Research & Forecast Report Singapore Office 4th Quarter 2013 Accelerating success.

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1 Research & Forecast Report Singapore Office 4th Quarter 2013 Accelerating success. Singapore s office property market wrapped up 2013 on firmer footing, with both rents and capital values on the uptrend. Singapore s office property market wrapped up 2013 on firmer footing, with both rents and capital values on the uptrend. The United States (U.S.) federal government s partial shutdown from 1 to 16 October (for the first time in 17 years) and its near debt-default rattled business confidence across the globe at the start of 4Q However, the impact of this fiscal calamity was quickly dispelled by resilient economic figures subsequently released for the U.S. and the Eurozone. In addition, improved economic conditions on the back of their successful economic restructuring has seen the ministers of two rescued Eurozone countries, Ireland and Spain, consecutively announcing that they have sufficient finances to stand on their own feet and could exit the European Union International Monetary Fund (EU-IMF) bailout programme. Market sentiment also received a boost when the European Central Bank (ECB) cut interest rates to a record-low of 0.25% in November 2013 to spur economic activities. Confident in Asia s growth prospects and Singapore s position as a Global-Asia hub, a growing number of firms including banks and companies in the financial services, insurance as well as information and communications industries are expanding their operations in Singapore and relocating their top decision-makers to the island. a growing number of firms are expanding their operations in Singapore and relocating their top decision-makers to the island. Among these are companies that require new office premises with large floor plates and high-quality specifications to accommodate their broadened operations. This helped seal a number of leasing deals for new office buildings in the Raffles Place/New Downtown micro-market before the close of the year. For example, online service provider Booking.com was reported to have leased about 45,000 sq ft of space at Marina Bay Financial Tower 3. They will likely relocate from their smaller office premises at Suntec Tower 3. In addition, financial services firm Citco took up about 11,000 sq ft of space at Asia Square Tower 2 to house their new office in Singapore. Ocean Financial Centre, which is also equipped with modern building specifications, welcomed new tenants favouring quality office space. Recent tenants include energy firm Linc Energy, recruitment agency BGC Group and technology law firm Olswang Asia. Healthy demand for new office space in the Raffles Place/New Downtown micro-market nudged up the average occupancy rates for Premium Grade office space in the locality to 87.5% as of 4Q 2013 from 87.0% three months ago. Meanwhile, the take-up for secondary office space at older buildings given up by tenants moving to the newly completed projects in the Raffles Place/New Downtown micro-market was also better than expected. Absorption was driven by both existing tenants expanding their space requirements within the building and new tenants relocating to the locality. the take-up for secondary office space at older buildings given up by tenants moving to the newly completed projects in the Raffles Place/New Downtown micro-market was also better than expected.

2 It was recently reported that all of the final 143,000 sq ft of office space under Citibank s lease at Millenia Tower (in the Marina/ City Hall micro-market) that expired in December 2013 has found replacement tenants. They include Bank of New York Mellon, which took up an additional floor at Millenia Tower, as well as new tenants including Barry Callebaut Cocoa Asia Pacific Pte Ltd, PayPal and investment management company Dymon Asia Capital, amongst others. With the timely absorption of backfill office space, the average occupancy rate of Grade A office space across the different micro-markets held relatively firm in 4Q 2013, rising by up to 2.2-percentage points quarter-on-quarter (QoQ). Overall, the average occupancy rate for Premium and Grade A offices in the Central Business District (CBD) inched up 0.4-percentage points to 93.9% as of 4Q The firming of demand resulted in a tighter leasing environment, which allowed landlords to continue to revise their rental expectations upwards. Consequently, the average monthly gross rents of Premium and Grade A office space in the CBD climbed 2.2% QoQ in 4Q 2013 to reach $8.72 per sq ft as of December 2013, the highest rental level in two years. Cumulatively, the average monthly gross rents for Premium and Grade A office space in the CBD recorded positive growth of 2.9% for all of entire 2013, a turnaround from the 6.9% contraction in the average monthly gross rents of Premium and Grade A office space in the CBD climbed 2.2% QoQ in 4Q 2013 to reach $8.72 per sq ft as of December 2013, the highest rental level in two years In the Raffles Place/New Downtown micro-market, the average monthly gross rents for Premium Grade office space rose 3.8% QoQ to end the year at $10.30 per sq ft, thereby returning the micro-market s rents to the double-digit level for the first time since receding into single-digit territory in 1Q For the whole of 2013, rents in this micro-market rose 8.0%, the most significant among all micro-markets as a result of robust demand driven by tenant s flight to quality. In the Raffles Place/New Downtown micro-market, the average monthly gross rents for Premium Grade office space rose 3.8% QoQ to end the year at $10.30 per sq ft, thereby returning the micro-market s rents to the doubledigit level The upturn in office rents lifted the yields of office properties and in turn provided property owners with more bargaining power to negotiate for a higher selling price. As a result, the average capital value of Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market inched up 1.0% and 0.2% in 4Q 2013 to end the year at $2,667 and $2,395 per sq ft, respectively. This is the first time since 4Q 2011 that the average capital values of Premium Grade and Grade A offices in this micro-market have recorded positive growth. The upturn in office rents lifted the yields of office properties and in turn provided property owners with more Occupancy Rates Average Occupancy Rates for Premium Grade and Grade A Office Space by Micro-market MICRO-MARKET AVERAGE OCCUPANCY RATE (%) 4Q Q 2013 PREMIUM Raffles Place/New Downtown GRADE A Raffles Place/New Downtown Shenton Way/Tanjong Pagar Marina/City Hall Beach Road Orchard Road City Fringe Suburban Source: Colliers International Singapore Research 2 Research & Forecast Report 4th Quarter 2013 Office Colliers International

3 Office Rents Average Monthly Gross Rents of Office Space MICRO-MARKET AVERAGE MONTHLY GROSS RENTS ($ PER SQ FT/MONTH) QUARTER-ON-QUARTER CHANGE (%) 4Q Q Q Q Q 2013 YEAR-ON-YEAR CHANGE (%) PREMIUM Raffles Place/New Downtown GRADE A Raffles Place/New Downtown Shenton Way/Tanjong Pagar Marina/City Hall Beach Road Orchard Road City Fringe Suburban GRADE B Raffles Place/New Downtown Shenton Way/Tanjong Pagar Beach Road Orchard Road City Fringe Suburban Source: Colliers International Singapore Research bargaining power to negotiate for a higher selling price. Rising price expectations coupled with more stringent loan requirements arising from the Total Debt Servicing Ratio (TDSR) ruling inevitably softened sales activity for strata-titled office units in 4Q 2013 as potential buyers took longer time to evaluate their purchasing decision. The fourth quarter is also usually a traditional lull period for corporate transactional activities as key decision makers go for long vacation amid the festive season. Thus, the Urban Redevelopment Authority s Real Estate Information System (REALIS) showed that only 68 caveats were lodged for strata-titled office units in the first nine weeks of 4Q 2013, fewer than the 94 caveats lodged in the same period in 3Q For the whole of 2013, some 700 to 800 strata-titled office units are estimated to have changed hands, down from the 1,097 transactions recorded in Owing to the lack of new launches of strata-titled office projects in 4Q 2013, the sales market was dominated by transactions of completed strata-titled office units in mature developments such as International Plaza and Springleaf Tower in the Tanjong Pagar micro-market. For instance, a mainland Chinese insurance company was said to have bought two floors at Springleaf Tower (Levels 21 and 22) in October 2013 for $23.6 million and $25.1 million, respectively. This works out to an average price of $2,338 per sq ft. Strategically located completed strata-titled office developments also continued to attract the interest of corporate end-users looking to purchase their own office premises to cap rising occupation cost. Of significance, offshore vessel builder, Nam Cheong, reportedly bought three strata office units (#41-01 to #41-03) at Suntec Tower Three for a price of about $30.3 million, or about $3,000 per sq ft from Vista Realty. It was reported that Nam Cheong will likely use the premises for its corporate office in Singapore, after the existing leases at the three units expire between September 2014 and January Notwithstanding the downside risks relating to concerns over the impact of the tapering of the U.S. quantitative easing programme and the subsequent normalisation of interest rates, high unemployment in the Eurozone as well as political instability in Thailand, the office property market in Singapore is expected to grow from strength-to-strength in Notwithstanding the downside risks... the office property market in Singapore is expected to grow from strength-to-strength in Crisis in the western countries has allowed Asian economies to emerge in a favourable light. Asia is expected to remain the global growth leader in 2014, with China remaining as the pillar of support for regional economies. Meanwhile, Japan could 3 Research & Forecast Report 4th Quarter 2013 Office Colliers International

4 Average Capital Values for Premium Grade & Grade A Office Space in Raffles Place/New Downtown $ per sq ft 3,000 2,500 2,000 1,500 1, Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2013 Premium Source: Colliers International Singapore Research Grade A the average capital value of Premium Grade and Grade A office space in the Raffles Place/New Downtown micro-market inched up 1.0% and 0.2% in 4Q 2013 to end the year at $2,667 and $2,395 per sq ft, respectively emerge from years of economic indecisiveness, buoyed by Japanese economic restructuring programme: Abenomics. Singapore is poised to benefit from Asia s economic boom as many foreign companies expanding in the region are expected to set up headquarters on the island to branch out to the region given the Republic s pro-business legal, tax and regulatory environments along with the region s advanced infrastructure, strong connectivity and overall business credentials. The government s push to establish Singapore as a global business hub, a wealth management and trading centre, a sustainable energy hub, a premier destination in Asia for legal services and dispute resolution, as well as a global insurance marketplace by 2020, also serves to bring more business activities to the local economy, which will in turn fuel greater demand for office space. For example, General Motors recently announced their intention to move its consolidated international operations headquarters to Singapore from Shanghai in the 2Q 2014 to focus on markets in Southeast Asia, India, the Middle East and Africa. They are said to have selected OUE Bayfront as their new office location. Confident in the Singapore government s investment in the development of the media industry, Google also plans to double their space requirement at Asia Square Tower 1, which could potentially give them a footprint as large as Citibank s. At the same time, Bloomberg is noted to be assessing their options in the market. In the banking sector, Mizuho Bank is reportedly looking to lease over 100,000 sq ft of space at Asia Square Tower 2 for their new headquarters. This will boost the occupancy rate of the development to close to 50%, further pushing up the overall occupancy rate of Premium Grade office space in the Raffles Place/New Downtown to above 90%. Supply-wise, new office space supply is expected to stay at a high of about 2.2 million sq ft in Of these. 1.2 million sq ft will be available in the CBD, such as CapitaGreen and South Beach, which are scheduled to complete in 4Q The balance will be largely from projects that are either strata-titled (Paya Lebar Square and PS100) or located outside the CBD (Westgate), which have minimal impact on rents in the CBD. The stock of sublease space in the market has jumped to about 230,000 sq ft as of December 2013 from 140,000 sq ft three months ago. One of the new contributors to the sublease supply is the Ministry of National Development (MND) who is looking to sublet close to 70,000 sq ft of space comprising three of the 11 levels of office space in Jem, a new mixed retail and office development located next to the Jurong East Mass Rapid Transit (MRT) station. The MND, which has inked a 30-year lease for the entire office tower at Jem together its statutory boards, the Agri-Food & Veterinary Authority of Singapore (AVA) and the Building and Construction Authority (BCA), has announced that they will delay their relocation to Jem in As there are no immediate plans to redevelop their existing premises at MND Complex along Maxwell Road, they will be staying put for the time being. Nonetheless, the AVA and BCA will proceed as planned to relocate to Jem in 2014 and their vacated space at Maxwell Road will be made available to interested tenants for short-term leases. The spike in sublease space is unlikely to be a major concern for the office leasing market as it arose largely as the result of the rationalisation of space from a mired of industries rather than the scaling down or cessation of businesses characteristic of a bear market. Moreover, the improvement in business sentiments should ensure a steady absorption rate. Hence, with most economic and market indicators pointing upwards, the near-term outlook of the office leasing market is bright and could possibly support rental growth of another 10% to 15% in with most economic and market indicators pointing upwards, the near-term outlook of the office leasing market is bright and could possibly support rental growth of another 10% to 15% in In the sales market, investment in Singapore properties is expected to become more challenging and costly owing to tighter regulations and rising interest rates. However, the cost could be balanced with possibly better returns due to lower 4 Research & Forecast Report 4th Quarter 2013 Office Colliers International

5 vacancy rates and recovering rental levels. Hence, there is potential for office capital values to remain relatively stable in 2014 with marginal upsides of up to 5%. In the sales market, there is potential for office capital values to remain relatively stable in 2014 with marginal upsides of up to 5%. 5 Research & Forecast Report 4th Quarter 2013 Office Colliers International

6 482 offices in 62 countries on 6 continents United States: 140 Canada: 42 Latin America: 20 Asia Pacific: 195 EMEA: 85 Contact: Chia Siew Chuin Director singapore.research@colliers.com Colliers International Singapore 1 Raffles Place #45-00 One Raffles Place Singapore TEL FAX RCB No E $2 billion in annual revenue 1.12 billion square feet under management 13,500 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with over 13,500 professionals operating out of more than 482 offices in 62 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. colliers.com Copyright 2014 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.