RESEARCH & FORECAST REPORT LAHORE RETAIL MARKET OVERVIEW - Q2, Accelerating success.

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1 RESEARCH & FORECAST REPORT LAHORE RETAIL MARKET OVERVIEW - Q2, 2011 Accelerating success.

2 Q retail Research & Forecast report Lahore retail LAHORE CITY Lahore Lahore, with its vibrant culture is filled with an aura of historical mystification. With its proximity to District of Kasur in the South and Sheikhupura District in the North-west, the city spans 1,772 sq. km in land area and its catchment comprises largely of converted agricultural lands. With its strategic location in the heart of Pakistan, it links the North of the country with the South as well as enjoys the key trade route between Pakistan and India. Dating back centuries, it has always felt young with its vivacious lifestyle and diverse community. LAHORE ECONOMY market indicators Q1 Q VACANCY NET ABSORPTION construction rental rate monthly consumption expenditure of households in punjab urban areas 21% 6% 1% 4% 6% Food, beverage and tobacco Transport and communication Recreation and entertainment Rent Miscellaneous 7% 12% 38% Apparel, textile and footwear Cleaning, laundry and personal appearance Education Fuel and lighting Source: Federal Bureau of Statistics Renowned as the cultural capital of Pakistan, Lahore envisages to develop itself as a regional hub of Punjab and now manifesting fast as the North s commercial capital. Underpinned with strong fundamentals for growth and investment, Lahore stands at 36th position out of 151 cities included in the survey in terms of GDP growth, according to Global City GDP Rankings published by PriceWaterhouseCoopers. Lahore is projected to raise its GDP from US$ 40 billion (PPP) in 2005 to US$ 120 billion (PPP) by 2025 at a growth rate of 5.6% per annum, which is close to the current national average of Pakistan. The Federal Bureau of Statistics constantly monitors inflation and other CPI indicators, ensuring an up-to-date information to source the flow of necessities to the market and ultimately affecting the disposable income of the urban center. The sustainable economic development of the city has relied mostly on this indicator, however, with inconsistent price hikes in commodities and fuel along with consistent deficit budget, it is likely that the current inflation figure of 12 to 13 percent (Q as reported by FBS) is likely to touch 14 to 15 percent by Q LAHORE DEMOGRAPHY According to Census 1998, the population of Lahore district and its catchments was estimated at 6.94 million and which as per estimates, grew to 7.71 million in 2001, i.e million in Lahore City District, 0.54 million in Tehsil Ferozwala of District Sheikhupura and 0.13 million in parts of Tehsil Kasur. The urban population represents most of the total estimated population in Lahore District, according to NESPAK estimates. Based on the aforesaid estimates, the population within the Lahore district will grow at a rate of 2.82% within urban catchment and 4.47% in rural areas. IMPLICATIONS & FUTURE PROSPECTS Over the last few years, Lahore Development Authority (LDA) has taken substantial steps to plan and develop zoning and development policies and by-laws, implementing and executing the same for a planned expansion of Lahore. Despite considerable efforts, yet a need for a comprehensive master plan for Lahore exists, which will suffice urban / town planners, consultants and engineering firms needs to better plan future development of Lahore, keeping in view the framework. Whilst, the need for comprehensive urban development plan for Lahore has consistently been reviewed in the form of Master Plan for Greater Lahore 1966, Lahore Structure Plan and Lahore Integrated Master Plan However, it only indicates the sensible approach to planning and urbanization and awaits a framework for Lahore incorporating the impact of global

3 The current focus of Government of Punjab s public investment is on infrastructure development and improvement within key urban centres, relying on public private partnership. The Punjab Public Private Partnership for Infrastructure Act 2010 governs such initiative. Overhead bridges and flyovers, roads carpeting and expansion among urban centres, new public funded residential schemes and others with cooperation from private equity, parking plazas for efficient transport mechanism, and data base management cells are some of key achievements of the provincial Government. The PPP initiatives in education, information technology, estate management and construction are already bearing fruitful results by bringing higher quality standards, transparency as well as employment for resources. towns of lahore Sheikhupura District Iqbal Town Ravi Town Data Gunj Bukhsh Shalimar To w n To w n Samnabad To w n Gulberg Cantonment Aziz Bhatti To w n Wahga Town With the construction of the Lahore ring road, repair and extension of existing main roads, M3 (Faisalabad Lahore Motorway) and Upcoming M4 (Faisalabad Multan Highway), Kalma Chowk Flyover and Bhatta Chowk expansion, Lahore is and will experience the effect of such infrastructure improvements in trade activity and population settlement, resulting in renewed demand levels for retail and residential sectors in the city. Nishtar Town India Kasour District Source: NESPAK IntegratedMasterplan for Lahore 2021 LAHORE REAL ESTATE MARKET REVIEW The last decade has been a turnaround for real estate sector in all major urban centers across Pakistan. Numerous landmark real estate developments were launched; however, real impact has been on capital values since Consequently, most of the projects of retail, commercial and residential projects which were announced in Lahore specifically from years 2005 to 2007, were as a result of such pace in real estate sector. Lahore urbanisation ( ) Tehsil Ferozwala Walton City River Ravi UBD Canal Lahore is commercially offering businesses across the country and globally, a strategic location to access the rest of the urban and rural markets of Punjab and Pakistan, hence, the key areas to focus to improve the global competitiveness of the city and outreach include environmental protection, transportation and traffic management, education & vocational training for skill development, sustainable and green initiative based developments. Multan Road Model Town Allam Iqbal Internatio nal Airport Walton Cantonme nt Flow of Urbanization Kahna Nau Ferozpur Road Source: NESPAK IntegratedMasterplan for Lahore 2021 pakistan property index vs pakistan timeline US Invasion of Afghanistan, US pledges Military Assistance War On Terror Readmitted to Commonwealth Earth Quake Lal Masjid Standoff Presidential Elections Bhuto Assasinated, Elections Floods Relative Scale of Development Optimistic Market Perception Passamistic Market Perception Property Price Index Emergency Declared LAHORE TRANSPORT & INFRASTRUCTURE REVIEW The initiative for expansion of roads, overhead bridges and underpasses in the catchments of Main Boulevard and Canal Bank Road has taken priority. The current passenger transport system depends on buses network, which include services from Lahore Transport Company, Daewoo and several other private entities. A monorail as well advance traffic management system in collaboration with foreign firms is in pipeline for Lahore. Although such major infrastructure and transport initiatives signify that a planned expansion to the city s commutation service is in place, however, at the same time, highlights the need for such initiatives on timely basis for delivery of smooth urbanization and effective traffic management system. This reflects the basic drawback of Lahore s development model, wherein the pace of population growth with its own dynamics is at odds with an equally modern and supportive infrastructure base. p. 3 Colliers International

4 Existing retail supply - area wise 4 8% 9% 8% 12% 1% MM Alam Road Main Boulevard jail Road Liberty Market Kalma chowk Iqbal Town Mall Road / cantt Ferozepur Road dha Lahore Model Town, Link Road Others LAHORE RETAIL MARKET REVIEW The commercial retail environment of Lahore is predominantly limited to the old, established retail areas. Designated retail area such as Gulberg has Liberty Market whereas Main Boulevard, Jail Road and M. M. Alam Road which are other major retail hotspots. Y Block is DHA s retail avenue with Model Town and Garden Town having similar retail areas. Icchra, Anarkali, Mall Road and Azam Market are the traditional shopping locations of Old Lahore. The precincts above and below canal bank road segment Lahore s commercial outlook as well, with almost all of the existing prime and upcoming high end developments on the south whereas old established retail markets north of the canal bank road. Traditionally, retail activity has been carried out in markets & open bazaars. This trend has changed significantly over the past few years. With the entry of brands and stronger local retailers, there was an unprecedented surge in demand for retail space in Lahore this was followed by an increase in sale & rental values of retail property across the city. To cater for this increased demand, many projects have been launched since Almost all of them are mixed-use developments with office space &/or apartment above retail floors. Sq.Ft future retail supply - area wise 9% 7% 31% 26% 10% cantonment Ferozepur Road jail Road Kalma chowk Liberty Market Main Boulevard MM Alam Road Model Town Near Airport Retail Demand profile Standard Space Required Actual Interest Ratio 4% LAHORE RETAIL SUPPLY Our research estimates an approximate 4 million sq. ft. of mixed grade retail space existing within different precincts of Lahore. Majority of them is clustered in Gulberg and Main Boulevard. Most of the shopping centers are not professionally managed and lack a properly planned tenancy mix concept. Only few developments meets the international mall standards with no anchor tenant to drive and attract major footfall. Quality malls such as Xinhua Mall, Bahria s Mall of Lahore and Fortress Stadium Market on the other hand enjoy the presence of most major brands operating in the city and enjoy high occupancy levels due to presence of an anchor tenant. Limited shopping centers have properly organized covered parking areas with most utilizing a free/paid parking area on the encroachment in front of the shopping center. As per our estimates, approximately 1.6 million sq. ft. of mall space, equivalent of 40% of the existing space will be further injected into the city s retail space within the next 2 to 3 years. Majority of the upcoming commercial towers in Lahore comprise of 2-3 floors and have given due consideration to adequate parking bays as well as wider corridors, maintenance contracts and facilities. In addition, the upcoming malls have given greater regard to anchor tenant and sub anchor tenant s space requirements. It is Colliers International s view that the premium retail supply entering into the market as per plans is and will experience delay in successful delivery/handover of the project. Despite the delays, retail supply will consistently be released into the market, mainly due to the factors like shorter completion dates, high yields, quicker pay back periods, strategic locations and greater market accessibility. 0 Home Appliances Computers Body Shop / Perfumes Mobile Operators Jewellers Shoe Brands Opticians Linen / Fabrics Food / Café Office Supplies Travel Agents Trade / Services Cosmetics Fashion Accessories Printing Services Watches Stationery Garments Real Estate Brokers Investment Purposes Mobiles Boutique Electronics Media / Marketing 0% LAHORE RETAIL DEMAND In comparison with other asset classes, the retail sector s current demand situation is slightly better. The key drivers of demand for retail space have essentially been the large population increase with diverse income groups, investors who tap on commercialized lifestyle of specific population segments and among others, the demand for branded accessories. Our research suggests that average retail space demanded has been sourced in branded clothing s, garments and fabrics, electronics and jewelry, with an average size demanded ranging from 180 to 250 sqft. The typical lease lengths offered for such tenants are between 3 to 5 years. As a direct result of LDA s decision to demolish illegal plazas, the investors / tenants have been forced to relocate their business to a more commercially viable location. This has further ignited the latent demand for retail developments. Colliers International p. 4

5 PRICING The current rental levels are in diverse range. Factors that contribute towards the rental of the shop as well as anchor store include, but are not limited to, location of development, positioning of the shop as well as project, occupancy levels, services and amenities and footfall of individual floors/developments. Typical rentals for shops in main precincts in operational developments are in the range of PKR 225 to 275 per sq.ft on ground floor, whereas floors above fetch slightly less rentals. The rent typically excludes service and HVAC charges ranging from PKR 60 to 70 per sq.ft. The current gap between asking and actual transactions in retail assets is currently at approx. 20 to 2. Anchor stores requiring bigger spaces are given due consideration for attracting footfall and offered rates between PKR 70 to 110 per sq.ft. The current sale values have shown stagnancy for several quarters now and currently stand in the range of PKR 50,000 to 70,000 per sq.ft for medium quality units and PKR 70,000 to 100,000 per sq.ft for high quality locations. Capital Value Tax of 2% and Advance Income Tax of are applicable on gross value of all transactions. Retail Vacancy 3 30% 2 20% 1 10% 0% High End Retail Malls Medium Branded Malls Lower to Medium Branded Malls Average Vacancy Q update Rental Values, Capital Values and Yields precinct rental range sales range YIELD PRime Market PKR psf pm PKR PSF Main Boulevard (Towards Jail Road) ,000-90, % Main Boulevard (Towards Kalma Chowk) ,000-80, % MM Alam Road ,000-70, % Sub-Prime Market Model Town ,000-70, % Cantonement , , % Liberty ,000-90, % OUTLOOK Although Lahore s retail market is doing well by housing some of the top and finest brands, it still needs to implement international mall standards conceptually, completely and correctly. The change in consumer s preference towards one stop shopping experience is a positive indication towards presence of demand for good sized quality malls, having different national and international brands providing variety for the consumers. Given the key performance indicators within the retail sector, it is our view that whilst the impact of the global financial crunch has been minimal and that the market has been stagnant for last one year after price correction in While there may be short term instability perceived in the market, the medium to long term outlook remains strong and optimistic. real estate fundamentals vs sentiments Lahore economic prosparity lies with its key sectors of invesment; amoung them, real estate is an iconic challenge as well eye opener for investors. Fundamentally, Lahore has been a retail destination, even for residents in major urban centres around Lahore. This sector (real estate) and this asset (retail) in Lahore has much to offer to investors than just the norm, due to the following key highlights: Retail developments under construction and planning are of international standards Yields are still better than national averages Capital values are stabler and attractive than most of other urban centres of Punjab Capital values are NOT directly dependent on stock exchange fluctuations Rents provide sustainable source of income, subject to yearly increment Colliers International p. 5

6 WHY COLLIERS INTERNATIONAL PAKISTAN? MARKET LEADERS IN PAKISTAN REAL ESTATE Amongst the Big Four Property Advisory Firms, Colliers International is the only global firm with operational offices in Pakistan. We specifically deal and specialize in real estate sector including mixed use development, residential, commercial, hospitality, retail and industrial projects. in-depth local real estate market knowledge Our experience in Pakistan for the last three years has enabled us to establis strong relationship with key stakeholders of the real estate market. This has led us to acquire unmatched market intelligence which assist us in providing systematic recommendations to our clients in order to take key investment decisions. highly experienced team We have highly qualified and competent team with extensive experience and knowledge of the local real estate sector gained over the course of our operation in Pakistan. Our team comprises of: 512 offices in 61 countries on 6 continents United States: 125 Canada: 38 Latin America: 18 Asia: 32 ANZ: 182 EMEA: 117 $1.5 billion in annual revenue 978 million square feet under management Over 12,509 professionals Colliers International Statistics Market Research Analysts - Property Valuers - Sales & Lease Executives access to global colliers expertise Colliers International Pakistan is a part and linked with Colliers global network. On specific requirements of the project scope of work, we liaise and draw expertise from Colliers offices around the world. creative thinking & recommendations We have a methodological approach for carrying out our projects in which expertise from research, valuers and sales divisions brainstorm to provide creative solutions to the real estate needs of the client. We pride ourself in providing factual recommendations based on realistic market conditions Pakistan: Mohammed Yasir Qidwai Manager Research Colliers International Pakistan (Pvt.) Ltd Suite 2/A, Level 2, Harbour House M.T. Khan Road, Lalazar, Karachi Pakistan Tel Fax research.khi@colliers.com exceptional project track record During our operation with Pakistan, we have worked on most of the high-profile projects announced in major cities of Pakistan. high profile clientele Similarly, we have worked with all the major developers whether foreign or local currently working in Pakistan. Our local clients include Dolmen, Pace, Karachi Port Trust (KPT) and foreign clients include Emaar, Limitless, Hydra and Enshaa NLC. our services (Karachi, Lahore, Faisalabad and Islamabad) researcher: S. Kazim Ali Bokhari Research Manager - North Colliers International Pakistan Pvt. Ltd. Office No. 2, Executive Floor, Al Qadir Heights, New Garden Town, Main Boulevard, Lahore Pakistan Tel Fax research.lhr@colliers.com Real estate market research Research focus on key urban cities including Karachi, Lahore, Islamabad, Faisalabad & Gujranwala Comprehensive market reports Up to date and extensive research database In-depth analysis of supply and demand position Critical watch on pricing trends property valuation Property valuation based on market evidences and residual land value method Registered with Pakistan Bankers Association Registered Pakistan Engineering Council Registered with Pakistan Council of Architects and Town Planners development advisory Highest & Best Use Study of large plots Comprehensive project feasibility reports Development Appraisal and Due diligence Coordination with master planners and architects in project planning stages Investment appraisal using sophisticated Estate Master investment services (sales & leasing) Preparation of title deeds and sales documents Assisting and management of transactional process Client & Tenant representations Preparation of marketing documents including brochures, flyers, press ads Assessment of lease terms This document has been prepared by Colliers International for advertising. It may not be reproduced, either in whole or in part, nor altered in any way, without the prior written consent of Colliers International. The information and analysis contained in this report has been obtained from or based on information from a variety of sources generally regarded to be reliable and assumptions which are considered reasonable, and which was current at the time of undertaking market research. However, no representation is made, or responsibility accepted by Colliers International, in respect of the accuracy or currency of this information. Potential investors or developers are encouraged to carry out their own assessment of market potential and development feasibility. Accelerating success.