METRO OFFICE First Half 2018

Research and Forecast Report Accelerating success. METRO OFFICE First Half 2018

EXPERTS IN PROPERTY DATA & INSIGHTS Colliers Edge is a subscription service developed by our in-house property research specialists, drawing on the expertise of our national network of operators. DEEPER INSIGHTS Largest data set on market today LIMITLESS SUPPORT Analyst not operators FAIRER PRICING Tailored to your needs Want better insights, faster? Talk to a Colliers Edge expert today Anneke Thompson National Director Research +61 412 581 647 anneke.thompson@colliers.com colliers.com.au/colliersedge Accelerating success.

CONTENTS Metro Office snapshot 4 National overview 5 Sydney 6 Melbourne 10 Brisbane 14 Adelaide 16 Perth 18 Newcastle 20 Gold Coast 21 Our experience Metro office 22 Metro Office Research & Forecast Report First Half 2018 3

METRO OFFICE SNAPSHOT VACANCY RATE NET FACE RENT INCENTIVES NET EFFECTIVE RENT NET SUPPLY YIELD Current Mar-19 Current Current Mar-19 y-o-y % change Previous 12 months Next 12 months Current 2 month historic change (bps) NSW North Sydney 7.9% n/a $785 20% 21% 18.2% 1,486 40,281 5.38% -67 St Leonards 11.1% n/a $615 19% n/a 22.3% (7,811) 11,281 6.38% -52 Chatswood 6.8% n/a $575 20% n/a 22.7% - (815) 6.25% -60 Macquarie Park 6.0% n/a $388 23% n/a 14.2% (16,968) (9,345) 5.75% -41 Norwest n/a n/a $318 19% n/a 19.5% n/a n/a 7.00% -36 Parramatta 3.0% n/a $485 15% 14% 7.1% (16,830) 22,840 5.63% -76 SOP n/a n/a $418 23% n/a 7.6% n/a n/a 6.00% -65 Rhodes n/a n/a $430 24% n/a 11.1% n/a n/a 6.00% -32 South Sydney n/a n/a $435 15% n/a 14.9% n/a n/a 6.13% -45 CBD Fringe n/a n/a $675 13% n/a 13.4% n/a n/a 5.50% -33 VIC St Kilda Rd 7.3% 5.4% $400 21% 20% 22.5% (38,634) (8,400) 5.75% -88 Southbank 5.1% 9.7% $495 23% 35% 5.7% 25,124 12,200 5.38% -50 City Fringe 3.3% 4.4% $460 7% 14% 19.7% (12,794) 33,900 5.50% -50 Inner East 5.1% 5.2% $395 10% 15% 6.7% (1,636) 8,000 5.75% -25 Outer East 7.4% 6.6% $315 20% 25% 8.8% 37,500 11,000 6.63% -50 South East 11.9% 12.0% $295 15% 20% 7.4% 9,805 10,534 7.75% -25 North & West 3.9% 3.1% $300 20% 30% 14.3% 11,104 1,000 7.00% -150 QLD Inner South 10.3% 9.4% $458 33% 33% -0.51% (9,461) 1,000 6.88% -15 Urban Renewal 14.1% 12.5% $453 35% 34% -5.00% (15,995) 33,920 5.88% -117 Milton 17.1% 29.5% $403 36% 36% -5.10% (764) 1,000 7.75% -25 Spring Hill 17.6% 17.2% $410 36% 30% -1.06% - 1,000 7.50% -38 Toowong 11.9% 16.6% $388 35% 27% 0.00% (1,756) 1,000 7.50% -50 Gold Coast 10.6% $380 12% 10% 2.54% (6,150) 5,576 7.13% -73 SA Fringe 11.4% 10.60% $283 20% 20% -14.20% 2,262 1440 6.38% -25 Inner Metro 5.5% NA $298 20% 20% -0.90% - 0 6.75% 0 WA West Perth 16.7% 15.9% $370 38% 38% 0.1% 2,509 1,595 7.20% -0.22

NATIONAL OVERVIEW By Anneke Thompson National Director Research anneke.thompson@colliers.com Capital values continue their growth trajectory Investment returns in metro office markets are at their greatest levels in over 10 years. Annual effective rental growth in Metro markets such as North Sydney, St Leonards, Chatswood, St Kilda Road and the Melbourne City Fringe has been strong, with all of these markets recording greater than 15 per cent effective rental growth over the year to March 2018. Coupled with an average of 50 basis points of yield compression over the same time period, capital value growth has been an extraordinary 25 per cent on average across the above mentioned markets. While the yield compression cycle is moderating in some markets, land rich opportunities in metro markets are highly sought after, as buyers want the ability to expand their investments - something more difficult to achieve in a CBD market. The long term growth of the markets will also be impacted by a number of other factors, including: Tight occupancy: some metro markets, such as Parramatta and the Melbourne City Fringe, are even more tightly occupied than the Sydney and Melbourne CBDs, and we expect them to stay this way until new supply starts completing around 2019/20. Withdrawals: Withdrawal of stock continues to have an impact on metro markets. The Sydney metro market has reduced by 40,000sqm over the past 12 months and Brisbane has contracted by 34,000sqm. In Melbourne, the metro market grew by 30,500sqm, however, the key markets of St Kilda Road and City Fringe have both contracted - St Kilda Road by a close to 40,000sqm. Residential upside: a number of metro markets are also popular with residential developers, and many investors are attracted to the potential residential conversion exit strategy that these investments provide. Metro rail developments: both Sydney and Melbourne are in the midst of significant infrastructure upgrades. The respective metro rail developments in each city offer significant demand uplift potential upon completion. The markets that will be particularly impacted are Sydney North Shore markets and St Kilda Road in Melbourne. Major Metro markets, annual growth in capital values 40% 30% 20% 10% 0% -10% -20% Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Source: Colliers Edge North Sydney Parramatta Melb Fringe St Kilda Road Stock change (March 2013-2018) versus current vacancy Melbourne Fringe Melbourne CBD Sydney CBD Parramatta North Sydney St Kilda Road -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% Current vacancy rate stock change as a % of total stock* Source: Colliers Edge Affordability: As rents in the premium end of the Sydney CBD market breach the $1,000 per sqm mark, savvy occupiers are now looking to alternative markets such as North Sydney. Access to the CBD will substantially improve with the completion of the Sydney Metro Rail development, while North Sydney offers much more affordable rents. In this climate, buyers from Singapore invested just over $400 million in metro office investment product over 2017, attracted by the genuine upside on offer in metro office product in key locations. While chinese buyers invested a similar dollar volume, these buyers are generally more attracted to development upside opportunities. Metro Office Research & Forecast Report First Half 2018 5

Research & Forecast Report SYDNEY Metro Office First Half 2018 By Kristina Mastrullo Associate Director Research kristina.mastrullo@colliers.com MARKET HIGHLIGHTS Sydney s metro markets remain appealing for investors suggesting further yield compression ahead Limited A grade availability in North Sydney and strengthening tenant demand Parramatta now experiencing a lack of B grade space with A grade remaining fully occupied Investment market Market fundamentals continue to strengthen with the biggest influence of constrained supply placing upward pressure on net effective rents in Sydney s Metro office markets. Suburban peripheral markets are especially impacted by residential encroachment, as tenant demand for core-metro office markets (i.e. North Sydney, Parramatta) grows. Infrastructure and amenity investment continues to contribute to an uplift in rent and competition for space, and it s likely that this will continue throughout the construction process to completion. Average A Grade yields for Sydney Metro have tightened by 20bps over the past 6 months (an annual compression of 77bps) to average 6.00 per cent in March 2018. The secondary market experienced greater compression with a reduction in the average yield of 32bps, settling on a yield of 6.51 per cent. Taking into consideration well-established metro markets such as North Sydney and Parramatta along with contracting suburban office market, positive rental outlook will continue to assist in improving capital values and yields. While the yield arbitrage between Sydney Metro and Sydney CBD still exists, it is narrowing as the value add opportunities continue to appeal to investors. Following this, the average yield spread over the risk-free rate of 376bps and 473bps for A and B grade respectively, suggests further compression is likely. Leasing Market North Shore North Sydney Rental growth continues A grade rents increased by 6.1 per cent over the 6 months to March 2018 while net effective rents increased 8.0 per cent. Incentives fell 1 percentage point to 20 per cent. B Grade net face and effective rents grew 4.8 per cent and 7.6 per cent over the 6 months, as incentives declined to 20 per cent for the period. Looking forward, the market is anticipated to stabilise following the recent movements in both rents and incentives since 2016. Improving amenity within North Sydney continues to appeal as the overall market offering improves. As a result, competitive tension is apparent as A grade availability becomes limited, taking into consideration pre-committed space. The amenity offering is further strengthened with the introduction of co-working group WeWork, who secured 2,800sqm at 50 Miller Street. Currently, there is up to 10,000sqm of co-working requirement within the market and should these requirements be accommodated, this should assist in elevating North Sydney s office market status. Vacancy lower than it seems North Sydney experienced negative net absorption (-10,883sqm) for the six months to January 2018 as some tenants contracted. As a result, vacancy increased from 6.4 per cent to 7.9 cent for the January 2018 period, according to the Property Council of Australia (PCA). Colliers International expects total market vacancy to fall next period, as the current vacancy is impacted by pre-committed space not 6

being currently physically occupied. Vacancy is then expected to rise as the market approaches its supply cycle in 2020 as several new and refurbished supply opportunities enter the market. With the Sydney Metro, the Victoria Cross Integrated Station Development and increasing investment in retail and public amenity, requirements for North Sydney office space is likely to strengthen moving forward, encouraging organisations to consider North Sydney as a first option for accommodation. Chatswood Chatswood vacancy fell marginally to 6.8 per cent, driven by demand in the B grade segment with absorption well above historical averages at 1,615sqm for the six months to January 2018. The Department of Health has taken an additional 3,000sqm in the Zenith (the largest lease deal in Chatswood) and various tenants have taken additional space from 475 Victoria Avenue adopting a split-and-fit strategy. There are currently limited whole floor offerings, and along with limited development activity, Colliers expect to see the vacancy rate decline further over the short term. Due to the tightening market, A grade net face rents have increase nearly 12 per cent for the six months to March 2018. Average incentives declined three percentage points over the same period increasing net effective rental growth by 17.2 per cent. By comparison, B grade net face rents haven t grown as quickly, increasing 2.2 per cent over the last 6 months with net effective rent increasing 4.3 per cent as a result of average incentives falling one percentage point to 19 per cent. St Leonards In the last six months, St Leonard s vacancy has decreased from 12.6 per cent to 11.1 per cent. The market continues to experience office erosion as stock continues to be earmarked for residential conversion. Many secondary grade buildings within St Leonards come with a demolition clause, prohibiting long-term leases, placing upward pressure on B grade rents. B grade buildings have experienced the largest growth in net face rent for the 6-month period of 18.8 per cent, with net effective rents increasing 22.8 per cent as average incentives fell to 19 per cent. A grade net face rents were subdued relative to B grade, increasing by 6.0 per cent for the 6 months to March 2018. However, net effective rents grew 16.9 per cent due to incentives declining from 25 per cent to 19 per cent. Demand in St Leonards for prime space is apparent, and with it the expectation that vacancy will continue to decline across the entire market moving forward. Sydney Metro Yields 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 5.38% 5.38% 5.63% 5.50% 5.75% 5.63% 6.00% 6.00% 6.13% 6.13% 6.25% 5.75% 6.38% 6.38% 6.38% North Sydney CBD Fringe Parramatta Sydney Olympic Park South Sydney Macquarie Park St Leonards Chatswood Source: Colliers Edge Sep-17 Mar-18 North Shore Metro Markets Net Absorption vs Vacancy January 2018 sqm 15,000 10,000 5,000 0-5,000-10,000-15,000 7.9% -10,883 Source: Colliers Edge 10.4% -846 6.8% 281 13,318 6.0% North Sydney St Leonards Chatswood Macquarie Park Parramatta Vacancy 25% 20% 15% 10% 5% 0% Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Source: Colliers Edge Jul-08 Jan-09 Net Absorption (LHS) Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Total Market Vacancy Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 A Grade B Grade C Grade Total Market Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 6.25% 10.2% 0.0% 12% 10% 8% 6% 2.7% 3.0% New supply entering the market, such as Lot 4, Royal North Shore Hospital development (36,000sqm) is projected for completion in 2020. This project is fully pre-committed to the Department of Health Infrastructure, relocating from 73 Miller Street in North Sydney. Additionally, refurbishment of 72 Christie street will bring over 11,000 sqm to market, and this space is expected to generate a high level of interest. Macquarie Park Macquarie Park continues to record strong positive net absorption (13,594sqm) over the six months to January 2018 according to the PCA. Demand was concentrated in the A grade segment while 4% 2% 0% Metro Office Research & Forecast Report First Half 2018 7

9-11 Waterloo Road and 82 Waterloo Road were withdrawn for hotel and residential conversion, respectively. Vacancy declined 2.4 percentage points to 6.0 per cent over the 6-monthly period. However, tenant enquiry from peripheral suburbs remain strong as Macquarie Park offers a relatively superior location with space suitable for larger occupiers as tenants continue to be displaced due to residential conversions. A flight to quality is being experienced as Macquarie Park offers value for money which have been appealing to tenants in the catchment area coupled with a competitive price point, compared to Chatswood, St Leonards, North Sydney and the CBD. Tenants in outer suburbs such as Belrose and Norwest have shown interest in relocating into Macquarie Park because of its public amenity, including Macquarie Shopping Centre, new transport options (Sydney Metro project) along with building upgrades bringing end-of-trip facilities. Vacancy is likely to remain low within Macquarie Park, placing upward pressure on rents moving forward. The presence of the education sector within Macquarie Park is a differential that no other market can claim. Macquarie University s incubator has proven so successful in their attraction of tech start-ups, that there are believed to be talks of creating another. A grade net face rents have increased by 7.6 per cent in the 6 months to March 2018, with net effective rents growing 12.7 per cent as incentives declined by 3 percentage points to 23 per cent. Western Sydney Parramatta Starved of quality space A notable 15,000sqm of space is likely to become vacant in 2020 and 2021 when Parramatta City Council (126 Church Street), the Office of State Revenue (132 Marsden and 87 Marsden Streets), and the Department of Planning and Environment (10 Valentine) intend to vacate. Prior to that, the Department of Education and Property NSW have fully committed to new developments 105 Phillip Street and Stage 4 Parramatta Square, respectively, which will cement Parramatta s record-low vacancy rate of 3.0 per cent. Migration both ways have occurred, in and out of Parramatta. Public transport options, further amenity investment and the direct connection to the CBD means the precinct remains a popular accommodation option, especially within the Western Sydney Region. Despite there still being no A grade vacancy for the fourth consecutive period as reported by the PCA, strong rental growth would still be expected should any space become available. As a result, B grade rents have benefited with net face rent increasing by 4.3 per cent over the 6 months to March 2018. This grade is largely represented by private investors, which is why average incentives remained at 12 per cent, the lowest average incentive since March 2004. B grade tightening Over the 6 months to January 2018, B grade vacancy has reduced a significant 3.6 percentage points, from 6.3 per cent to 2.7 per cent. Strong positive net absorption was also recorded in this sector at 8,477sqm, nearly double the 10-year historical average. We expect B grade rents to continue their upward trajectory, which should in turn further increase A grade rents. Relatively sizeable B grade space will become available when Property NSW vacates 5,700sqm in 93 George Street, moving to Parramatta Square. This will be a positive for the market, providing large users the opportunity to expand or relocate within the precinct. The Light Rail continues to transform the dynamics of Parramatta in both the office and retail sectors. Despite the disruption during construction, the project could prove beneficial in introducing some high-profile retail tenants, a further attractor for higher calibre office occupiers. Sydney Olympic Park Net face rents continue to rise as office enquiry remains strong, with a variety of tenant types showing interest in the market. Average A grade net face rents for Sydney Olympic Park (SOP) have increased 3.7 per cent over the six months to March 2018. However, incentives have increased three percentage points to 23 per cent as secondary stock competes with the introduction of new supply. Increasing tenant enquiry continues to stem from this office market s location, being at the geographic centre of Sydney, with good access and amenity. As A grade vacancy in Parramatta remains at zero coupled with its relatively higher price point for secondary grade stock, SOP offers larger, quality space as an alternative. A flight to quality is emerging as tenants seek a higher level of amenity and infrastructure from surrounding suburban markets that are lacking in these features. In terms of upcoming new supply, 4 Murray Rose Drive is due for completion this year. Additionally, the availability of CBA s backfill space, inclusive of high quality fitouts, are expected to draw strong interest. With the impending release of the Sydney Olympic Park Authority Masterplan, a material change of use tilted towards the residential sector could also cause several buildings to be withdrawn from the market. In the meantime, these buildings are likely to offer short term leases and potentially act as a release-valve for the pent-up demand in Parramatta. 8

City Fringe Urgency remains among creative/tech companies to secure unique, quality space as limited supply within the City Fringe market continues. Very little A grade stock remains and Pyrmont and Surry Hills has become the most sought after suburbs. Adding to demand is interest from co-working / serviced office groups. These groups are seeking A grade quality as either majority or whole-building occupiers i.e. over 3,000sqm. All such requirements combined represent more than 10,000sqm of demand, although with space at a premium not all of this demand will convert to deals. In the 6 months to March 2018, there was no movement in A grade net face rental growth relative to the previous period (3.8 per cent), however we should see an elevation next period reflecting deals currently being negotiated. B grade net face rental growth was strong (4.9 per cent) as there remains limited options within the A grade segment. However, compared to its 6-monthly growth last period (11.9 per cent), the lack of trickle-down from A grade demand is apparent. Moving forward, we predict positive A grade rental growth to continue with an increasingly supplyconstrained market. South Sydney The South Sydney office market is in the midst of an investment boom. Infrastructure projects having a local impact, such as Sydney Metro and West Connex, are great for landowners considering repurposing existing industrial assets to cater to hotel, retail or office users. Developers that had previously acquired land for residential strata sales are either minimising holding costs, flipping their sites or evaluating commercial development opportunities. Net effective rents for A grade assets within South Sydney grew 2.1 per cent primarily due to the decline in average incentives by 2 percentage points to 15 per cent. B grade face and effective rents increased marginally (0.7 per cent and 0.8 per cent respectively) as incentives remained at 16 per cent. Despite this plateau, A and B grade annual net face rental growth remains strong at 10.1 per cent and 6.2 per cent respectively. As a result of repurposing and withdrawals of office stock, availability of quality stock will continue to reduce, placing downward pressure on incentives and keeping net effective rental growth elevated. 77 Christie Street, St Leonards Leased on behalf of Proprium Capital Partners Metro Office Research & Forecast Report First Half 2018 9

Research & Forecast Report MELBOURNE Metro Office First Half 2018 By Anneke Thompson National Director Research anneke.thompson@colliers.com MARKET HIGHLIGHTS Unprecedented supply and demand conditions, particularly in the City Fringe All precincts have recorded good effective rental growth Large City Fringe supply pipeline will continue to lift net face rents in the precinct City fringe Record effective rent growth continues Effective rental growth in the City Fringe A grade market has again been well in to the double digits, with growth of 19.7 per cent recorded over the year to March 2018. This follows growth of 22.7 per cent recorded in the year to March 2017. The vacancy rate is having a profound effect on rents that tenants are willing to pay to secure space. The vacancy rate has been sub 5 per cent for two years now, and below 3.5 per cent for 18 months. These are extremely tight conditions, given that the long term vacancy rate in the City Fringe is 6.1 per cent. Landlords are now routinely achieving over $500 per sqm for A grade face rents in the Richmond/Cremorne precinct, while the overall market average is now $460 per sqm up from $400 per sqm only a year ago. The cause of the tight vacancy is two-fold. A shrinking market almost 25,000sqm of net withdrawals have been recorded over the past two years, some of these for refurbishment and strong demand conditions. Demand has been driven by a number of factors including record population growth, good employment growth and tenants being pushed out of other Melbourne markets such as St Kilda Road, Box Hill and the Inner East, where there is limited new supply. An analysis of historic deal activity highlights this trend the number of deals Colliers has transacted in the City Fringe had almost doubled from 34 in 2015 to 63 in 2017, while in St Kilda Road over the same time period, deal activity has more than halved, from 77 to 32 deals. There is also a distinct preference amongst corporates that have a younger workforce to be located near public transport and good amenity the City Fringe is the best placed market to cater for these requirements. A number of major tenant moves are coming up imminently including Country Road to Botannica from Church Street, David Jones from Sydney to Botannica, Fonterra to River Boulevard (from the Outer East). The large Just Group and Country Road backfill opportunities (circa 12,00sqm) should be refurbished by Q4 2018, and we expect that given tenant enquiry on the space already, these spaces will be fully committed before coming back into the market. Given the positive leasing conditions and tight vacancy, it is no surprise that the development industry is responding, and a number of major office projects are in the pipeline for the City Fringe. The supply outlook is going to have a profound impact, and we expect the market to grow from being a 950,000sqm market, to circa 1.136 million sqm by March 2021. This is almost 185,000sqm of new supply, or an increase of 20 per cent on current stock levels. While this is a significant increase, our view is that the underlying fundamentals of demand are sustainable and the market is delivering product that is sorely needed. While it is worth considering that the Melbourne CBD will be undergoing a significant increase in supply at the same time as the City Fringe, the pre-commitment levels in the CBD are circa 62 per cent (and rising), and tight supply in that market means backfill opportunities are also being closely looked at. This means that much of the development pipeline hitting the market in both the CBD and City Fringe in 2020 will not contribute to vacancy numbers, but result in positive net absorption. We expect face rent growth to continue in the A grade market, in spite of the new supply. Demand conditions will remain strong, given Melbourne s extraordinary population growth, and as new A grade stock is added to the market, the average rental in the precinct will continue to climb. Incentives are likely to increase from 2019 through to the peak of the cycle in 2020, as developers 10

will need to compete for tenant pre-commitments, and tenants expect a significant contribution to fitout costs. Inner East Absorption levels to improve again - vacancy to reduce to circa 4 per cent by late 2018 The Inner East was the only market in the Metro precinct where vacancy increased, although this increase was ever so slight from 4.95 per cent in September 2017 to 5.08 per cent in March 2018. Vacancy is still lower than a year ago, when the rate was 6.30 per cent. The increase to the vacancy rate was predominately caused by Acquire Learning vacating 5,400sqm at 600 Glenferrie Road in Hawthorn. While technically vacant, this space has been fully committed by United Petroleum, who will vacate owner occupied premises in Hoddle Street, Abbotsford later in the year. We are therefore forecasting circa 6,000sqm of net absorption over the next six months, and the vacancy rate to fall back to 4 per cent. Rents continue to climb in the precinct, albeit at a slower rate than the City Fringe. The lack of many new supply opportunities in the market now that Vicinity s Tower at Chadstone is full, means that opportunities for rental reversion are somewhat more scarce. Face Rents grew by 3.9 per cent over the year to March, while a reasonable decline in incentives saw effective rents grow by 6.7 per cent. Despite the continued low supply trend in this market, enquiry is still strong, particularly from those tenants being displaced by the continued residential development in the Box Hill precinct. A number of tenants, including Scope Victoria and Kao Brands, have relocated from this market to the Inner East, at a higher rent. Outer East A Grade market performing very well, small suites strategy gaining traction The A grade market in the Outer East continues to be one of the better performing markets, despite the higher vacancy conditions that the market has been experiencing. This is certainly changing, as vacancy has dropped from 9 per cent in September 2017, to 7.4 per cent in March 2018. The long term vacancy rate for this market is much higher than other markets, at 9.6 per cent, so this is a tight vacancy rate for the Outer East. Net absorption continues to outperform all other precincts in the metro market, and almost 65,000sqm of space has been absorbed in the past year. While face rents across the market as a whole have only seen moderate increases over the past year, incentives have reduced from an average of 27 per cent a year ago, to 23 per cent. This has resulted in good annual effective rental growth of 8.8 per cent over the year to March 2018. Melbourne Metro Office Vacancy Rates Southbank St Kilda Road North&West South East Outer East Inner East City Fringe 0% 2% 4% 6% 8% 10% 12% 14% Source: Colliers Edge March 2019 (f) Mar-18 Melbourne Metro A Grade Net Effective Rental Growth year to March Southbank St Kilda Road Metro Average North&West South East Outer East Inner East City Fringe 0.9% -0.1% 1.8% 5.4% 5.7% 11.3% 10.7% 9.1% 14.3% 8.8% 6.7% 22.9% 7.4% 22.5% 10.5% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Source: Colliers Edge Melbourne Metro Yields 11% 10% 9% 8% 7% 6% 5% 4% Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 2017 2018 Mar-13 Sep-13 City Fringe Inner East Outer East South East North & West St Kilda Road Southbank Source: Colliers Edge The Outer East has traditionally supplied the occupier market with plentiful new A grade stock, however, while the vacancy rate remained high, new supply has somewhat dried up. Only 6,000sqm at Victor Crescent, Narre Warren was added over the past six months. This is about half the long term supply rate in the Outer East. Over the next six months, 10 Nexus Court (8,000sqm) will complete, and the developer has been successful in leasing up a very large portion of this space, at rents higher than the A grade average for the Outer East. An interesting trend in the Outer East is the success of the smaller, speculative fitout model in the precinct. This strategy that Mar-14 Sep-14 Mar-15 Sep-15 19.7% Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Metro Office Research & Forecast Report First Half 2018 11

has proven successful in the CBD over the past few years has been applied to great success at Axxess Corporate Park, where smaller tenants such as Funtastic and TTI have committed to this space. South East Commuter market leading demand While vacancy in the South East remains stubbornly high 11.9 per cent at March 2018 we are seeing positive absorption, and emerging demand sectors that should continue to absorb space. The growing popularity of the Mornington Peninsula as a home for Melbourne based workers, means that the South East market, particularly around Bentleigh and Moorabbin, is now a genuine option for tenants whose management and/or workforce are increasingly relocating to the Peninsula. A good example is the relocation of ZircoData from Hawthorn East to 705sqm at 973 Nepean Highway, Bentleigh. In Moorabbin, a number of deals have been recorded at Parkview Estate, where Home Timber and Hardware took 4,000sqm and Primary Health Network backfilled the 2,000sqm vacated by Home Timber and Hardware. Coupled with multiple deals to tenants associated with the National Disability and Insurance Scheme (NDIS), net absorption was a very strong 14,000 sqm over the past year. This is even more exceptional considering the previous three years produced 500sqm of negative net absorption, and is indicative of the market turnaround. A grade effective rents, as a result, have grown by 7.5 per cent over the past year. Capital markets Investors circling new development opportunities in the City Fringe Both A and B grade yields continued through their compression cycle in the year to March 2018. A grade yields tightened by 48 basis points in the year to March 2018 to 6.59 per cent, while B grade yields compressed by 55 basis points to 7.28 per cent. Once again, the City Fringe sits well below the metro average, and average A grade yields in that market are more comparable to the CBD, at 5.50 per cent. The soon to be built, pre-committed development stock in the City Fringe is catching the eye of institutional investors, with a number of investors considering capital partnering or fund through arrangements for some of these assets. As most of the stock is being built by developers who specialise in metro Melbourne markets, investors are looking to partner with the groups to reduce risk while accessing local expertise and better returns than they could get in the CBD. Almost $370 million of stock has transacted in the 6 months to March 2018, including 353-383 Burwood Highway, Forest Hill for $88 million to a locally based Chinese syndicate. In Bundoora, 30 Janefield Drive sold for $26.93 million in January of this year, on a sharp 5.8 per cent initial yield. More recently, Computershare s headquarters at 452 484 Johnston Street, Abbotsford, sold to Abacus Property Group for $93.5 million on a 6.05 per cent equivalent reversionary yield. Abacus were the underbidders of the asset when it last transacted in May 2016. 54 Wellington Street, Collingwood Leased on behalf of Grocon 12

464 St Kilda Road, Melbourne Currently being marketed by Colliers International on behalf of VACC St Kilda Road & Southbank Strong transaction market - buyers seeing rental upside St Kilda Road is Melbourne s fourth largest office market, behind the CBD, Outer East and City Fringe office markets. The market is still in the midst of an office withdrawal cycle, as room is made for high end residential product, of which there has been strong demand over the past five years. Over the past 10 years, the St Kilda Road market has reduced by almost 100,000sqm. In comparison, the CBD office market has increased in size by almost 800,000sqm over the same period, and Southbank has grown by almost 60,000sqm, despite large amounts of secondary space there being withdrawn for residential development. St Kilda Road has historically been an affordable relocation solution for many large multi-national businesses from the CBD. More recently, existing tenants remaining in the area are renewing their leases, as large options in the strip are limited. Vacancy in the St Kilda Road precinct has reduced to 7.25 per cent as at January 2018, from 11.27 per cent in July 2017. Despite continuing strong withdrawals contributing to negative net supply of 21,979sqm over the six months to January 2018, net absorption was a positive 6,464sqm. All of the withdrawal activity occurred in the secondary grade space, while A grade saw no withdrawals and positive net absorption of 6,950sqm. This reflects continuing strong enquiry levels for A grade space in the precinct. In Southbank, vacancy increased from 3.3 per cent to 5.1 per cent, however, this vacancy rate is still well below the long term average of 6.6 per cent. We expect vacancy in Southbank to reduce significantly by early 2019, as major leases in vacant space at Freshwater Place commence. These include CUB moving into 6,388sqm from their recently sold headquarters in the precinct. Creative Victoria (Vic Govt) have purchased this building, and will likely owner occupy. WPP will also be moving out of Collins Street to Freshwater Place, absorbing a further 3,500sqm of current vacancy. Reflecting the positive demand activity in the A grade market, net effective rents on St Kilda Road increased by 22.5 per cent over the year and 11.7 per cent in the six months to March 2018. Net face rents for prime grade space grew by almost 20 per cent over the year to March 2018, after being stagnant for the previous year. Looking forward, we are forecasting effective rent growth of almost 10 per cent over the year to March 2019. St Kilda Road experienced a flurry of investment sales activity over 2017, with seven transactions occurring, for a total sales volume of $498 million. Investors now seem to be attracted to the rental reversion that the precinct offers them, given the tight supply conditions and continued demand from a core group of tenants. There is also the potential exit strategy of a residential conversion that is attractive to offshore investors in particular. The buyer profile was almost exclusively offshore - 97 per cent in fact. Tong Eng (Singapore) purchased 312 St Kilda Road for $74.14 million on a 5.62 per cent equivalent reversionary yield. In December 2017, Ginkgo Investments, a private Chinese group, purchased 606 St Kilda Road for $57.04 million on an equivalent reversionary yield of 5.88 per cent. The sole sale to a domestic purchaser was 1 Bowen Crescent ($14 million) to a Sydney family in September 2017. Given the strong deal activity and plethora of transactional evidence, yield compression has been a significant 50 bps over the past six months, and 88 bps over the past year. Average A grade yields now range between 5.5 and 6.0 per cent. Metro Office Research & Forecast Report First Half 2018 13

Research & Forecast Report BRISBANE Metro Office First Half 2018 By Helen Swanson Manager Research helen.swanson@colliers.com MARKET HIGHLIGHTS Record level of sales over 2017 Compression of Prime grade yields 25-35 bps this year Vacancy declined from 14.6 per cent in July to 14.1 per cent as at January 2018 Investment market Over the 2017 calendar year, $1.5 billion of metro office transactions (<$5 million) across 29 sales were transacted. Of these, 61 per cent were represented by domestic buyers and 39 per cent were offshore buyers. Sales on a dollar volume basis in the metro region for 2017 were 51 per cent higher than that recorded in 2016 and were the highest level experienced over the last decade. The back half of 2017 saw investors also awakened to the fact that the office leasing market has turned the corner and an organic uplift in rental values may now be a possibility for some assets moving forward. This may result in secondary grade assets, which have undergone significant capex works and/or those with some leasing risk, coming to market as vendors look to take advantage of ideal market conditions and investors look to capitalise upon a tightening leasing market. Metro office sales to take place in Q4 2017 included: 108 Wickham Street, Fortitude Valley a six storey A grade commercial office tower located in Brisbane s Fortitude Valley sold to Singaporean based group, Ascendas for $106.23 million, equating to $8,926 per sqm at a reversionary yield of 7.04 per cent. 84 Longland Street, Newstead (Gasworks office portion) the office portion of 84 Longland Street, Newstead sold to AMP Capital for $125.9 million equating to $14,007 per sqm at an initial yield of 5.10 per cent. 433 Boundary Street, Spring Hill the three-storey commercial office building sold to Cromwell Property Group for $42 million, equating to $7,004 per sqm at a reversionary yield of 6.51 per cent. 56 Edmondstone Road, Bowen Hills - listed property trust Charter Hall Long WALE REIT has taken over Virgin Australia s headquarters in Brisbane in a $90.8 million deal with its parent platform, Charter Hall. 9 Hercules Street, Hamilton a two level fully leased commercial office building refurbished in 2010. The property was purchased by unlisted fund manager Clarence Property Group for just under $12 million equating to a capital value of $5,510 per sqm reflecting a reversionary yield of 7.82 per cent. The property sold with a WALE of 3.5 years Average initial yields in Brisbane s metro market as at Q1 2018 for A grade product range in general from 5.25 per cent to 7.75 per cent. The lower for longer theme continues for office assets in Brisbane s metro market with initial yields continuing to compress over the Q1 2018 quarter. For the reasons outlined below, we believe that yields are likely to further tighten throughout 2018: Significant infrastructure investment particularly within the metro Brisbane region is helping boost business confidence White collar employment is anticipated to improve over the short to medium term The leasing market appears to have bottomed and net effective rental growth is anticipated over the short to medium term The supply pipeline has been constrained and although there are many proposed, many will not proceed unless significant pre-commitment is achieved A substantial yield arbitrage still exists between the southern state capital s and Brisbane 14

Leasing market Inner South tightest metro market According to the PCA office market report, Brisbane s metro office vacancy rate declined from 14.6 per cent in July 2018 to 14.1 per cent in January 2018. Net absorption for the six months to January 2018 was -7,830 sqm. Despite this vacancy still declined. This can be explained by the 16,212 sqm of withdrawals and no new supply additions recorded over the period. Driven by positive net absorption for the six months to January 2018, Milton s vacancy rate declined from 18.6 per cent to 17.1 per cent. Despite the decline, Milton continued to report the second highest vacancy of all metropolitan precincts. The tightest market as at January 2018 was the inner south which recorded 10.3 per cent vacancy, down from 11.1 per cent in July 2017. Contributing to the decline was the withdrawal of 25 Donkin Street, West End. Vacancy in other precincts saw the Urban Renewal remain steady at 14.1 percent (despite 312 Brunswick Street being withdrawn for retail conversion), Toowong s vacancy rose only 0.1 percentage points to 11.9 per cent and in Spring Hill the vacancy rate declined from 18.4 per cent in July 2017 to sit at 17.6 per cent at January 2018 (albeit recording the highest vacancy of all precincts for the period). New supply for 2018 After a period of no new supply and only refurbished stock entering the market in 2017, two new projects - 900 Ann Street (18,791 sqm) and 25 King Street (14,429 sqm) both in Fortitude Valley - are anticipated for release in 2018. 25 King Street is 43 per cent pre-committed by Aurecon, while 900 Ann Street at 100 per cent pre-committed by Aurizon. The available space at 900 Ann Street is Aurizon s decision to sub lease 5 floors of their original pre-committed space. Whilst there are no other buildings currently under construction, there is an extensive list of commercial office projects that are currently proposed and have received development approval. However, many of these projects are unlikely to proceed in the short to medium term without substantial pre-commitment. One of the most recent projects to be announced as receiving development approval is 801 Ann Street, Fortitude Valley. Walker Corporation s $400 million project will feature circa 44,000 sqm of office NLA with 2,000 sqm office floor plates. The flurry of potential developments appeared to emerge off the back of the Suncorp and Tech One briefs for office space. Backfill to come to market Despite vacancy falling from 14.6 per cent in July 2016 to 14.1 per cent in January 2018, challenges such as upcoming backfill lie ahead this year. The below includes some of the space that is forecast to come to the market this year: Brisbane Metro Office sales ($m) 1,600,000,000 1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Colliers Edge, 2018 Domestic Offshore Brisbane Metro Office vacancy by precinct 25% 20% 15% 10% 5% 0% 2001 H1 2001 H2 2002 H1 2002 H2 2003 H1 2003 H2 2004 H1 2004 H2 2005 H1 2005 H2 2006 H1 2006 H2 2007 H1 2007 H2 2008 H1 2008 H2 2009 H1 2009 H2 2010 H1 2010 H2 2011 H1 2011 H2 2012 H1 2012 H2 2013 H1 2013 H2 2014 H1 2014 H2 2015 H1 2015 H2 2016 H1 2016 H2 2017 H1 2017 H2 Inner South Urban Renewal Milton Spring Hill Toowong Source: PCA OMR Jan-18/Colliers International Brisbane Metro Office future supply pipeline 50,000m² 45,000m² 40,000m² 35,000m² 30,000m² 25,000m² 20,000m² 15,000m² 10,000m² 5,000m² 0m² 2018 2019 Mooted and or 2020+ Remaining Area Source: Colliers Edge, 2018 Sublease Backfill Mooted Pre-committed Ergon Energy (Energy Queensland) will be subleasing 5,000sqm in Nundah Aurizon subleasing 7,500sqm in 900 Ann Street 100 Brookes Street will have 7,000sqm left from this month Origin backfill in John Oxley and CDOP will be available from mid this year (approx. 30,000 sqm) On a positive note Hatch have recently renewed for 6,000 sqm at The Barracks. Taking the above into consideration, our forecasts suggest vacancy could reach between 15 and 16 per cent by mid this year. Consequently, we also forecast net effective rental growth for both A and B grade office product in the metro to remain stagnant for much of 2018. Metro Office Research & Forecast Report First Half 2018 15

Research & Forecast Report ADELAIDE Metro Office First Half 2018 By Kate Gray Director Research kate.gray@colliers.com MARKET HIGHLIGHTS Vacancy increases in Fringe Suburban vacancy falls Sales activity in the suburban market increases Leasing market Vacancy in the Fringe office market increased from 10.1 per cent to 11.4 per cent in the January 2018. Over the same period, the CBD has started to see vacancy fall. A more detailed analysis of the Fringe market shows that there is higher vacancy is along Greenhill Road when compared to Fullarton Road. There are several contributors to this. Several buildings have been withdrawn, refurbished and then returned to the market with not all the space leased, and the extension of the clearway on Greenhill Road has impacted vacancy. New supply in the fringe remains limited with most of the new supply being refurbishment of existing buildings. Refurbishments which have completed in the last two years include 123 Greenhill Road, 128 Greenhill Road, 161 Greenhill and 8 Greenhill Road. Currently undergoing refurbishment is 100 Greenhill Road which is expected to complete until mid 2018. While there is currently no withdrawal of office space at 177 Greenhill Road, there are plans for residential apartments, with the project currently in presale. There is also a residential project in presale phase at 56 Greenhill Road being developed by the Colangelo group. The rezoning of Greenhill Road several years ago to allow for higher building heights and more mixed-use development, has not resulted in significant conversion of office space to mixed use to date. Greenhill Road has seen more refurbishment of existing stock than conversion to apartments. This is because many of the buildings along Greenhill Road still have an underlying value and therefore if sold are still too expensive to be viewed as a development site. Although it is likely that there will be more residential developments which will result in withdrawal of office stock along Greenhill Road, this is a medium to long term prospect. Rents for the fringe office markets have eased over the last half with A grade stock with an easing at the top end of the rental range. This has resulted in average rents for A grade space falling by 9.4 per cent over the last 12 months with a range of $370 per sqm to $400 per sqm. It is also worth noting that there are few options for grade A space in the fringe market due to a lack of new development in the precinct. B grade rents, however have remained stable within the range of $300 per sqm to $350 per sqm. There has not been no change in incentives across both A and B grade space with a current range of 15 to 25 per cent. This is much lower than on offer in the Adelaide CBD office market, where incentives range between 30 and 40 per cent. The Adelaide suburban market has seen vacancy fall over the last six months to 5.5 per cent down from 5.9 per cent in September 2017. The eastern and southern office markets appear to continue to perform will with vacancy of 4.7 per cent and 1.7 per cent respectively. There has been no significant supply delivered to the suburban market over the past 12 months. In the pipeline is the development of 270 The Parade, Kensington for Peregrine (circa 9,800sqm) which is likely to complete in 2020. Rent for the inner suburban A grade space have remained stable and ranged between $360 per sqm to $430 per sqm with incentives between 15 and 25 per cent. Investment market Total investment volumes across both suburban and fringe markets were $113.26 million during 2017. This is above the 10-year average, but below the sales volume of 2016 which was $130 million. Most of the activity has been in the suburban market, which has accounted for $97.5 million of the total sales volume in 16

2017. This volume was boosted by the sale of the Codan office at 2 Second Ave, Mawson Lakes which sold for $32.1 million in April 2017. The other transaction of note in the metro market was 257 Fullarton Road, Parkside which sold for $13.5 million. The fringe has seen limited transactions during 2017 with only two sales over $2 million, with one of these a development site rather than an office building. The most recent sale in the fringe is 22 Greenhill Road which sold for $4.725 million in December for a yield of 6.52 per cent. The other transaction of note in the fringe is the sale of 176 Greenhill Road which was Tiffins on the park which sold for $11 million and was purchased by the adjoining owner ECH, who plan to redevelop this site to an aged care facility. The Fringe and suburban markets tend to have stock which is of a smaller scale than the CBD and therefore has more transactions in the $2 million to $5 million price range. This tends to attract private investors and they are therefore an active purchaser in this market. Yields in the suburban and metro markets have tightened over the past 12 months with A grade space in the Fringe Adelaide Metro Office Sales Volumes Millions $160 $140 $120 $100 $80 $60 $40 $20 $0 2007 2008 2010 2011 2012 2013 2014 2015 2016 2017 Source: Colliers International expected to see a yield range of 6.0 per cent to 6.75 per cent. Inner metro markets for A grade space has a wider range from 6.0 per cent to 7.5 per cent. We are expecting an increase in the number of transactions during 2018, with more properties likely to come to the market. We are seeing good enquiry for both owner occupier or investment stock with long leases in place. 1284 South Road, Tonsley Leased on behalf of Renewal SA Metro Office Research & Forecast Report First Half 2018 17

Research & Forecast Report PERTH Metro Office First Half 2018 By Quyen Quach Senior Research Analyst Research quyen.quach@colliers.com MARKET HIGHLIGHTS A minor increase in West Perth vacancy Rents still under pressure Landlords increasingly willing to refurbish buildings or spec fit tenancies Positive signs of pending recovery During 2017 private capital expenditure remained in a downward trend and that continued to drag on the state s economy; though it looks to be reaching the end of the contraction phase. Stabilisation and then a recovery in private capital expenditure is expected by Deloitte Access Economics over the next 12-18 months. Unemployment statistics were also encouraging in the second half of 2017, and further improvements are anticipated with more positive signs of a recovery from the mining sector. White-collar employment and office space demand has stabilised but the flight to quality and centrality has continued to favour the Perth CBD office market, which has seen vacancy contract over 2017. West Perth vacancy, on the other hand, has increased marginally over the second half of 2017. West Perth vacancy was reported to be 16.7 per cent as at the end of December 2017. One of the contributors to this increase in vacant space was the return of refurbished space at 66 Kings Park Road. After absorbing 8,666sqm of space during H1 2017, West Perth saw net absorption turn negative during the second half of 2017 with a decrease in occupied space of 2,945sqm. The negative net absorption was attributed to the vacating of secondary grade space mostly in B and C grade stock. Evidence of the continued flight to quality was the further take-up of A grade space, with 674sqm of A grade space absorbed in H2 2017, elevating the total A grade absorption for 2017 to 6,200sqm. The changes in economic growth conditions in WA and the shift in attitudes of business and employees in the constantly evolving technological and business environment has contributed to the continual increase in demand from small and micro tenants. The freelancing and gig economy is a continuing trend, not just globally but also in Perth. The cyclical nature of the resources sector has seen companies embrace contract work arrangements to add flexibility and improve project cost controls. With a revival in resource sector activity and the steady increase in work available, some small/independent contractors are now looking to expand their office footprint. Colliers International is leasing agents are reporting an increase in enquiry from small contractors, currently occupying serviced offices, seeking to establish a more permanent presence and/or expansion space. Though at present, they are tending to enquire about space in the Perth CBD and more particularly The Terrace for easy access to major resource companies and to capitalise on the bump factor. Investors continued to circle the market seeking counter-cyclical opportunities. In 2017, total sales amounted to 15 assets for a total of $208.5 million. The yields achieved from major investment transactions ($10 million +) generally ranged from 6.9 per cent to 7.7 per cent. Suburban vacancy stabalising At the start of March 2018 Colliers International re-assessed vacancy in the Herdsman/Osborne Park precinct and things look to have improved slightly, with vacancy falling to 16.9 per cent from 17.1 per cent in August 2017. This amounts to approximately 32,845sqm of vacancy in buildings with over 1,000sqm of NLA. Leasing deals are being executed, however suburban office demand remains soft. Suburban tenants are continual targets to be enticed to migrate to Perth s CBD and West Perth, while vacancy remains high landlords are chipping away at vacancy by accommodating the shift to smaller tenancy demand profiles. But increasingly, suburban (and more particularly West Perth) landlords are undertaking upgrades and speculative fit-outs to compete for tenants. The most recent project being the refurbishment at 66 Kings Park Road that was completed during the December 2017 quarter. 18

Still some time before rental growth returns Recent developments on the economic front and CBD vacancy is looking promising, but for suburban precinct rents it s likely to be some time before rental growth revisits these markets. Vacancy is still high (as noted earlier West Perth vacancy actually increased slightly over H2 2017), demand remains lacklustre, and strong competition for tenants is persisting. West Perth Vacancy Rate 20% 18% 16% 14% 12% 10% 8% 6% 16.7% West Perth rents were generally stable over H2 2017, though A grade net face rents fell slightly over the December 2017 quarter to average $370 per sqm. This was 3.9 per cent lower than the December 2016 average of $385 per sqm. B grade rents were 8.4 per cent lower over the year, at an average of $300 per sqm. 4% 2% 0% Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Direct - Vacancy Factor Sub-lease Vacancy Factor Source: Property Council of Australia, Colliers International Jan-17 Jul-17 Jan-18 During December 2017, A grade incentives averaged 37.5 per West Perth Average Net Face Rents cent, while B grade incentives were 40 per cent. $700 Vacancy and rents limited new supply Over the 2017 calendar year, 25,727sqm of new office space was delivered to the Perth suburban office market - for buildings over 1,000sqm. The first of two main projects that accounted for 65.5 per cent of the space delivered was 25 Rowe Avenue, Rivervale. This project was developed by BGC whom originally proceeded on spec but managed to secure a pre-commitment from Bunnings for 43 per cent of the space during the construction. The other project was 5 Milldale Way, Mirrabooka which consisted of Average Net Face Rents ($/m²) $600 $500 $400 $300 $200 $100 $0 Jun-10 Dec-10 Jun-11 Dec-11 Source: Colliers Edge Jun-12 Dec-12 Jun-13 Dec-13 A Grade Jun-14 Dec-14 B Grade Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 6,535sqm of space. This project is owned by the Department of Housing and they are expected to relocate from their current offices at 8 Sudbury Place, Mirrabooka. Additional supply will be limited in the next two years as market rents are estimated to be below economic rent levels. Major suburban projects to have commenced over the past two years have been anchored by state government pre-commitments as part of the government s office decentralisation mandate. One of the drivers of this decentralisation was high CBD and CBD fringe occupancy costs during the boom years. More recently this has been less of a motivator due to high office vacancy and lower occupancy cost in these central locations. Hence, we believe the likelihood of further decentralisation moves are low. This view is supported by recent distributed briefs requesting proposals from agents and landlords for space within the CBD and fringe for pending state government expiries. There is currently 41,520sqm of space under construction and scheduled for delivery over the next three years. Approximately half of this will be delivered in 2018, with projects being delivered in West Perth, Subiaco and Joondalup. The remaining 20,000sqm is located in Fremantle and scheduled for 2020 completion. 25 Balcatta Road, Balcatta Leased on behalf of Jarodi Pty Ltd Metro Office Research & Forecast Report First Half 2018 19

Research & Forecast Report NEWCASTLE Metro Office First Half 2018 By Peter Macadam Director Commercial peter.macadam@colliers.com Newcastle vacancy rates 30% 25% MARKET HIGHLIGHTS 20% 15% Lack of new supply drives vacancy rates lower 10% 5% Stock withdrawals continue as residential conversion/ redevelopment demonstrates highest and best use Value add opportunities in lower grade stock driving capital investment in the CBD Fully committed new supply keeps A grade office market vacancy outlook low The Newcastle and Charlestown markets provide commercial stock of 306,300sqm, with a combined vacancy of 9.20 per cent as at January 2018. In both markets, the A grade vacancy remains low due to the lack of new supply, with A grade vacancy rates of 6.4 per cent in Newcastle and 3.4 per cent in Charlestown. The A grade vacancy is forecast to fall further by January 2019 when the circa 10,100 square metre Gateway Stage II project is completed and added to the A grade stock. The PCA s Office Market Report shows Newcastle is performing well against all non-cbd office markets, with all markets that have a lower vacancy rate located in metropolitan locations. A grade vacancy has remained low as there is traditionally limited speculative development, with the recent development by DOMA Group of 18 Honeysuckle Drive an exception. Consequently, our net absorption is roughly at parity with new supply, with average A Grade net absorption since January 2009 of approximately 4,000m² per annum. A more vibrant CBD that is attractive to company CEOs and a skilled workforce, coupled with the pricing advantage and lifestyle offering, is anticipated to have a flow-on effect to the commercial occupier market. 0% Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Total A Grade B Grade C Grade D Grade Source: Colliers International/PCA OMR 2018 Stock withdrawals bolster lower grade building vacancies All grades in the Newcastle market have historically low vacancy rates which is not only a result of a diversified economy and business confidence, but aided by stock withdrawals. The impact of stock withdrawals is particularly evident when considering the lower C grade and D grade buildings, which have vacancy rates of 10.4 per cent and 8.3 per cent respectively. Value add opportunities in lower grade stock driving capital investment in the CBD There have been no notable investment transactions within the core Newcastle CBD since Colliers International transacted 51 55 Bolton Street, Newcastle in January 2017. Nonetheless, repositioning and value-add opportunities continue to be in high demand from syndicators and high net worth investors, particularly given the ongoing urban renewal. The construction of the light rail commenced in September 2017, with the government investment in fixed infrastructure considered a key driver in the urban renewal of the Newcastle CBD. Our project marketing team have evidenced unprecedented demand for apartment living, which has resulted in continued demand from national and local developers as the CBD is transformed with education, residential, commercial and retail development, complemented by attractive open public spaces. There has been a paucity of investment stock within the region, with the weight of investment capital increasing competition and maintaining yields at record levels. 20

Research & Forecast Report GOLD COAST Metro Office First Half 2018 By Helen Swanson Manager Research helen.swanson@colliers.com MARKET HIGHLIGHTS Lack of new supply drives vacancy rates lower Stock withdrawals continue as residential conversion/ redevelopment demonstrates highest and best use Value add opportunities in lower grade stock driving capital investment in the CBD Leasing market Vacancy continues to tighten The Gold Coast recorded a third consecutive period of declining vacancy from 11.3 per cent in July 2017 to sit at 10.6 per cent as at January 2018. This is the lowest vacancy recorded on the Gold Coast since July 2008. Vacancy declined across all grades over the six months to January 2018. A grade office has made significant improvement, declining from over 40 per cent in July 2010 and 18.7 percent in July 2016 to be at 8.9 per cent as at January 2018. B grade product has also come back from a record high of 20.7 per cent in July 2012 to sit at 10.9 per cent as at January. All precincts despite Bundall and Robina recorded a decline in vacancy over the six-month period to January 2018. The largest decline in vacancy occurred in the Surfers Paradise precinct where vacancy fell from 15.1 per cent in July 2017 to 11.9 per cent as at January 2018. Broadbeach recorded the tightest vacancy for the period at 6.6 per cent. Limited supply pipeline to keep vacancy at record lows 34 Glenferrie Drive, Robina also known as Lakehouse Corporate House (stage 2), Clarence Property Group are refurbishing the 2,744 sqm office building. The refurbishment is due for completion Q1 2018. 33 Scarborough Street, Southport also known as Kaybank Plaza, the 2,832 sqm office building is due for completion in Q4 2018. The only other office building in the Gold Coast supply pipeline is the The Base located at 197 Robina Town Centre Drive, Robina which is currently mooted. Investment market Fierce competition for office assets leads to further tightening of yields A grade office product possessing a long WALE are achieving on average initial yields of between 6.20 per cent and 7.75 per cent. Recent office sales on the Gold Coast include: Seabank Office Centre located at 12-14 Marine Parade, Southport and including nine level of A grade 8,492 sqm office accommodation the building sold for $34.05 million reflecting a capital value of $4,009 per sqm. Hope Island Central Neighbourhood and Office Centre sold for $42.85 million reflecting a yield of 8 per cent. The major tenant in the building is Queensland Education, which occupies 3,096 sqm of the centre s total net lettable area of 9,460 sqm. It is on a six-year lease with a similar option. Other tenants include service retailers, restaurants, and commercial businesses. 2 Corporate Court, Bundall sold for $89 million office building with net lettable area of 21,111 sqm to Cor Val. The purchase reflected a capital value of $4,215 per sqm. 68 Marine Parade, Southport also known as the BankWest Business Centre, a 1,525 sqm office building which sold for $10.5 million in mid-2017. Two refurbishments are due for completion in 2018. They include: Metro Office Research & Forecast Report First Half 2018 21

OUR EXPERIENCE METRO OFFICE LEASED 6 Chan Street Belconnen, ACT 29,340m² On behalf of Challenger 54 Wellington Street Collingwood, VIC 6,000m² On behalf of Grocon 1284 South Road Tonsley, SA 3,950m² On behalf of Renewal SA SOLD Ferntree Business Park 310-324 Ferntree Gully Road, Notting Hill, VIC $195 million On behalf of Goodman Fuji Xerox Building 8 Khartoum Road Macquarie Park, NSW $95.3 million On Behalf of Goodman 100 Wickham Street Fortitude Valley, QLD $83.8 million On behalf of Ascendas REIT MANAGED Ferntree Business Park 1 Acacia Place Notting Hill, VIC 38,800m² On behalf of MTAA Gateway 241 O Riordan Street Mascot, NSW 21,334m² On behalf of Fort Street Real Estate Capital 15 Blue Street North Sydney, NSW 16,145m² On behalf of Aqualand VALUED 1-11 Lexington Drive Bella Vista, NSW NLA 44,911.00m² Site Area 90,010m² On behalf of Westpac Banking Corporation The Zenith Centre 821-843 Pacific Highway Chatswood, NSW NLA 44,535.35m² Site Area 7,990.00m² On behalf of The Trust Company (Australia), Centuria Property Funds Limited and Westpac Banking Corporation ATO Dandenong 11-13 Robinson Street Dandenong, VIC 13,865m² On behalf of Cromwell Property Group TENANT ADVISORY, DESIGN OR PROJECT MANAGEMENT North Sydney, NSW Approx. 16,000m² On behalf of Nine Entertainment Co. Mulgrave, VIC Approx 4,500m² On behalf of Coles Macquarie Park, NSW Approx. 2,000m² On behalf of Apotex Accelerating success. How else can we help you? Speak to one of our property experts today. au.office@colliers.com