Will The Downtrend End Sooner

1Q 2012 market overview research & forecast report hong kong real estate market colliers international HONG KONG Will The Downtrend End Sooner Rather Than Later? Even in the face of unchanged trends on the macro-economic front, the real estate market in Hong Kong, particularly the residential sector, had a remarkable improvement in terms of the volume of sales transactions since the beginning of February 2012. market indicators Office luxury residential 16,000 14,000 12,000 industrial retail SSD implementation (12 month Forecast) RESIDENTIAL SALE AND PURCHASE AGREEMENTS The market revival is largely attributed to restored market confidence from the inflow of capital, the corresponding increase in stock market prices during the period as well as the renewed appetite for mortgage loans from local banks after the Chinese New Year. This further led to the lowering of effective mortgage rates by several banks to capture new customers. All of these eventually gave rise to the release of pent-up demand during 1Q 2012. Having said that, the growth in volume was primarily in the mass market. In the high-end luxury sector, the volume momentum was short-lived as vendors raised their asking prices in view of improving market sentiment. In the local office market, a similar volume growth trend was also detected with the majority of sales activity dominated by local buyers. Second-tier office developments in traditional business locations with premium yields above 3.5% and prime assets in non-core areas were in the spotlight during 1Q 2012. From a leasing perspective, similar to the residential market, tenants were largely cost-conscious when it came to real estate expenditure. Most financial institutions continued to look for cost-effective options to accommodate their operations. Yet, there were newcomers from the non-financial sector who were quick to fill the gaps vacated by financial companies in the CBD. In the residential sector, the usually high leasing demand from the financial sector contracted as a result of a reduction in staff headcount leading to fewer tenants as well as a cut in housing budgets. Many tenants either relocated or even downgraded themselves to lower-cost housing options in 1Q 2012. No. of residential units 10,000 8,000 6,000 4,000 2,000 0 Average: 8,851 Looking forward, the local real estate market - with the exception of the retail sector - is predicted to go through a period of consolidation with an anticipated downward adjustment in the order of 5 to 15 percent in the next 12 months. The relatively shorter downward cycle, compared to previous cycles which averaged 12 to 18 months, is from the assumption that the local real estate market will likely remain resilient given the prevailing trend of capital flows and the sustained low cost of borrowing. As such, the current consolidation might end earlier if the global economy takes an upward swing in the latter part of 2012. Mar-10 May-10 Sep-10 Nov-10 Mar-11 May-11 Sep-11 Nov-11 Mar-12 Note: SSD = Special Stamp Duty Source: Land Registry www.colliers.com/hongkong

hong kong 1q 2012 MARKET overview Economic Update OVERVIEW The unresolved European sovereign debt crisis continued to overshadow the local economic growth prospects. In the US, economic recovery was unsteady, and the March employment report was a bit downbeat. However, the local stock market showed signs of recovery in 1Q 2012, up 12% QoQ when compared to the level in the preceding three months. The index held above the psychologically important 20,000-point level after the Chinese Lunar New Year. As anticipated by the public, China lowered its reserve requirement ratio for big commercial banks for the second time in the current easing cycle. In the residential market, sentiment was cautiously optimistic. Pent-up demand that had accumulated over the past six months translated into increased sales transactions in the latter part of 1Q 2012. % Growth Year-on-Year HONG KONG REAL GDP GROWTH 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% 1Q 95 1Q 96 1Q 97 1Q 98 1Q 99 1Q 00 1Q 01 1Q 02 1Q 03 1Q 04 1Q 05 1Q 06 1Q 07 1Q 08 Hong Kong Real GDP Growth 1Q 09 1Q 10 Forecast 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 EIU Forecast Source: Census & Statistics Department, HKSAR Government; The EIU (2012-2015) GDP The strong headwinds from the external environment continued to weigh on the local economy. Hong Kong GDP growth decelerated further from 4.3% YoY in 3Q 2011 to 3.0% YoY in 4Q 2011, as signs of negative spill-over of exports to Asia became increasingly evident. At the same time, private consumption expenditure moderated from 9.8% YoY in 3Q 2011 to 7.1% YoY in 4Q 2011, but still held up remarkably well throughout 2011 and served as the main driver for economic growth. Looking ahead, local consumption, exports of services and the more resilient Asian markets should provide some buffer to the weakness in the external sector. Nevertheless, the global economy will continue to face a high degree of uncertainty over the near-to-medium term, as the sovereign debt crisis remains a major threat to the economy. According to the latest forecast by the Economic Intelligence Unit (EIU), Hong Kong GDP growth will slow to 2.5% YoY in 2012, compared to 5.0% YoY in 2011. INTEREST RATES In 1Q 2012, some of the local banks lowered their mortgage interest rates as competition among lenders heated up in the beginning of the year. Even so, HIBOR remained flat, and individual banks revised down their prime-based mortgage interest rates by 40 bps, leaving effective mortgage interest rates as low as 2.1%. Low mortgage interest rates offered by some banks have aroused the Hong Kong Monetary Authority s concern, as it has set the reference level for commercial banks in Hong Kong at HIBOR plus 0.7%, or Prime minus 3.1%. p. 2 Colliers International

hong kong 1Q 1q 2012 office Grade A Office Sector Relocation Brings Stability IMPROVED BUSINESS CONDITIONS Business activities in Hong Kong s private sector expanded in February 2012. The HSBC Hong Kong Purchasing Index edged up 0.9 points, from 51.9 in January 2012 to 52.8 in February 2012, which is the second consecutive month with a reading above the 50.0 benchmark since August 2011. The index indicated a solid improvement in operating business conditions, as firms reported increases in both output and new orders. STEADY HIRING EXPECTATIONS According to the Hudson Report, hiring expectations in Hong Kong stabilised in 1Q 2012. Overall, 38% of respondents expected to hire more staff in 1Q 2012, which is the same figure as in 4Q 2011. However, 13% of over 500 executives surveyed across key business sectors expected to reduce their headcount, up 5% from the previous quarter. Across the six key business sectors, the Consumer sector saw the highest expectations and the steepest rise, with 57% of respondents planning to hire more staff in 1Q 2012, up from 47% in 4Q 2011. In contrast, the Media / PR / Advertising sector reported the steepest decline in hiring expectation, dropping from 50% in the previous quarter to just 22% in 1Q 2012. Hiring expectations of the Banking & Financial Services sector remained unchanged at 33%. However, the portion forecasting reductions rose from 14% in 4Q 2011 to 20% this quarter, which was also the highest percentage among the six sectors. SUcCESSIVE JOBS CONTRACTION 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 contracted for the second consecutive quarter, but at a slower pace. Growth in the FIRE sector s job vacancies dropped 5.1% YoY in 4Q 2011, after falling 6.7% YoY in 3Q 2011. A second contraction in the FIRE sector job vacancies in 4Q 2011 implied that rents in Central would fall further in the following months, given that the trend of Hong Kong Grade A office rents, especially rents in Central, are highly geared towards job growth in the FIRE sector. 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 Mar-13 Mar-14 Mar-15 Mar-16-40% -60% -80% -100% Note: FIRE = Financing, Insurance and Real Estate FIRE Job Vacancy Grade A Office Rent Source: Census & Statistics Department, HKSAR Government; Colliers Colliers International p. 3

hong kong 1q 2012 office Tenant Demand GREATER PRESSURE ON TAKE-UP The unresolved Eurozone debt crisis continued to plague the global economic outlook and affected Grade A office leasing demand in Hong Kong during the quarter. The overall net take-up witnessed the first quarterly contraction since 3Q 2009, declining from 70,249 sq ft in 4Q 2011 to -38,854 sq ft in 1Q 2012. The slowdown in net take-up was most noticeable in Central, where net take up deteriorated from -73,570 sq ft in 4Q 2011 to -228,373 sq ft in 1Q 2012 due to softened leasing demand from the banking and finance industries. A MIXED PICTURE FOR SUB-MARKETS Other than Central, Island East and Tsim Sha Tsui also showed negative net take-up, releasing respectively 28,000 sq ft and 60,500 sq ft of office stock to the Grade A office market. In contrast, tenant relocation continued to push up demand for office premises in Wan Chai / Causeway Bay, which resulted in a strong net take-up in the district, from 6,300 sq ft in the preceding quarter to 82,000 sq ft in 1Q 2012. Kowloon East also showed increased leasing enquiries, as net take-up surged 48% QoQ to 463,000 sq ft during the quarter. SOURCE OF DEMAND Similar to the previous quarter, leasing demand softened this quarter, as many companies have put their business expansion plans on hold or have downsized their office space amid discouraging business sentiment. However, economic woes did not startle new set ups. Compared to the Western part of the world, Asia is more resilient to economic downturn. Newcomers such as private equities, small hedge funds, property companies, banking and financial firms from Asia showed strong interest in starting their business in Hong Kong. TENANT RELOCATION ISSUES In view of tighter budgets for business operations, more tenants found the current market rents beyond their affordability and chose to relocate from Central / Admiralty to other sub-districts in order to save costs. However, tenants who would like to relocate to Wan Chai / Causeway Bay or across the harbour to Tsim Sha Tsui or Kowloon East for cheaper rents found difficulties in securing office premises larger than 100,000 sq ft, as the supply of office stock larger than 100,000 sq ft was extremely tight. 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 2012-400,000-600,000-800,000 p. 4 Colliers International

hong kong 1q 2012 office Supply Conditions HYSAN PLACE OPENED IN 1Q 2012 Upon completion in March 2012, Hysan Place in Causeway Bay, with a net office floor area of over 237,000 sq ft, is the focus for new supply of quality Grade A office premises in 1Q 2012. The redevelopment of The Ritz-Carlton and 414 Kwun Tong Road are projected to be completed in the second quarter of 2012. Overall, the supply side of the Grade A office market will be very tight in 2012, at about 52% below the long-term average of 2.2 million sq ft. SUPPLY REMAINS TIGHT IN 2013 It is forecast that there will be no significant easing of the tight supply situation in the Grade A office market in 2013. The projected volume of new office supply will depend on the development of six Grade A office buildings four located in the sub-district of Kowloon East, comprising about 60% of the total stock. The four projects are 181 Hoi Bun Road (262,650 sq ft net), 135-137 Hoi Bun Road (189,765 sq ft net), 6 Wang Kwong Road (224,645 sq ft net) and 10 Shing Yip Street (209,368 sq ft net). SHARP CUT IN SUPPLY FOR 2014 Looking forward to 2014, there will be extremely limited new Grade A office stock to be released to the private office market only 572,019 sq ft of net floor area, which is significantly lower than the volume of new supply in 2012 and 2013. POTENTIAL SUPPLY IN 2015 AND BEYOND Beyond 2014, four redevelopment projects the existing Hutchison House, Crawford House, Prince s Building as well as Manning House in Central will provide a total net floor area of about 1.3 million sq ft. Considering the government s initiative to transform Kowloon East and the former Kai Tak Airport into the city s second CBD, the quantity of office stock in Kowloon East will continue to increase. Potential new supply in Kowloon East will include 6 development projects with a combined total floor area of 3.5 million sq ft. GRADE A OFFICE SUPPLY TREND 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 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 Floor Area (million sq ft) Long-term Average Annual Supply 2.2 million sq ft Source: Rating and Valuation Department (1985-2010); Colliers (2011-2014) Colliers International p. 5

hong kong 1q 2012 office Grade A Office Supply (2012 2015 and Beyond) building District nfa (sq ft) developer status 2012 New Supply Hotel Ritz Carlton redevelopment Central 191,250 Lai Sun/China Construction Bank Under construction Hysan Place Causeway Bay 237,344 Hysan Development Completed 28 Hennessy Road Wan Chai 102,240 Swire Under construction 414 Kwun Tong Road 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 55 King Yip Street & 24 Hing Yip Street Kwun Tong 228,290 Billion Development Under construction 2012 Total 1,147,035 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 / Under construction Wong's 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 39,550 Hongkong Land Under planning (Existing The Forum) 2014 Total 572,019 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 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 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 p. 6 Colliers International

hong kong 1q 2012 office Vacancy grade a office vacancy rates (by sub-markets) District Total Stock (million sq ft) 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 Central / Admiralty 21.4 3.0% 3.0% 4.0% 3.5% 3.8% 5.7% Wan Chai / Causeway Bay 11.1 3.5% 3.3% 2.9% 2.4% 2.4% 1.6% Island East 10.9 5.8% 4.7% 3.9% 4.5% 3.9% 4.2% Sheung Wan 1.6 5.3% 3.8% 4.5% 3.9% 4.0% 3.6% Tsim Sha Tsui 6.4 4.8% 6.6% 3.9% 2.6% 1.9% 2.9% Kowloon East 8.2 5.5% 7.2% 9.8% 12.9% 12.5% 10.3% Overall 59.5 4.2% 4.3% 4.6% 4.7% 4.6% 5.0% Note: Floor area on net basis Vacancy Consistent with our prediction, the overall vacancy rate of Grade A office buildings was virtually 5.0% in 1Q 2012, a movement of 40 basis points, from 4.6% in 4Q 2011 to the historical average of 5.0%. Along with the considerable decrease in net take-up, Central, Island East and Tsim Sha Tsui reported increases in vacancy rates, while the sub-markets of Sheung Wan, Wan Chai / Causeway Bay and Kowloon East saw falling vacancy rates due to the relocation of cost-sensitive tenants. SUB-MARKET PERFORMANCE Lower operating budgets caused demand for Grade A office premises in Central to fall further during the quarter, from 3.8% in 4Q 2011 to 5.7% in 1Q 2012, which was higher than the long-term average for all Grade A office buildings in our covered markets. Other than putting their business expansion plans on hold, firms also cut more staff or relocated to other sub-districts to save operating costs. Lower vacancy rates in Sheung Wan and Wan Chai / Causeway Bay reflect the increasing trend of cost-sensitive tenants relocating away from Central to its nearby sub-districts. VACANCY FORECAST Vacancy rates in Central / Admiralty are projected to rise further in 2012, as worries remain regarding where the Western part of the world would lead the global economy. Office tenants, especially in the Banking and Finance sector, see ongoing pressure to reduce their office size commitment upon lease expiry or go for lease surrender. However, the relocation of cost-sensitive tenants for cheaper rents will push down vacancy rates in non-core districts, thus stabilising the overall market performance, with the average vacancy rate projected to hover around 5.0% in the first half of 2012. GRADE A OFFICE VACANCY RATE TREND 9.0% 8.0% 7.0% 6.0% Vacancy Rate 5.0% 4.0% 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 Sep-11 Dec-11 3.0% 2.0% 1.0% 0.0% Colliers International p. 7

hong kong 1q 2012 office Rentals grade a office rentals (by sub-markets) District 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 1Q 2012 (% QoQ) Central / Admiralty $110.2 $113.5 $111.8 $109.9 $100.1-8.9% Wan Chai / Causeway Bay $55.2 $58.1 $59.3 $59.7 $58.0-2.8% Island East $38.0 $39.2 $40.6 $41.1 $39.5-3.7% Sheung Wan $50.4 $54.7 $54.7 $54.8 $54.7 0.0% Tsim Sha Tsui $39.8 $42.7 $44.8 $44.9 $45.6 1.6% Kowloon East $27.0 $28.8 $29.8 $31.3 $31.4 0.6% Overall $65.2 $67.9 $67.9 $67.6 $63.9-5.5% CAUTION KEPT RENTS LOWER Distortions in the global financial market continued to dampen business sentiment in Hong Kong. In view of the uncertain global economic outlook, Hong Kong Grade A office rents saw another quarter of negative growth, dropping 5.5% QoQ in 1Q 2012, after falling 0.4% QoQ in 4Q 2011. RENTS IN CENTRAL HARDEST HIT In line with our expectation, Grade A office rental growth in Central saw the deepest deceleration in 1Q 2012, falling from -0.4% in 4Q 2011 to -8.9% in 1Q 2012. The demand for Grade A office premises in Central further softened, as global economic uncertainties continued to pose a threat to the office leasing market. Meanwhile, top-tier office buildings in Central experienced increasing downward pressure on rents, as tenants could not justify the wide gap between premium rents and their budgets. In general, landlords were more flexible on rent negotiation in view of the weakening leasing demand. Tenants also faced lower operating costs, as budgets tightened amid a global economic slowdown. However, some landlords kept their asking rents stable, especially for Grade A office buildings where vacancy rates were low. PERFORMANCE IN SUB-MARKETS WEAKENED Besides Central, rents in Wan Chai / Causeway Bay and Island East also got into headwinds in the first quarter of 2012, falling by 2.8% QoQ and 3.7% QoQ respectively. Given the highly uncertain external financial environment, rental growth in Kowloon East also tapered off sharply, from 4.8% QoQ in 4Q 2011 to 0.6% QoQ in 1Q 2012. The sub-district of Tsim Sha Tsui was the only district that displayed rising rental growth, albeit at a slow rate. p. 8 Colliers International

hong kong 1q 2012 office GRADE A OFFICE RENTAL TREND $80 Effective Rents (HK$ / sq ft / Month (Net Floor Area)) $70 $60 $50 $40 $30 $20 $10 69.4 63.9 $0 Apr-07 Jul-07 Oct-07 Apr-08 Jul-08 Oct-08 Apr-09 Jul-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 RENTAL FORECAST Gripped by growing concerns over the external environment and a further decrease in the rental affordability of financial sector tenants. The local office market is predicted to undergo a cyclical downturn in 2012, with rents in Central expected to fall 20% over the next 12 months. However, according to our research, the anticipated continuing relocation of tenants from Central / Admiralty to decentralised sub-markets and the projected limited supply of Grade A office stock would stabilise the overall Grade A office rental performance. Under this scenario, overall Grade A office rent is forecast to undergo an 8% downward correction over the next 12 months. Colliers International p. 9

hong kong 1q 2012 office Investment Market MARKET VOLUME Investment sentiment in the office market picked up quickly in 1Q 2012, due to positive factors such as a low interest rate environment and the less cautious attitude adopted by banks towards lending. The total value of investment sale transactions with a lump sum consideration of more than HK$30 million each increased 54% QoQ to HK$6.6 billion in 1Q 2012. INVESTMENT RATIONALE There is no easing of the tight supply situation in the Grade A office market, particularly in the core business districts. Given the limited availability of office stock for sale in core business districts, office activity shifted to non-core areas, thus pushing up prices in a number of decentralised submarkets. Overall, the percentage of rental growth over the last three years was in the order 25% although there was a mild rental retreat during 4Q 2011 and 1Q 2012. Individual tenants chose to acquire suitable office premises for self-use since the cost of buying and renting narrowed. In addition, prospective buyers looked for investment opportunities in decentralised districts such as Wan Chai and Kowloon East. In Kowloon East, the higher investment yield and lower average price compared with core business locations have attracted prospective buyers to acquire office premises for either investment or end-user purposes. For example, the top floor of 49 King Yip Street, a commercial building developed by Sun Hung Kai Properties that is undergoing construction, was sold for HK$49.74 million (an average price of HK$10,000 per sq ft based on a total gross floor area of 4,974 sq ft). The unit price tag of the deal was a record high for Grade A offices in Kwun Tong. OFFICE YIELD EDGED UP According to the Rating and Valuation Department, the average yield of Hong Kong Grade A offices increased 10 basis points, from 3.4% in 3Q 2011 to 3.5% in 4Q 2011. The increase in Grade A office yield mainly reflected that more investors were factoring a thicker risk premium in 1Q 2012, as the global financial market outlook remained highly uncertain. HONG KONG OFFICE INVESTMENT YIELDS HONG KONG OFFICE INVESTMENT SALES TRANSACTIONS 10% 16 Yield (% per annum) 9% 8% 7% 6% 5% 4% 3% 2% Total Turnover (HK$ billion) 14 12 10 8 6 4 Historical Average: HK$5.6 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 Jul-07 Jul-08 Jul-09 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 Source: Rating and Valuation Department, HKSAR Government Note: Investment sales transactions with lump sums of HK$30 million or above Source: EPRC p. 10 Colliers International

hong kong 1q 2012 office Market Outlook The headwinds in the global economy and concerns over a global slowdown continued to pose threats to the local economy, leading to a downtrend in the office market, with Grade A office rents falling since 4Q 2011. Nevertheless, the tight supply of quality Grade A office premises and the relocation of tenants from core areas to decentralised districts is anticipated to continue. Rents in Central and Admiralty will be softening in the next 12 months. However, vacancy rates in non-core areas will be coming down due to decentralisation. Therefore, rents in non-traditional sub-markets are anticipated to remain resilient. Compared to the past downward cycles that took approximately 3 years, it is our view that the current rental correction will be shorter, as leasing demand attributed to a batch of tenants from the non-finance industries continues to underpin the market over the next 12 months. GRADE A OFFICE RENTAL TREND $80 63.9 $70 $60 $50 $40 $30 $20 $10 69.4 $0 Apr-07 Jul-07 Oct-07 Apr-08 Jul-08 Oct-08 Apr-09 Jul-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Jul-12 Oct-12 Effective Rents (HK$ / sq ft / Month (Net Floor Area)) Colliers International p. 11

hong kong 1q 2012 residential Luxury Residential Sector No Crash On Price PENT-UP DEMAND The residential market witnessed boosted buying sentiment and increased sales activities in 1Q 2012. Pent-up buying demand for residential units, accumulated over the past six months as prospective buyers adopted a wait-and-see attitude in view of government measures to curb speculation and the uncertain global economic outlook, has been released onto the market, causing transaction volume to experience an upsurge in 1Q 2012. Leasing Demand Continued to Change Leasing demand remained weak during the quarter owing to seasonal factors. Demand for large luxury flats with monthly rent of over HK$80,000 was particularly affected by the downsizing activities and housing budget cuts of the financial institutions, and landlords were more flexible in asking rents. However, leasing demand from non-financial sectors will remain strong in the near term. External Factors Remain a Key Concern With the pent-up demand in the residential market being gradually satisfied, the market will become quiet again. The future movement of the residential market will depend largely on external factors such as the resolution of the European sovereign debt crisis and the quantitative easing of policies by central banks. HONG KONG RESIDENTIAL TRANSACTIONS 180,000 45,000 160,000 40,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Total Turnover (HK$ million) 35,000 30,000 25,000 20,000 15,000 10,000 Number of Transactions 5,000 0 Total Turnover No. of transactions Note: 3-month Ending Source: The Land Registry, HKSAR Government p. 12 Colliers International

hong kong 1q 2012 residential Sales Market As the market is expecting another round of quantitative easing measures from the European Union and the USA, with the capital shortage in mainland China being slightly eased following another 50 basis points (bps) bank reserve ratio cut in February, the Hang Seng Index has been moving upwards since December 2011. However, with China lowering its GDP growth target for the first time in eight years from 8 to 7.5%, investor sentiment was once again dampened and the stock market slumped in the beginning of March. The overall residential market was rather quiet before the Lunar New Year due to seasonal effects. According to the Land Registry, the total number of sales and purchase agreements of residential units fell to 3,507 and 3,884 in January and February 2012 respectively, near the bottom level during the financial tsunami period - 3,264 transactions in November 2008. The mass residential market did experience an upsurge in the number of transactions after the Lunar New Year. In March 2012, a total of 11,358 residential building unit transactions were recorded. Relaxed Mortgage Offering Seeing a decreased demand for business loans and the need to achieve a new mortgage loan target in 2012, banks in Hong Kong are getting more competitive on the mortgage battlefield. While a number of banks have announced that they will trim their mortgage rates, the Hong Kong Monetary Authority (HKMA) has advised against offering mortgages at rates lower than HKMA s reference mortgage rates for banks. In fact, banks were more generous in offering more attractive terms and appraised values during the mortgage negotiation process. The mortgage rate offered by HSBC with reference to the best lending rate (P) remained at P minus 2.1% - 2.4%, while HSBC s existing best lending rate is 5%. However, the bank is willing to offer individual clients a mortgage rate down to P minus 2.85%. HSBC'S PRIME-RATE BASED MORTGAGE RATES 3.50% 3.00% 2.90% 2.90% 2.90% 2.50% 2.35% Effective Mortgage Rate 2.00% 1.50% 1.00% 0.50% 0.00% 2Q 2011 3Q 2011 4Q 2011 1Q 2012 Source: HSBC Colliers International p. 13

hong kong 1q 2012 residential Luxury Residential prices (By Sub-Markets) district 2Q 10 3Q 10 4Q 10 1Q 10 2Q 11 3Q 11 4Q 11 1Q 12 1Q 12 (HK$ / sq ft) (% QoQ) The Peak 26,875 28,050 29,313 30,938 32,413 33,063 32,413 31,750-2.0 Mid-levels 11,803 12,000 12,725 13,188 13,663 13,838 13,238 12,995-1.8 South Side 17,713 18,613 19,288 19,538 19,925 19,725 19,250 18,470-4.1 Overall 16,783 17,391 18,189 18,806 19,520 19,629 19,149 18,730-2.2 Upsurge in Mass Market Driven by Occupational Demand After the government s implementation of SSD and the lowering of LTV ratio required by HKMA last year, the residential market began to cool down and the number of residential transactions dropped significantly. As demand for residential units grew, coupled with banks more relaxed attitude in mortgage loans at the beginning of 2012, the mass residential market became more active again after the Lunar New Year. Small and medium residential flats with less aggressive asking prices were the most sought-after, and both home buyers and sellers seemed more willing to negotiate to facilitate the sales transactions. Luxury Residential Prices Continued to Decline Unlike the heated mass residential market, average luxury residential prices continued to decline, down 2.19% QoQ to HK$18,730 per sq ft during the three-month period ending February 2012. Among the three traditional luxury districts, the South Side witnessed the greatest drop, falling 4.05% QoQ to HK$18,470 per sq ft owing to the maximum LTV ratio requirement that allows up to 50% to properties valued at or above HK$10 million. Although luxury residential units on The Peak were also affected, the impact was relatively small due to the very limited supply of stock. Meanwhile, most of the transactions concluded during the quarter were valued between HK$25 and HK$60 million. HONG KONG LUXURY RESIDENTIAL PRICE TREND 25,000 20,000 15,000 10,000 5,000 0 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jul-07 Jul-08 Jul-09 Average Price (HK$/sq ft) p. 14 Colliers International

hong kong 1q 2012 residential major residential sales transactions Month Property GFA (sq ft) Price (HK$ m) Unit Price (HK$ / sq ft) The peak Guildford Court, Blk A, G/F Flat 1 2,700 85.20 31,556 Yue Hei Yuen, House E 4,000 220.00 55,000 South Side Feb-12 Villa Bel-Air, House 07 9,254 295.00 31,878 Feb-12 Regalia Bay, House A06 4,212 62.29 14,789 Manderly Garden, House 40 3,594 118.00 32,832 45 Island Road, House 6 2,705 80.00 29,575 Dec-11 Manderly Garden, House 29 3,504 120.00 34,247 Dec-11 33 Island Road, House 5 6,079 300.00 49,350 Dec-11 Redhill Peninsula, Cedar Drive, House 53 2,880 56.00 19,444 mid-levels Feb-12 Regence Royale, Tower 1, 21/F Flat B 2,566 54.00 21,044 Feb-12 May Tower 1, 11/F, Flat 3 2,850 59.50 20,877 Hong Villa, 20/F 3,833 91.00 23,741 Chung Tak Mansion, 17/F 2,864 68.00 23,743 Dec-11 31 Robinson Road, 29/F, Flat A 2,665 52.00 19,512 Dec-11 Trafalgar Court, 17/F, Flat A 3,008 57.50 19,116 Colliers International p. 15

hong kong 1q 2012 residential Leasing Demand Demand from Financial Sector Remains Weak In the leasing market, demand remained weak in 1Q 2012 owing to the falling number of expatriate arrivals around the Chinese New Year period, especially the demand for luxury residential units (HK$ / sq ft / month) with monthly rents of HK$80,000 and above. Demand coming from the financial sector remained weak as some financial institutions continued to downsize their operations in Hong Kong or cut housing allowances for staff at all levels. Nevertheless, there were more leasing enquiries from non-financial firms. In fact, the housing budget for some non-financial firms is even higher than that for financial institutions. As to location, some newly-arrived expatriates from financial companies may choose to stay in West Kowloon for lower rents instead of the three traditional luxury residential districts on the island. major residential LEASE transactions Month Property District GFA (sq ft) Rental (HK$ / month) Unit rental (HK$ / sq ft / month) Feb-12 29 Severn Road The Peak 2,300 140,000 60.87 Dec-11 127 Repulse Bay Road South Side 3,008 150,000 49.87 The Repulse Bay South Side 2,925 144,000 49.23 Bel-Air on the Peak South Side 2,555 108,000 42.27 Royal Bay South Side 4,688 200,000 42.66 Dec-11 Dynasty Court Mid-levels 2,691 160,000 59.46 Dec-11 The Harbourview Mid-levels 2,350 145,000 61.70 Feb-12 The Royal Court Mid-levels 2,846 103,000 36.19 Feb-12 Seymour Mid-levels 1,888 100,000 52.97 Small Serviced Apartment Units in Demand In 1Q 2012, the market saw strong demand for studios and one-bedroom suites of between 500 to 900 sq ft. Larger units, on the other hand, showed higher vacancy rates due to downsizing by tenants in view of lower housing budgets and less family relocation in 1Q 2012. As of the end of 1Q 2012, budgets for staff at junior levels ranged from HK$20,000 to 40,000 per month, middle management levels from HK$40,000 to 130,000 per month, and senior executives from HK$130,000 and above per month. p. 16 Colliers International

hong kong 1q 2012 residential Luxury Residential Rentals (By Sub-Markets) district 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 1Q 12 (HK$ / sq ft / MONTH) (% QoQ) The Peak 52.15 54.31 56.96 60.88 66.55 68.56 66.70 63.73-4.5 Mid-levels 39.97 41.90 43.20 44.97 45.79 46.88 44.69 44.02-1.5 South Side 42.29 44.18 45.32 46.55 48.48 49.31 47.96 45.40-5.3 Overall 40.93 42.60 43.83 45.42 47.30 48.37 46.77 45.26-3.2 Rent Trend Moving Downwards As the demand for residential premises with monthly rents of HK$80,000 and above became weaker, luxury residential rents in South Side and The Peak dropped 5.3% and 4.5% respectively during the three-month period ending February 2012 to HK$45.40 and 63.73 per sq ft per month. The smaller decline on The Peak was largely due to the extremely tight supply of leasing stock. Landlords, especially those with larger and more expensive premises, were more willing to give concessions during the negotiation process. Some landlords were even willing to renew the tenancy at the rent set two years ago, indicating a rather cautious attitude towards future rent movement. From December 2011 to February 2012, overall luxury rent for the three traditional residential districts was HK$45.26 per sq ft per month, down 3.2% QoQ. Looking ahead, as more expatriates are expected to come to Hong Kong in 2Q 2012, partly due to expatriate families anticipating the start of the school year, the leasing market is expected to be more active again. HONG KONG LUXURY RESIDENTIAL RENTAL TREND $60 $50 $40 $30 $20 $10 $0 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jul-07 Jul-08 Jul-09 Average Rent (HK$/ sq ft/ month) Colliers International p. 17

hong kong 1q 2012 residential Investment Market HONG KONG LUXURY RESIDENTIAL YIELD TREND 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 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 Jul-07 Jul-08 Jul-09 Yield The overall luxury residential yield compressed marginally from 2.75% in November 2011 to 2.72% in February 2012 as luxury rents fell at a faster pace than capital values. The gloomy sentiment and substantial amount of capital required under the maximum LTV ratio made real estate investment less attractive than before, causing the number of investment transactions to decline during the quarter. Developers Remain Cautious in Land Sales Since December 2011, the government has successfully sold five residential sites through public tender. Two connected plots on Lantau Island were sold to Swire Properties in December 2011 and a Tseung Kwan O site was sold to Wheelock Properties in January 2012, both at a price close to the low end of market estimates. In February 2012, a large residential site with a buildable GFA of 939,600 sq ft in Tuen Mun was granted to Kerry Properties for HK$2,739 million through public tender. It is expected to be developed into over 1,100 flats upon completion. The sales price was close to the low end of market estimates. To the surprise of the market, a small plot of land in Peng Chau was sold to Sino Land for only HK$19 million, representing an accommodation value of HK$516 per sq ft, the lowest in the past 10 years. In March 2012, however, a residential site in Ap Lei Chau was sold by public tender to China Overseas at a price above the market expectation at HK$2,538 million. Meanwhile, another small plot of land was sold to a party related to mainland developer Agile Property at a record high price of HK$21,350 per buildable sq ft for a residential site in the New Territories. The land sale results during the quarter indicated that local developers are rather cautious given the economic uncertainties and plentiful land sales by the government in the future. p. 18 Colliers International

hong kong 1q 2012 residential Government Land Sale Results 1Q 2012 Residential Sites Date Lot No. Location Maximum GFA (sq ft) Lump Sum (HK$ m) Accommodation Value (HK$/sq ft) Purchaser Auction or tender 8 Dec 2011 Lot 724 in DD 332 Cheung Sha Site 406 31,904 176.8 5,542 Swire Properties Tender 8 Dec 2011 Lot 726 in DD 332 Cheung Sha Site 407 21,507 180.0 5,537 Swire Properties Tender 12 Jan 2012 TKOTL 119 Area 66B2, Tseung Kwan O 488,180 1,860.0 3,810 Wheelock Properties Tender 9 Feb 2012 TMTL 423 Area 48, Castle Peak Road, 939,600 2,379.0 2,915 Kerry Properties Tender So Kwun Wat, Tuen Mun 1 Mar 2012 Lot No. 676 in DD Peng Lei Road, Peng Chau 36,845 19.0 516 Sino Land Tender Peng Chau 22 Mar AplIL 135 At Junction of Ap Lei Chau 262,640 2,538.0 11,044 China Overseas Tender 2012 Drive and Ap Lei Chau Praya Road Holdings 22 Mar 2012 Lot 1588 in DD 243 Pik Sha Road, Sai Kung, New Territories 32,787 700.0 21,350 Party related to Agile Property Holdings Tender Total: about 2,000 units / 1,813,463 sq ft / HK$7,852.8 million Source: Lands Department, HKSAR Government Tender Result by Mass Transit Railway Corporation date LOcation 12 Jan 2012 Tsuen Wan 5 (Cityside) project at West Rail s Tsuen Wan West Station 12 Jan 2012 Tsuen Wan 5 (Bayside) project at West Rail s Tsuen Wan West Station Maximum GFA (sq ft) lump sum (HK$ m) Accommodation Value (HK$/sq ft) purchaser 832,315 2,600 3,129 Chinachem 2,235,145 Withdrawn - - Source: : MTRC Six Sites to be Offered for Tender The government continued to show its determination to maintain a stable residential supply. In 2Q 2012, the government will offer four residential sites for sale by public tender. Among the four sites, three are low-density sites located in Repulse Bay, Tuen Mun and Shatin. One larger parcel of residential land with quantity limits located in Tseung Kwan O will be launched for tender offers during the quarter to provide 310 to 326 flats. The four sites are expected to provide about 400 residential units in total. In addition to the four residential sites, a site in Shouson Hill and a site in Peng Chau had been successfully triggered for public tender under the Application List System. The minimum guaranteed bid of the sites are HK$3,598 million and HK$5.5 million, respectively. Meanwhile, the Mass Transit Railway Corporation (MTRC) also announced in March 2012 that the company will offer five residential development sites above MTR stations for tendering, including Tai Wai, Long Ping North, Long Ping South and Tin Shui Wai. The Tsuen Wan 5 (Bayside) project that was withdrawn in January 2012 due to dissatisfactory tender offers will be re-launched in the second half of 2012. Colliers International p. 19

hong kong 1q 2012 residential Residential Sites to be Offered for Government Tenders in 1Q 2012 Site Lot No. GFA (sq ft) Estimated market Value (HK$ m) Estimated Accommodation Value (HK$/sq ft) Tender Invitation Date tender closes Kwun Fat Street, Siu Lam, Tuen Mun TMTL 436 38,837 117-300 3,000-7,700 23 Mar 2012 27 Apr 2012 Near 110 Repulse Bay Road RBL 1165 41,172 1,050-2,059 25,000-50,000 23 Mar 2012 27 Apr 2012 Area 56A, Kau To, Sha Tin, New Territories STTL 562 50,376 300-403 6,000-8,000 13 Apr 2012 18 May 2012 Area 66C1, Tseung Kwan O, New Territories 8-12 Deep Water Bay Drive, Shouson Hill Tung Wan, Ping Chau (Site A) TKOTL 114 257,652 979-1,031 3,800-4,000 13 Apr 2012 18 May 2012 RBL 1190 248,135 $4,460 - $7,440 $17,974 - $30,000 27 Apr 2012 25 May 2012 Lot 673 in 9,223 $6.5 - $9.2 $705 - $1,000 27 Apr 2012 25 May 2012 DD Peng Chau Total: 645,395 sq ft Source: Lands Department, HKSAR Government p. 20 Colliers International

hong kong 1q 2012 residential Supply projected new supply of luxury residential units in 2012 Development House* Apartment* Developer / Owner No. of units Status the peak 35, 37, 39 Severn Road, 42 Plantation Road 3 @ 2-s, - SHKP 7 Completed 4 @ 3-s 12 Mount Kellett Road 12 @ 3-s - SHKP 12 Under Construction 28 Barker Road 7 @ 3-s - Hutchison Whampoa Limited 7 Under Construction 1 Gough Hill Road 3 @ 3-s - Lucky Beat Investment Ltd 3 Under Construction 72 Mount Kellett Road 3 @ 2-s - Sea Holdings Limited 3 Under Construction south side 9 Shouson Hill Road 31 @ 3-s - SHKP 31 Completed 21 Tai Tam Road - 1 @ 9-s Newman Investment Co Ltd 14 Completed 48-50 Stanley Village Road 12 @ 3-s - SHKP 12 Under Construction 4 Shek O Headland Road 4 @ 3-s - Century Sino International Ltd 4 Under Construction 20 Repulse Bay Road 1 @ 4-s - Lavender Rose Ltd. 1 Under Construction 60-62 Chung Hom Kok Road - 1 @ 4-s Supreme Faith Ltd 6 Under Construction 12 Stanley Mound Road 2 @ 3-s - Newtown Investment Co Ltd 2 Under Construction 18 Carmel Road 1 @ 4-s - Horizon East Investment Ltd 1 Under Construction mid-levels 38-44 Caine Road - 1 @ 31-s Fine Mean Ltd 106 Under Construction 10 Bowen Road 1 @ 4-s - Tyronie Ltd 1 Under Construction 4,4A,6,6A Castle Steps, 2A-E Seymour Road, - 1 @ 44-s Swire Properties 126 Under Construction 23,25,27,29 Castle Road 16-18 Bonham Road - 1 @ 30-s Queen Cheers Development Ltd 12 Under Construction * No. of block @ No. of storey Although there will be increasing supply in the mass residential market, luxury residential supply will remain tight over the next three years at an average of 281 units per year in the three traditional luxury residential districts. South Side is expected to see the most limited supply of 84 units in total over the next three years, while the tight situation in the Mid-levels is expected to be eased. OVERALL LUXURY RESIDENTIAL NEW SUPPLY 1,800 1,600 1,400 1,200 Number of units 1,000 800 600 400 200 0 1982 1983 1984 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 Long-term average = 537 units 2012-2014 avg = 281 units Colliers International p. 21

hong kong 1q 2012 residential LUXURY RESIDENTIAL NEW SUPPLY ON THE PEAK 200 180 160 140 Number of units 120 100 80 60 2012-2014 avg = 16 units 40 Long-term average = 33 units 20 0 1982 1983 1984 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 LUXURY RESIDENTIAL NEW SUPPLY ON THE SOUTH SIDE 1,400 1,200 1,000 Number of units 800 600 400 Long-term average = 250 units units 200 2012-2014 avg = 28 units 0 1982 1983 1984 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 LUXURY RESIDENTIAL NEW SUPPLY IN THE MID-LEVELS 800 700 600 500 Number of units 400 1982 1983 1984 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 300 Long-term average = 253 units 2012-2014 avg = 237 units 200 100 0 p. 22 Colliers International

hong kong 1q 2012 residential Market Outlook Looking ahead, the European sovereign debt crisis remains the top concern for the future market movement and the slowing down of China s economic growth will also dampen investor sentiment. However, the residential market may be injected with optimism as China slowly increases its monetary supply and banks adopt a more relaxed attitude towards mortgage applications. Although the market has witnessed a minor upsurge in sales transactions in 1Q 2012, its sustainability remains questionable. As the global financial market outlook remains highly uncertain, landlords of luxury residential properties may soften their attitude and become less aggressive in asking prices to facilitate transactions. Therefore, the capital value of luxury residential properties is expected to decrease by 13% over the next 12 months. Traditionally, the second quarter of the year is an active period in the leasing market, thus the number of leasing transactions is expected to increase but the rents are expected to retain their downtrend and fall 6% over the next 12 months. HONG KONG LUXURY RESIDENTIAL TREND 300 Forecast 250 200 150 100 50 0 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Index (Jan 2000 = 100) Jan-13 Jan-14 Colliers Luxury Residential Rental Index Colliers Luxury Residential Price Index Colliers International p. 23

hong kong 1q 2012 industrial Industrial Sector A Rebound or Recovery? Benefitting from the better-than-expected US economic performance, Hong Kong exports growth showed signs of improvement. On the re-exports trade front, the total value increased 4.1% YoY to HK$778 billion during the period from December 2011 to February 2012, compared to the growth rate of 3.9% YoY in the preceding three-month period. Signs of improvement were shown on the cargo throughput front. During the period from December 2011 to February 2012, air cargo throughput declined 3.1% YoY to 907,600 tonnes, compared to a negative growth of 7.0% YoY in the preceding three-month period. Container throughput edged up 0.7% YoY to 5.7 million TEUs, compared to a negative growth of 0.2% YoY in the preceding three-month period. RE-EXPORT TRADES Year-on-Year Change 40% 30% 20% YoY Change 10% 0% -10% Jul-07 Jul-08 Jul-09-20% -30% Source: Census and Statistics Department, HKSAR Government AIR CARGO THROUGHPUT Year-on-Year Change 50% 40% 30% 20% YoY Change 10% 0% -10% Jul-07 Jul-08 Jul-09-20% -30% -40% Source: Civil Aviation Department, HKSAR Government CONTAINER THROUGHPUT Year-on-Year Change 30% 20% 10% YoY Change 0% -10% Jul-07 Jul-08 Jul-09-20% -30% Source: Marine Department, HKSAR Government p. 24 Colliers International

hong kong 1q 2012 industrial Leasing Demand SUSTAINED DEMAND FOR QUALITY WAREHOUSES The strong local retail sales performance continued to support the warehouse sub-sector. The demand from third-party logistics companies for warehouse premises remained steady in 1Q 2012. Some major corporations are seeking to outsource their logistics functions. A group of third-party logistics companies has been searching for quality warehousing premises in order to capture the demand growth for logistics services from the outsourcing activity. According to our research, these third party logistics companies are looking for ramp access warehouse premises with sizes in the range of 50,000 to 100,000 sq ft. Interlink, a new logistics warehouse development in Tsing Yi, which officially opened in March 2012, is fully occupied. Our research shows some of the tenants of Interlink will relocate their operations to the new facility while releasing portions of their existing warehouse premises back to the marketplace. In view of the current high occupancy level in prime quality warehouse premises, some logistics operators have pre-committed to these yet to be vacated warehouse premises. There are no existing ramp access warehouses of 50,000 sq ft or above available in the marketplace. On the factory market front, more landlords opted to convert the whole block of their industrial buildings for other uses. These property owners plan to vacate their buildings in order to carry out the conversion works. As such, the tenants in those buildings are looking for suitable premises for relocation, stimulating the industrial leasing market activity. However, this group of occupiers are seeking premises with sizes similar to their existing addresses. HONG KONG RE-EXPORTS VOLUME 350 300 250 200 150 100 50 0 Jan-96 Jul-96 Jan-97 Jul-97 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 Jul-07 Jul-08 Jul-09 HK$ billion Source: Census and Statistics Department, HKSAR Government Colliers International p. 25

hong kong 1q 2012 industrial Supply Completed new buildings for which occupation permits have been issued DISTRICT ADDRESS GROSS FLOOR AREA (sq ft) building type applicant Tsing Yi 39 Tsing Yi Road 1,525,058 Warehouse Goodman Interlink Ltd Source: Buildings Department, HKSAR Government New buildings for which consent to commence work has been given DISTRICT ADDRESS GROSS FLOOR AREA (sq ft) building type applicant Kwun Tong 35 Hung To Road 126,355 Industrial First Group Tsuen Wan 6-28 Chai Wan Kok Street 874,784 Industrial Billion Development Tsing Yi 52-62 Tsing Yi Road 32,755 Godown The Tien Chu (Hong Kong) Co Ltd Source: Buildings Department, HKSAR Government INTERLINK COMPLETED The Occupation Permit of Interlink at 39 Tsing Yi Road, Tsing Yi was issued in January 2012. Due to strong demand from the tenants, all of the space was pre-committed prior to its physical completion. CONSTRUCTION OF THREE DEVELOPMENTS STARTED During the period from November 2011 to January 2012, construction work commenced on three industrial developments. Among these developments, the warehouse project at 52-62 Tsing Yi Road will be retained by Tien Chu for owner-occupation. MORE LOGISTICS DEVELOPMENT PROJECTS IN TSING YI In addition to the Interlink, more logistics warehouses have been planned in Tsing Yi. The plot at Tsing Yi Hong Wan Road (TYTL 180), designated for logistics development, was awarded to Goodear Development Limited in December 2010. In January 2012, the Buildings Department approved the building plan for developing the site into a 15-storey over one basement level building, providing a total gross floor area of about 1.1 million sq ft. In February 2012, a second plot for logistics development at Tsing Yi Hong Wan Road (TYTL 181) was awarded to China Merchants Holdings. Upon completion, the size of the future logistics warehouse on the plot will be approximately 1 million sq ft. China Merchants Holdings plan to retain the development for owner-occupation. According to government figures, the stock of warehouse premises as of the end of 2010 was about 37 million sq ft with 40% of the total or 15 million sq ft located in the Kwai Tsing district. The completion of Interlink and the two future logistics warehouse projects at Tsing Yi Hong Wan Road will further strengthen Kwai Tsing as the logistics hub of Hong Kong. p. 26 Colliers International

hong kong 1q 2012 industrial Rentals Industrial Rentals (By sub-markets) Sub-market 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 1Q 2012 (HK$ / sq ft / MONTH) (% QoQ) (HK$ (HK$ sq ft / sq month) ft / month) (% QoQ) Factory 7.76 8.17 8.56 8.72 8.85 1.5 Cargo Lift Access Warehouse 6.16 6.49 6.82 7.14 7.45 4.3 Ramp Access Warehouse 8.80 9.28 9.81 10.34 10.83 4.7 I-O Building 11.96 12.44 12.93 13.21 13.41 1.5 RENTAL GROWTH SLOWED Uncertainties in the global economic outlook continued to hinder the industrial rental performance in 1Q 2012. In view of the uncertain external environment, industrial tenants are taking a wait and see approach to the industrial market. Meanwhile, the rental performance of ramp access warehouse premises continued to outperform other sub-sectors due to limited stock availability and sustained demand from logistics operators. As of the end of February 2012, the average rent of ramp access warehouses increased 4.7% quarteron-quarter (QoQ) to HK$10.83 per sq ft per month, compared to the 5.4% QoQ recorded during the period from September to November 2011. The average rent of cargo lift access warehouses increased 4.3% QoQ to HK$7.45 per sq ft per month, compared to 4.7% QoQ in the preceding three-month period. The average rent in the factory sector increased 1.5% QoQ to HK$8.85 per sq ft per month, compared to the growth of 1.8% QoQ recorded in the preceding three-month period. The average rent in the industrial office (I-O) sector increased 1.5% QoQ to HK$13.41 per sq ft per month, compared to the 2.2% growth recorded during the period from September to November 2011. FACTORY RENTAL INDEX 250 200 Index 150 100 50 0 Jan-96 Jul-96 Jan-97 Jul-97 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 Jul-07 Jul-08 Jul-09 Jan-96 Jul-96 Jan-97 Jul-97 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 Jul-07 Jul-08 Jul-09 Jan-96 Jul-96 Jan-97 Jul-97 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 Jul-07 Jul-08 Jul-09 Jan-2000 = 100 I-O BUILDING RENTAL INDEX 250 200 Index 150 100 50 0 Jan-2000 = 100 WAREHOUSE RENTAL INDEX 250 200 Index 150 100 50 0 Jan-2000 = 100 Cargo Lift Access Warehouse Ramp Access Warehouse Colliers International p. 27

hong kong 1q 2012 industrial Sales Market Industrial prices (By sub-markets) Sub-market 1Q 10 2Q 11 3Q 11 4Q 11 1Q 12 1Q 2012 (HK$ / sq ft) (% QoQ) Factory 1,960 2,174 2,278 2,319 2,355 1.5 Cargo Lift Access Warehouse 2,138 2,375 2,488 2,604 2,716 4.3 Ramp Access Warehouse 2,255 2,480 2,600 2,740 2,869 4.7 I-O Building 3,002 3,214 3,332 3,405 3,456 1.5 PRICES EDGED UP During the period from December 2011 to February 2012, industrial property prices increased further while the pace of growth in capital values continued to slow. As of the end of February, the average price of factories increased 1.5% QoQ to HK$2,355 per sq ft. The average price of ramp access warehouses increased 4.7% QoQ to HK$2,869 per sq ft, while that for cargo lift access warehouses increased 4.3% QoQ to HK$2,716 per sq ft. Meanwhile, the average price of I-O buildings increased 1.5% QoQ to HK$3,456 per sq ft. TOTAL VALUE OF TRANSACTIONS INCREASED Similar to past quarters, the interest cost for vendors holding industrial premises remains low. In view of sustained occupational demand from tenants, property owners will enjoy stable rental income from their premises. As a result, most of the vendors remained firm on their asking prices. On the prospective buyer front, the banks are more willing to offer financing support for acquiring industrial premises, which helped boost the transaction volume in value terms. During the three-month period ending in February 2012, the total value of strata-titled transactions surged 19.2% QoQ to HK$4,888 million. On the number of transactions front, strata-titled transactions edged down 2.7% QoQ to 976. Looking more closely, the number of strata-titled transactions declined from 371 in November 2011 to 326 in December 2011 and 222 in January 2012. In February 2012, the banks became more willing to offer loans to prospective property buyers. The number of transactions increased to 428 during the month. According to our research, the buyers include end-users and cash-rich investors who are looking for bargains in the marketplace. No. of Transactions STRATA-TITLED INDUSTRIAL PROPERTY TRANSACTION VOLUME 3,000 2,500 2,000 1,500 1,000 500 0 Feb-08 * Three-month ended Aug-08 Feb-09 Aug-09 Feb-10 Total Turnover (HK$ million) Aug-10 Feb-11 Aug-11 Feb-12 No. of transactions 12,000 10,000 8,000 6,000 4,000 2,000 0 Total Turnover (HK$ million) Source: EPRC WHOLE-BLOCK SALES MARKET On the whole-block sales front, cash-rich buyers have snapped up buildings offered at reasonable prices. Five transactions were recorded from December 2011 to February 2012, up from two transactions recorded in the preceding three-month period. Meanwhile, the total value of transactions increased one fold to HK$1,165 million during the three-month period ending in February 2012, from HK$583 million in the preceding three-month period. Among the five en bloc transactions, a local investor acquired the Joyce Building at 38 Wong Chuk Hang Road in Wong Chuk Hang from HKR International for a total of HK$615 million with the intention of redeveloping the premises into a brand new office building with a total floor area of 163,494 sq ft. It is anticipated that the scheduled completion of the MTR South Island Line (East) by 2015 will enhance the connectivity between Wong Chuk Hang and the office districts on Hong Kong Island, leading to the subsequent transformation of the district into another business hub. Given the likely catch-up of the office leasing demand in Wong Chuk Hang, it is expected that more developers and investors will make investments in this district. p. 28 Colliers International

hong kong 1q 2012 industrial YIELD STOOD AT LOW LEVEL According to government statistics, the industrial property yield stood at around 3.7% - 3.8% during the period from December 2011 to February 2012, which is the lowest level since the early 1990s. Looking ahead, the risk premium for acquiring industrial premises is expected to expand in view of economic uncertainties in coming quarters, which in turn will push up the industrial property yield level. OFFICE AND FLATTED FACTORY YIELDS TRENDS 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: Rating and Valuation Department, HKSAR Government 16% 14% 12% 10% Jan-96 Jul-96 Jan-97 Jul-97 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 Jul-07 Jul-08 Jul-09 Jan-96 Jul-96 Jan-97 Jul-97 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 Jul-07 Jul-08 Jul-09 Jan-96 Jul-96 Jan-97 Jul-97 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 Jul-07 Jul-08 Jul-09 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 Jul-07 Yield Jul-08 Jul-09 Grade A Office Grade B Office Flatted Factories FACTORY RENTAL YIELD 8% 6% 4% 2% 0% I-O BUILDING RENTAL YIELD Yield 16% 14% 12% 10% 8% 6% 4% 2% 0% WAREHOUSE RENTAL YIELD 16% 14% 12% 10% Yield 8% 6% 4% 2% 0% Cargo Lift Access Warehouse Ramp Access Warehouse Colliers International p. 29

hong kong 1q 2012 industrial Revitalising Industrial Buildings Executed Special Waiver Cases execution date location user Number of Floors 2 Dec 11 71 Hoi Yuen Road, Kwun Tong Office, Eating Place, Shop and Services 14 7 Dec 11 31-35 Lam Tin Street, Kwai Chung Office 12 19 Jan 12 13 Au Pui Wan Street, Fo Tan Educational Institution 4 2 Feb 12 135-137 Tung Chau Street, Tai Kok Tsui Office, Shop and Services 14 Source: Lands Department; Colliers Four more special waiver cases recorded The package of measures to revitalise industrial buildings continued to attract some owners to look into the potential of their single-owned industrial buildings, which are eligible for wholesale conversion to other uses or redevelopment under the scheme. As of the end of February 2012, 69 applications had been received by the Lands Department since the launch of the new measures, including 57 applications for conversion and 12 for redevelopment. Of these applications, seventeen special waiver (wholesale conversion) cases have been executed, while four of the cases were recorded during the period from December 2011 to February 2012. Among the four latest executed cases, Tao Heung Group plans to convert its logistics centre at 13 Au Pui Wan Street, Fo Tan into the campus of VTC Tao Miao Institute of Professional Development for the Catering Industry. The Institute of Vocational Education (IVE), the Hong Kong Quality Assurance Agency and the Occupational Safety & Health Council will operate the college, with enrolment to commence this year. Wholesale conversion for hotel use The demand for hotel rooms has been growing on the back of a sustained increase in visitor arrivals. Moreover, the scheduled completion of the first berth of the new cruise terminal in 2013 is expected to give a further boost to the tourism industry. In view of the substantial rent difference between hotel and industrial premises and growing demand for hotel rooms, individual industrial building owners are attracted to applying for a nil waiver fee for converting their eligible industrial buildings to hotel use. One of the latest proposed hotel conversion schemes involves the Big Orange Kwai Chung at 119 Wo Yi Hop Road. Far East Consortium and Kosmopolito Hotels jointly acquired the en bloc of Big Orange Kwai Chung, which includes a total gross floor area of 157,066 sq ft, in February 2012 for a total of HK$210 million. The consortium plans to convert the existing industrial building into a 427-room hotel, with an estimated total cost of conversion at HK$100-150 million. During the period from December 2011 to February 2012, the Town Planning Board approved planning permission for five hotel conversion projects. Planning permission for hotel conversion projects approved in December 2011 - February 2012 district existing building user existing gfa proposed number (sq ft approx) of hotel rooms Kwai Chung Central Industrial Building 57-61 Ta Chuen Ping Street 155,366 299 Kwai Chung Ban Thong Building 15-19 Chun Pin Street 115,949 160 Kwai Chung The General Garment Building No. 100-110 Kwai Cheong Road 278,065 598 Wong Chuk Hang Perfectech Centre 64 Wong Chuk Hang Road 77,347 Not exceeding 162 San Po Kong Winning Centre 29 Tai Yau Street 132,323 399 Note: In addition to obtaining planning permission from the Town Planning Board, the owners should also follow the relevant provisions of the Buildings Ordinance and the Hotel and Guesthouse Accommodation Ordinance Source: Town Planning Board p. 30 Colliers International

hong kong 1q 2012 industrial Data Centre Development in Hong Kong A data centre is a facility used to house computer systems and associated components. Data centres constitute an important part of the infrastructure in a knowledge-based economy. They support the sustainable growth of Hong Kong s traditional pillar industries like financial services, trading and logistics. In addition, the development of internet applications and new technologies has brought changes to business operations and daily life. The demand for data centres has been growing amid wider implementation of the new technologies. The Telecommunications Industry Association, a leading trade association representing the global information and communications technology industry, published Telecommunications Infrastructure Standard for Data Centres which defined four levels of data centres in a thorough, quantifiable manner. According to the document, on the real estate front, the minimum clear height in the computer room of data centres should be 8.5 ft. The minimum distributed floor loading capacity should be 150 lbs / sq ft while the recommended distributed floor loading capacity is 250 lbs / sq ft. In Hong Kong, most of the existing industrial buildings meet or exceed the minimum floor loading capacity requirement for data centres. There are established government policy support measures to encourage the conversion of existing industrial buildings to other uses. These can facilitate the development of mid-tier data centres. For low-tier data centres, the requirements are less stringent and the demand can be met in the open market. High-tier data centres in industrial estates According to a study on data centres which the Office of the Government Chief Information Officer commissioned in May 2010, one of the key constraints faced by the data centre sector is the availability of suitable plots for constructing large high-tier data centres. Currently the industrial estates managed by the Hong Kong Science and Technology Parks Corporation are an important source of sites for developing high-tier data centres. One of the latest cases is Google s high-tier data centre project in Tseung Kwan O Industrial Estate, which occupies a site with an area of 2.7 hectares. Colliers International p. 31

hong kong 1q 2012 industrial General distribution of Data Centre Operators YUEN LONG TAI PO TSUEN WAN SHA TIN KWAI TSING WONG TAI SIN SAI KUNG SHAM SHUI PO KOWLOON CITY KWUN TONG YAU TSIM MONG ISLAND CENTRAL & WESTERN EASTERN WANCHAI SOUTHERN LEGEND Data Centre Source: Office of the Government Chief Information Officer, HKSAR Government Proposed measures to facilitate data centre development In the short to medium term, land supply will remain a constraint for high-tier data centre development in Hong Kong. In view of this, the financial secretary announced in the 2012-13 budget two measures to facilitate the development of data centres by making better use of existing industrial buildings or industrial sites. (1) The government would exempt the waiver fees for changing portions of eligible industrial buildings to data centre use. This measure applies to all tiers of data centres; (2) For the development of high-tier data centres involving lease modification of industrial sites (e.g. redeveloping existing industrial buildings into high-tier data centres), the premium will be assessed on the basis of actual development intensity and high-tier data centre use. If the redevelopment comprises non-data centre portions, the premium for those portions would be assessed according to established practice. The two measures are time-limited and the application period will end on 31 March 2016. The government is working out the implementation details with a view to commencing the scheme as early as mid-2012. p. 32 Colliers International

hong kong 1q 2012 industrial Market Outlook Looking ahead, while the US economy has fared better than expected and the Eurozone sovereign debt crisis has stabilised somewhat lately, the still weak recovery of these advanced economies will continue to weigh on their import demand. In view of the above developments, Hong Kong s export outlook remains uncertain in the near term. On the industrial property market front, more end-users are on a tighter budget in respect to their business accommodation costs in view of the uncertain economic performance in coming quarters. Industrial rents are anticipated to decline 4% over the next twelve months. In 2013, industrial rents are expected to resume positive growth if the global economy improves. The interest cost for acquiring industrial properties is anticipated to increase as mortgage interest rates returned to normal levels. It is anticipated that industrial yields will increase amid a rising interest rate trend and expectations for a rental decline of 4% over the next 12 months are projected. Furthermore industrial prices are expected to decline 6% during the period. In 2013, industrial prices are expected to stay flat if yield levels increase further. Nowadays, e-commerce has been gaining popularity as an additional trading channel. The expansion of e-commerce will introduce new demand for logistics services, which in turn will translate into additional demand for warehousing premises, especially those quality premises suitable for handling fast-moving cargo. On the property market front, the next major logistics warehouse supply will be the two projects located along Tsing Yi Hong Wan Road in Tsing Yi. In view of the prevailing supply-demand imbalance, warehouse rental performance is expected to be more resilient when compared with the factory and I-O sectors. Colliers International p. 33

hong kong 1q 2012 retail Retail Sector Solid Performance Ahead ESCALATING LEASING DEMAND The retail market in the first quarter of 2012 showed a startling performance regardless of the concerns over the stagnant US economic recovery and a global recession. Underpinned by the robust growth in domestic consumption and tourist spending, leasing demand was booming in the retail sector in 1Q 2012. INBOUND TOURISM Statistics released by the Hong Kong Tourism Board (HKTB) indicate visitors welcomed by Hong Kong during the three-month period ending February 2012 increased 16% YoY to 11.7 million. Visitors from mainland China, the major pillar supporting inbound tourism growth, surged 21% YoY to 8.2 million from December 2011 to February 2012, of which 5.6 million travellers visited Hong Kong under the Individual Scheme. In view of the uncertain external environment, HKTB projected that visitor arrivals would increase 5.5% to 44 million in 2012. VISITOR ARRIVALS Number of Arrivals (Million) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 100% 90% 80% 70% 60% 50% 0.0 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jul-07 Jul-08 Jul-09 40% 30% 20% 10% Arrivals from China (% of Total) 0% Total Arrivals Arrivals from China (% of total) Source: Hong Kong Tourism Board GROWTH PACE TAPERED OFF Retail sales remained rather robust in the first quarter of 2012, and the total value of retail sales rose 15.7% YoY to 33.8 billion in February 2012. To eliminate the distortion caused by the timing of the Lunar New Year, which fell in February last year and in January this year, by taking the first two months of 2012 together, retail sales grew appreciably albeit at a slower pace at 15.2% YoY compared to 18.7% YoY during the same period last year. Slower growth was observed in the sales of high-end luxury items such as jewellery and watches, cosmetics and skin care products, and clothing. However, the sales value of electronic goods and photographic equipment continued to increase. Overall, luxury items were still favoured by mainland visitors due to quality assurance, tax refunds, as well as the currency difference. p. 34 Colliers International

hong kong 1q 2012 retail VALUE OF RETAIL SALES (Total Retail Sales vs Jewellery, Watches and Clocks, & Valuable Gifts) 50,000 25% Value of Total Retail Sales (HK$ Million) 40,000 30,000 20,000 10,000 20% 15% 10% 5% Proportion to Total Retail Sales Volume (%) 0 0% Aug-00 Dec-00 Apr-01 Aug-01 Dec-01 Apr-02 Aug-02 Dec-02 Apr-03 Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Value of Jewellery, Watches and Clocks and Valuable Gifts Value of Total Retail Sales Proportion to Total Retail Sales Source: Census & Statistics Department, HKSAR Government According to the breakdown of retail sales in Hong Kong, the value of the sales of jewellery, watches and clocks, and valuable gifts rose 16.6% YoY in the first two months of 2012, comprising 22% of the total retail sales. Meanwhile, sales of electronic goods and photographic equipment performed well, increasing 42.2% YoY during the period. Looking forward, luxury items will remain the chief purchasing target on the shopping list for mainland tourists, with both sales volume and value continuing to grow, albeit at a slower pace. ECONOMIC UNCERTAINTIES WORRIED CONSUMERS The total value of restaurant receipts increased by 7.2% YoY to HK$23.6 billion in 4Q 2011, compared to a growth of 6.2% YoY in 3Q 2011. Nevertheless, F&B operators were still facing challenges due to the high cost of inputs such as labour wages, retail rents and food prices. Regardless of easing inflation, F&B operators, particularly those with a smaller scale, found it difficult to do business on the back of ever-rising retail rents. In addition, there was growing concern over the global economic outlook among Hong Kong consumers, as the latest global survey conducted by Nielson showed. According to the survey, 39% of Hong Kong consumers were worried about the future economic outlook, replacing rising food prices (30%) as the top concern over the next six-month period recorded in 4Q 2011. Meanwhile, utility bills (35%) remained the second biggest concern for the second consecutive month, while other concerns were job security (18%) and work/life balance (16%). Colliers International p. 35

hong kong 1q 2012 retail Prominent Retail Leasing Transactions in 4Q 2011 Premises district floor rental (HK$ / month) GFA (sq ft) Unit Rental (HK$ / sq ft / month) Tenant Park Lane Shipper's Boulevard Tsim Sha Tsui G/F, 1/F 1,380,000 3,332 414 Ainer 24-30 Percival Street Causeway Bay Basement and G/F 1,100,000 6,985 157 Bonjour St. George's Building Central LG/F and G/F 5,000,000 4,894 1,022 Max Mara 50-52 Queen's Road Central Central G/F, 1/F 3,500,000 6,340 552 Zara 21-22 Connaught Road Central Basement, G/F, 1/F 500,000 6,000 83 Chee Kee Noodle Note: Information from market sources CONTINUAL EXPANSION OF LUXURY BRANDS Against the spiralling Eurozone debt crisis, which continued to cloud the global economic outlook, the inflow of overseas brands and luxury fashion showed no sign of abating during 1Q 2012. Newcomers outbid one another or existing tenants, paying top retail rents in order to secure the best spots in prime shopping locations. The buoyant domestic consumption and visitor spending have lured international retailers to tap into Hong Kong s retail sales market. Moreover, returning visitors are becoming more familiar with the city s shopping locations and they have developed a one-stop shopping behaviour. The change in shopping behaviour makes it more essential for overseas brands to establish their presence in prime shopping locations. The continual expansion of overseas brands in Hong Kong has translated into a robust demand for retail premises in the core shopping districts of Central, Causeway Bay, Mongkok and Tsim Sha Tsui. Recently, international retailers are somewhat less keen on the Western markets given their sluggish economic recovery, but are showing strong interest in the Asian markets, particularly China, for further expansion. After the successful opening of overseas fashion brands such as Abercrombie & Fitch, GAP and Forever 21, international retailers remain firm on the Hong Kong market. This is to grab a share of this lucrative retail sales market and make their presence known to mainland travellers before they step into the China market, where local consumption is growing appreciably. POSITIVE SPILLOVER EFFECT First-tier streets in core shopping locations have been dominated by overseas brand names following their continual expansion. Local retailers with a smaller business scale have had no choice but to relocate to second-tier shopping streets where rents are more affordable. The positive spillover effect in core shopping locations continues to benefit second-tier streets. As retail rents in firsttier streets are reaching an unremitting high, small-scale retailers have shifted their attention to second-tier streets, which in turn drives up demand for retail premises in second-tier streets and pushes up rents. While buying sentiment from mainland visitors remains upbeat, the demand for tourist driven products (jewellery, high-end fashion and cosmetics) continues to outstrip that of non-tourist driven products. Visitors from mainland China continued to enjoy shopping in Hong Kong due to the tax-free policy and renminbi appreciation. p. 36 Colliers International

hong kong 1q 2012 retail Supply The Occupation Permit of Hysan Place, a retail/office building in Causeway Bay, was issued in March 2012. The complex is the only new supply to be injected into the market in the four prime shopping locations in Hong Kong. According to Hysan, over 90% of the retail premises in Hysan Place have been pre-committed as of the end of February 2012. The average rent for the retail portion is about HK$150 per sq ft per month. The company anticipated it would achieve full occupancy on its opening in August 2012. Other than Hysan Place, no new retail supply will be released to the core shopping districts of Central, Causeway Bay, Tsim Sha Tsim and Mongkok in 2012. Given this extreme supply situation, neighbouring streets such as Kai Chiu Road and Pak Sha Road in Causeway Bay and Wellington Street in Central will see increased shopper traffic due to the positive spillover. In addition, as most of the stores in first-tier streets target mainland Chinese tourists, neighbouring streets will attract a different group of younger shoppers with more local brands. Rental Trend PROMISING retail GROWTH Retail rents in the four core shopping districts of Central, Causeway Bay, Tsim Sha Tsui and Mongkok displayed promising growth in 1Q 2012 compared to the previous quarter. Again, it was a landlords market in 1Q 2012. In view of the limited supply and strong demand for ground level retail shops in prime shopping locations, some landlords subdivided retail space into smaller units and increased rents at the same time. Overall, retail rents for ground-level shops in the four traditional shopping districts grew further - accelerating 5.3% QoQ in 1Q 2012 compared to 3.7% QoQ in the preceding quarter. Rents in Central witnessed the strongest growth, up 5.9% QoQ during the quarter, on the back of aggressive bidding for retail premises in the first-tier streets. As discussed, there have been some changes in the shopping behaviour of visitors as they get more familiar with the city the development of one-stop shopping, and the positive spillover to neighbouring streets. In order to reflect better the current market activities, the retail rental index has been revised by adjusting the basket of street segments in each of the four traditional shopping locations. The adjustment was introduced in 1Q 2012. Retail Rental Index by Major Districts (*) District 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 QoQ change Causeway Bay 71 73 75 79 86 92 97 100 106 5.6% Central 69 71 73 77 83 90 95 100 106 5.9% Mong Kok 75 76 78 82 88 94 97 100 104 3.9% Tsim Sha Tsui 72 74 76 80 87 93 97 100 105 5.5% Overall 72 74 76 80 86 93 96 100 105 5.3% (Nov-2011 = 100) * Street level shops on key street segments Colliers International p. 37

Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 May-07 Sep-07 May-08 Sep-08 May-09 Sep-09 May-10 Sep-10 May-11 Sep-11 hong kong 1q 2012 retail Investment Market Activity RISING RENTS ATTRACTED INVESTORS Due to government controls on the residential market and expectations of a further fall in office rents, more investors have turned to the retail market for investment opportunities. The overall volume of investment sales of retail units with a lump sum consideration of HK$10 million or above expanded 17% QoQ in 1Q 2012. SECOND-TIER STREETS Given the limited availability of retail premises for sale in traditional shopping locations, investors have started to look for opportunities in second-tier streets. During 1Q 2012, the market witnessed a number of retail transactions in the second-tier streets in prime shopping locations such as Tsim Sha Tsui and Causeway Bay. One of the significant transactions completed during 1Q 2012 was the sale of Bigfoot Centre, a 27-storey commercial building with retail shops from G/F to 20/F and office premises from 22/F, for HK$858 million. The property is located at 38 Wah Yiu Street and is close to Times Square and Russell Street in Causeway Bay. Given a gross floor area of 59,854 sq ft, the average price was about HK$14,334 per sq ft. In addition, Golden Team Holdings sold the whole block of Bloom House, a 23-storey Ginza-type commercial building at 2 Tang Lung Street, Causeway Bay for HK$598 million. The average price was HK$14,238 per sq ft based on a total gross floor area of 42,000 sq ft. RETAIL SALES TRANSACTION ABOVE HK$10 MILLION 25,000 20,000 Total Value (HK$ million) 15,000 10,000 5,000 Long Term Average: 1,798 0 Meanwhile, the most prominent strata-title sales transaction during 1Q 2012 was the sale of a batch of retail premises in Tsim Sha Tsim by YGM Trading to Everchamp Properties for a total of HK$439.8 million. The retail properties included Shop Nos. G29 & G30 on G/F and Shop No. 15 on 1/F of Site F, Park Lane Shopper s Boulevard at Nos. 111-139, 143-161 & 165-181 Nathan Road. The 3,470 sq ft of retail space is occupied by a lingerie shop at a monthly rent of HK$1.38 million. The initial yield was about 3.8%. p. 38 Colliers International

hong kong 1q 2012 retail YIELD REMAINS FLAT The overall retail investment yield remained steady at 2.9% from November 2011 to January 2012, according to the latest figures released by the Rating and Valuation Department. This indicates a similar growth rate in retail rentals as to capital values. Meanwhile, the average yield in prime retail locations in traditional shopping areas compressed to below 2.7%. RETAIL YIELD 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Apr-07 Jul-07 Oct-07 Apr-08 Jul-08 Oct-08 Apr-09 Jul-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Source: Rating and Valuation Department Colliers International p. 39