Asia Pacific Market Report

Asia Pacific Market Report Values, trends and opportunities in 26 property markets throughout Asia Pacific. 2008 investment office industrial retail land

A Note From Jeffrey M. Finn Dear Real Estate Executive: After a strong start to the year, commercial real estate markets around the world began to show signs of weakness in 2007 as rising yields, extreme cap rate compression and volatility in the capital markets combined to slow growth. While ripple effects of the sub-prime mortgage crisis in the U.S. casts a cloud of uncertainty over key global markets, the outlook for the U.S. economy remains fundamentally strong. NAI Global is pleased to present this regional edition of its 2008 Global Market Report. Now in its 22 nd year, the Global Market Report provides comprehensive market data and overviews on 213 property markets around the world. This year s edition is our most comprehensive report ever, with coverage of all primary markets and most secondary and tertiary markets worldwide. Using both narrative market reports and statistical charts, we provide you with market highlights, trends, demographic and business profiles, rental rates, vacancy rates and land prices. The 2008 Global Market Report puts a wealth of market intelligence at your fingertips in a succinct and consistent market profile format. About Your Global Market Report This regional edition of NAI Global s 2008 Global Market Report reviews and summarizes the real estate activities of the past year in the region s most important property markets. Each analysis was completed by the NAI Global Member representing the given market. These local professionals are expert at reviewing their markets, identifying trends and reporting market activity. The NAI Global Member making the analysis for each market is identified and may be contacted for further information. Most of the data in the 2008 Global Market Report was collected during the fourth quarter of 2007. Rental rates for Class A and Class B office space, retail and new construction are expressed in gross costs per unit area, indicating the landlord pays all expenses. Industrial space rents are quoted in terms of net rental rates, meaning the tenant pays for most of the operating costs, such as utilities, maintenance, and repairs and cleaning. On all charts, means the information was not applicable or not available at press time. For more information about this report, or to order the complete 2008 Global Market Report for just 695, please call 609 945 4041. A Note From Jeffrey M. Finn/About Your Global Market Report Dr. Peter Linneman, NAI Global s Chief Economist and Principal of Linneman Associates, the leading real estate economics consulting firm, worked with us again this year to prepare the Global Outlook. Linneman Associates has added its expert economic analysis and insights to the detailed local market information from NAI professionals worldwide to deliver the information you need on commercial real estate costs and market conditions around the world. All of the market information in the 2008 Global Market Report is available online at www.naiglobal.com, where you will also find quarterly market reports as well as publications, research articles and white papers on a variety of topics. Just as NAI Global provides you with in-depth market knowledge on large and small markets around the world, our global managed network can help you achieve your real estate objectives no matter how large or small, anywhere in the world. Our clients come to us for our deep local knowledge and results that are tangible, measurable and visible on their bottom line. We welcome the opportunity to serve you. If we can assist you with a current or future real estate requirement anywhere in the world, please contact us at + 1 609 945 4000 or call your local NAI professional. Sincerely, The 2008 Global Market Report is a copyrighted publication of NAI Global, published in January 2008, and may not be reproduced without the full written permission of NAI Global. Additional copies are available from NAI Global. Demographic data and indices were provided by SRC, LLC. The information supplied herein was obtained from sources we deem reliable. It is provided without independent verification and without any representation, warranty or guarantee, expressed or implied as to its accuracy. NAI Global accepts no responsibility for the accuracy or completeness of the information. The 2008 Global Market Report was produced by NAI Global. Publishers: Jeffrey M. Finn, President & CEO Edward Finn, Executive VP, Corporate Counsel Contributing Editor: Project Managers: Linneman Associates Nancy Averill Ashley Y. Blackwell 2008 NAI Global. All rights reserved. Jeffrey M. Finn President & Chief Executive Officer 2008 Global Market Report www.naiglobal.com

Asia Pacific Overview continues to be focused on China, though China is no longer the only home for low-cost production. is rapidly growing in other parts of Asia. As the Chinese economy has evolved, prices for real estate, utilities and labor have all increased, so many industrial commodity producers are viewing a China plus one approach, where they may locate a facility in China, plus one in another low cost country in Asia. Other parts of Asia offer sizeable labor pools and markets, along with cheaper costs of production. For example, India has 1.1 billion people, an emerging middle class, and an economy that grew approximately 8% in 2007. But India is still much poorer than China. To date, foreign investment in manufacturing has been limited total 2005 investment inflows into India amounted to a modest 10% of that into China (U.S. 7 billion compared with over U.S. 70 billion, respectively). Inadequate infrastructure remains one of India s chief obstacles, as is the country s bureaucratic business climate. If infrastructure developments continue, and progress is made in combating graft and corruption, foreign companies will open factories there and elsewhere in Southeast Asia. Some observers estimate India s manufacturing evolution is ten years behind China's, and unlikely to be as smooth. India puts a higher value on democracy and human rights than China, and therefore, will find it more difficult to push through essential infrastructure projects and reforms to its rigid labor market. Asian real estate development continues, but is still shying away from smaller markets. On the investment side, China and India are getting attention for development opportunities including JVs with local developers. There is also foreign direct investment into greenfield sites for residential, commercial, logistics, hotel, and mixed-use development in these countries. However, real estate funds and private equity remain committed to the developed markets of Japan, South Korea, Hong Kong, Singapore and Australia. Even in promising markets, investors must still tread carefully. In spite of the higher returns that can be earned on real estate investments in China and India, investors must exercise caution and not just chase return. Most local developers in these markets do not have experience in dealing with Western investors and partners. Therefore, the time and effort invested in each project will be significantly greater than what Western investors generally expect. In search of new frontiers, opportunities are being sought outside of major metro areas. In China, the foreign investment community has begun seeking opportunities in the second and third tier (still large) cities, where competition is less and margins greater. India has seen similar patterns. As the Indian government loosens FDI rules allowing wider types of real estate investment by foreign players, local developers and owners are overwhelmed with potential capital partners. As a result of this potential flood of capital, the caution of local partners, and the legal, regulatory and customary friction of foreign investment into these still far-from-transparent markets, fewer deals are getting done. Foreign investors in India are restricted from acquiring existing, developed income producing assets like office buildings, shopping malls, hotels and industrial parks. Only domestic companies can currently take Source: UNCTAD Riding A Tiger (FDI Inflows, Billion) South-East Asia India China 2008 Global Market Report www.naiglobal.com 1

advantage of these investments. The foreign investor s access to the market remains limited to buying land, installing infrastructure and building new projects. A more balanced set of rules must be adopted to spur long term interest. Other Asian investment opportunities exist which pose their own risks. Other Asian investment opportunities include Vietnam, Malaysia, Thailand, and to a lesser degree,indonesia and the Philippines. The challenges facing investors seeking to enter Vietnam, Malaysia, Thailand, Indonesia and the Philippines include a lack of transparency, complicated rules requiring local partners or untested structures, language, law, and taxes. Also, the reliability of the local judicial system to deliver just and fair decisions in all cases is far from a certainty in these countries. Australia Strong domestic demand has created inflationary concerns in Australia's economy and interest rates are likely to remain high. Annual real GDP growth in 2007 is estimated at 3.9%, expected to slow to 3.1% in 2008. FDI inflows to Australia almost doubled in the 12 months ending June 2007, to A35 billion, a record for the country. According to the Australian Bureau of Statistics, average annual FDI inflows to Australia in the past six years were A16 billion. China The Chinese economy remains strong. China's real GDP grew 11.5% in the first six months of 2007, compared to 10.7% growth in 2006. The Asian Development Bank (ADB) forecasts continued strong growth of 9.8% in 2008. Foreign investors are optimistic about China s real estate market. However, the risks of operating in China must be realistically assessed. Factors of concern include an overheated market; government interventions; low purchasing power; land ownership; and local policies. There are over 5,000 foreign real estate companies, and over 1,000 wholly foreign-owned companies operating in China. Hong Kong is the top investor, accounting for over 75% of total investment. Foreign investors are purchasing commercial property in China at an increasing pace. China's real estate markets recorded transactions totaling 9 billion, up 69% over 2006, despite government attempts to cool the market. Cross-border investment accounted for 60% of this volume. Restrictive measures to reduce investment in real estate has not significantly slowed foreign investment interest. A revised set of guidelines was released in the first half of 2007. But despite new initiatives, foreign capital flows into Chinese real estate increased 30% to 5.9 billion in the second quarter of 2007. Foreign capital preferred combined commercial and residential property projects. Excess demand continues. China is in the beginning of a decade of catch-up development. Rapid middle class growth requires upgraded housing, office buildings and commercial space for retail, hospitality and entertainment in hundreds of second and third tier cities. 2 2008 Global Market Report www.naiglobal.com

Hong Kong The Hong Kong economy, heavily influenced by growth in the PRC, continued to expand in the first half of 2007. Real GDP growth of 6.3% was broad-based, with external trade gathering strength and domestic demand accelerating. Exports of goods and services rose by about 11% in the second quarter of the year. Services also benefited, from buoyant financial market activity related to capital increases by PRC companies, as well as from the strength of trade and tourism. GDP growth is forecast for 2007 at 6.0%, and 5.4% for 2008. Healthy appetites for class A space and limited supply keep rental rates rising. As a result of an increased number of financial and legal firms leasing class A office space in the core Central district, rental prices have been steadily rising. With a lack of new supply over the next three years, rental rates should rise. As of mid-year 2007, office vacancy for prime space in Central had dropped to 2.1%. The Central market s tight conditions make other areas attractive for rental and development. While Central is tight on space, there is a good amount of new development in Kowloon, which is transforming itself into a commercial hub, providing an alternative for companies to afford Central prices. India Indian coalition politics continue to play a major role in the country s development. The domestic political scene in India will be dominated by the upcoming general election, which is due to be held by May 2009. The increasing importance of regional parties indicates that the next government will probably be a coalition, led by either the current ruling Indian National Congress, or by its main opposition, the Bharatiya Janata Party. India s four years of rapidly expanding real GDP has placed the country among the world s fastest-growing economies. Real GDP expanded by 9.4% in the fiscal year ended March 2007 (FY2006), the highest rate in the last 18 years. The manufacturing sector grew by 12.3%, coming into prominence as a source of growth, and exceeding the 11% rise in services. Despite China still claiming the limelight for foreign capital, India continues to attract a growing base of international funds. Foreign direct investment into India surpassed portfolio investment by almost 5.6 billion in 2006, marking a significant change. Incoming FDI was 21.19 billion in 2006-07, while portfolio investments stood at 15.62 billion, according to a Reserve Bank of India s report. Fundamental factors soften concerns about overheating of the economy. Concerns have been raised about the economy overheating, but a soft landing has been forecast, piloted by higher interest rates, exchange rate appreciation, agricultural expansion, and measures to tame the real estate boom. To date, the rupee has appreciated substantially, interest rates have risen further, and the property boom appears to be approaching maturity. 2008 Global Market Report www.naiglobal.com 3

The unprecedented boom in Indian real estate during the last few years should continue. Growing at 30% annually, it is on track to hit 50 billion by 2010. This has been ignited and fueled by the expanding industrial sector creating a surge in demand for office and residential properties. In addition, the liberalization policy of the government has eased the licensing and approval processes required before taking up mega construction projects. Public markets are being tapped to fuel further growth. Many developers have successfully launched domestic IPO s, raising over 4 billion in the last several years to fund further development projects. India is estimated to experience a demand supply gap of 17.9 million housing units by 2010. Commercial real estate demand is expected to be around 350 million square feet, out of which information technology and retail should contribute around 300 million square feet. If government measures continue to allow the flow of capital into real estate, we expect to see further use of public equity to fund growth in all property types. Indonesia Internal demand is driving growth, but public policy must evolve. Private consumption and investment showed greater strength than expected in 2007, leading to a GDP growth forecast to 6.2%. Net exports are also contributing to this growth. Inflation has nudged up to 6.3%, and must be carefully watched. In 2008, GDP growth is projected to edge higher, driven mainly by domestic demand. The Government has removed several impediments to investment, but further reforms and importantly implementation of those already approved are necessary. Foreign investment is healthy. Foreign direct investment (excluding oil, natural gas and banking sectors) nearly doubled to 7.3 billion during the first seven months of 2007 relative to the same period in the prior year. Indicators of construction-related investment, such as demand for cement and steel, suggest a recovery in this area as well. Improved macroeconomic fundamentals, relatively high interest rates on debt securities and deposits, and an expectation of currency appreciation, have all attracted significant foreign portfolio inflows, propelling the Jakarta Composite Index of share prices up by 30% in the first seven months of 2007. Japan Japan continues to experience relatively low growth, without promise of a reversal in 2008. The country s real GDP growth for 2007 is just under 2.0%, and is projected to drop to 1.7% next year. Inflation is largely nonexistent, rising to just 0.5% in 2008. Low major metro property yields in Japan are forcing development of other areas. In the world s 2nd largest securitized real estate market, with more than 40 4 2008 Global Market Report www.naiglobal.com

J-REITs, large office buildings are the major investment product of choice. However, compressing yields associated with intense competition for acquisitions is causing investment to expand into 2nd tier cities, as well as into residential, retail and warehouse assets. Interest is coming from both near Asian and Pacific neighbors, as well as from Europe. More recently, Tokyo has witnessed a flood of Australian LPTs (listed property trusts) as well as Singapore-based REITs and funds focused on Japan. Europe players are entering the Japan market as well, with plans to invest over US 6 Billion in Japan over the next few years. Malaysia Domestic demand is helping the country remain macro-economically sound, but Malaysia must watch global markets for its exports to assure continued growth. Growing consumer spending, bolstered by rising incomes, contributed to the economic expansion in Malaysia in 2007. Investment in fixed assets made a robust contribution as well. Public investment under the Ninth Malaysia Plan is supporting growth, but weaker global demand for electrical and electronic products hurt exports. GDP growth in 2007 is 5.6%, with expectations for similar growth in 2008. Inflation has slowed and is projected to stay low. Services continue to provide a strong support for the economy. Expansion in the services sector accelerated to nearly 10%, and contributed 4.5% to total growth in the first half of 2007. This sector has grown much faster than the manufacturing industry over recent years, as the economy has evolved with a service emphasis. Double-digit growth rates were recorded in three sub-sectors: real estate and business services, finance and insurance, and wholesale and retail trade. Services benefited from strong consumption spending and an increase in tourism. Gross earnings from tourism will account for about 7% of GDP this year. The official goal is for just over 20 million tourist arrivals in 2007, rising to 21.5 million in 2008. Tourism is the country s second most important source of income (after manufacturing). Malaysia is taking action to position the country as Southeast Asia s Islamic finance hub. With total global Islamic finance assets now surpassing 1 trillion, and about 300 Islamic financial institutions in operation worldwide, Malaysia has expertise in this fastgrowing and increasingly international market. Investment for the full year was underpinned by public infrastructure development. Net foreign direct investment (FDI) rose by 54.1%, to 1.6 billion in the first quarter of 2007. Real estate prices are rising due to internal space demand and external capital sources seeking areas of growth. Office rents are expected to rise 15% in 2007, with yields from prime office investments compressing further from 7% to 6% by year end-2008 due to pressure from demand for investment properties and a strong currency. 2008 Global Market Report www.naiglobal.com 5

Philippines Economic growth is expected to slow, but remains strong, led by services. Robust growth is expected in the coming year, though at a pace somewhat less than that of 2007. GDP grew faster than expected in the first half of 2007, led by net exports, private consumption, and government spending. For the full year 6.6% growth is occurring and the prediction for 2008 is 6.0%. Services continue to be the main driver, supported by growth in remittances and consumption. Business process outsourcing has been a key area of job creation. Employment in this sector increased 100-fold, from 2,400 to 237,400 between 2000 and 2006. Retail trade and transport, residential real estate, and communications services are expected to expand rapidly. It was estimated that approximately 22 billion in expatriate remittances entered the economy and were spent in 2007. A sizable chunk of these remittances were spent on real estate and other domestic spending. Remittances are expected to grow into 2008. Singapore Growth should slow, but remains healthy. Singapore s economy grew by 7.6% in the first half of 2007, faster than anticipated. Financial services and tourism were particularly strong, driven by buoyant economies throughout the sub-region. The GDP growth estimates for 2007 were raised to 7.5% (from 6.0%), but growth is projected to fall to 6.0% in 2008. The 2007 inflation forecast was trimmed to 1.2% (from 1.6%). A strong labor market (the unemployment rate is 2.4%) and rising rents will continue to create upward pressure on costs through 2008. Construction activity continues to match demand for residential and business properties, while rents rise as companies move to Singapore s attractive market. Construction activity surged, particularly for high-end apartments, as well as new office and retail projects, and two large integrated resorts. Singapore office supply is expected to remain tight until 2009. Singapore s prime office rents are expected to surpass Hong Kong s in 2008. The tight supply and anticipated demand in Singapore, and the 4 million square feet of new supply expected to be added to the Hong Kong market, will help these two markets switch their positions of rank in terms of rental rates. A key element of Singapore s new waterfront development, Marina Bay, will be phase one of Marina Bay Financial Centre (MBFC) which is scheduled for completion by 2010. Standard Chartered Bank (UK), which makes two-thirds of its profits in Asia, will spend 529 million on a new office in Singapore, which will become the company s largest property and global headquarters for the company s private and consumer banking, corporate finance, debt capital markets and foreign exchange. South Korea Strong growth prospects in South Korea are driven by consumption and exports. From levels of around 4.0% in the first quarter of 2007, South Korea s growth has risen to 5.0%, with expectations of continued similar growth into 2008. Strong exports and 6 2008 Global Market Report www.naiglobal.com

improving investment, along with a steady increase in consumer spending, are all helping drive this economy. The strong export performance bodes well for further gains in industrial activity and business investment. A strong labor market (unemployment was 3.2% in mid-year, down from 3.5% a year earlier) reflects the strength of the recovery. Both business and consumer confidence are rising. South Korean firms are turning eyes abroad. A price ceiling for the sale prices of apartments led construction companies to speed up projects prior to implementation of this policy in the 2nd half of 2007. Relaxation of capital restrictions have allowed Korean investors to invest into overseas real estate assets and projects. Many Korean securities companies and insurance companies have formed funds and established organized teams to tap into real estate acquisition and development JV opportunities in China and across the region. Taiwan Recovery in domestic demand is sustaining steady growth. Economic growth was 4.6% in the first half of 2007. Private consumption edged higher during the first half, recovering from weak levels in 2006 after tightened consumer credit followed the bursting of a credit-card bubble. Domestic demand contributed 40% of the GDP expansion in the first six months of 2007, compared to just 7% in the year-earlier period. Consumption strengthened further in the second half of 2007, supported by rises in income, employment and firm asset markets. This pattern is expected to continue into 2008, with GDP growth forecast at approximately 4.6% through 2008. Taiwan continues to be a difficult market for foreign investors. The Taiwanese banks and insurance companies have traditionally controlled the lion s share of the commercial property market. However, CLSA Capital Partners recently successfully invested NT7.06 billion, the largest foreign investment in Taiwan s property market, for Asia Plaza, a premium commercial complex in Taipei s growing Neihu Technology Park. Thailand A new constitution has now been promulgated, a fresh general election is scheduled to take place by end of the year, but businesses are showing concern. With a political landscape in flux, the interim Government had aimed to make progress this year on expanding mass transit rail lines for Bangkok a significant part of the government s public infrastructure program but contract bidding has been postponed. Foreign companies remain concerned about proposed changes to the Foreign Business Act (FBA) that could threaten their investments in Thailand and limit the opportunities for new foreign-invested projects. As parliament seems interested in enacting even tougher controls than the military-backed interim government had originally proposed, foreign investors will remain jittery until the issue is resolved. 2008 Global Market Report www.naiglobal.com 7

Growth is expected to rise, however, with anticipated government efforts for a sound development plan. The GDP growth projection for 2007 is 4.0% and 5.0% for 2008. The outlook for 2008 assumes that national elections are held in December of 2007 as planned, and that an elected government pursues a credible economic program. With that, consumer and business confidence would likely revive. A new government would likely continue with the public infrastructure program, and energy, water, and health projects are already in the FY2008 budget. Vietnam Strong economic momentum has been underpinned by closer integration with global markets, with impending growth challenges likely to be addressed through international sources of funding. Projections for GDP growth in 2007 and 2008 are 8.3% and 8.5%, respectively. Strong investment and consumption were the main drivers of demand, as investment grew by 14% in the first half of 2007, stimulated by Vietnam s January 2007 entry into the WTO. Consumption growth was supported by wage increases, particularly for skilled workers who are in short supply, and remittances from Vietnamese living abroad. Much of the investment growth was from the domestic private sector, whose share of overall investment increased to about 35% in the first half of 2007. Foreign direct investment (FDI) approvals in the first seven months of this year rose by approximately 55%, to 6.4 billion, and seem headed for a record 13 billion for the full year. An increasing share of FDI is going towards satisfying anticipated demand for offices and commercial buildings, as well as development of tourism. Pressing challenges involve reining in inflation, addressing bottlenecks in infrastructure (particularly electricity and ports), and tackling skilled labor shortages. Demand for electricity is growing by 17% annually, overtaxing the system, and leading to power outages. Six new FDI-funded thermal power plants are planned, at a cost of 8.5 billion. They are currently awaiting government approval. Industry is growing steadily, with public investors showing positive outlooks on Vietnam s near future. Led by strong growth of two of its components manufacturing and construction industry is expected to grow by 10.6% in 2008. Higher value-added products, including computers and electronic goods for export, constitute an increasing share of manufacturing output. The stock market boomed through 2006, with the Vietnam Index of share prices climbing by 144%. In the first 10 weeks of 2007, the index rose by a further 50%. Although it has since dropped by about 20% from the record set in March 2007, the outlook for next year assumes that WTO accession will further integrate the economy into global business networks, encourage FDI, and help maintain the momentum for domestic reforms. Sub-sectors likely to expand fastest are banking and finance, trade, transportation, telecommunications, and tourism. In construction, projects under way or planned include major hotels and resorts, as well as high-end office and apartment buildings in Hanoi and Ho Chi Minh City. 8 2008 Global Market Report www.naiglobal.com

Melbourne, Australia Melbourne, Australia NAI Melbourne 61 3 9670 1255 Population (Millions) 20.9 7,686,850 889.7 4.4 42552.62 2.3 6.5 4.4 Interest rates in 2008 are expected to increase due to the increase in inflation.these increases are fuelled by the tax cuts in the 2007 and 2008 government budget, as well as the increases in property prices. The Australian economy overall is expected to grow by 3.5% by year-end 2007 and 4.5% in 2008. The economy overall was expected to expand at a higher rate in 2007 with further increased growth throughout many locations in 2008. In the short term, Western Australia and Queensland are expected to continue to drive the country s economic success. Currently, economic growth is heavily influenced by a very active commodities sector and high levels of business investment. Over the next five years, national growth is expected to level between the various states and territories, with the larger, traditional economies of Victoria and New South Wales growing at a higher rate. Of all the commercial property sectors, the office sector has had the most improvement over the recent years. Strong employment growth and relatively limited construction of new offices has led to falling vacancy rates across the country. The low vacancy in Brisbane, Perth and Sydney is increasing rent rates and sending some tenants to City Fringe or suburban locations. With interest rates rising in the last few years, retail turnover growth has slowed; however, 2007 has been very encouraging, with consumer confidence on the rise and continuing into 2008. Retail rental changes can vary enormously between different sub-classes of retail and locations. Yet overall, retail rents in the last few years have struggled to grow above 3%. With turnover growth set to improve, the prospects for higher rent growth are also greater. The industrial sector is enjoying a strong boost in the leading economies of Queensland and Western Australia. Here, the industrial capital values and land prices continue to rise significantly on the back of a very strong demand of these properties. Elsewhere in the country, industrial properties are being driven by strong demand for improved logistics at the big shed segment of the market and by high population growth in the small units submarket. Industrial property is presently achieving respectable returns of between 12% and 15%. In recent years, the trend for distribution companies to move to outlying suburbs has intensified. This is due to consolidation among logistics companies and a move to rationalize operation centers to achieve economies of scale. Companies are typically moving from multiple locations, including prime areas with high land values and rents, to a large facility around new infrastructure at attractive rents. Imports are driven by the strength of the economy, housing sector and domestic demand. Imports need to be stored before distribution; therefore, causing a need for storage space. This has had a significant impact on distribution and logistics companies. The housing market expects a significant 8% decline in home leasing after the surge in June. Recent changes to superannuation rules encouraged some investors to borrow against their homes to lift inflows into their superannuation fund. The housing market is expected to remain strong due to the population and income fundamentals. Beijing, China NAI Imperial Real Estate 86 10 5870 0399 Population (Millions) 1320.7 9,596,960 3248.5 11.5 2459.76 4.5 7.38 4.2 With the founding of People's Republic of China in 1949, Beijing became the capital of the new republic and has developed itself into a political and cultural center of China and international exchange hub. There are a total of 7,309 historical and relic sites in Beijing among which 60 are classified as national cultural heritages and another 234 are Beijing cultural heritages. The current economic situation in Beijing is favorable and characterized by rapid growth. With the reform of the state housing system, and with the increase in urban construction and infrastructure and the preparation for the upcoming 2008 Olympic Games and supporting facilities, the real estate market in Beijing is active and strong. Beijing s real estate market continues to add more real estate development companies, investment continues to grow steadily, there is a strong demand and a steady rise of the prices. A large number of class A office buildings as well as the high-end retail projects are in Beijing s CBD, Lufthansa, the Financial Street, Zhong Guan Cun area and East Second Ring Road area. With the bright prospects of China s overall economic growth, many institutional investors, both domestic and foreign, focus their attention on the high-end commercial property market in Beijing. As a result, the amount of transactions of the commercial property in the CBD has increased. At the beginning of 2007, China fulfilled its promises to WTO by opening the domestic financial market to foreign investment. As a result, a large amount of foreign banks as well as foreign financial and insurance companies were allowed to establish independent corporation banks and offices within Chinese territory. In the future, there will be more offices established by the foreign companies within Chinese territory. For this reason, the leasing transaction market of prime office buildings continues at a brisk pace in the central business areas, especially in areas such as the Financial Street, Lufthansa, and CBD. Room rates of the high-end business hotels in the above areas continue to rise as well. Because of the investor demand, as well as the reduced land area for potential new development, the commercial property market is increasing in value. From the fourth quarter of 2006 to fourth quarter 2007, the rental rate of the prime office buildings in CBD, Lufthansa, as well as on the Financial Street and the East Second Ring Road area maintains RMB9-13 per square meter per day. With the upcoming 2008 Olympic Games, China s economy continues to grow and the demand for office buildings is expected to increase. In the retail market sector, the New World Department Store, Wal-Mart as well as other large-scale retail businesses entered into the CBD in 2007, which has supported a steady increase in the supply of large-scale retail properties. The newly opened 180,000- square-meter SHINKO MITSUKOSHI Shopping Mall increased the amount of large-scale shopping malls in the eastern part of CBD and it also changed the consumption habits of the consumers who typically shopped in CBD but now lean towards the east area of the CBD. Melbourne, Australia Beijing, China Melbourne At A Glance Conversion: 1.30 AUD = 1 US RENT/M 2 /MONTH US RENT/SF/YEAR AUD 525 AUD 560 55.00 60.00 1.0% AUD 400 AUD 500 35.00 40.00 2.0% AUD 300 AUD 350 30.00 32.00 3.0% AUD 270 AUD 320 30.00 32.00 2.0% AUD 270 AUD 280 25.00 30.00 2.0% AUD 210 AUD 230 20.00 24.00 5.0% AUD 180 AUD 170 15.00 17.00 4.0% AUD 130 AUD 150 13.00 14.00 12.0% AUD 160 AUD 170 16.00 17.00 2.0% AUD1,200 AUD 1,200 95.00 105.00 1.0% AUD 600 AUD 650 50.00 58.00 4.0% AUD2,200 AUD 2,400 170.00 190.00 1.5% DEVELOPMENT LAND Low/M 2 High/M 2 Low/SF High/SF Office in CBD (per buildablem 2 /SF) Office/Industrial Land - Non-park AUD AUD AUD 200 180 160 AUD AUD AUD 210 200 170 20 17 16 22 20 19 AUD 1,100 AUD 1,500 AUD 1,300 AUD 1,600 95 120 115 155 Beijing At A Glance Conversion: 7.51 RMB = 1 US RENT/M 2 /MONTH US RENT/SF/YEAR RMB 198 RMB 324 29.39 48.10 25.0% RMB 183 RMB 390 27.17 57.89 5.0% RMB 126 RMB 240 18.70 35.63 10.0% RMB 105 RMB 135 15.59 20.04 30.0% RMB 120 RMB 210 17.81 31.17 5.0% RMB 75 RMB 105 11.13 15.59 10.0% RMB 10.5 RMB 45 1.56 6.68 RMB 45 RMB 90 6.68 13.36 RMB 45 RMB 165 6.68 24.49 RMB 300 RMB 1,500 44.53 222.67 5.0% RMB 30 RMB 150 4.45 22.27 25.0% RMB 30 RMB 150 4.45 22.27 20.0% RMB 90 RMB 660 13.36 97.97 10.0% Office in CBD (per buildable M 2 ) (per M 2 ) RMB 5,500 RMB 3,000 RMB 12,000 RMB 8,000 732 399 1,598 1,065 (per M 2 ) RMB 525 RMB 1,650 70 220 Office/Industrial Land - Non-park (per M 2 ) (per M 2 ) (per M 2 ) RMB 8,200 RMB 8,500 RMB 5,213 RMB 13,600 RMB 27,000 RMB 21,000 1,092 1,132 694 1,811 3,595 2,796 2008 Global Market Report www.naiglobal.com 9

Chongqing, China Hangzhou, China Chongqing, China NAI Apogee 86 23 6372 5555 Population (Millions) 1320.7 9,596,960 3248.5 11.5 2459.76 4.5 7.38 4.2 Chongqing is best described as southwest China s commercial capital. Since 1997, it has become the fourth municipality to be under the direct control of the central government. It is a major center of iron and steel production, motorcycle manufacturing and shipbuilding, as well as chemical and pharmaceutical production. Chongqing s economic growth showed a strong and stable upward movement despite structural problems. Fixed investment was 57% of the total GDP in 2006 and is expected to increase to 60% in 2007. Investment is the major driving force in the entire economy. Chongqing s contribution to GDP will be 80%, another 20% of contribution will come from exports and consumption. Real estate investment is one of the main drivers in the fixed investment, similar to other cities in China. Chongqing has an ambitious development strategy which has been approved by the central government this year. This strategy will develop the city into a so called One Circle and Two Wings. The Circle refers to the one hour radius economic circle centered on the downtown of Chongqing. The Two Wings refers to the township belt in the Three Gorges area and the southeastern township belt of greater Chongqing. The strategy is in-line with the new city and countryside comprehensive reform test program, which was approved by the central government in July of 2007. This reform program is the only one in China and is regarded as a new special economic zone. It will create a larger city, more job opportunities and more purchasing power, which will have a strong impact on the real estate market. Encouraged by the good will policy, the real estate market continues to boom. The residential market purchasing price increased 30%-40% in 2007, while the market supply increased by 84%. The market s sales volume increased by 79.35%. Land prices for the residential development increased by 40%. The residential supply and demand proportion is 1:4. The average profit of the developer exceeds 48%. The price of office property increased by 50%, while rental rates increased 6-10%. The price of retail property increased by 31%, while the retail rental rates increased by 10%. Real estate investment continues to climb upward. One of the capital sources is coming from the earnings made in the domestic stock market. The local government keeps pushing the investment by encouraging more capital investment focusing on the one hour economic circle of Chongqing. The government intends to add an additional five regional retail centers, which will reach RMB 10 billion turnover by the end of 2010 from current RMB 5 billion. Jie Fang Bei, in the CBD area, will reach RMB 20 billion taking the lead of the city retail business. Taking the lead in the financial center in the western region of China, Chongqing has become the foreign financial investment favorite. Six foreign banks have set up their branches in Chongqing. Hangzhou, China NAI Yuxing Hangzhou 86 571 5636 5902 Population (Millions) 1320.7 9,596,960 3248.5 11.5 2459.76 4.5 7.38 4.2 In recent years, Hangzhou real estate developed at a faster pace in terms of price, due to an imbalance between supply and demand and a surplus of capital circulation. Hangzhou was the first city to implement a land tender policy because the shortage of land supply drives up the property market. For example, in 2003, Hangzhou land transaction prices increased 38.1%, ranked the first among the 35 large and medium-sized cities in China. The government is also a driving force in the booming property market. From January to November 2006, Hangzhou approved the sale of 7.84 million square meters of real estate area (including economic affordable housing) and the sale of 6.89 million square meters of merchandise residential area. Pre-sale housing area totaled 5.89 million square meters, of which 4.93 million square meters of residential area had been sold. On the commercial real estate side, the sale of office buildings and retail space maintained a relatively high growth rate in 2006. The growth trend continued into 2007. In the first half of 2007, Hangzhou completed real estate development and investment in RMB 13.14 billion, an increase of 7.0%. There are 2.8 million square meters in the newly started construction area, an increase of 22.35% compared with last year. There is 26.57 million square meters under construction, an increase of 9.4%. The area completed totaled 1.06 million square meters, a decrease of 15.8%. In the first half of 2007, there were 27,867 apartment units sold in Hangzhou, totaling 3.67 million square meters, an increase of 49.3% and 50.2% respectively. However, the newly approved pre-sale residential area was 3 million square meters, a decrease of 22.2%. From January to August, there were 73 pieces of land available with a total area of 2,797 square meters. Of that land, 30 pieces were for commercial, totaling 669,735 square meters, which will be constructed into 1.63 million square meters of space. There were 10 pieces of land for industrial property for a total of 332,726 square meters, which can be constructed into 438,800 square meters. In the first half of 2007, the average price of the urban housing was RMB 7,686.4 per square meter, a year-on-year rise of 3.83%; while the second-hand housing was RMB 7,388.9 per square meter, a 2.8% increase. From City Housing Index, the price index in June 2007 was 108.4, an 8.4% increase compared with that in January 2006. In the office market, there were over 2 million square meters of office space added to the market in the last three years.wulin, Honglong, Qingchun and Hubin are the major office locations. The new supply will be located in Qianjiang New Town, with 1.2 to 1.5 million square meters of space added in the next few years. On the other hand, Hangzhou government realizes the real estate market is over heated by the speculative demand, over-investment and excessive consumption. The government issued a series of policies to cool down the market and its effect has started to show as the investment demand receded. Through a series of changes in the market and to regulate the property market in Hangzhou, no big changes in the prices are expected with rational consuming, the market is basically stable. In the long-term development of Hangzhou, the real estate market is expected to grow in a stable way. Beijing China - Chongqing, China Chongqing At A Glance RENT/M 2 /MONTH US RENT/SF/YEAR 11.00 24.00 12.26 26.76 8.00 16.00 8.92 17.84 6.00 12.00 6.69 13.38 26.00 263.00 28.99 293.20 5.00 65.00 5.57 72.46 39.00 236.00 43.48 263.10 Hangzhou At A Glance Conversion: 7.51 RMB = 1 US RENT/M 2 /MONTH US RENT/SF/YEAR RMB 75 RMB 160 11.13 23.75 RMB 90 RMB 180 13.36 26.72 RMB 60 RMB 105 8.91 15.59 RMB 27 RMB 51 4.01 7.57 RMB 30 RMB 60 4.45 8.91 RMB 21 RMB 48 3.12 7.13 RMB 25 RMB 40 3.71 5.94 RMB 35 RMB 47 5.20 6.98 RMB 50 RMB 130 7.42 19.30 RMB 380 RMB 630 56.41 93.52 RMB 35 RMB 142 5.20 21.08 RMB 30 RMB 65 4.45 9.65 Office in CBD (per buildable M 2 ) Office/Industrial Land - Non-park Office in CBD (per buildable M 2 ) Office/Industrial Land - Non-park 10 2008 Global Market Report www.naiglobal.com

Hangzhou, China - Hong Kong, China Hong Kong, China NAI Asia Pacific Properties, Ltd. 852 2281 7800 Population (Millions) 1320.7 9,596,960 3248.5 11.5 2459.76 4.5 7.38 4.2 Hong Kong continued to benefit as the core gateway to China in 2007 and markets saw sustained demand growth across all sectors. Real estate markets were driven by strong economic fundamentals including a 7% GDP growth, a low 4% unemployment rate, 9% tourist arrival growth and 12% retail sales growth, together with an influx of investment and all-time highs in the equity markets. Hong Kong also benefited from the approach of the Olympic Games in Beijing, the Macau gaming boom and financial institutions targeting the China growth story. The office market was robust, driven by limited new supply. In the financial district of Central, rental rates reached as high as HK170 per square foot per month, representing 25-30% growth and surpassing the prior cyclical peak of 1997. Vacancy rates remained low at 2-4% across the established business districts. Generally, class A Central rentals range from HK60-HK100 per square foot per month, secondary districts such as Wanchai, Causeway Bay, Island East and TST range from HK30-HK50 per square foot per month and emerging business districts such as Kowloon East and West range from at HK20-HK35 per square foot per month. The steep price differential began a decentralization trend in 2005 which has led tenants to increasingly shift operations to secondary districts. Decentralization was most prominently illustrated by Morgan Stanley s announced move from Exchange Square to ICC (Kowloon West) where it will take up 357,000 square feet. Over 2 million and 4 million square feet of new class A office supply is expected in 2007 and 2008, respectively, mainly in Western and Eastern Kowloon. With this forecasted new supply, rental rates are expected to broadly level and potentially soften in 2008-2009. However, the continued influx of top-tier financial firms willing to pay to be in the core of Central may continue to support class A CBD rents. Decentralization has also been seen in the retail sector. International luxury brands, formerly only located in the traditional core retail areas such as Central, Causeway Bay and Tsim Sha Tsui, have expanded to secondary retail areas to fully take advantage of increasing spending power and the surge in Mainland China tourists. The soon-to-be opened Elements mall in Kowloon West enticed many luxury brands and has been fully leased. Megabox, another high-profile shopping mall in Kowloon East opened in 2007, attracting large anchors such as B&Q and Best Buy. Total new retail supply for 2007-2008 is forecast to be 3.85 million square feet, of which approximately 15%, 40% and 45% will be on Hong Kong Island, Kowloon and New Territories respectively. Despite the new supply, retail rents increased 8% in the first eight months of 2007, and as much as 25% in prime locations. The industrial sector has faced opposing tensions; the migration of facilities to China has been balanced by extremely limited new supply in 2007-2008, with rentals seeing 0-5% growth across the districts. Growth in purchase prices, 15% and 25% in N.T. and Kowloon respectively, has outpaced rental growth due to strong interest in conversion to refurbished warehouses or rezoning to commercial/residential use. Furthermore, the recently completed Shenzhen Western Corridor highway connecting to Hong Kong is expected to help support ongoing logistics growth. Investments have been very active in all sectors as re-zoning, growing global real estate capital and decentralization have all led to an acceleration of investment activity. Qingdao, China NAI Imperial Real Esate 86 532 80778939 Population (Millions) 1320.7 9,596,960 3248.5 11.5 2459.76 4.5 7.38 4.2 The Qingdao economy is strong. With the advantage of being a coastal city, Qingdao is now developing towards a modern international metropolis from its roots as a historically industrial city. International investment is entering into Qingdao commercial real estate market at a much more rapid pace. After Qingdao International Sailing Center was chosen to be the playing field of the 2008 Olympic Games, there were more new types of commercial real estate properties entering into Qingdao compared to the historical model. Emerging in Qingdao at an unprecedented pace is a wide range of new developments in sectors such as prime offices, hotels, apartments, commercial streets, as well as the industrial parks, industrial markets and theme malls. As a result, a large number of investors are turning from the residential sector to the commercial sector. The trend will continue this year. In the first half of 2007, Qingdao intensified the renovation of the old city and countryside. The completion of new residential housing space increased 42% compared to 2006. The floor space of buildings under construction totaled 25.38 million square meters, up 30.2% over the same period last year. prices have risen 10.7% compared to the same period in 2006. The total space of residential housing under construction reached 18.91 million square meters, up 25.7% over the same period of last year. The eastern area of Qingdao is where the municipal government is located and has developed rapidly into the administration center, the culture center, the finance center and the fine dining and entertainment center of the New Qingdao. The current selling price of office buildings with top class sea views range between RMB 16,000 and 20,000 per square meter. In the years to come, the total area of office buildings that will be developed is expected to reach 1.5 million square meters. Headquarter offices are one of the major characteristics of the office market in the Laoshan district. The district strived to develop the office building economy, which focused on the enterprise headquarter, the research and development of science and technology, business and trade as well as financial information. More than RMB 4 billion has been invested and more than 20 enterprise group headquarters are located in this district. There are 19 large-scale department stores, with over 10,000 square meters at each individual property, in the major commercial districts of Qingdao. Currently, there is 576,000 square meters of commercial building area available. The total area of the large-scale industrial markets that has been formed is over 500,000 square meters. According to the statistics report, 250,000 square meters of centralized commercial properties are to be supplied between 2007 and 2008. In addition, most of the commercial projects for sale are located in Shinan District and Shibei District. The price of commercial projects is between RMB 8,000 and 27,000 per square meter. Hong Kong, China Qingdao, China Hong Kong At A Glance Conversion: 7.75 HKD = 1 US RENT/SF/MONTH US RENT/SF/YEAR HGK 80 HGK 170 123.80 263.20 2.0% HGK 50 HGK 100 77.40 154.80 2.5% HGK 30 HGK 60 46.50 92.90 8.0% HGK 25 HGK 45 38.71 69.70 8.0% HGK 23 HGK 40 35.60 61.90 13.0% HGK 10 HGK 20 15.50 31.00 15.0% HGK 5 HGK 8 7.70 12.40 3.0% HGK 6 HGK 10 9.30 15.50 8.0% HGK 10 HGK 15 15.50 23.20 8.0% HGK 160 HGK 800 247.70 1,238.70 4.0% HGK 100 HGK 200 154.80 309.70 7.0% HGK 50 HGK 120 77.40 185.80 7.0% HGK 150 HGK 600 232.30 929.00 8.0% Office in CBD (per buildable M 2 ) Office/Industrial Land - Non-park Qingdao At A Glance Conversion: 7.51 RMB = 1 US RENT/M 2 /MONTH US RENT/SF/YEAR RMB 60 RMB 102 8.91 15.14 40.0% RMB 72 RMB 120 10.69 17.81 5.0% RMB 45 RMB 66 6.68 9.80 5.0% RMB 30 RMB 45 4.45 6.68 30.0% RMB 30 RMB 45 4.45 6.68 10.0% RMB 18 RMB 30 2.67 4.45 20.0% RMB 6 RMB 10 0.82 1.48 5.0% RMB 6 RMB 10 0.86 1.48 10.0% RMB 10 RMB 15 1.48 2.23 10.0% RMB 150 RMB 900 22.27 133.60 2.0% RMB 45 RMB 120 6.68 17.81 1.0% RMB 30 RMB 75 4.45 11.13 1.0% Office in CBD (per buildable M 2 ) (per M 2 ) RMB 8,200 RMB 5,500 RMB 12,000 RMB 6,900 1,092 732 1,598 919 (per M 2 ) RMB 168 RMB 560 22 75 Office/Industrial Land - Non-park (per M 2 ) (per M 2 ) (per M 2 ) RMB 2,300 RMB 5,800 RMB 1,300 RMB 4,400 RMB 10,000 RMB 8,400 306 772 173 586 1,332 1,119 2008 Global Market Report www.naiglobal.com 11