THE ANNUAL BROLL PROPERTY REPORT

THE ANNUAL BROLL PROPERTY REPORT THE RETAIL, OFFICE AND INDUSTRIAL S OCTOBER 1 MAXIMISING PROPERTY POTENTIAL OFFICES RETAIL INDUSTRIAL www.broll.co.za PART OF THE CB RICHARD ELLIS NETWORK

MESSAGE FROM THE CEO Market intelligence is what sets us apart. The global financial markets have been in turmoil for the past three years, and while there are indications of improving conditions, we re definitely not out of the woods just yet particularly on the property front. Still, in the face of tough conditions in many overseas markets, the local property sector has fared reasonably well and remains one of the better performers. There s still need for caution, however, as vacancies continue to rise and lease renewal rents are frequently below their expiry level. In tough and changing conditions such as these, access to the latest market data is often the catalyst to arriving at the right decision. But data is one component; having the people to translate that into usable information is quite another. In an ever-changing environment, yesterday s norms are no longer valid, and it s the people with the right intellectual capital who really add value. I m particularly proud of the calibre of people throughout our organisation and confident in their ability to deliver a valuable service to you. With operations in all major South African cities and branches across Africa, no other property group offers the breadth of inhouse market knowledge that we do. In addition, our association with CB Richard Ellis, the world s largest property services group, ensures we re able to offer our clients market information across all sectors and from around the globe. We re a service-focused organisation and our mission is to maximise your property s potential. I trust this report will contribute to and enhance that process. Malcolm Horne Chief Executive Officer October 1 THE ANNUAL BROLL PROPERTY REPORT 1

Contents... 2... 3... 4 The Retail Property Sector The Office Property Sector The Industrial Property Sector The Development Property Market...14 -...16 Social Economic Environment THE ANNUAL BROLL PROPERTY REPORT 1 1

Overview The SAPOA/IPD South African Property Index for revealed that many commercial real estate markets have fallen into negative territory over the past two years, including those in the USA, France, Australia, New Zealand and Ireland. Significantly, South Africa was one of few countries to show positive property returns in. From a business viewpoint, the recovery from the global recession will remain bumpy and not as robust as we would like. The effects of the Euro crisis may lead to financial markets reacting in fear and not on economic fundamentals, and investors and leasing tenants could follow suit. On a positive note, the latest data shows an increase in global transaction volumes. Retail property in South Africa is expected to come out of the recession faster than industrial properties and offices, with the Office Property Sector predicted to be the last to recover. Tenant incentives remain a strong focus in retaining existing office tenants. Statistics indicate that manufacturing output is improving, and this should factor through to demand for industrial space in the remainder of 1 and 11. Looking to the future, the property sector is hopefully set to benefit from the improvements in transport and infrastructure as a result of the 1 FIFA World Cup TM, and South Africa will remain in the global spotlight with potential increases in capital investments. The market has started to stabilise but conditions will remain uncertain for some time to come. 2 THE ANNUAL BROLL PROPERTY REPORT 1

As the extent of the economic crisis deepened through and, the negative impact on commercial property throughout the world became more pronounced. The world s financial capitals, including New York and London, were the first to feel the economic slowdown. Global property returns have continued their downward trend, with the exception of retail property, which has remained stable since, as illustrated in the graph below. According to CB Richard Ellis, the take-up of office space in London showed a sharp increase during the first quarter of 1 as a result of the spike in movement in the City financial district. As is the case in South Africa, the leasing market is supported by larger numbers of small- to medium-sized transactions. The consolidation of space and its efficiency remain the dominant factors in leasing decisions. In London and Paris increased demand is becoming a more significant driver. CB Richard Ellis June 1 Global MarketView characterised global economies as improving, but bumpy, and while statistics have proven that market movement is in a positive direction, it won t be a smooth and uninterrupted path. Invariably, global property investors remain risk averse and investment in property will only gradually strengthen during the course of 1 and 11. Global research has shown that South Africa has weathered the sub-prime crisis and financial meltdown better than many other economies, as indicated in the graph below. This can be attributed partly to its limited exposure to the UK and US, combined with the strong levels of public-sector infrastructural expenditure that maintained momentum in the construction sector. Observers across the world seem to agree that both the investment and leasing markets are starting to stabilise.in some markets the pricing has not only bottomed but yields and capitalisation rates have started to improve. As a result, properties can be priced on a more reasonable outlook. Global Property Returns Total Commercial Property Returns 3 15 25 1 5 % -5 % 15 1 5-1 -5-15 1998 1999 1 2-1 1998 1999 1 2 Retail Office Industrial Global South Africa Source: IPD THE ANNUAL BROLL PROPERTY REPORT 1 3

The South African Property Market The ripple effects from the recession did not leave African economies unaffected. South Africa entered a recession in and the economy has only started to move out of recessionary conditions. The South African economy is dominated largely by Johannesburg, Cape Town and Durban. It is estimated that these three cities make up approximately 64% of the national GDP and they are responsible for around 86% of total nonresidential building activity. In recent months, prospects for the South African economy have improved. Economic growth for 1 is expected to reach 2.7% and to accelerate to 3.5% in 11. Infrastructure spend, which underpinned the economy in and, declined during the course of 1, but at the same time there are numerous electricity- and transportrelated capital-expenditure projects that will continue in the medium term. The economy has seen direct and indirect benefits associated with the hosting of the 1 FIFA World Cup TM. The event significantly accelerated the provision of infrastructure such as airports and transport at city level and this has opened new opportunities in the commercial and residential property sectors. Economic Growth of South Africa 7 6 5 4 3 % 2 1-1 -2-3 1998 1999 1 2 1 11 Actual Forecast Source: BER 4 THE ANNUAL BROLL PROPERTY REPORT 1

South African Macro-Economic Data GROWTH DATA a a a a a a 1f 11f GDP (% y/y) 4.73 5.28 5.6 5.49 3.69-1.8 2.7 3.5 Consumption growth (% y/y) 12.65 19.37 16.2 1.98-7.11-11.22 1.65 3.6 Current account balance (% of GDP) -3. -3.45-5.3-7.15-7.1-3.92-3.6-4.5 INFLATION DATA Headline CPI (% y/y) annual avg. 1.4 3.4 4.6 7.1 11.5 7.14 5.8 5.73 PRIME RATES Prime (average) 11.29 1.63 11.17 13.17 15.13 11.71 1.5 11.25 EXCHANGE RATES $/R (average) 6.45 6.36 6.77 7.6 8.25 8.43 7.75 8.3 /R (average) 11.81 11.57 12.5 14.12 15.13 13.12 12.38 13.58 a=actual; f= forecast; The CPI headline number from constitutes a reconfigured basket. Source: BER Short-term prospects for the South African property market will be driven largely by conditions in the macro-economic environment, investor confidence, and the availability of infrastructure. Although economic forecasts suggest a strengthening of economic growth prospects, the pace of this growth remains uncertain. Returns in the property sector have come under pressure from high vacancy rates, and from rising operating costs, which property owners often have to absorb. As indicated by the graph below, operating costs increased by approximately 21% for the period -. Research conducted concludes that operating costs of buildings remained fairly stable for the first quarter of 1. This has been achieved on the back of a concerted effort to improve efficiencies and reduce costs. Operating Costs 3 25 % 15 1 5-5 -1-15 1998 1999 1 2 Retail Office Industrial Source: IPD THE ANNUAL BROLL PROPERTY REPORT 1 5

However, further increases are expected due to the increase in electricity, security and cleaning costs. The 18.7% and 28.9% average electricity tariff increases, which came into effect on 1 April for non-municipal users and 1 July at the municipal level respectively, will invariably have a negative impact on property returns through a rise in operating costs across the board. They will also prompt extra expenditure on capital requirements necessary to reduce energy usage, making it crucial for landlords to implement effective facility management policies. In addition municipal rates increases are another cost that are impacting on the capital growth potential of properties. In the case of the City of Johannesburg, assessed rates and taxes on business and commercial properties have increased 28% from June to June 1 with a further 12% increase to June 11. In Cape Town s case while the rate in the Rand has remained stable, new municipal valuations have caused a general increase in assessed rates depending on the new value of the building. Total returns, as illustrated in the table below, have remained positive and have managed to surpass the long-bond rate and the inflation rate. Total Return per Sector (%) SECTOR 2 Retail 11. 17.3 26.2 33. 27.4 26. 11.1 8.8 Office 5.1 8.9 16.6 24.5 24.5 3.8 14. 8. Industrial 8.8 17.7 24.4 33.1 31.1 33.6 18.1 8.7 All Property 9.6 15.3 23.4 3.1 26.7 27.7 13. 8.7 Source: IPD It should be stressed that returns in the Retail Property Sector started to decline in as a result of rising interest rates and a decline in consumption expenditure. The 8.7% overall return in was due to a relatively stable yield and positive capital growth, although at a marginal.3%. All Property Total Return 3 25 % 15 1 5-5 1998 1999 1 2 Capital Growth Income Return Source: IPD 6 THE ANNUAL BROLL PROPERTY REPORT 1

The graph below clearly indicates an increase in vacancies across all property types since, coinciding with the start of the recession. Vacancies continue to increase, albeit at a slower pace. June was an exceptionally quiet month for leasing activities, largely because of the 1 FIFA World Cup TM that took place during the month. Average Monthly Vacancies 25 % 15 1 5 1998 1999 1 2 Retail Office Industrial Source: IPD The Retail Property Sector The Retail Property Sector as a whole remains under considerable strain from highly indebted households and weak consumption expenditure, but some sub-sectors are performing better than others. A considerable amount of retail space came on line towards the end of and into in a less-than-favourable economic climate for consumers. The sector is, however, benefiting from lower building activity, which should assist in bringing it back into equilibrium. The latest figures from Statistics SA for retail plans passed during show a decline of 15% compared to the same period in. The townships in and around Johannesburg are rapidly becoming vibrant nodes. However, a number of retail developments have achieved mixed results, and the focus remains on the decentralised retail opportunities. Established regional retail developments continue to perform, while newly developed, community and smaller centres are feeling the strain due to the decrease in consumer spending. SHOPPING CENTRE TYPE CAP RATE (%) Super regional >1 m 2 7.5 Regional 5 1 m 2 8. Small regional 25 5 m 2 8.75 Community centres 12 25 m 2 9.5 Source: Broll Retail Rentals (R/m 2 /month) STREET FRONT SHOPPING CENTRES (Q2) (Q2) 1 (Q2) (Q2) (Q2) 1 (Q2) Johannesburg 3 325 27 3 45 395 Durban 4 235 175 5 425 37 Cape Town 375 3 245 475 35 295 These rentals are gross and reflect prime 8 to 1m 2 space. Source: Broll THE ANNUAL BROLL PROPERTY REPORT 1 7

Vacancies in the Retail Property Sector have increased since the beginning of. This has coincided with a levelling-off of rentals received, as shown in the graph below. Retail rentals continue to be under major pressure, and research shows that tenants in retail developments completed during the recession are finding trading conditions difficult. Retail Vacancy Rate Compared to Gross Retail Rentals Rental per m 2 per month (R) 14 1 1 8 6 4 8 7 6 5 4 3 2 % 1998 1999 1 2 Vacancy Rates Gross Retail Rentals Source: IPD With little new regional retail space having come on the market recently the approximately 85 m 2 Galleria Centre in KwaZulu-Natal is the largest landlords are taking the opportunity to refurbish and upgrade existing premises in order to maintain and improve market share. The Blue Route Mall in the Western Cape and Sandton City Shopping Centre in Gauteng are two examples. Retailing has a far more homogenous approach to it than any other sector of the property market, with national chains accounting for the vast majority of tenanted space in large regional malls. Consequently, the retail offering is similar across the country, with minor changes made to account for local requirements. The Office Property Sector The South African Office Property Sector is possibly the most vulnerable to present conditions in the property market. It will also most probably be the last sector to enter the recovery phase. Most office building owners are focusing on retaining tenants through incentives such as rent-free periods, as well as offering reduced rentals on lease expiry. Vacancy rates in all sectors of the Office market increased during (see graph below), except for CBD vacancies, which declined slightly in the fourth quarter of. There are some indications, however, that the supply of new office space has levelled off and that vacancy rates could start to decline during the remainder of 1. All Office Vacancies 3 25 % 15 1 5 1998 1999 1 2 All office Gauteng All office Kwazulu-Natal All office Cape Town Source: IPD 8 THE ANNUAL BROLL PROPERTY REPORT 1

As the graph below indicates, CBD office rentals showed consistent growth through to early after which they entered into a period of stagnation. Decentralised nodes were affected even earlier with rentals stabilising mid and only the Pretoria market continuing to show gains through to early. While the Sandton and Umhlanga nodes have maintained rentals, both Pretoria and Cape Town have declined in the first half of 1. The nature of the South African rental market is such that leases generally include automatic annual escalations and therefore observers would expect annual growth. While figures for rental growth may not always accurately reflect market sentiment, the fact that rentals are stagnant indicates a clear softening in prices achieved. CBD Office Rentals 1 Rental per m 2 per month (R) 8 6 4 1 Johannesburg Durban Cape Town Pretoria These rentals reflect prime A-grade space, there can be significant differences for B-grade space. Source: Broll Decentralised Office Rentals 16 Rental per m 2 per month (R) 14 1 1 8 6 4 1 Sandton & Environs Umhlanga/La Lucia Century City Menlyn These rentals reflect prime A-grade space, there can be significant differences for B-grade space. Source: Broll CAPITALISATION RATES RANGE Premium Offices 8.25% 8.5% Offices A-grade 8.75% 9.5% Offices B-grade 9.5% 1.5% Source: Broll THE ANNUAL BROLL PROPERTY REPORT 1 9

Rising vacancy rates and stagnant rental growth have resulted in a weakening of capitalisation rates in the past two years. It is estimated that capitalisation rates in the Office Property Sector weakened by some 1- basis points during the course of. An analysis of recent figures, however, suggests that this trend may have levelled off, reflecting improved future investor expectations. The office stock measured by SAPOA suggests that the stock of A- and B-grade office space is geographically divided as illustrated in the chart alongside. Total Office Space in Each Major South African City 8 11 174m 2 1 211 477m 2 2 659 734m 2 2 3 29m 2 Johannesburg Durban Cape Town Pretoria Source: SAPOA The Johannesburg property market has in the past two years suffered from rising vacancy rates; in certain nodes, vacancy rates have passed the 1% mark and rentals continue to come under pressure. The city is the country s financial capital and continues to play its role as the driver of South Africa s economy. Undertakings such as the Inner City Regeneration Charter and those by the Johannesburg Regeneration Initiative have seen at least R7.5 billion-worth of private investment since 1. Interventions such as the Rea Vaya Bus Rapid Transport project and the Gautrain railway system are connecting nodes within the metropolitan area, offering exciting new development opportunities. The inner city has experienced significant transformation in recent years and now caters for a broader spectrum of commercial and residential users. Cape Town office rentals have remained flat, with tenants opting to stay in their current space. The Cape Town Partnership and the Central City Improvement District have been successful in focusing on basic urban-management issues and crimeprevention strategies to provide a clean and safe environment to attract investment. There is also growing integration between the CBD and the V&A Waterfront. In Pretoria, rental trends remain strong in the Office Property Sector, especially in high-demand decentralised nodes such as Brooklyn and Menlyn. The city s property market is rapidly developing in an easterly direction and remains underpinned by the public sector. The growth of the city has been focused largely around the central core serving the needs of Government, while growing radically along the major movement lines where nodal points are situated. Cape Town s decentralised nodes continue to attract residents, office tenants and retailers, with Claremont and Tyger Valley representing the most prominent. In terms of newer developments, Century City has now established itself as a popular mixed-use node. Invariably, tourism remains an important driving force in the city and underpins the development of hotels and touristrelated projects. Yet, in line with international trends, the city is shifting towards the services sector, with the largest areas of growth being finance, business services, trade, catering, accommodation, tourism, transport and communication. 1 THE ANNUAL BROLL PROPERTY REPORT 1

An acute shortage of office space in the greater Durban area during the latter part of has stabilised somewhat, with a number of new projects completed or well into the construction phase. The Durban North, La Lucia and Umhlanga decentralised nodes have all experienced strong demand and their proximity to the King Shaka International Airport can only maintain a level of demand. The upgrading and refurbishment of CBD properties continues and the stock of A- and B-grade space has been on the increase. However, demand for parking outstrips supply in most cases. There is a continuing trend of conversion from offices to mixed-use developments, with sectional-title opportunities for both residential and office use. This increased activity has been supported by the recent completion of a R-million upgrade to Durban s Golden Mile. The historical city centre of Port Elizabeth has been under threat for some years, owing to the movement of commercial activities to the suburbs. There is still an oversupply of office space in the CBD and rentals remain under pressure. Vacancies are slowly being filled by Government and municipal departments. The Integrated Beachfront Development Plan, which focuses on the 25 km stretch from St George s Strand in the north to Flat Rock in the south, aims to maximise the strengths and opportunities of the area and to prevent unplanned ad-hoc development. The Industrial Property Sector One of the leading indicators for the Industrial Property Sector is the performance of manufacturing output. Data provided by Statistics SA for factory output suggests that conditions are improving. Figures for April 1 suggest a year-on-year growth in manufacturing output of 8.8%, up from 6.8% in March. In May 1 growth was marginally down at approximately 8%. Proposals in the latest National Budget suggest that Government will be implementing a broad-based industrial policy. Strategies announced aim to increase South Africa s competitiveness in the global manufacturing sphere and the ability for South Africa to compete internationally. If successful, this could have a significant impact on demand for industrial and manufacturing space. According to the May 1 SAPOA Industrial Vacancy Survey, vacancy rates for industrial property continued to worsen during the second half of. The national average vacancy rate was 6.7% as at December, up from both the 3.7% level as at June and the average of 2.6%. This represents the highest vacancy level for industrial property since 2. At provincial level, vacancy rates stand at 7.1% for both Gauteng and the Western Cape, and at 3.1% for KwaZulu-Natal. Building activity in the Industrial Property Sector remained under pressure in. In square metres, plans passed declined by 23.3% compared to. It is likely that supply will remain subdued in 1 and that a real improvement in demand will be reflected in the market only in the last quarter of the year or in 11. Rentals in the Industrial Property Sector are beginning to reflect accurately the difficult economic conditions of the past and indeed the present. The beginning of 1 saw a turnaround, with substantial contractions in rentals, possibly due to defaulting tenants or rent negotiations having taken place. THE ANNUAL BROLL PROPERTY REPORT 1 11

Industrial Rental Midi Units (1 1-2 m 2 ) Rental per m 2 per month (R) 8 7 6 5 4 3 1 2 1 Johannesburg (Longmeadow) Durban (Riverhorse Valley) Cape Town (Airport City) Rentals reflect prime industrial space with an office component of up to 1%. Source: Broll There is evidence that, depending on the quality of properties, capitalisation rates can range between 8.75% and 9.5% for prime space, and 9.75% and 11.% for secondary space, respectively. The Johannesburg Industrial Property Sector has seen mixed results, with rental increases not surpassing the inflation rate, although overall rentals are increasing. The Tshwane metropolitan area has a strong manufacturing sector, particularly the automotive industry and metal production. Notwithstanding the importance of the automotive industry, Pretoria has started to transform its economy in terms of the Smart City Programme and has undertaken numerous urban-renewal projects. Cape Town industrial rentals and land prices have remained stable since, when a correction in prices occurred. Vacancies have increased slightly since the beginning of 1, due largely to consolidation of space and smaller units coming back on the market. Although Durban has in the past been driven largely by the logistics and automotive sectors, the city economy is increasingly diversifying into other sectors, such as chemicals, finance and real estate. The urban core, areas south of the city and Umhlanga are the major investment drivers of the local economy, but numerous interventions are stimulating real estate activity in and around the Harbour, Jacobs, Mobeni and Cato Manor. The emergence of Riverhorse Valley as a prime distribution hub has had a positive impact on rentals in surrounding areas. The King Shaka International Airport is set to have a major impact on the KwaZulu-Natal economy and the Durban property market. The airport acts as a trade port as well as a passenger terminal, which has already resulted in greater demand for locations near the airport to realise transport cost savings. The Port Elizabeth and East London nodes continue to be driven by an industrial base that is underpinned by the motor-manufacturing sector and a well developed automobile supplier network. The challenge remains to diversify the local economy and this is being driven through the development of the East London Industrial Development Zone and the Coega Development in Port Elizabeth. 12 THE ANNUAL BROLL PROPERTY REPORT 1

Total Building Plans Passed 2 5 2 m 2 1 5 1 5 Retail Office Industrial Source: Statistics SA The Development Property Market Overall, development activity responded to the economic downturn and began to slow in late and during most of. The latest Statistics SA building statistics, released in April 1, depict a drop of 23.4% yearon-year in the value of building plans passed for nonresidential buildings. Meanwhile, a drop of 3.1% was registered in the value of building plans passed for residential buildings. In terms of building plans completed, non-residential buildings saw a year-on-year decrease of 14.7% for the period January-April 1; this decrease highlights the slowing of 1 FIFA World Cup TM -related developments. The BER Building Cost Index, a leading indicator of building costs based on tender prices, shows that the growth of building costs began to decline at the end of, before entering negative territory in the fourth quarter of, when building costs contracted by -7.6%. This was followed by marginal growth of 2.6% in the first quarter of 1, then negative growth of -8% in second quarter of 1, which reflects the slowdown the construction industry is currently experiencing. BER Building Costs 25 15 % 1 5-5 199 1992 1994 1996 1998 2 1 1998 1999 1 2 Source: BER THE ANNUAL BROLL PROPERTY REPORT 1 13

The African Property Market While the global recession has had a negative influence on property-related investment across the African continent, there are strong signs that African economies are benefiting from rapidly developing telecommunications, mineral extraction and the energy sector. Oil and gas revenues have helped to fuel government spending on infrastructure, which is often required for property developments to occur and for the property sector to prosper. Political and economic reforms in many African countries are being well received by investors. Inflation has been brought under control, which in turn has stabilised interest rates. African economies are also seeing the benefits of continued integration into the global economy. Added to this, the World Bank s new Infrastructure Recovery Assets (INFRA) Fund and the Infrastructure Crisis Facility (ICF) have played an important role in stimulating infrastructural expenditure. African cities such as Lagos and Luanda continue to show significant growth and offer opportunities in the residential as well as commercial property markets. The African Development Bank expects that economic growth in Africa could rise from 2.3% in to 5% in 1 and to 7% in 11. South Africa, Nigeria and Kenya have been highlighted as the three countries expected to spur Africa s recovery. A number of South African property companies, especially in the Retail Property Sector, are venturing into Africa. Demand for shopping malls has triggered significant projects in Nigeria and Ghana. Many of these developments are anchored by South African retailers such as Shoprite and Game. A number of international hotel groups are expanding their footprint across the African continent. Much of the development focus across Africa remains in the Residential Property Sector and is often undertaken in conjunction with public-sector entities. While opportunities remain considerable, developers are often faced with complicated land-rights issues, poor infrastructure and high building costs. Market commentary from across the continent suggests that although African property markets have largely escaped the global recession, the pace of retail developments may have suffered somewhat from a lack of available finance, changing perceptions of risk, and possibly some pressure on consumption expenditure. 14 THE ANNUAL BROLL PROPERTY REPORT 1

Market Indicators RETAIL OFFICE INDUSTRIAL Rent/m 2 (R) Cap rate (%) Vacancy (%) Rent/m 2 (R) Cap rate (%) Vacancy (%) Rent/m 2 (R) Cap rate (%) Vacancy (%) Ghana 269 8 5 231 1 1 77 12 15 Kenya 11 2 7 9 5 13 1 Malawi 154 7 1 69 8 1 31 1 1 Namibia 223 9 5 123 1 1 62 12 1 Nigeria 6 9 15 538 14 38 8 n/a Source: Broll With the exception of Nigeria, the forecast for market conditions is positive for all these African countries, as illustrated below. Most are expecting an increase in retail and office rental trends, while industrial rental trends tend to be more erratic, with only Ghana expecting an increase. The development pipeline is scheduled to continue in Kenya, Malawi and Ghana. MARKET CONDITIONS RENTAL TRENDS DEVELOPMENT Present Future (6 Months) Sentiment Indicators Office Industrial Retail Ghana Kenya Malawi Namibia Nigeria Stable Increasing Decreasing Source: Broll THE ANNUAL BROLL PROPERTY REPORT 1 15

The Long-Term View The long-term prospects for the South African property sector will be influenced by social, economic and environmental drivers. Each of these poses threats and opportunities. Social South Africa s commitment to a more inclusionary society offers significant opportunities for mixed-use developments. However, the future of the country s built environment continues to be closely associated with the strength of local government delivery. South Africa is expected to continue seeing rising urban population growth. It is estimated, for instance, that the population of the Gauteng City Region could rise from the present population of 1 million to million by 45. At the same time, the country s relatively high unemployment rate remains a concern and it is critical that South Africa secures the skills to maintain a high economic growth path. Economic The South African economy remains robust, served by strong and well-functioning manufacturing, financial sectors and world demand for commodities. Infrastructural projects funded by the public sector have sustained the economy in the medium term and are creating the basis for economic growth in the long term. Future growth prospects will be influenced by the ability to create flexible financial and labour markets. The benefits of the recent massive infrastructure outlays will only become apparent in the long run. The future of the built environment relies on good roads, reliable service delivery and a functioning public transport system. It is expected that the supply of electricity will remain an issue. Not only will interrupted supplies impact on the operation of buildings, but shortages or inadequate capacity could have a negative impact on economic activity. Environment Imminent legislation making environmentally friendly building systems mandatory is forcing the industry to take a closer look at green technology and how best to incorporate it into their buildings. However, an environmentally friendly building is an expensive undertaking, and at the moment most in the property industry feel this cost is too high for the related benefits. The first major green initiative in the property and building industry in South Africa is the Green Star rating system. This system rates buildings on their environmental friendliness by considering various components that make up a building and its operation. According to the Green Building Council of South Africa, the Green Star rating system sets out a menu of all the green measures that can be incorporated into a building to make it environmentally sound. The desired result is that a good Green Star rating will eventually add value to a building. This, as well as the recent Eskom hikes, has made utilities within a building a top priority for developers and building managers alike. 16 THE ANNUAL BROLL PROPERTY REPORT 1

Broll Research Our research department focuses on providing clients with knowledge-based research on the retail, office and industrial property sectors. Broll Research specialises in converting property data into useful market knowledge. We pride ourselves on the fact that we add value to our clients portfolios, hence empowering them to make well informed decisions and improve the performance of their investments. Broll Research uses the comprehensive databases of buildings under Broll s management, as well as the Broll Broking database of actual deals concluded in various markets, as the basis of all our research. For further information please contact Sanett Uys at suys@broll.co.za. References: Broll Research, African Development Bank (ADB), South African Property Owners Association (SAPOA), Independent Property Databank (IPD), South African Reserve Bank (SARB), Statistics South Africa (StatsSA). Indicator used as at 2 June 1 and according to Universal Currency Converter (http://www.xe.com/ucc/): $1(USA) = R7.68727 (ZAR) R1 (ZAR) = $.1385 (USA) Contacts Offices National Broking Dave Alcock 11 441 44 dalcock@broll.co.za Valuations Roger Hunting 11 441 4853 rhunting@broll.co.za Retail Leasing and Consulting Dave Bennie 21 446 2511 dbennie@broll.co.za Corporate Real Estate Services Ken Gerber 11 441 41 kgerber@broll.co.za Facilities Management Mike Maycock 11 441 455 mmaycock@broll.co.za Property Management Malcolm Horne 11 441 435 mhorne@broll.co.za Research Sanett Uys 21 419 7373 suys@broll.co.za SOUTH AFRICA Johannesburg Broll House, 27 Fricker Road, Illovo 2194 Tel: 11 441 4 Fax: 11 441 42 Bloemfontein 1st Floor Office C12, Middestad Centre, Wesburger Street, Bloemfontein 931 Tel: 51 447 62 Fax: 51 448 291 Cape Town 14th Floor, The Terraces, 34 Bree Street, Cape Town 81 Tel: 21 446 25 Fax: 21 419 4688 Durban 2nd Floor Podium, John Ross house, 22/23 Margaret Mncadi Ave, Musgrave, 41 Tel: 31 362 17 Fax: 31 337 36 Port Elizabeth Broll House, 73 Second Avenue, Newton Park, Port Elizabeth 645 Tel: 41 363 5559 Fax: 41 363 3388 Pretoria 2nd Floor, Hatfield Forum East Building, 177 Arcadia Street, Hatfield 83 Tel: 12 431 718 Fax: 12 431 718 AFRICA Nigeria 1th Floor, The Octagon, 13A AJ Marinho Drive, Victoria Island, Nigeria Tel: 234 1 27 189 Fax: 234 1 27 1889 Namibia Zanlumor Building, 2nd Floor, Post Street Mall, Windhoek, Tel: 264 61 374 5 Fax: 264 61 237 499 Ghana 7th Floor, Ridge Tower, 6th Avenue, Ridge Tel: 233 21 669 852 Fax: 233 21 673 516 Malawi Suite A, Ground Floor, Kabula House, Blantyre Tel: 265 1 834 311 Fax: 265 1 834 336 African Liaison Leonard Michau 11 441 4 lmichau@broll.co.za Disclaimer Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by Broll Property Group clients, and cannot be reproduced without prior written permission of Broll Property Group. THE ANNUAL BROLL PROPERTY REPORT 1

THE ANNUAL BROLL PROPERTY REPORT THE RETAIL, OFFICE AND INDUSTRIAL S OCTOBER 1 MAXIMISING PROPERTY POTENTIAL OFFICES RETAIL INDUSTRIAL www.broll.co.za