211. In addition, Kawagoe Logistics Centre (GFA: 59, sqm; multi-tenant) started construction and is scheduled for completion in February 211. Rentals for sophisticated distribution facilities located in the Tokyo Bay area averaged JPY 6,21 per tsubo per month (JPY 21,855 per sqm per annum), decreasing for the eighth consecutive quarter. However, the decline was.4% q-o-q or 5.9% y-o-y, much smaller than the decline in previous quarters indicating that rents are bottoming out. According to the Bank of Japan s Monthly Report of Recent Economic and Financial Developments for June, the uptrend in exports and production is expected to continue, although the pace of increase is likely to moderate gradually. Under such an environment, demand is expected to be moderate and would come from 3PL providers, which are supported by the increasing number of corporations aiming to cut distribution costs, and e-commerce providers, whose sales have been growing steadily. As such, rental and capital values are expected to remain mostly flat in the course of the coming year. The Revised Tokyo Metropolitan Environmental Security Ordinance was implemented in April. Since the ordinance will be applicable to properties that consume 1,5 kl or above of energy per year, demand for distribution centres that can accommodate multiple humidity zones is expected to rise from related corporations trying to improve their energy consumption levels. Freight Traffic Volume - Tokyo Metric tons (Million) Q5 2Q6 2Q7 2Q8 2Q9 Source: Bureau of Port and Harbour, Tokyo Metropolitan Government (Tokyo Bay Area) ^ JPY 6,21 per tsubo per month Stage in Cycle Decline slowing No. of Quarters Since 8 Last Peak ^ gross on NLA Freight Volume NA

65 On Point Asia Pacific Property Digest Second Quarter Beijing: Industrial As the macro-economy continued to rebound in 2Q1, third party logistics providers, retailers, B2C e-commerce consumer service groups and car makers played active roles in the market, expanding aggressively and taking up warehouse space. This quarter saw a net take-up of 6,9 sqm, indicating that the market is moving into a strong recovery. The majority of the leasing transactions took place in the Beijing Airport Logistics Park (BALP) and the Tongzhou Logistics Park. In BALP, Global Logistic Properties leased 28, sqm of warehouse space to DHL and Dahang International Transportation; they signed leases for 24, sqm and 4, sqm, respectively. Recent figures indicate that the number of online shoppers in China now exceeds 1 million, thus, internet sales volumes are increasing dramatically for B2C e-commerce consumer service groups, such as 36buy.com, VANCL and Dangdang.com. The increase in internet sales volumes has caused B2C e-commerce consumer service groups to increase their warehouse requirements, resulting in competition over available warehouse space in the overall market. Due to developers negative expectations during the financial crisis; many proposed new projects were put on hold, resulting in no new projects being completed this quarter. In 2Q1, the overall average vacancy rate of the logistics sector declined to 15.8%, 5.5 percentage points lower than in 1Q1. The average rent reached RMB 24.3 per sqm per month, a 2.5% q-o-q increase. The limited new supply and strong demand was behind the average market rent increase. Although Boustead warehouse will enter the leasing market with 25, sqm of space in 4Q1, the current average area for a single warehouse is only around 5, sqm, leaving limited options for tenants with larger leasing area needs. Jones Lang LaSalle expects rents to continue recovering steadily, while vacancy continues to decline, as supply remains limited. Exports - Beijing USD (Billion) Source: General Administration of Customs Utilised F.D.I. - Beijing Billion RMB Q5 1Q6 1Q7 1Q8 1Q9 1Q Total Value of Exports 1Q5 1Q6 1Q7 1Q8 1Q9 1Q1 Utilised FDI per quarter Source: Beijing Municipal Commission of Commerce (Logistics) ^ RMB 24.3 psm pm Stage in Cycle Rents rising No. of Quarters Since 2 Last Trough ^ net effective, on GFA

66 66 On Point Asia Pacific Property Digest Second Quarter 21 Shanghai: Industrial Logistics The total value of Shanghai s exports has recovered to pre-global crisis levels with the January to April period only 1.1% lower than in the same time period in 28 while port throughput rose by 3.4% compared to 28. Exports to ASEAN countries contributed the most to the recovery, with export values 59% higher than in 28, while exports to the EU, US and Japan were still lower than in 28. This difference helps explain the disparity in the recent performance of the Waigaoqiao and Lingang warehouse markets. The Waigaoqiao market has been strong because it mainly services shipping lines to Southeast Asian countries while Yangshan remained weak because it is the primary port for European and North American lines. The establishment of the combined Waigaoqiao / Pudong airport / Lingang Comprehensive Bonded Zone has started to benefit bonded warehouses in Lingang. Shine-link, a logistics company under one of Waigaoqiao s major developers WUD, leased a 25,-sqm warehouse in Lingang to service two of its existing Waigaoqiao clients. The Shine-Link lease, coupled with consistent demand in Waigaoqiao, pushed bonded net absorption up to 37,67 sqm for the quarter, which exceeded the total absorption for the full year of 29. Leasing transactions in the non-bonded market, on the other hand, were limited by a shortage of available distribution space in popular areas. The non-bonded vacancy rate rose 6.3 percentage points to 8.9% this quarter due to the completion of two new properties in Lingang, where non-bonded demand remains limited. Three new non-bonded projects were completed in 2Q1, including GLP Park Lingang Phase IV and V and the Yuhang Jiading Logistics Park. The combined total GFA of 253,31 sqm represents the largest total new non-bonded supply for any quarter since 27. Nevertheless, this new supply does not ease the current tightness in the market because Lingang is not a preferred location for tenants focusing on domestic distribution, and the Yuhang Jiading Logistics Park is a build-to-suit facility developed by Yupei Group for Beijing Pacific Logistics. Popular locations in West Shanghai were in extremely short supply, driving more tenants to move to neighbouring provinces. Container Throughput - Shanghai TEUs (Million) Q5 2Q6 2Q7 2Q8 2Q9 TEUs shipped per quarter Source: Government Statistics Bureau Freight Traffic Volume - Shanghai Metric Tons (Million) Q5 1Q6 1Q7 1Q8 1Q9 Freight Volume After falling for six consecutive quarters, bonded rents in Shanghai grew in 2Q1 by 1.6% q-o-q. The growth was driven primarily by increasing rents in Waigaoqiao. Nonbonded rents rose for the third consecutive quarter, up 1.1% q-o-q on a like-for-like basis. Source: Government Statistics Bureau 12-month Outlook On the back of improved cash flow and market sentiment, we expect developers to be more aggressive in construction of their existing pipeline of sites to cater to the large pent-up demand in the non-bonded market. Short-term prospects are still challenging for warehouses in Lingang because of the uncertainty in demand from the EU and US markets. Potential trade frictions between China and the US could lead to further deterioration in Lingang s prospects. Oversupply and possible price cuts in both the bonded and non-bonded markets in Lingang would jeopardize the overall performance of Shanghai s warehouse market in the next few quarters, although growth in rents in West Shanghai is likely to accelerate due to continuing tight supply. ^ Stage in Cycle No. of Quarters Since Last Trough RMB.96 psm per day Rents rising 1

67 On Point Asia Pacific Property Digest Second Quarter Guangzhou: Industrial Guangzhou s warehouse market continued to benefit from improving export markets and robust domestic consumption. Though growth slowed through April-May, total exports were still up a healthy 35.8% y-o-y through the first five months of the year while retail sales continued to post robust growth, up 24.4% y-o-y. With vacancy rates already at exceptionally low levels entering the quarter, leasing activity was focused on the newly completed AMB Guangzhou Development Zone Distribution Center in the Guangzhou Development District (GDD). Notable new lettings concluded in the new facility in 2Q1 included: NIKKON Logistics leasing 4,5 sqm; Shanghai Nittsu Puling Logistics leasing 11, sqm; Jabil Circuit leasing 22, sqm; and Sunjet Logistics leasing 4,5 sqm. for business parks remained underpinned by intra-city relocations and upgrading requirements, with business parks in Science City and Panyu district drawing the strongest interest. In June, nutritional supplement brand Mead Johnson began construction on a new R&D facility in the GDD. The new 5,-sqm facility aims to be China s first infant nutrition research centre and is scheduled to be completed by 211. The 12,-sqm AMB Guangzhou Development Zone Distribution Center in the GDD was the only new warehouse facility completed in 2Q1. There was no new supply completed in business park sector. The high vacancy rate in the newly completed AMB Guangzhou Development Zone Distribution Center (7% at end-2q1) saw landlords in the warehouse sector keep rents unchanged from the previous quarter. With upgrading and relocation demand still tied closely to current rental levels, landlords remained cautious towards raising rents in the business park sector; nudging average rents up by.8% q-o-q in 2Q1. A rising yuan, lower export tax rebates for some goods and uncertainties surrounding the European sovereign debt crisis all have the potential to curtail the demand recovery for Chinese exports in the coming 12 months. The impact of any slowdown in exports on the warehouse market will however be dampened by growing domestic consumer markets. Coupled with the current low vacancy environment, we expect rents to remain broadly stable over the next 12 months. The ongoing restructuring of the PRD economy towards high value-added industries will continue to underpin demand growth for business parks over the next 12 months. In this regard, we expect more demand from high-tech industries in the foreseeable future. While the demand for business parks will be relatively sheltered from any downturn in the external trading sector, rents are likely to remain range bound over the next 12 months owing to the significant amount of supply currently available and under development in the market. F.D.I. Contracts - Guangzhou Number Q5 1Q6 1Q7 1Q8 1Q9 FDI contracts signed per quarter Source: Guangzhou Statistical Bureau Utilised F.D.I. - Guangzhou Billion RMB Q5 1Q6 1Q7 1Q8 1Q9 Utilised FDI per quarter Source: Guangzhou Statistical Bureau (Business Parks) ^ RMB 573 psm pa Stage in Cycle Rents rising No. of Quarters Since 5 Last Trough ^ net, on GFA NA

68 68 On Point Asia Pacific Property Digest Second Quarter 21 Hong Kong: Industrial Warehouse Supported by strong regional trade, Hong Kong s external trading sector grew by 26.3% y-o-y through April-May. China s key export markets also continued to improve through the quarter. In spite of the unfolding sovereign debt crisis, exports to key European markets grew by 5.9% y-o-y through April-May while those to the US grew by 16.6% y-o-y, albeit both from exceptionally low bases. With the city s external trading sector continuing to grow strongly, logistics companies actively sought warehousing space to accommodate expansion plans. Michelle International Transport for example, leased 16,66 sq ft in Global Gateway (HK) in Tsuen Wan; Janco Logistics (HK), leased 37,64 sq ft in Hutchison Logistics Centre in Kwai Chung; while OM Log (Asia), leased 132,4 sq ft in Western Plaza in Tuen Mun. The investment market was highlighted by the en bloc sale of two warehouses owned by Winsor Properties. Unimix Industrial Building in San Po Kong was sold to local developer, Billion Development, for HKD 61 million (HKD 1,525 per sq ft) while Lucky Industrial Godown Building in Kwai Chung was sold to a local investor for HKD 348 million (HKD 1,19 per sq ft). Elsewhere in the market, a local investor paid HKD 418 million (HKD 1,68 per sq ft) for the whole of General Garment Building in Kwai Chung while negotiations were in advanced stages in another potential en bloc transaction. No new warehouse developments were completed in 2Q1. Kerry Properties 274,72- sq ft warehouse development in the Tai Po Industrial Estate remains as the only new warehouse supply scheduled for completion this year. However, the facility is expected to be operated and managed by Kerry Properties and as such, is not expected to have a significant impact on the leasing market. The sustained demand for warehouses from logistics companies allowed landlords to continue to push rents off their 29 lows. Rents were up by 2.8% q-o-q in 2Q1. Meanwhile, the interest in industrial properties arising from the announcement of the government s revitalisation policies in late 29 continued to lend support to capital values in the industrial property market and indirectly lifted capital values of warehouse properties by 4.8% q-o-q in 2Q1. Despite improvements in Hong Kong s external trading sector through the first half of the year, a full recovery remains less than assured. The sovereign debt crisis in Europe still has the potential to adversely affect global trade flows and a rising yuan may also further weaken demand for Chinese exports. However, with vacancy rates still at relatively low levels, any slowdown in the trading sector is unlikely to have a significant effect on warehouse market performance. Barring a severe contraction in Hong Kong s external trade, we expect the warehouse market to continue to grow steadily over the next 12 months. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q For 25 to 29, completions are year end annual. For 21, completions are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Trough ^ net, on GFA HKD 7. psf pm Rents rising F Future

69 On Point Asia Pacific Property Digest Second Quarter Taipei: Neihu Technology Park Overall Neihu Technology Park is fast becoming a popular destination for firms seeking to reduce rental costs and also because it has good access via an MRT line. Although it had a less-than-smooth beginning, the Wen-hu MRT appears to be operating well and benefiting companies in the area. There has been a cost cutting trend by domestic and international companies to move their back office operations to this area while still maintaining front office operations in the CBD. Likewise, the cluster of high-tech companies in Neihu has also attracted more companies to migrate to the area. During 2Q1, United Microelectronics Corporation (UMC) decided to move its office to Neihu and bought two storeys totalling 1,453 ping (4,83 sqm) in Suntech city for NTD 68 million (USD million). UMC will benefit from more space in Neihu compared to its current location in Dunhua South. There were no supply additions to the Neihu market in 2Q1. In total, around 3, ping (99,173 sqm) of new supply is due in 2H1. New supply due to enter the market includes the Thames Tech Building, Suntech City and the Farglory Zurich Economy Trade Centre Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 3Q6 = 1 Although Neihu Technology Park witnessed low returns and a high vacancy rate of around 3%, the investment market remained warm in 2Q1 as two transactions were completed. A total of NTD billion (USD million) changed hands in 1H1, with life insurance companies accounting for around 75% of the purchases. As incomegenerating properties are seldom put on sale in the Taipei CBD, en bloc buildings with more than 9% occupancy in Neihu are becoming popular investments for Taiwanese life insurers. In one of the latest transactions, Fubon Life purchased the Hannover Tech building from Shinkong Life for NTD 4.71 billion (USD million), on a gross yield of just 2.75%. Insurance companies have been eager to park their money in property as tenyear government bonds only yield 1.31%. Although many companies have been relocating to Neihu since the onset of the financial crisis, approximately 2, ping (66,116 sqm) of supply is expected annually over the next few years. This amount of space would require two to three years to be fully absorbed. Consequently, the prospects for rental growth over the next 12 months will be limited. However, investor demand for properties in Neihu should be fairly solid due to the lack of income-generating properties available for sale in the CBD. ^ Stage in Cycle No. of Quarters Since Last Peak ^ on GFA NTD 8 1,2 per ping pm Rents flat 7

70 7 On Point Asia Pacific Property Digest Second Quarter 21 Singapore: Industrial Business Parks The high-tech market continued to recover from the impact of the global economic crisis and saw rental growth in 2Q1 for the first time since 2Q8. Improving demand, especially from the pharmaceutical sector which, according to data released by the Economic Development Board, saw a 122% increase in output in May, helped lift market sentiment. In May, manufacturing output increased by 5.2% m-o-m and 58.6% y-o-y, driven by the strong growth in the pharmaceutical sector. The electronics sector also continued to see strong growth due to strong export demand and a low production base during the economic downturn. Strong demand for biomedical R&D space prompted developer JTC Corporation to reveal its plans for a 46, sqm extension to the Biopolis development, which is due to complete in 213. Biomedical companies invested USD 8 million in Singapore in 29, and more than 3 leading biomedical sciences companies have set up regional headquarters in the country. The expansion at Biopolis will increase the amount of R&D space at the development to 36, sqm to support the growing demand for space from the biomedical sciences sector. from the financial sector also improved, and Standard Chartered Bank opened a new back office facility at Changi Business Park this quarter. The new 2,9 sqm building, which will house 2, employees, complements the bank s CBD offices. The bank is looking to employ 2, more staff in Singapore by Q5 4Q6 4Q7 4Q8 4Q9 4Q1 base: 4Q5 = The completion of the business park section at Mapletree Business City in 2Q1 added a large amount of new space to supply. Approximately 111,5 sqm was completed with around 5% pre-committed. A total of 188, sqm of space is due for completion in 21, with two further developments scheduled to complete before yearend. Solaris, a development by SB (Solaire) Investments Pte Ltd, is due to complete in 3Q1, and will add 37, sqm of new supply to the market. Phase three of Biopolis is scheduled to complete in 4Q1, adding 34, sqm of new supply to the market F Take Up (net) Future Vacancy Rate Percent Improving demand, especially from pharmaceutical companies, and sentiment in the high-tech market led to an increase in rental values for the first time since 2Q8. Rents increased by 5.7% to SGD 241 per sqm per annum. In the investment market, capital values grew at a similar rate to rental values as market confidence became more positive, increasing by 5.% to SGD 289 per sqm. Investment activity however remained quiet following some large transactions in 1Q1. For 25 to 29, take-up, completions and vacancy rates are year end annual. For 21, take-up, completions and vacancy rate are as at 1H1 while future supply is for 2H1. in the high-tech market is expected to remain steady over the next 12 months as the market continues to improve. Rental levels will likely see continued growth, although this is due to the low level of rentals at the moment, which are still 43% below the previous peak, rather than a high level of demand. Large amounts of new supply, especially at Changi Business Park, are scheduled to complete over the next few years, which will help moderate rental growth as the space is absorbed. (Business Parks) ^ SGD 241 psm pa Stage in Cycle Rents rising No. of Quarters Since 7 Last Peak ^net effective, on NLA

71 On Point Asia Pacific Property Digest Second Quarter Sydney: Industrial Tenant Tenant demand has picked up over the quarter as greater pre-lease activity becomes evident. This pre-lease activity is expected to be the major contributing factor of takeup in 2H1. Gross take-up in Sydney was 23,2 sqm which included two large prelease deals at Cecil Park in Sydney s Outer South West. These pre-lease deals have solidified the improvement in domestic market sentiment, as major retailers and logistic companies look towards the future. There was 113,7 sqm of new projects completed in 2Q1. This supply rate shows a slight resilience within the diminishing supply pipeline, which has been noted since early 28. There is now 183,65 sqm of new stock under construction due to complete in the 2H1 with a pre-commitment rate of 78%. The majority of new supply underway is located in the Outer Central West precinct, followed by the North precinct. Rental levels remained stable over 2Q1. This is because of the increase in demand activity and the well documented decreasing supply pipeline in Sydney. Prime grade stock across all precincts recorded flat rental rates during 2Q1, as a 1.% increase in the secondary rental rate became evident in the South Sydney precinct. Average land values remained stable within most monitored Sydney precincts. Notably, these average land values are still down 3% to 4% on recorded figures from early 28. Overall, land values are expected to remain stable around current levels in the short term. There were seven major sales recorded in 2Q1 totalling AUD 94.9 million. This suggests that stock availability has increased as companies look towards rebalancing their current portfolios. Average prime investment yields have remained stable in all precincts and are firming moderately in select precincts for prime grade stock. A similar adjustment is evident in other Australian cities. Prime yields remain between 8.% and 9.75% across the monitored Sydney precincts. 12 Month Outlook Tenant demand is expected to improve over the next 12 months and result in an increase in gross take-up in the pre-lease and design & construct segments. Commencements are expected to pick up further over 2H1. Face rents are expected to record moderate positive growth for prime stock, with incentives decreasing slightly. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q Take Up (net) Future F For 25 to 29, take-up and completions are year end annual. For 21, take-up and completions are as at 1H1 while future supply is for 2H1. Investment sales will continue to be well contested by private buyers with regained interest becoming evident from both international and domestic institutional investors for the right product. Volumes in 21 will be impacted by a lack of available product. Prime grade yields are forecast to record minor compression during 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net, on GFA AUD 11 psm pa Rents holding firm 8

72 72 On Point Asia Pacific Property Digest Second Quarter 21 Melbourne: Industrial The recovery in tenant demand slowed over 2Q1 as global financial instability impacted business confidence. Nevertheless, there were still a number of large leasing transactions for existing stock and gross take-up totalled 79,5 sqm across the Melbourne industrial sector. The largest tenant move was made by Sigma Pharmaceuticals at Lots 1 & 2 Fitzgerald Road, Laverton North (27,138 sqm). There were a number of tenant moves in the South East including QLS at a facility in Pond Road, Dandenong (22, sqm) and the Theiss-Degremont Joint Venture at Monash Drive, Dandenong (8,735 sqm). There were 52, sqm of completions across the Melbourne industrial sector in 2Q1. Around two-thirds of the space was pre-leased upon completion. All of the completions were in the West and included the second stage of Australand s development at 94 West Park Drive, Derrimut (24, sqm) and the Salmat facility at the Orbis Business Park on the corner of Robinson Road and Orbis Drive, Ravenhall (21, sqm). Approximately 37, sqm of new supply is under construction and scheduled to complete by 212. Almost 9% of the space is pre-leased. There have been few tests of the speculative market in Melbourne over the past 18 months. After the relative success of speculative development at the West Park Industrial Estate, another speculative development commenced at 1-12 William Angliss Drive, Laverton North (13,7 sqm). Prime net existing rents were unchanged in the South East and West precincts at AUD 76 per sqm per annum and AUD 68 per sqm per annum. Prime rents fell by 2.9% to AUD 66 per sqm per annum in the North. There was an improvement in land values recorded in a number of markets in 2Q1. Land values for an average standard serviced allotment (2, sqm) increased by AUD 3 per sqm in Dandenong (to AUD 24 per sqm), AUD 1 per sqm in Campbellfield (to AUD 175 per sqm) and AUD 5 per sqm in Laverton North (to AUD 165 per sqm). Prime indicative investment yields compressed by 25 basis points in the West (7.75% to 8.75%) and the North (8.25% to 9.25%). In the South East, we recorded yield tightening of 5 basis points and prime yields now range from 8.% to 9.%. There were 1 transactions (greater than AUD 5. million) recorded in 2Q1 totalling AUD million. Most of the activity was in the sub AUD 1 million price bracket. Major transactions included the purchase of a 35 hectare development site at Kororoit Creek Road, Altona for AUD 3 million and a secondary grade facility at Poath Road, Oakleigh for AUD 6.8 million, reflecting an initial yield of 8.73%. There was a hiatus in the industrial sector recovery in 2Q1. Nevertheless, vacancy is low in institutional grade stock and there are a number of tenants exploring pre-lease opportunities, while rents for existing stock are forecast to rise modestly in the second half of 21. Prime capital values have started to recover and the combination of yield compression and modest rental growth will drive the recovery in values over the next 12 months. base: 4Q5 = Q5 4Q6 4Q7 4Q8 4Q9 4Q For 25 to 29, take-up and completions are year end annual. For 21, take-up and completions are as at 1H1 while future supply is for 2H1. ^ Stage in Cycle No. of Quarters Since Last Peak ^ net, on GFA F Take Up (net) Future AUD 68 psm pa Rents holding firm 7 NA

73 On Point Asia Pacific Property Digest Second Quarter About Jones Lang LaSalle Research Jones Lang LaSalle Research is a multi-disciplinary professional group with core competencies in economics, real estate market analysis and investment strategy. The group is able to draw on an extensive range and depth of experience from the Firm s network of offices, operating across more than 7 cities worldwide. Our aim is to provide high-level analytical research services to assist practical decision-making in all aspects of real estate. The Asia Pacific Research team produces a range of outputs to assist clients of the Firm with their decision making, including comprehensive market monitoring and analysis across major institutional grade real estate markets in the region; forecasts of key real estate indicators; consultancy projects; thought leading research papers on topical issues as well as regular publications. We deliver a range of global, regional and local publications including:- 1. Real Estate Daily Providing daily updates on the real estate markets across Asia Pacific allowing clients to keep their finger on the pulse. 2. Asia Pacific Property Digest A quarterly compendium of recent market trends and issues 3. White Papers In depth thought leadership reports on a range of topical issues relating to the real estate market. 4. Global Market Perspective A monthly thought leadership report which provides insight on global market conditions and issues.

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