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1 November 22, 2010 "The recovery of the office market has firmed up with broadbased rental growth and active investment sales on the back of renewed market confidence." Image: Marina Bay Area, Singapore Flight to quality and new expansion continued to prevail in the leasing market. Average Grade A rents rose across the board with a 6.0 per cent increase quarter-on-quarter. City Hall/Marina and Tanjong Pagar micro-markets recorded the biggest rental growth. Grade A occupancy rates improved marginally from 89.6 per cent in Q2/2010 to 90.0 per cent in Q3/2010. Pre-commitments of the CBD supply coming on stream in 2011 surpassed 40 per cent. Investment sales transactions of offi ces three times more than in Underpinned by buoyant investment sales, Grade A capital values crossed the S$2,000 mark for the fi rst time since Q2/2009. Offi ce rents are expected to see more downward pressure in older premises compared with the new ones. Savills Research MICA(P) No. 129 / 10 / 2010 Company Reg No D

2 Market Overview Singapore s economy recorded double-digit growth of 10.6 per cent year-on-year for the third consecutive quarter this year, putting it on track for a whole year growth target of 13 to 15 per cent. In contrast to the contraction seen in the manufacturing and construction sectors, the services sector continued to expand moderately at 1.6 per cent quarter-on-quarter supported by healthy performances from the tourism and fi nancial services sectors, resulting in the employment of 24,100 workers in Q3/2010. In view of the fast improving economy and competitive rents, the offi ce market continued to see brisk leasing activities mainly driven by flight to quality and new expansion among fi nancial institutions, law fi rms and business support companies. Consequently, precommitments have gathered pace in major upcoming offi ce buildings in the Raffl es Place and Marina Bay areas. For instance, Bank of America and European bank Skandinaviska Enskilda Banken AB (SEB) will take up about 120,000 sqft and 20,000 sqft at 50 Collyer Quay respectively. Bank Sarasin, Swiss private bank Julius Baer and US law fi rm White & Case will join Citigroup at Asia Square's Tower 1. These deals have moved the pre-commitment level to more than 40 per cent of the 3.0 lion sqft CBD supply slated to be completed in In the meantime, there are signs of healthy absorption of the secondary market stock vacated by large tenants moving to new locations. A notable example is the Canadian-based Manulife Financial Corporation, which will lease about 100,000 sqft of space currently occupied by Standard Chartered Bank at Plaza by the Park. On the investment front, buying activity picked up signifi cantly in Q3/2010 mainly due to ample liquidity from both funds and individual investors with deep pockets (who could have turned to the commercial sector as a result of the government s recent cooling measures in the residential market), coupled with the strong recovery of market confi dence underpinned by rental growth. Consequently, a total transaction value of S$2.1 billion was recorded in the reviewed quarter, bringing the entire year s offi ce investment sales to almost S$2.9 billion, a more than threefold increase from the whole of Vacancy Rates URA data revealed that office demand island-wide dropped by 35.1 per cent from 398,264 sqft in Q2/2010 to 258,334 sqft in Q3/2010. As a result, the overall vacancy rate for offi ce space rose by 0.7 percentage points to 13.0 per cent from the previous quarter. By location, the net take-up in the downtown core area is 204,514 sqft or 79.2 per cent of the total demand island-wide. Grade A Vacancy Rate, April 2003 September 2010 Beach Road City Hall & Marina Orchard Road Raffles Place River Valley Shenton Way Tanjong Pagar 45 % Apr Dec-03 Apr Dec-04 Apr Dec-05 Apr Dec-06 Apr Dec-07 Apr Dec-08 Apr Dec-09 Apr Underpinned by buoyant demand for good quality offi ce buildings with attractive rents, the Grade A vacancy rate eased marginally from 10.4 per cent in Q2/2010 to 10.0 per cent in Q3/2010. Except for the River Valley area where vacancy rose by 30 basis points, the vacancy rates in other areas, including Raffl es Place, City Hall/Marina, Orchard Road, Shenton Way, Tanjong Pagar and Beach Road, fell by 50 to 80 basis points. Rental and Capital Values In Q3/2010, island-wide offi ce rents continued to climb at a steady pace by another 6.1 per cent quarter-onquarter. In tandem, the average Grade A rents tracked by Savills rose for the second consecutive quarter to S$8.9 per sqft per month, representing a 6.0 per cent increase compared with the previous quarter. The rental recovery is evident across all the micro-markets, with City Hall/Marina and Tanjong Pagar areas showing the biggest increases. The increase in City Hall/Marina area was largely supported by the strong leasing activities in Suntec s Offi ce Towers, while the higher rents achieved in new offi ce buildings, like Mapletree Anson contributed to the rental growth in the Tanjong Pagar area. Over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 02

3 Rental Movement by Micro-Markets 2008 Q3/ Q1/2010 Q2/2010 Q3/2010 Raffl es Place -4.6% -36.3% -5.8% 4.3% 6.0% City Hall & Marina -7.0% -35.9% -2.8% 3.0% 7.8% Shenton Way 0.0% -39.0% -5.6% 1.3% 5.5% Tanjong Pagar 4.0% -36.8% -4.6% 0.0% 7.2% Orchard -2.1% -32.2% -5.5% 1.5% 5.3% Beach Road/ Middle Road 2.6% -37.2% -7.3% -2.1% 3.9% Overall -3.3% -36.2% -5.2% 1.7% 6.0% On the back of active buying activity, the URA s islandwide price index of offi ce space rose by 6.2 per cent quarter on quarter, bringing the total capital value growth in the fi rst nine months of 2010 to 13.2 per cent. According to Savills data, the capital values of Grade A offi ces escalated by 15.8 per cent from S$1,900 per sqft in Q2/2010 to S$2,200 per sqft in Q3/2010, after the modest 5.5 per cent and 5.8 per cent quarterly increases in the previous two quarters. Grade A Price and Rental Index, Q1/2000 Q3/2010 Price Index Q Rental Index Q3 10 Notably, in the reviewed quarter, Overseas Union Enterprise (OUE) bought DBS Towers One and Two for S$870.5 lion or nearly S$986 per sqft on net lettable area, which is the largest offi ce purchase since The other major transaction is the sale of Chevron House to Deka Immobilien fund for S$547 lion or S$2,083 per sqft on net lettable area. The price is about 25 per cent lower than the S$730 lion paid by the vendor, Goldman Sachs in Other offi ce buildings in the CBD that were purchased for redevelopment purposes include StarHub Centre at Cuppage Road and Chow House at Robinson Road. The buyer of the former, Frasers Centrepoint Ltd, is likely to change it into a residential-cum-commercial development, while the buyer of the latter has received outline planning permission for a residential development with commercial use on the fi rst level. Major Office Investment Transactions in Q3/2010 Contract Date Jul Sep Outlook Name Tenure Net Price Lettable (S$) Area (sqft) StarHub Centre Chow House DBS Towers One and Two Samsung Hub (8th to 11th storeys) Chevron House 85 years 280, Freehold 84, years 880, years 52, years 262, Rate per NLA Purchaser 1,357 Frasers Centrepoint Ltd 1,200 A group of investors 986 Overseas Union Enterprise 2,125 Sun Venture Invesco 2,083 A Fund managed by Deka Immobilien of Germany Singapore s economic growth is forecasted to moderate at a more sustainable pace in 2011, mainly driven by the services sector, which could potentially account for up to two-thirds of its GDP. The level of economic activity is still projected to remain high across a broad range of industries, led by the fi nancial, trade and tourism-related sectors. The employment market remained at its highest level for nearly a decade with Singapore being the only market in Asia to report a rise in hiring expectations, according to the latest Hudson Report (September December 2010). In addition, the banking and fi nancial services sector continued its expansion on the back of rapid economic and HNWI growth in the region. For example, it was reported that Julius Baer plans to increase its staff in Asia by 15 to 20 per cent over the next few years. These factors would bode well for the stability and sustainability of the Singapore offi ce market. Over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. I 03

4 Going forward, buying momentum in the offi ce market points to a strong growth in capital values. Grade A capital values are expected to increase by another 5 to 10 per cent by the end of the year. Meanwhile, we expect Grade A rents to trend up steadily by at least 5 per cent in Q4/2010, particularly in the newer buildings. On the other hand, rents of the older buildings will still face downward pressure when the tenants migrate to new premises as substantial CBD offi ce supply is expected to come onto the market between Q4/2010 and For further information, please contact: singapore Christopher J Marriott CEO, South East Asia cjmarriott@savills.com.sg commercial, singapore June Chua Director jchua@savills.com.sg research & consultancy, singapore Jessie Yeo Executive Director jyeo@savills.com.sg research & consultancy, asia pacific Simon Smith Senior Director ssmith@savills.com.hk address Savills (Singapore) Pte Ltd. 2 Shenton Way #17-01 SGX Centre 1 Singapore 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

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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 (IV/10)