Offices. Savills Research. Savills Research I Seoul, Korea. November 4, 2011

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1 Savills Research I Seoul, Korea November 4, 211 " net absorption was at the highest level in nearly ten years. However, office demand could not match record new supply, with the vacancy rate climbing to 11. due to the completion of four buildings. Investment transactions were dominated by core office properties and the 211 transaction volume has already exceeded the 21 level." Image: A view of Seoul, Savills Research Seoul office vacancy rates reached an historic high in. However, levels are unlikely to climb higher, considering that a number of large leases were transacted, with the relocations due to go ahead in, and also the decline in new building completions over the coming 12 months. The portfolio sale of three core office buildings by RREEF to a Samsung private investment fund was the standout investment transaction of. A lack of core office sales is likely in ; however, a number of secondary office sales are forecast. Prime absorption was again dominated by tenants relocating from secondary buildings, as highlighted by Daelim moving from a secondary YBD building to take up 1% of the recently completed Twin Trees on the northern fringe of the. Year-on-year GDP growth slowed to 3.4% in, the lowest level in two years, on the back of global economic uncertainty which has the potential to negatively impact the market heading into 212.

2 Market Overview Monthly rents and vacancy rates by district, /211 Supply Four new prime buildings were completed during, representing a 7.2% (36,86 sq m) increase in total leasable stock compared with the previous quarter, and the largest amount of quarterly prime office supply in the history of the Seoul office market. Three of the buildings were located in the, where leasable stock increased by 272,554 sq m (12.5%), while the completion of One IFC saw leasable Yeouido business district (YBD) stock increase by 88,248 sq m (9.9%). supply, /211 Name GFA (sq m) Floors Remarks Euljiro Mirae Asset Tower (A) and Pine Avenue (B) Signature Towers Seoul 13,18 25/F-B6/F 49% leased (% occupied) 99,994 17/F-B6/F 1% leased YBD One IFC 88,248 32/F-B7/F 7 leased (% occupied) YG Tower 42,542 23/F-B6/F 68% leased Total 36,82 Average Rent (KRW/3.358 sq m, based on GLA) Average Rent (KRW/3.358 sq m, based on NLA) YoY Increase Rate (%) Vacancy Rate (%) 91,1 159, % GBD 79,4 154,9. 1.9% YBD 61,6 13,2 3.3% 13.% Overall Seoul Average 81,5 152,6 1.5% 11. The smallest of the completions, YG Tower, has signed a number of tenants; Samsung Fire and Marine Insurance (21,223 sq m) which is also an investor in the property, HIS Korea (1,137 sq m), and YGC (926 sq m). One IFC is 7 leased but occupancy will not commence until. Recent additions to the project include GFI Korea and China Merchant Securities. Euljiro Mirae Asset Tower is awaiting the arrival of SK Construction, which has signed up for 65, sq m, while Pine Avenue is yet to secure a tenant. Nearby, Ascendas-owned Signature Towers has signed up a single tenant, Burson Marsteller; however, they will occupy just 1% of the property. Fourth quarter supply is limited to LG Twin Tower (East), as the owner-occupied building will return to the market following a six-month refurbishment. LG s total Seoul prime office occupancy has doubled since the commencement of refurbishment works on their headquarters and a number of affiliates will relocate to the building post-refurbishment, as well as to One IFC. Supply increase (includes owner-occupied and leased buildings), 211 3,7 3,4 3,1 2,8 2,5 2,2 1,9 1,6 unit : 1, sq m Euljiro Mirae Asset, Signature Tower, YG Tower +11% State Namsan Total stock (21) GT Tower +2% Total stock (21) LG Twin Tower 1,3 +14% One IFC Total stock (21) 1, GBD YBD Planned building supply, /211 Name GFA (sq m) Floors YBD LG Twin Tower (East) 78,917 34/F-B3/F Demand and Vacancy Rate Korea s economic fundamentals remained solid during with the national unemployment rate remaining at 3.% in September. However, a slight decline in finance and insurance sector employment was witnessed in September following a record high in August, reportedly as a result of global economic uneasiness. Employment in the financial and insurance sectors, Jan 2 - Sep Number employed (thousands) 68 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Source: Bank of Korea Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 2

3 The Seoul prime office market experienced positive net absorption of 116,557 sq m during, dominated by net absorption of 19,128 sq m in the, the highest figure for nearly ten years. With new supply in the at near record levels, large tenants are taking advantage of attractive leasing incentives to relocate multiple offices to a single location and to upgrade from secondary accommodation. The Gangnam business district (GBD) also experienced positive net absorption of 17,883 sq m; however, the YBD experienced a reduction in office space demand with negative net absorption of 1,454 sq m. Despite the overall positive net absorption, record new supply outpaced demand, which led to an increase in the Seoul prime building vacancy rate from 7.3% in to 11. in. This represents the first time since 1997, when Savills began their survey of Seoul prime office space, that the average Seoul vacancy rate has hit double digits. Net absorption, /28-/211 unit : 1, sq m The vacancy rate spiked to 18.8% in from 13.5% in due to the completion of three new buildings (excluding these three buildings, vacancy fell to 9.7%). The most significant tenant movement was by Daelim which took over the entire 54,919-sq m, Pramericaowned Twin Trees building. Recent completions Centre 1 and Ferrum Tower continued to enjoy positive absorption with take-up of 9,914 sq m and 3,828 sq m respectively. Centre 1 is now 65% occupied while Ferrum Tower has reached 95% occupancy. Kyobo saw a decline in vacancy to 27% following take-up of 5,736 sq m, including leases to SBS Media Holdings (1,735 sq m) and Visit Singapore (655 sq m). Taepyungno, Seoul City Tower and S Tower also benefited from take-up ranging from 1,6 sq m to 2,1 sq m Vacancy rates of Seoul prime office buildings, /1997 /211 2% 18% 1 14% 12% 1% 8% 4% 2% % GBD YBD The GBD vacancy rate was the lowest of the three submarkets, falling 1.% to 1.9%. This was primarily driven by take-up of 13,637 sq m within GT Tower, which had a vacancy rate of 38% compared with 63% in. New tenants included Allergan and J&P Law, both of which relocated from GBD secondary buildings. ING Tower and Kosmo Tower benefited from take-up of approximately 1,35 sq m each, while vacancy in Gangnam Finance Center increased to 3%, following the departure of Solar World and Heungkuk Life Insurance. Yeouido s vacancy rate spiked dramatically from 2.3% in to 13.% due to the completion of One IFC and the relocation of S-Oil from six floors of 63 (approximately 16, sq m) to their new Mapo headquarters. Yuwha Securities also saw its vacancy rate increase from % to 1%, due to the departure of Ilsung Construction, and both Kiwoom Securities and KEB Asset downsizing. Considering the reduction in forthcoming supply over the next 12 months, continuing strong net absorption, and a number of large leases already signed for relocations during next quarter, vacancy is set to return to levels similar to those seen during the first half of the year. Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 3

4 New supply and leasing status, /211 unit : sq m 14, 12, 1, 8, 6, 4, 2, 62% 38% GT Tower Vacancy area 1% State Tower Namsan Leased or pre-leased area 1% 99% Signature Towers Seoul 68% 32% 74% 2 51% 49% YG Tower One IFC Euljiro Mirae Asset Tower/Pine Avenue Seoul vacancies by total area, /21 - / unit : 1, sq m 52% 12% Euljiro Mirae Asset Tower/Pine Avenue Signature Tower One IFC Others State Namsan Kyobo Twin Tree Center 1 14% 3% 32% 21% 1 15% 47% 4% 24% 19% 7% 11 % 15% 3% 19% 1% /21 /211 /211 /211 The movement of secondary tenants to prime buildings again dominated take-up, led by Daelim s relocation. Going forward, with ample new prime space still to be absorbed, secondary tenants are likely to continue to exercise their desire to upgrade the quality of their accommodation. Very limited movement of tenants between prime buildings was witnessed during (3% of total takeup); however a number of prime tenants expanded their tenancies within their current buildings, including Union Steel and SK Telecom at Ferrum Tower, GS Construction at SI Tower, and Shinhan Bank at Good Morning Shinhan Securities. New organisations were responsible for 17% of take-up and included Barcap Korea entering HP, Jeda at Kosmo Tower, and Susung Asset moving into SK Securities Yeouido. Vacant space continues to be focused in several new or recently completed buildings, with 7 of the market s vacancy located in just six buildings. As already noted, with substantial leases signed for relocations to two of these buildings One IFC and Euljiro Mirae Asset Tower this situation is set to improve significantly before the end of the year. Major tenant relocations, /211 Tenant Daelim Hanwha Construction GS Construction YBD Previous Name Daelim Lease Area (sq m) N/A YBD Asia One 12,459 Current Name Twin Tree Lease Area (sq m) 54,919 New TFT Centre 1 5,22 Expansion GBD GFC 2,323 Take-up, /211 Secondary to prime 9% Enlargement of existing tenancy 1 Allergan J&P Law GBD GBD Metro Il kwang 1,421 GBD N/A GBD GT Tower GT Tower 2,225 1,966 New organisation 17% State Street Bank SFC 992 Center1 1,891 Daelim (secondary to prime) 55% Prime to prime 3% Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 4

5 Rent Third quarter face rents grew just.2% from the previous quarter and 1.5% from the same period last year. Four buildings raised their rents two buildings in the GBD and one each in the YBD and the. Rental increases for these four buildings ranged from 2.9% to 6.%. Of particular note, each of these buildings had a vacancy rate of less than 5%. No buildings lowered their asking rent during. Increases and decreases of Seoul prime buildings face rents, /28 - /211 unit : 1, sq m Rent increase-no. of buildings (LHS) Average Market YoY Rental Growth (RHS) Rent decrease-no. of buildings (LHS) (1) (1) (1) (1) (4) (3) (1) (1) (2) (2) (7) Face-rent trends in Seoul, /211 Face Rent (KRW/3.358 sqm, based on NLA) Face Rent (KRW/3.358 sqm, based on NLA) 8% 7% 5% 4% 3% 2% 1% % -1% -2% Rental Increase from /21 91, 159,9 1. GBD 79,3 154,8. YBD 61,6 13,1 3.3% Seoul 81,5 152,6 1.5% Seoul prime office building face rents, / / /21=1 GBD YBD Outlook With average face rental growth failing to match inflation, which declined to 4.3% in September following a threeyear high of 5.3% in August, effective rental growth will continue to be constrained over the remainder of 211 and into 212. Attractive landlord incentives for vacant space, primarily located in newly constructed buildings, will continue to put pressure on face rental levels, particularly within the and YBD, which are the most affected districts by the current supply cycle. Transactions and Investment Market Trends in Seoul office cap rates, /25-/211E 9% 8% 7% 5% 4% 3% 2% 1% % Spread Cap rate Five-year Treasury Bond E As anticipated at the end of, a number of deals have come to fruition during, with market activity focusing on core properties in the GBD and. The total deal volume for of KRW761 billion represented a 12% increase over the same period last year and the yearto-date volume of KRW2.74 trillion is already 14% higher than the total 21 sales volume. Transaction Volume in the Seoul Office Market, /21 - /211E 5 Unit : 1,KRW billions Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 5

6 The most active market player during the quarter was Samsung AMC which acquired a portfolio of three assets from RREEF Prime Tower, which RREEF acquired from GIC in mid-21, Samsung Finance Plaza located in the GBD, and 6 of the strata-titled HSBC. The total value of the portfolio (KRW396 billion) accounted for over half of the transaction volume during the quarter. PS AMC purchased two office buildings located on the western fringe of the from civil engineering and construction firm, Limkwang for KRW257 billion. The new owner is expected to benefit from a rental upturn. Starting in the GBD also found a new owner, while the only non-core property to sell was Neowiz HQ in Bundang. A number of secondary office transactions are forecast for. However, the market appears to be finely balanced at the moment, with potential for global economic concerns to negatively impact investor sentiment and transaction volume. Major transactions in /211 Name Seller Purchaser Area of Transaction (sq m) Transaction Price (KRW billion) Limkwang HQ and New Limkwang PS KORIF REIT No. 2 63, Prime RREEF Samsung REIT No. 3 33, GBD Samsung Finance Plaza RREEF Samsung REIT No. 3 24, HSBC RREEF Samsung REIT No. 3 24, BBD Neowiz HQ Neowiz (8%) Neowiz Games 12, GBD Starting Individual Individual 3, Over 2 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 6

7 Appendix 1: Overview of the Seoul Office Market and Savills Korea Office Survey Close to 75% of large office buildings (3, sq m or more) in Seoul are concentrated in three major business districts %, GBD 24.3% and YBD 13.2%. The is the largest of these districts and is home to major government and multinational institutions. The GBD also houses many multinational companies and is an information technology centre, while the YBD, the "Wall Street" of South Korea, includes the headquarters of major securities firms and broadcasting companies Summary of Surveyed s, September 211 GBD YBD Total Number of buildings A Average GFA (sq m) 84,929 96,231 9,511 89,845 Average year of completion Number of buildings B Average GFA (sq m) 49,274 39,153 44,115 44,614 Average year of completion Total number of buildings Total area (sq m) 2,648,391 2,12, ,219 5,645,441 The Savills Korea Quarterly Office Survey is the longest running survey of prime office stock in Seoul. Established in 1997, it currently comprises 89 of the 116 buildings in Seoul classified as "prime" buildings. Prime buildings: s with a GFA greater than 3, sq m with good accessibility and facilities, a high level of finish, and creditworthy blue chip tenants. Monthly rent: Surveyed rents are "face rents", the asking rents reported by landlords for mid-level floors. These rents are standardised by Savills Korea to account for variations in the security deposits required by different landlords to produce an effective rental figure for NLA. For further information, please contact: korea Moonduck Kim Chief Executive Officer, Korea mdkim@savills.co.kr leasing services, korea Grace Ko Director, CRES graceko@savills.co.kr Seunghan Lee Director, Leasing & Marketing, Development Sales seunghanlee@savills.co.kr Sue Lee Director, Tenant Rep slee@savills.co.kr research & consulting, korea JoAnn Hong Associate Director jhong@savills.co.kr investment advisory, korea Kookhee Han Director khhan@savills.co.kr asset management, korea Youngtaek Kim Vice President ytkim@savills.co.kr research & consultancy, asia pacific Simon Smith Senior Director ssmith@savills.com.hk address Savills Korea Co., Ltd 11/F Seoul Finance Center 84 Taepyungro-1-ga, Chung-gu, Seoul, Korea T: F: corporate website This document is prepared by Savills for information only. Whilst reasonable care has been exercised in preparing this document, it is subject to change and these particulars do not constitute, nor constitute part of, an offer or contract; interested parties should not rely on the statements or representations of fact but must satisfy themselves by inspection or otherwise as to the accuracy. No person in the employment of the agent or the agent's principal has any authority to make any representations or warranties whatsoever in relation to these particulars and Savills cannot be held responsible for any liability whatsoever or for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills. Savills (Hong Kong) Limited. 211.

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