colliers international HONG KONG A Mild Correction

2Q 2012 market overview research & forecast report hong kong office market colliers international HONG KONG A Mild Correction Despite that the Eurozone debt crisis has re-intensified on a higher risk of Greek turmoil, leasing demand in the Grade A office market was strong during 2Q 2012, driven by new set-ups and sustained demand growth in the non-banking and finance sector. This was reflected in the significant increase in net take-up of Grade A office premises in the market, soaring from a contraction of 39,000 sq ft in 1Q 2012 to an uptake of 670,000 sq ft in 2Q 2012. The stronger-than-expected demand for Grade A office space from the non-banking and finance industries and the ongoing relocation of cost-sensitive tenants pushed overall vacancy rates down 30 basis points to 4.7% in 2Q 2012, which was lower than the historical average of 5.0%. Meanwhile, overall Grade A office rents continued to fall but at a slower rate, edging down 0.7% QoQ in 2Q 2012, compared to a drop of 5.5% in 1Q 2012. market indicators ForEcast overall performance New supply Tenant Demand Incentives rents capital values yields Clouded by a high degree of uncertainty, the global economic outlook has created a mixed picture for the Central Grade A office market, where rental trends have become more building-specific. Due to budget cuts at some multinational corporations, demand for top-tier Grade A office buildings with asking rents exceeding HK$120 per sq ft per month remained soft. On the contrary, Central Grade A office buildings with asking rents below HK$80 per sq ft per month were in high demand, which ended up stabilizing the overall rents in Central. The outlook for Central has been brightening up due to increased demand for small- to mediumsize Grade A office units. In Kowloon East, fewer tenants consider relocation to Grade A office premises in the district as the rental difference between Kowloon East and Island East is unable to justify the relocation cost. Besides, as more tenants relocate from the district to West Kowloon for cheaper rents, Grade A office rents in Kowloon East are expected to see higher downward pressure. It is anticipated that overall Grade A office rents will undergo a mild downward adjustment of 4% over the next 12 months while that for Kowloon East will decline 5% - 7% during the same period. In the investment sales market, investment sentiment in the office market remained positive during 2Q 2012. The robust increase in investment volume was driven by the sales of No. 50 Connaught Road Central in Central. This was a remarkable deal as the entire property development was sold by Apollo Global Real Estate Management and National Electronics (joint-venture) to the Agricultural Bank of China for a record high price of HK$4.88 billion. www.colliers.com/hongkong

Employment Trends HONG KONG PMI DROPPED BELOW BENCHMARK Hong Kong s private sector activities contracted in May 2012 for the first time since December 2011. According to the report released by HSBC, the Hong Kong Purchasing Managers Index fell 0.9 points to 49.4 in May 2012, from 50.3 in April 2012. The drop was due to the unresolved European debt crisis, a decline in new business from the mainland, weak client demand for new orders and the high unemployment rate in the private sector. HIRING EXPECTATIONS PICKED UP Despite the deterioration in business conditions, hiring expectations increased in 2Q 2012 as more firms, particularly from the non-finance sector, reported an increase in staffing. As stated in the latest Hudson Report, 41% of around 500 executives surveyed across key business sectors expected to hire more staff in this quarter, up from 38% in the preceding quarter. Likewise, the proportion of respondents planning to reduce headcounts was cut by more than half, from 13% in 1Q 2012 to 6% in 2Q 2012. Across five key business sectors, the IT & T sector demonstrated the highest hiring expectations and the greatest increase, with 49% of the respondents saying that they will recruit additional staff. Meanwhile, executives in the Banking & Financial Services sector were more optimistic in 2Q 2012 than they were in 1Q 2012, as 38% of them planned to increase headcounts, compared to 33% in 1Q 2012. JOB EXPANSION IN THE FIRE SECTOR According to the latest figures released by the Census and Statistics Department, the employment market of the Finance, Insurance and Real Estate ( FIRE ) sector expanded in 1Q 2012 after contracting for two consecutive quarters. Growth in the FIRE sector s job vacancies recorded a strong increase of 10.7% YoY in 1Q 2012, after falling 5.1% YoY in 4Q 2011. The growth in FIRE job vacancies signalled that rent in Central is bottoming out as the FIRE sector is a primary user group of Central Grade A offices. GRADE A OFFICE RENT vs JOB VACANCY IN FIRE SECTOR 140% 120% Last Rally 100% 80% % change year-on-year 60% 40% 20% 0% -20% Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Negative Growth Mar-13 Mar-14 Mar-15 Mar-16-40% -60% -80% -100% FIRE Job Vacancy Grade A Office Rent Note: FIRE = Financing, Insurance and Real Estate Source: Census & Statistics Department, HKSAR Government; Colliers p. 2 Colliers International

Tenant Demand STRONG NET TAKE-UP Although Eurozone debt crisis has re-intensified on a higher risk of Greek turmoil, leasing demand in the Grade A office market was strong during 2Q 2012, driven by new set-ups and sustained demand growth in the non-banking and finance sector. This was reflected in the significant increase in net take-up of Grade A office premises in the market, soaring from a contraction of 39,000 sq ft in 1Q 2012 to an uptake of 670,000 sq ft in 2Q 2012. POSITIVE NET TAKE-UP IN ALL SUB-markets After falling for two consecutive quarters, net take-up in Central increased from a contraction of 222,000 sq ft in 1Q 2012 to an expansion of 126,000 sq ft in 2Q 2012. This was mainly due to rising demand for Grade A office space with an average monthly rent below HK$80 per sq ft in Central. Meanwhile, the relocation of cost-cautious tenants continued to sweep up demand for Grade A office premises in decentralised districts. After injecting 231,000 sq ft net floor area of Grade A office space into the Kowloon East sub-market in 2Q 2012, net take-up in Kowloon East was still strong, at 151, 000 sq ft. Moreover, both Island East and Tsim Sha Tsui also witnessed a reverse trend in net take-up, from -28,000 sq ft to 143,000 sq ft and from -61,000n sq ft to 74,000 sq ft, respectively. SOURCE OF DEMAND In view of Hong Kong s sound economic fundamentals that would offer a bright long-term business prospect, some non-finance companies such as recruitment, IT, software, trading services and legal firms, as well as private banks continued to come to Hong Kong to start their business. To many of the newcomers, Hong Kong is a stepping-stone for expanding their business into other Asian markets. Moreover, individual non-finance companies even planned to carry out business expansion plans during 2Q 2012 regardless of the headwinds from the Eurozone. GRADE A OFFICE NET TAKE-UP 1,400,000 1,200,000 1,000,000 800,000 Net Floor Area (sq ft) 600,000 400,000 200,000 0-200,000 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012-400,000-600,000-800,000 Colliers International p. 3

Supply Conditions NO NEW OFFICE DEVELOPMENT IN 2Q 2012 No new Grade A office development was completed in 2Q 2012. In the first half of 2012, the completion of Hysan Place in Causeway Bay (237,344 sq ft net) and King Palace Plaza (231,320 sq ft net) added a total of 468,664 sq ft net floor area to the Grade A office market. In the second half of 2012, four Grade A office buildings are projected to be completed, providing about 681,402 sq ft net office floor area. SUPPLY REMAINS TIGHT FROM 2013 The scarce supply of Grade A office premises will continue in 2013 and 2014. Although the forecast for the supply of Grade A office stock in 2013 is higher than that in 2012, it will be 33% below the long-term average of 2.2 million sq ft net floor area. Looking forward into 2014, only three Grade A office developments are projected to be released to the Grade A office market, of which two are in Kwun Tong. In centralised districts, the development of 8 Connaught Place in Central will be the only source of new supply. However, the development scale is relatively small, as the total net floor area is only about 40,700 sq ft. GRADE A OFFICE SUPPLY TREND 8.00 7.00 6.00 Floor Area (million sq ft) Long-term Average Annual Supply 2.2 million sq ft 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 5.00 4.00 3.00 2.00 1.00 0.00 Source: Rating and Valuation Department (1985-2011); Colliers (2012-2014) p. 4 Colliers International

Grade A Office Supply (2012 2015 and Beyond) building District nfa (sq ft) developer status 2012 New Supply Hysan Place Causeway Bay 241,500 Hysan Development Completed King Palace Plaza (55 King Yip Street) Kwun Tong 231,333 Billion Development Completed Hotel Ritz Carlton redevelopment Central 191,250 Lai Sun/China Construction Bank Under construction 28 Hennessy Road Wan Chai 102,240 Swire Under construction One Pacific Centre Kwun Tong 203,570 HK Pacific Investment Under construction Elite Centre (20-24 Hung To Road) Kwun Tong 184,342 Sun Hung Kai Properties Under construction 2012 Total 1,154,235 2013 New Supply Kowloon Commerce Centre - Tower B Kwai Chung 414,800 Sun Hung Kai Properties Under construction 181 Hoi Bun Road Kwun Tong 262,650 Sun Hung Kai Properties / Wong's Under construction International 135-137 Hoi Bun Road Kwun Tong 189,765 Sundart Int'l Holdings Under construction 10 Shing Yip Street Kwun Tong 209,368 Billion Development Under construction 6 Wang Kwong Road Kowloon Bay 224,900 Billion Development Under construction 10 Cheung Yue Street Cheung Sha Wan 176,581 Billion Development Under construction 2013 Total 1,478,064 2014 New Supply 52-56 Tsun Yip Street Kwun Tong 305,989 Billion Development Under construction 15-17 Chong Yip Street Kwun Tong 226,480 Billion Development Demolition 8 Connaught Place Central 40,700 Hongkong Land Under planning (Existing The Forum) 2014 Total 573,169 2015 & Beyond New Supply 10 Harcourt Road Central 419,468 Hutchison Under planning (Existing Hutchison House) 70 Queen's Road Central Central 156,641 Wheelock Under planning (Existing Crawford House) 38-52 Queen's Road Central Central 167,292 New World Development Under planning (Existing Manning House and Loke Yew Building) 10 Chater Road Central 514,342 Hongkong Land Under planning (Existing Prince's Building) 979 King's Road, Taikoo Place Taikoo Place 1,712,743 Swire Properties Under planning (Existing Warwick House, Somerset House, Cornwall House) 180 Wai Yip Street (KTIL 174) Kwun Tong 407,324 Sun Hung Kai Properties / Wong's International Under planning (Existing Wong's Industrial Centre) NKIL 6269 Kwun Tong 731,920 Wheelock Under Planning 98 How Ming Street (KTIL 240) Kwun Tong 972,243 Transport International Holdings / Under planning (Existing Bus Depot) Sun Hung Kai Properties 123 Hoi Bun Road Kwun Tong 506,782 Wheelock Under planning (Existing Wharf T & T Square) 14 Wang Tai Road Kowloon Bay 193,749 First Group Under planning (Existing Niche Centre) NKIL 6314 Kowloon Bay 681,600 Goldin Under Planning 2 Ng Fong Street San Po Kong 267,082 Billion Development Under planning (Existing Unimix Industrial Centre) KIL 11111 Hung Hom 471,997 Wheelock Under Planning SttL 463 Shek Mun 344,000 Billion Development Under Planning 2015 & Beyond Total 7,547,183 Note: Demolition: Demolition work is actively undergoing Under construction: Construction activity, including either foundation or superstructure, are undergoing on site Under planning (Existing Building): Building plan for a site, currently occupied by a tenanted building, is approved by the Government Under planning (Vacant Building): Building plan for a site, currently occupied by an empty building, is approved by the Government Under planning (Bare Site): Building plan for a bare site is approved by the Government Completed: Construction is completed and an occupation permit is issued by the Government Colliers International p. 5

Vacancy grade a office vacancy rates (by sub-markets) District Total Stock (million sq ft) 2Q 11 3Q 11 4Q 11 1Q 12 2Q 2012 Central / Admiralty 21.6 4.0% 3.5% 3.8% 5.7% 5.1% Wan Chai / Causeway Bay 11.3 2.9% 2.4% 2.4% 1.6% 3.1% Island East 10.9 3.9% 4.5% 3.9% 4.2% 2.9% Sheung Wan 1.6 4.5% 3.9% 4.0% 3.6% 1.5% Tsim Sha Tsui 6.4 3.9% 2.6% 1.9% 2.9% 1.7% Kowloon East 9.0 9.8% 12.9% 12.5% 10.3% 10.9% Overall 60.7 4.6% 4.7% 4.6% 5.0% 4.7% Note: Floor area on net basis Vacancy The stronger-than-expected demand for Grade A office space from the non-banking and finance industries and the ongoing relocation of cost-sensitive tenants pushed overall vacancy rates down 30 basis points to 4.7% in 2Q 2012, which was lower than the historical average of 5.0%. Supported by the sustained demand for Grade A office premises, vacancy rates in Central, Island East, Sheung Wan and Tsim Sha Tsui trended downwards in 2Q 2012. SUB-MARKET PERFORMANCE The lowering of Central vacancy rates by 60 basis points from 5.7% in 1Q 2012 to 5.1% in 2Q 2012 was mainly induced by increases in leasing demand from private banks and legal firms. Other than Central, vacancy rates in Sheung Wan, Island East and Tsim Sha Tsim also dropped as a result of tenant relocation for cheaper rents. Meanwhile, due to the completion of Grade A office buildings, vacancy rates in Wan Chai / Causeway Bay and Kowloon East went up during the quarter. VACANCY FORECAST The softening demand for top-tier office premises in Central will continue to exert pressure on the vacancy level in Central / Admiralty. In addition, due to the anticipated completion of two office developments in Kwun Tong during the second half of 2012, the vacancy rate in Kowloon East is anticipated to edge up slightly. The overall vacancy rate is projected to hover around its historical average of 5.0% in the second half of 2012. GRADE A OFFICE VACANCY RATE TREND 9.0% 8.0% 7.0% 6.0% Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Vacancy Rate Sep-11 Dec-11 Mar-12 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% p. 6 Colliers International

Rental Trend grade a office rentals (by sub-markets) District 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 2Q 2012 (% QoQ) Central / Admiralty $113.5 $111.8 $109.9 $100.1 $98.1-2.0% Wan Chai / Causeway Bay $58.1 $59.3 $59.7 $58.0 $58.8 1.3% Island East $39.2 $40.6 $41.1 $39.5 $40.0 1.3% Sheung Wan $54.7 $54.7 $54.8 $54.7 $54.3-0.9% Tsim Sha Tsui $42.7 $44.8 $44.9 $45.6 $46.5 1.9% Kowloon East $28.8 $29.8 $31.3 $31.4 $32.2 2.3% Overall $67.9 $67.9 $67.6 $63.9 $63.4-0.7% RENTS FELL AT A SLOWER PACE Although the overall Grade A office rent has fallen for the third consecutive quarter, the pace of rental decline has tapered off as the market witnessed increasing demand for Grade A office premises in 2Q 2012. The overall Grade A office rents edged down 0.7% QoQ in 2Q 2012, compared to a drop of 5.5% in 1Q 2012. TAKING UP THE SLACK After falling 8.9% QoQ in 1Q 2012, Grade A office rents in Central / Admiralty continue to drop but at a slower pace, down 2.0% QoQ in 2Q 2012. Clouded by a high degree of uncertainty, the global economic outlook has created a mixed picture for the Central Grade A office market, where rental trends have become more building-specific. Due to budget cuts at some multinational corporations, demand for top-tier Grade A office buildings with asking rents exceeding HK$120 per sq ft per month remained soft. On the contrary, Central Grade A office buildings with asking rents below HK$ 80 per sq ft per month were in high demand, which ended up stabilizing the overall rents in Central. In general, landlords were more flexible on rent negotiations for buildings with higher vacancies. However, some of them still stood firm on rents, especially those with stronger holding power. Regarding tenants preference, individual companies may relocate to sub-market of Wanchai / Causeway Bay or across the harbour for cost savings. Besides, more tenants relocate from Kowloon East to West Kowloon for cheaper rents. RENT FORECAST The outlook for Central has been brightening up due to increased demand for small- to medium-size Grade A office units. In Kowloon East, fewer tenants consider relocation to Grade A office premises in the district as the rental difference between Kowloon East and Island East is unable to justify the relocation cost. Besides, as more tenants relocate from the district to West Kowloon for cheaper rents, Grade A office rents in Kowloon East are expected to see higher downward pressure. It is anticipated that overall Grade A office rents will undergo a mild downward adjustment of 4% over the next 12 months, while that for Kowloon East will decline 5% - 7% during the same period. GRADE A OFFICE RENTAL TREND Effective Rents (HK$ / sq ft / Month (Net Floor Area)) $80 $70 $60 $50 $40 $30 $20 $10 $0 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 69.4 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 63.4 Apr-12 Colliers International p. 7

Investment Market MARKET VOLUME Investment sentiment in the office market remained positive during 2Q 2012, given that the total value of investment sales transactions with a total consideration of more than HK$30 million each increased 40% QoQ from HK$7.6 billion to HK$10.7 billion. The robust increase in investment volume was driven by the sale of No. 50 Connaught Road Central in Central. INVESTMENT RATIONALE The sale of No. 50 Connaught Road Central was a very remarkable deal concluded during 2Q 2012, in which the entire property development was sold by Apollo Global Real Estate Management and National Electronics (joint-venture) to Agricultural Bank of China for a record high price of HK$4.88 billion. Completed in 2011, No. 50 Connaught Road Central is a 28-storey of Grade A office building with a total gross floor area of 175,481 sq ft. The HK$4.88 billion price tag represents an average price of HK$27,809 per sq ft. Based on our assumptions on current market rents, the estimated market yield of the office building is 4.3% per annum, which is higher than the average market yield of 3.4%. The premium yield mainly reflects the capital and concentration risk involved due to the large capital sum being placed on a single real estate asset and the challenge of access to financing. The Grade A office building is now renamed the Agricultural Bank of China Tower. Regarding strata-title sales, a prominent transaction was highlighted by the sale of eight whole floors (208,000 sq ft) in Kowloon Commercial Centre Tower B in Kwai Chung by Sun Hun Kai properties for HK$1.38 billion. The average price was HK$6,656 per sq ft. In addition, more transactions were concluded in Wanchai / Causeway Bay compared to the preceding quarter due to the sale of office units in Bank of East Asia Harbour View Centre. OFFICE YIELD EDGED UP According to the Rating and Valuation Department, the average yield of Hong Kong Grade A offices compressed 20 basis points, from 3.5% in February 2012 to 3.3% in May 2012. The decrease in Grade A office yield reflected that the demand for Grade A office space from investors was strong during the quarter. HONG KONG OFFICE INVESTMENT YIELDS HONG KONG OFFICE INVESTMENT SALES TRANSACTIONS 10% 16 Yield (% per annum) 9% 8% 7% 6% 5% 4% 3% 2% Total Turnover (HK$ billion) 14 12 10 8 6 4 Historical Average: HK$5.7 billion 1% 0% Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Grade A Grade B 2 0 1Q 2004 2Q 2004 3Q 2004 4Q 2004 1Q 2005 2Q 2005 3Q 2005 4Q 2005 1Q 2006 2Q 2006 3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 Source: Rating and Valuation Department, HKSAR Government Note: Investment sales transactions with lump sums of HK$30 million or above Source: EPRC p. 8 Colliers International

Market Outlook Although rents at top-tier buildings in Central had been falling since mid-2011, other Grade A office buildings in Central / Admiralty witnessed increasing demand, thanks to the rising demand from non-finance companies for Grade A office premises and expansionary demand from existing tenants in the legal sector. Hence, rents in Central / Admiralty are expected to see a mild decrease of 3% over the next 12 months given the district s limited supply of Grade A office properties. While the relocation of cost-cautious from centralised areas to decentralised districts is anticipated to continue, the worrisome economic outlook of the advanced economy is expected to exert negative impact on the decentralised Grade A office market. Overall, Grade A office rent is expected to decline 4% over the next 12 months. GRADE A OFFICE RENTAL TREND Effective Rents (HK$ / sq ft / Month (Net Floor Area)) 69.4 63.4 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 $80 $70 $60 $50 $40 $30 $20 $10 $0 Colliers International p. 9

522 offices in 62 countries on 6 continents United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118 $1.8 billion in annual revenue in 2011 1,250 million square feet under management Over 12,300 professionals Colliers International (Hong Kong) Limited Suite 5701 Central Plaza 18 Harbour Road Wanchai Hong Kong tel +852 2828 9888 FAX +852 2828 9899 Company Licence No: C-006052 Richard Kirke Managing Director Hong Kong tel +852 2822 0699 FAX +852 2107 6047 Email richard.kirke@colliers.com Individual Licence: E-279867 Simon Lo Executive Director Research & Advisory Asia tel +852 2822 0511 FAX +852 2868 5275 Email simon.lo@colliers.com Copyright 2012 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. You are receiving this collateral because you either subscribed for it or expressed your interest to receive it at some point to Colliers International. If you do not wish to receive future communications from us, please contact Colliers International by email at unsubscribe.hongkong@colliers.com with your name and item to unsubscribe Accelerating success. www.colliers.com