appd 3 q2011

Asia Pacific Leading Global Rental Growth

Asia Pacific Property Digest Third Quarter 2011

Dear Reader,At the end of Q3, most real estate markets in Asia Pacific remain in the upturn phase of the cycle. Solid activity levels continue to drive increases in rents and capital values in most locations although growth momentum is starting to slow. Over the next 12 months, the regional economy is expected to grow more than twice as fast as the rest of the world and this growth should continue to underpin property market activity.You can also view this report as an on-line version at www.joneslanglasalle.com/thehub where you will also find our other research reports, property market indexes, clocks and research blogs.Happy reading! Best regards,

Dr Jane Murray Head of Research – Asia Pacific

Asia Pacific Property Digest • Third Quarter 2011 �

Cover picture: China World Tower, Beijing

Feature ArticlesAsia Pacific Economy and Property Market 4Asia Pacific CEO Commentary 8Taiwan – Opening Doors to Mainland China 10Singapore – New Residential Stock 12India – Public Private Partnership 14Australia – Online Retail Boom 16Office Tokyo 18 Osaka 19 Seoul 20 Beijing 21 Shanghai 22 Guangzhou 23 Hong Kong 24 Taipei 25 Bangkok 26 Ho Chi Minh City 27 Manila 28 Kuala Lumpur 29 Singapore 30 Jakarta 31 Delhi 32 Mumbai 33 Bangalore 34 Chennai 35 Sydney 36 Melbourne 37 Brisbane 38 Adelaide 39 Auckland 40

RetailBeijing 41 Shanghai 42 Guangzhou 43 Chengdu 44 Hong Kong 45 Bangkok 46 Kuala Lumpur 47 Singapore 48 Jakarta 49 Delhi 50 Mumbai 51 Bangalore 52 Chennai 53 Australia Sub-Regional 54 Auckland 55ResidentialBeijing 56 Shanghai 57 Hong Kong 58 Macau 59 Bangkok 60 Kuala Lumpur 61 Manila 62 Singapore 63IndustrialTokyo 64 Beijing 65 Shanghai 66 Guangzhou 67 Hong Kong 68 Singapore 69 Sydney 70 Melbourne 71 Brisbane 72

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� Asia Pacific Property Digest • Third Quarter 2011

The Asia Pacific economy continues to outperform the rest of the world and recent economic indicators show that activity levels generally remain solid. However there is mounting evidence, including the first GDP results for Q3, that growth momentum is starting to slow. This is due to a range of factors including the ongoing sovereign debt crisis in Europe, sluggish activity in the US and previous tightening measures by countries in our region. This situation has started to impact regional export growth as well as domestic activity including industrial production.

Growth still solid in most countriesChina: Real GDP grew by 9.1% y-o-y in 3Q11, slowing from the 9.5% recorded in the previous quarter. Retail sales grew by a more moderate 11.3% y-o-y in real terms in the first nine months. The latest data indicates a further slowing in growth momentum although we do not expect a hard landing as a result of the government’s various policy measures to prevent overheating of the economy. IHS Global Insight (GI) expects China’s economy to grow by 8.1% in 2012. This represents a moderate slowdown from projected growth of 9.3% in 2011 due to both slower external and domestic demand.

India: The economy expanded by 7.7% y-o-y in 2Q11, similar to the 7.8% growth in 1Q11, as faster growth in manufacturing output helped offset a slowdown in the agricultural sector. GI expects India’s real GDP to grow by 7.7% in 2012, similar to a projected 7.5% in 2011, as generally vibrant consumer spending should help to offset slowing exports and investment spending.

Asia Pacific EconomyOutperformance Expected to Continue

Indonesia: Real GDP grew by 6.5% y-o-y in 3Q11, the same as the previous quarter, on the back of strong exports and investment spending. GI is forecasting slightly lower growth of 6.3% for the full year 2011 and 5.7% for 2012. Indonesia is one of the least vulnerable economies in Asia to slowing export demand and its economy should continue to benefit from strong domestic demand.

Japan: Real GDP contracted by 1.1% y-o-y in 2Q11, similar to the previous quarter, following the disruption to production and exports caused by the March earthquake and tsunami. The latest data indicate some ongoing weaknesses, with industrial production declining by 4.0% y-o-y in September while retail sales fell for the second straight month. However GI predicts that, following a contraction of 0.6% this year, the Japanese economy will rebound by 2.7% in 2012 due largely to the reconstruction efforts.

Australia: The economy returned to positive growth in 2Q11, after contraction in the previous quarter induced by natural disasters in Queensland which disrupted mineral exports. However, retail spending has been growing at well below trend levels and the unemployment rate has edged up in the past six months. For 2011, full-year growth of 1.7% is expected. Growth is forecast to strengthen to 3.2% in 2012, supported by mineral and agricultural exports and related investment spending.

Singapore: Real GDP growth accelerated to 5.9% y-o-y in 3Q11 (+1.0% y-o-y in 2Q11), based on advance estimates, with growth picking up in the volatile manufacturing sector. GI expects real GDP

Dr Jane MurrayHead of Research – Asia Pacific

Figure 2: Consumer Price InflationFigure 1: Real GDP Growth

Source: IHS Global Insight, October 2011 Source: IHS Global Insight, October 2011

China India

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to grow by 4.4% in 2012, similar to this year’s pace, as domestic demand should help to offset weaker export growth.

South Korea: The economy expanded by 3.4% y-o-y in 3Q11, the same as 2Q11, as more government spending helped to offset a softening in consumer spending. GI expects real GDP growth to moderate from 3.5% this year to 1.6% in 2012, mainly due to slower export growth.

Hong Kong: In 2Q11, economic growth moderated to 5.1% y-o-y (7.5% y-o-y in 1Q11), slightly above the ten year average of 4.1%. In September, retail sales grew by a very strong 24.1% y-o-y, although down from the 29.0% recorded the previous month. GI expects real GDP growth to moderate from 5.2% in 2011 to 4.5% in 2012, mainly due to slower export growth.

Policy tightening has probably come to an endInflationary pressures remain high in many countries. In September, China’s CPI inflation rate moderated slightly to 6.1% y-o-y, while in India wholesale price inflation remained at 9.7% y-o-y. Most regional central banks have been in the process of raising interest rates or

implementing other tightening measures since 3Q09. However, given the more challenging economic environment that has emerged in recent months and the likelihood of moderating inflationary pressures, further policy tightening in the current cycle is now looking unlikely. Indeed, some monetary loosening has already been implemented, with Australia and Indonesia cutting interest rates by 25 bps in early 4Q11.

Regional economy should continue to outperform There’s no doubt that the world is facing more challenges as we move towards 2012. However, at this stage we believe that a global recession will be averted and that Asia Pacific will continue to outperform next year. The region has strong structural drivers, low levels of indebtedness and policy flexibility should conditions worsen.

According to GI, Asia Pacific should grow by 4.6% this year, significantly above the rest of the world at 2.6%. In 2012, the region is expected to grow by a slightly faster 5.4% as a moderate slowdown in emerging economies including China should be offset by stronger growth in the advanced economies of Japan and Australia. By contrast, the rest of the world is projected to grow by 2.2% next year.

Key Performance Indicators

GDP (%) Short-Term Interest Rate (%)

CPI (%) Unemployment Rate (%)

Real Private Consumption (%)

Industrial Production

2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F

China 9.3 8.1 6.4 6.4 5.6 4.1 4.1 4.1 8.2 8.2 13.5 11.4

Hong Kong 5.2 4.5 0.2 0.2 5.0 3.8 3.4 3.1 6.8 4.8 NA NA

Taiwan 4.6 4.4 0.7 1.0 1.5 1.5 4.4 4.1 3.5 3.0 7.3 6.9

Japan –0.6 2.7 0.2 0.2 0.2 –0.6 4.7 4.6 –0.8 1.8 –1.4 12.9

South Korea 3.5 1.6 3.4 3.8 4.0 2.0 3.6 3.8 2.8 3.5 7.0 2.0

Philippines 4.6 5.0 1.4 2.2 4.7 4.2 7.2 7.2 5.3 5.3 5.6 5.2

Singapore 4.5 4.4 0.3 0.6 4.9 2.9 2.5 2.7 4.8 3.0 5.9 5.0

Malaysia 4.0 3.7 2.9 2.9 3.2 2.9 3.1 3.2 6.0 5.4 0.6 3.3

Thailand 3.1 3.6 2.8 3.4 3.9 4.0 0.7 0.9 3.1 3.7 –1.0 6.0

Indonesia 6.3 5.7 6.8 6.6 5.5 4.7 6.7 6.5 4.8 4.9 4.3 3.7

Vietnam 5.9 5.8 14.5 10.8 18.7 8.5 2.9 3.0 6.6 7.0 13.0 9.9

India 7.5 7.7 9.8 11.0 8.5 7.0 9.6 9.5 7.5 7.1 5.8 5.7

Australia 1.7 3.2 4.9 5.0 3.4 2.8 5.2 5.3 3.2 2.5 –2.6 2.9

New Zealand 1.6 3.0 2.7 3.3 4.3 2.1 6.3 5.6 1.9 2.5 2.8 1.9

World 3.0 3.0 3.2 3.3 4.1 3.1 8.4 8.3 2.5 2.7 4.1 4.3

Source: IHS Global Insight, October 2011

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The property markets in Asia Pacific continue to see positive underlying fundamentals, despite more economic uncertainties. At the end of Q3, most real estate markets in the region remain in the upturn phase of the cycle. Solid activity levels continue to underpin increases in rents and capital values in most locations. However growth momentum is starting to slow, particularly in those markets that are most exposed to global economic conditions.

Rents still increasing in most marketsOffice sector: In 3Q11, 1.5 million sqm of new Grade A space was completed in the Tier I markets of Asia Pacific, with around two-thirds of the total being delivered to markets in China and India. Aggregate net absorption of office space held at a strong 1.4 million sqm, the same as the previous quarter, and this year is on track to be a record in terms of take-up. Corporates continued to expand in China, while relocations and expansions bolstered demand in some other centres. Corporate hiring sentiment and leasing demand weakened in Hong Kong and Singapore amidst market volatility and news of some corporates shelving relocation and expansion plans. We expect overall leasing demand to weaken moderately next year, due to slower economic growth and corporate hiring in some markets, as well as smaller supply additions.

Rents rose further in most markets in 3Q11, although growth started to slow in a number of centres. Rents in Jakarta, Beijing and Perth saw the largest q-o-q increases of between 10.5% and 13.6% on the back of falling vacancy levels. Among the major financial centres, net effective rents fell marginally in Hong Kong for the first time since the GFC, and moderated to 0.6% q-o-q growth in Singapore, largely due to more cautious behaviour of financial corporates. On the other hand, rents in Sydney saw stronger quarterly growth of 6.6% underpinned by healthy take-up. In Tokyo gross rents fell further by 0.4% although net effective rents were stable. Rental declines were seen in a few other markets including Seoul, Osaka and Ho Chi Minh City, due to weak tenant demand or new supply, but are close to bottoming out. On average, Asia Pacific office rents rose by 2.5% q-o-q. This compares with 1.1% for the Americas and no growth for Europe. More detail can be found in our recently launched Global Office Index.

Looking forward, we expect rents to continue to increase in most markets over the next 12 months, although Hong Kong and Singapore may see some softening given their greater exposure to the global economy. Rents in Tokyo are forecast to correct until the end of this year and a few other laggard markets are also likely to see either no growth or some residual rental declines. Rental growth of up to 25% is expected across the region for 2012, with the strongest

Asia Pacific Property MarketLeading Global Rental Growth

growth likely to be seen in markets such as Beijing and Jakarta, followed by Tokyo, Sydney and Shanghai.

Retail sector: Retailer demand remained strong in Greater China during 3Q11 and Hong Kong was a standout performer in terms of retail turnover which continued to surge largely due to Mainland tourists. Retailers in India, Australia and some South East Asian markets were more cautious and as a result rental growth slowed across most markets in 3Q11. Rents should see further uplift in most centres over the next few quarters, although generally at a more moderate rate, due to the economic climate and/or upcoming supply additions.

Residential sector: Leasing activity in most luxury and high-end residential markets was largely stable in 3Q11, but improved slightly in Beijing, Shanghai, Manila and Jakarta. Likewise luxury rents were generally stable but increased by up to 4% q-o-q in China. More subdued rental growth is expected for 2012, and Hong Kong and Singapore should see some softening due to slower corporate expansion.

Industrial sector: The regional industrial market remained healthy in 3Q11 despite the slowdown in regional trade. Rents continued to grow in Greater China and Singapore but were broadly flat in Australia, while Beijing and Hong Kong recorded the highest q-o-q increases. Moderate rental growth is projected for most centres over the next 12 months apart from Hong Kong and Singapore which are likely to be more impacted by the slowdown in exports.

Capital values edge higherIn 3Q11, AP commercial real estate investment volumes totalled US$21 billion, up by 13% q-o-q and 7% y-o-y. Japan regained its top spot in the region, with volumes rebounding strongly by over 200% from Q2 which was severely impacted by the earthquake. Greater China also saw strong buying activity and Hong Kong recorded its largest ever transaction, the sale of a shopping centre to a cross-border investor. For the full year 2011, aggregate regional investment volumes are estimated at around US$89 billion, similar to last year, and slightly below the US$100 billion projected at the beginning of the year. The loss of volumes from Japan in Q2, coupled with mounting investor uncertainty, account for the lower than expected volumes.

Most major markets saw either stable or increasing capital values during the quarter. The largest quarterly increases were recorded in Jakarta (+14.2% q-o-q) and Beijing (+11.8% q-o-q), which also saw the strongest rental growth. Capital values are expected to remain stable or increase in most markets over the short to medium term, with the exception of Hong Kong and Singapore. For 2012, we are forecasting

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About the AuthorDr Jane Murray joined Jones Lang LaSalle in 1998 and in 2005 was appointed as Head of Research – Asia Pacific. In this role, Jane leads a team of over 100 professional researchers in the region, which forms part of a network of around 300 researchers in 60 countries around the globe.

The Asia Pacific Research team produces a range of outputs to assist the clients of the Firm with their decision making, including comprehensive market monitoring and analysis across major institutional-grade real estate markets in the region; forecasts of key real estate indicators; consultancy projects; thought leading research papers on topical issues as well as regular publications.

Rental Property Clocks, 3Q11

the strongest growth in China, Tokyo and Jakarta. Yields may see moderate softening in some markets due to increased investor caution.

Region’s drivers should shore up activity next yearThe regional property market will not be immune from any further deterioration in global conditions. However Asia Pacific’s economic drivers, together with its attractive cost base, should continue to buoy leasing activity across the various property sectors. In turn, this should see further increases in rents next year in most markets, with a moderate decline for those that are more exposed to the global economy.

As for investment demand, our current outlook for 2012 is for a stable regional market continuing to see investment volumes at around the same level as 2011. Capital values should continue to grow in most markets, but at a generally slower rate, as for rentals. At this stage we expect any decline in rents and prices to be temporary and near-term weaknesses to subside when the economic and policy environment becomes more favourable.

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Economic storm clouds are gathering over parts of Europe and slow growth in advanced economies is weighing on global sentiment, and there is no doubt this has spread to most markets in Asia Pacific during Q3. Even with this wind from the west blowing towards the east, we have good reason to remain optimistic about Asia Pacific and the resilience of real estate markets in this part of the world.

So what are some of the reasons that I remain cheerful as I travel around the region seeing our offices and our teams growing?

First, the economies of Asia Pacific are still growing. Some quickly, like China and India, and some more slowly, like Australia and Japan, but overall there are still reasons for optimism that this will continue looking ahead to 2012.

Second, western companies still see Asia as their growth market. A good example of this is the fact that two big household name US companies engaged us during Q3 in two separate projects to execute big land deals for new manufacturing facilities in China. These companies are looking to target their products at the growing middle class consumer markets in Asia. It is this type of movement of western firms looking for growth that is likely to continue whilst the growth differential in our two speed world continues.

Third, western companies are looking even harder at their costs in light of uncertain future revenues and ‘business process outsourcing’

A Change in Mood as a Chill Wind from West Blows East: Five Reasons to Be Cheerful

to India and the Philippines are part of the solution. This is resulting in demand for office space remaining at very high levels.

Fourth, Asian companies are still growing. Corporate fundamentals remain in good shape across the region. Companies have access

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Alastair Hughes CEO, Asia Pacific

in the third quarter through our merger with King Sturge and our 330 new colleagues from Procon in Indonesia, one of the region’s fastest-growing economies.

Jones Lang LaSalle continues to step up to the demands of our clients all over the world and here in Asia Pacific. The wind from the West may be taking the edge off Eastern exuberance, but there is still plenty of activity in the real estate markets in Asia Pacific and, at least, five reasons to be cheerful.

to capital and access to a growing market of consumers who have savings, little debt and a growing propensity to spend. We are increasingly acting for Asian companies. This gives me cause for optimism in that as a firm we are truly embedded in the countries where we operate. All real estate is by definition ‘local’. We employ local talent and are increasingly being appointed by local firms to interact with other local parties. Several recent cases spring to mind where we have been appointed to advise on deals between two local firms or to advise state-owned enterprises. Our local strengths and global connections add value to both our local and international clients.

Fifth, as well as occupier growth, Asia Pacific is home to some of the world’s largest sources of capital and international investors remain keen to gain exposure to the real estate investments markets in this part of the world.

We continue to assist investors buying into real estate deals in our high-growth cities. Australia and New Zealand continue to be attractive to local and overseas buyers alike, and that includes emerging market Asian buyers with high levels of equity. In New Zealand we assisted an Asian high net worth family to buy the Metro Centre office development for approximately USD 30 million, and in Australia we have been appointed to assist another Asian Family office to sell one of Sydney’s most central properties, the Wynyard Complex of office hotel and retail properties.

Investors have continued to put money to work in the real estate markets looking for diversification and we have sold a number of properties recently. In Australia they include 286 Sussex Street office building in Sydney for AUD 32.5 million (USD 33.2 million); the Target Centre, a retail and office property in the Melbourne CBD for AUD 88.0 million (USD 89.9 million) to an offshore private investor; and The Peninsula Lifestyle Centre in Victoria to BB Retail Capital for AUD 44.5 million (USD 45.5 million).

Singapore was also popular where we completed a deal on 182 Clemenceau Avenue for SGD 74 million (USD 58.4 million), six-storey office building in the CBD and we sold the Paramount Hotel & Shopping Centre for SGD 214 million (USD 168.9 million).

Asian buyers have been busy in other advanced economies, notably the London residential market where we have facilitated project sales of over USD 2 billion in the last 18 months for our London-based developer clients, connecting them up with buyers here. We are also confident that some clients from Europe would like to reciprocate by buying residential properties in Asia Pacific. We have been appointed to sell some quality projects in Sydney, Singapore, Kuala Lumpur and Macau.

So there are reasons from both the occupier and investor sides of our business for us to keep growing in the region. I would like to welcome all our new colleagues and clients that have joined us in Asia Pacific

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10 Asia Pacific Property Digest • Third Quarter 2011

Cross-Strait relationships have been improving since the inauguration of Taiwan’s president, Ma Ying-Jeou, in 2008. A few important changes have been made over the past four years, especially in terms of economic cooperation. Moreover, it appears that the Mainland Chinese leadership has been willing to provide Taiwan with more goodwill economic incentives, e.g. the cross-Strait financial Memorandum of understanding (MOU) and Economic Corporation Framework Agreement (ECFA). We expect further relaxation of the restrictions on trade and investment with Mainland China, and a more stable Taiwan-Strait relationship. Together this should help Taiwan’s economy grow at a healthy pace.

Milestones in the relationship between Taiwan and Mainland China:

Direct cross-Strait flights inaugurated and Mainland groups permitted to travel to Taiwan (July 2008)A cross-Strait financial MOU signed (November 2009)Economic Corporation Framework Agreement (ECFA) signed (June 2010)Individual Mainland visitors permitted to travel to Taiwan (June 2011)

New Shoppers in TaiwanThe liberalisation of direct flights between Taiwan and China allowed Mainland groups to visit Taiwan from mid-2008. The initial limit of 3,000 people permitted per day was then increased to 4,000 per day in 2011. In 2010, the total number of visitor arrivals to Taiwan jumped to an historical high of 5.6 million, of which Mainland visitors accounted for the largest single group, at 29%. Despite the political issues, the common culture and language has made Taiwan one of the most favoured travel destinations for Mainland tourists. As the

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world has seen in Hong Kong, there is no shortage of supply when it comes to Mainland tourists. Indeed, the spending and capital flow that has resulted from mass tourism from Mainland China has had a significant impact on Hong Kong’s hotel, retail and residential real estate sectors. In Taiwan, in addition to the tour groups Mainlanders were originally required to travel in, a regulation allowing up to 500 individual Mainland visitors per day was implemented in June 2011. Taiwan’s real estate markets are in a good position to enjoy similar benefits from Mainland visitors as Hong Kong.

The 2010 Annual Survey Report on Visitor Expenditure and Trends in Taiwan revealed that Mainland shoppers spend more than any other nationality. While the average shopping expenditure in Taiwan is USD 77 per day, Mainland visitors now splash out USD 138 per day on shopping, a 72% increase over 2008. By our estimation, the 4,000 Mainland visitors added USD 550,000 daily to Taiwan’s retail outlets, boosting annual retail sales by USD 201 million. Government data also indicates that department store sales in Taiwan saw an average increase of nearly 4% from 2008 to 2010, rising 8.3% to NTD 251,113 million (USD 8.2 billion) in 2010 alone. Although renewed weakness in the US and Europe would have an impact on sales, Taiwan’s overall retail market continues to be underpinned by Mainland shoppers.

Notable shopping areas in Taipei, such as the Xinyi Planned Area, the Zhongxiao East Road area and Xinmending, have seen the opening of new flagship stores to meet the demand of Mainland visitors, with the increase in high street rents estimated conservatively at 5-10% to NTD 10,000-30,000 per ping per month (USD100-303 per sqm per month). In the meantime, as there is no heavy tax on jewellery or cosmetics in Taiwan, Mainland shoppers enjoy tax-refund shopping on the island.

Howie WangResearch Associate – Research, Taiwan

What Has Changed in Taiwan After It Opened Its Doors to Mainland China?

Figure 1: 2010 Taiwan Per Capita Visitor Spending by Category

Source: Taiwan Tourism Bureau, 2011

Figure 2: Taiwan Approved Indirect Mainland Cumulative Investment Amount

Source: Investment Commission, Ministry of Economic Affairs, August 2011

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Asia Pacific Property Digest • Third Quarter 2011 11

Economic Cooperation The signing of the ECFA and the financial MOU with the Mainland China government are the most important factors driving the real estate market. The economic cooperation has enabled Mainland financial institutions to establish corporate banking services in Taiwan, which is one of the Mainland’s top trading partners, with authorised investment totalling USD 103 billion from 1991 to August 2011.

The ECFA not only eased cross-Strait political tensions, but also encouraged a more cooperative relationship between Mainland China and Taiwan. Under the agreement, both sides agreed to lower tariffs on goods in the textile, auto parts, machinery and petrochemical sectors, among others. Mainland China reduced tariffs on 539 Taiwanese goods, while Taiwan reduced tariffs on 267 Mainland commodities. We also expect more foreign corporations to be interested in the Taiwan market due to the lower tariffs. From June 2010 to August 2011, the number of authorised Mainland corporations with a presence in Taiwan nearly tripled from 55 to 152, while the number of foreign companies escalated by 167 to 3,536 and the number of foreign representative offices increased by 252 to 3,520, with mounting investment reaching NTD 11 billion (USD 328 million). We estimate that, due to cross-Strait economic cooperation, MNCs and Mainland occupiers absorbed some 10,000 ping (33,000 sqm) of Grade A office space in Taipei over the last 12 months.

About the AuthorHowie Wang joined the Research Department of Jones Lang LaSalle’s Taipei office in 2010.

He is responsible for research publications and research projects primarily focusing on commercial property. He is actively involved in giving market presentations for Jones Lang LaSalle’s clients and to various other organisations with

interests in the Taiwan property market. Howie holds a Master degree in European Property Development and Planning from University College London.

Regulations governing free independent travellers from Mainland China:Maximum length of stay: 15 days Daily allowance: 500 peopleApplicants must be legal inhabitants of Beijing, Shanghai or Xiamen; they are required to provide a guarantee from travel agency and their relatives, but do not have to pay a deposit for their tour. REQUIRED DOCUMENTATION for visa application:

Mainland applicants must be at least 20 years old and have a bank deposit of a minimum of NTD 200,000 or an annual income of NTD 500,000, or possess a gold card issued by a Mainland financial institution.Applicants can be accompanied by their spouse and/or a direct relative.Students aged 18 or older also qualify with a valid student ID.Applicants are required to take out health insurance valid in Taiwan for the duration of their stay.

Source: National Immigration Agency

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OutlookWith the improved bilateral relations between Taiwan and Mainland China, FDI into Taiwan is expected to continue increasing, solidifying its position as one of the economic centres of the region and one of the key destinations for outbound investment from China. Additionally, the influx of Mainland visitors will support the retail and hotel markets, and boost Taiwan’s tourism industry.

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Some analysts have argued that the Singapore residential market will see a correction in 2014/2015 due to the large amount of stock expected to complete over that period. An average of 50,000 housing units (public and private) per year is expected be ready in both 2014 and 2015 – equivalent to about 4.0% of the current housing stock of 1.1 million units. In our opinion, the residential market will not contract as a result of this growth. First, the Singapore residential market has rarely seen a correction based on stock levels alone. Second, the growth in population over the past few years has outpaced that in the physical housing stock. Finally, immigration is unlikely to slow, as articulated by Prime Minister Lee in his National Day Rally speech. Demand for housing is, therefore, likely to remain fairly stable and support the injection of new stock over the next few years. Undoubtedly, the current increase in global economic uncertainty is likely to dampen sentiment here, resulting in short-term fluctuations in demand and prices but, overall, the mid- to longer-term outlook remains stable on the back of these fundamentals.

Housing market and population growth The growth in population since 2003 has been driven largely by immigration. In 2000, there were 4.02 million people in Singapore,

20% of them non-residents. By 2010, the population had jumped to 5.1 million, with non-residents accounting for 25%. However, total housing stock (private and public) during this same period grew only from 956,275 to 1,158,885 units, equivalent to a 2.1% increase per annum. The net effect is that the size of the average national household1 expanded from 4.21 people in 2000 to 4.37 people in 2010. The average household size since 2000 has been about 4.08 (Figure 1).

As a result of the larger households, demand for new housing has been pressing. Property prices in terms of the URA’s Property Price Index (PPI) continued to show strong gains over that period, especially in 2006/2007, when prices island-wide expanded 31%, and again in 2009/2010, when they rose 18%. Convinced by the strong demand and rising prices, developers have continued to push out new projects with an average of 12,000 housing units per year since 2006. With the new stock coming onto the market, the size of the average household should decrease to 3.9 people, assuming that the population growth slows to just 5.2 million by 2015. If immigration keeps pace, albeit at a slightly slower rate, the size of the average household will be around the long-term average of 4.08, with a population of 5.5 million, in 2015.

Dr Chua Yang LiangHead of Research, South-East Asia

New Stock Arriving in the Singapore Residential Market

1 For purposes of simplicity, the size of the national household is calculated by taking the overall population divided by the total housing stock, excluding worker and student dormitory housing. This ratio is different from the 3.5 people per household reported in the Census as the latter includes only Citizen and Permanent Resident households.

2 The completion of housing stock is matched against housing occupier demand each year to arrive at the short-term (annual) balance of housing stock. The long-term balance is the cumulative sum of this annual housing stock balance over time.

3 In this first case, we have assumed that the population will reach only 6.5 million by 2050, in line with the URA’s long-term population estimate used for planning purposes.

Figure 1: Average household size rising with population growth

Source: Jones Lang LaSalle

Figure 2: Two recent corrections in PPI were externally driven


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Historically, the PPI is sentiment-drivenThe impact of the short- and long-term balance2 of housing stock on property prices as measured by the URA’s PPI is shown in Figure 2. It is commonly accepted that the Singapore residential market is driven largely by sentiment. The PPI recorded major corrections in 2000/01 and 2007/08, despite a shortage of stock in both periods. The PPI remained flat from 2002-04 as the short- and long-term housing stock exceeded demand. Most recently, in 2007/08, the balance of the deficit in housing stock supported a 20.0% rebound two years after the initial correction of 5.0%.

Residual demand to continue supporting the marketThe large surplus in the annual balance of housing stock will not be sufficient to drive the cumulative balance of housing stock into positive territory until 2015. Therefore, this outstanding, or residual, housing demand (as further evidenced by the larger size of the average national household) is likely to continue to supply occupiers (potential homebuyers) over the next few years. The PPI is unlikely to see a large correction but maintain a more modest growth, averaging some 1.8% per year until 20153 (Figure 3).

Long-term population target assumes immigration likely to continueImmigration is unlikely to slow, as articulated by Prime Minister Lee in his National Day Rally speech. We think that the growth rate for residents is likely to remain at the 2010 level, while the growth of the foreign population could be slightly lower. Given this, we could be home to 5.5 million people by 2015. If that figure materialises, new

About the AuthorDr. Chua Yang Liang leads the Jones Lang LaSalle research teams in the South-East Asia region, encompassing Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Trained as an urban planner, Dr. Chua brings a different perspective to the fundamental research on the property market. He publishes original research on

regular property market updates, rental and price indices, topical property market matters, as well as consultancy assignments.

housing stock may be insufficient to meet annual demand, thereby supporting further increases in property prices.

SummaryBased on the three fundamental issues of historical behaviour, we have argued that large residual demand and long-term population growth targets will likely support the housing market going forward. While our view is based on the assumption that the Singapore economy will remain fairly stable, should conditions worsen beyond that of a technical recession, we could expect the PPI to decline. We are, however, confident that the PPI would recover in the mid- to longer-term in line with the underlying fundamentals of residual demand and new immigration growth. The outlook beyond 2015 will then depend largely on the state’s immigration policy.

Figure 3: Cumulative stock not likely to tip property prices


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Averaging 1.8% per year

200019991998 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Indi

a


Since independence in 1947, the development of infrastructure has been the responsibility of the Indian government and one that it has dutifully discharged for four decades. It has now become clear that the government cannot go on with this mechanism, considering the natural growth of the country, its phenomenal rate of urbanisation, and the widening gap between the infrastructure required and that which can be provided. Thus, while opening up its economy to the world in 1991, India also opened the gates to private participation in infrastructure, a domain it had previously held closely to its chest. This attracted significant interest from domestic and international private sectors as both the country and the world were convinced of the growth India is set to achieve over the next few decades. India’s call to introduce and facilitate Public Private Partnership (PPP) proved to be the right step towards collaboration and boosting confidence in the private sector, with the government’s active participation in this joint effort set to create world-class infrastructure in India.

What is PPP?“Government and a private corporation combine to provide a public service through the creation and use of new assets for a set time period.” is the easiest definition of a PPP. A private sector consortium can form a special company called a “Special Purpose Vehicle” (SPV) to develop, build, maintain and operate the asset for the contracted period. The goal of any PPP is to combine the best capabilities of the public and private sectors for mutual benefit and to act in the best interests of the project. The result is the integration and cross-transfer of public and private sector skills, knowledge and expertise to forge capacity-building and the efficient use of resources, and bring transparency and accountability to the infrastructure sector.

Significance of PPP“The infrastructure gap in the country is holding back economic growth by 1.5-2% every year. ” – Planning Commission of India (2010-11). This statement underscores the significance of PPP and India has resolved to bridge this gap through PPP initiatives. Investment in infrastructure as per the country’s 11th Five-Year Plan is to the tune of INR 7,656 billion (USD 153 billion) from the Central government and INR 6,709 billion (USD 134 billion) from various state governments, with INR 6,196 (USD 124 billion) billion from the private sector, chiefly through PPPs.

PPP VariantsThe beauty of a PPP lies in its versatility. There are several ways to execute PPP projects, suiting the different needs of different infrastructure projects. Some of the most widely used variants are as follows:

Public Private Partnership, a Proven Mantra for Infrastructure Development in India

Build/Operate/Transfer (BOT) or Build/Transfer/Operate (BTO) Build-Own-Operate (BOO)Build-Own-Operate-Transfer (BOOT)Buy-Build-Operate (BBO)Design-Build (DB) Design-Build-Maintain (DBM)Design-Build-Operate (DBO) Developer FinanceLease/Develop/Operate (LDO) or Build/Develop/Operate (BDO)

Benefits of a PPPPPPs bring together the strengths of both the public and private domains to achieve:

Reduced life-cycle costsBetter risk allocationFaster implementationImproved service qualityGenerating additional revenue streamsReduced burden on the government exchequerMeeting the changing demand pattern of people: “Bijli-Sadak-Paani” (uninterrupted power - all-weather roads - water management) emerging as the voter’s mandate from the erstwhile “Roti-Kapda-Makaan” (food - clothing - housing)

Risk allocationWith its bureaucracy and policy complexities, India is often rightly criticised for being slow to grant permission and concessions to private sector companies interested in planning and executing infrastructure projects. PPP overcomes this through better risk allocation by allocating risk for land acquisition, developing connectivity to the project site, ensuring timely permissions and authorisations, regulatory risks, and political risk to the public sector.

Building confidence in private sectorThe Indian government has done a good job in ensuring that the private sector develops confidence and is comfortable about entering a PPP. The Indian government has ensured the efficient facilitation of PPPs by putting Model Concession Agreement (MCA) documents in place for (a) national and state highways, (b) sea port terminals, (c) non-metro airports and green-field airports, and (d) railways. It has also put in place a structure for a Viability Gap Funding (VGF) scheme to enhance the financial viability of PPP projects and set up the India Infrastructure Project Development Fund (IIPDF) to provide loans to meet development expenses.

•••••••••

•••••••

Ashutosh LimayeHead of Research and Real Estate Intelligence Service, India

Indi

a


Success storiesRoads: the Jaipur-Kishangarh Expressway, the Mumbai-Pune Expressway and the East Coast RoadPorts: Pipapav, Mundra and KrishnapatnamRailways: Pipapav Rail and Kutch RailAirports: Hyderabad, Bangalore, Delhi and MumbaiPower: Vishnuprayag, Mundra and Sasan Projects

ConstraintsDespite these success stories, it is also important to identify and appreciate the constraints faced by PPP projects in India:

Project level constraints:Issues in concession agreementLand acquisition problemsUncertain revenues (project feasibility issues)Creditworthiness of customers (esp. government agencies’ past record of delays in fund infusion, and granting necessary permissions)

Institutional constraints: The lack of experienceAsset-liability mismatchInadequate financial structuringLimited access to multiple fund sources

Way forwardIndia’s PPP sector is now mature and experienced. As India is marching towards greater transparency and accountability, it is also improving its project feasibility research, finance structures and execution capabilities to better its performance. The intention by both public and private agencies to join hands to deliver world-class infrastructure promises to bridge the gap that exists between available and necessary infrastructure, and to boost India’s economy and overall growth.

India is already significantly moving towards:

Evolving more robust concession agreementsStreamlining the land acquisition processCredit enhancement for projectsCapacity-building on a pan-India basis in order to scale up human capitalMaking external commercial borrowing accessible Expanding Scope of Venture Capital Funds to allow investment in all infrastructure sectors

•

••••

•––––

•––––

••••

••

Leveraging real estateOne of the major achievements of PPP projects in India has been the leverage of real estate to cross-subsidise infrastructure capital. This has proved to be the biggest attraction for private agencies to plan and execute infrastructure projects. For example, in the case of Delhi airport spreading over 5,000 acres, for a project cost of about INR 10,500 crore (USD 21 billion), development rights for only 45 acres of land (out of 250 acres allowed for commercial development) were monetised for about INR 2,500 crore (USD 5 billion)! At this rate the investment can be easily recovered from leveraging real estate in less than 15 years on a highly conservative basis and the concession is for 30 years with renewal provision for another 30 years, thus underlining the importance of leveraging real estate in infrastructure projects.

With about half of India’s one billion-plus population expected to live in cities by 2020, meeting the infrastructure requirements is a great challenge and leveraging real estate is arguably the most efficient – perhaps the only – way to achieve this mammoth task. Real estate allied with infrastructure is still a rare commodity in India and the private sector understands perfectly the premium attached to it. With the opening up of Indian real estate to FDI in 2005, the pairing of real estate with infrastructure seems to be key to solving the infrastructure deficit India is striving to overcome.

About the AuthorAshutosh Limaye is the head of Research and Real Estate Intelligence Service, for Jones Lang LaSalle in India, based in Mumbai. He has an experience in real estate consulting for over eight years and was heading JLL’s Strategic Consulting business for West India until June 2011. He has worked on several PPP projects in

India, including modernization of Mumbai and Bangalore Airports, World Bank funded Mumbai Urban Transportation Project, and Seawoods suburban train station, Mumbai. He is an architect and urban planner with a total work experience of over 14 years in real estate, Urban Planning, Urban Governance, and Architecture.

Aust

ralia


Australian consumers appear to finally be embracing online retailing. Online retail penetration in Australia has been low relative to other developed countries, with the online market estimated to be only equivalent to 3.9% of total Australian retail trade in 2010 (Urbis)1. Nevertheless, a strong Australian dollar (AUD) relative to other developed nations over the last few years has made the price differential between goods in Australian stores and online significant. A study in June 2011 by Morgan Stanley2 compared 99 identical items and found that prices were 19-64% cheaper online than in Australian stores. This has seen growth in online retailing in Australia accelerate considerably over the past few years, which is evident in a number of indicators such as bank credit card data to offshore merchants and inbound international postage volumes.

The impact of increased online sales is particularly stark at present because it is generally a slow retail environment. Australian retail turnover has grown just 2.1% over the year to August 2011, which is below the pace of inflation and well below average growth seen over recent decades. While online sales have contributed to this slow pace of turnover growth, there are many other cyclical factors that have contributed to the slower pace of growth. In the short-term, retail turnover is forecast to steadily pick up over the next 12 months, while the AUD has also depreciated slightly over recent weeks, which

Leigh WarnerDirector – Research, Australia

Australia’s Online Retail Boom: What Does Greater Retail Competition Mean for Landlords?

should take some of the sting out of the pace of online sales growth by narrowing the price differential slightly.

Impact of competition on Australian retailersWhile an improvement in the general retail environment will help Australian retailers, they will have to deal with much stronger levels of international competition, which historically they have been relatively isolated from. This greater international competition is not only coming from online sales, but also:

The strong AUD has prompted record levels of outbound international travel by Australians (and conversely dampened inbound tourism), which has led to greater spending by Australians abroad on both tourism services and consumer goods; andMore international retailers are increasing their physical presence in Australia, motivated by strong economic growth prospects in Australia relative to other developed nations. International brands such as Zara have recently had enormous success in their entry into the market, which is prompting many more, such as Top Shop, Uniqlo, Abercrombie & Fitch and Forever 21, to increase their presence in the market.

•

•

1 ‘Unravelling Online Retail in Australia’ Urbis, August 2011.2 ‘Australian Retail: Internet Retailing 2.0’ Morgan Stanley, June 27, 2011.

Figure 1: Australian Exchange Rates

Source: RBA, Jones Lang LaSalle

Figure 2: Retail Vacancy

Note: Arithmetic average of all major cities. Sub-regional vacancy excludes Canberra.

Source: Jones Lang LaSalle Research

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The sudden exposure of Australian retailers to global competition has exposed some inefficiency that comes with operating in a relatively small and isolated market. Wage costs to turnover appears high relative to international retailers, Australian retailers’ stock systems appear less efficient, while rent is also high as a proportion of turnover.

What does all this mean for landlords?While on the face of it continued strong online sales growth and the adjustment that Australian retailers need to make to global competition appears bad for rental growth prospects for major centre owners, there are a number of mitigating factors to suggest that the impact on prime retail assets will not be as bad as some suggest.

Firstly, retail vacancy remains very low. At last measure in June 2011, major ‘regional’ shopping centres in Australia had an average vacancy rate of 1.2% and vacancy in larger markets of Sydney, Melbourne, Brisbane and Perth all remained below 1%. Similarly, average vacancy rates in sub-regional centres and CBD centres remains around 3% across the country, which is in line with average levels over the past decade. Vacancy is particularly low in the very best centres, which means there is still competitive pressure to secure tenancies in prime assets and landlords have been able to maintain some moderate positive rental growth in spite of the weak trading environment.

Secondly, both the current weakness in retail turnover growth and online sales penetration are largely contained to areas of discretionary spending and conditions remain fairly healthy for many retailers of non-discretionary goods, particularly food and many retail services. Food retailing and retail services account for around 60% of total retail trade. This has supported turnover-based rental growth in some cases for prime centres from their supermarket anchor tenants and also allowed owners to squeeze rental growth out of those specialty store tenants not so exposed to the weakness in discretionary spending.

Longer-term, many traditional physical retailers are looking to move to a ‘bricks and clicks’ business model and better utilise the internet as a complimentary sales channel to their store networks. Traditional local retailers are already estimated to be capturing over half of online spending by Australians and there is further potential to leverage existing distribution and supply networks, branding and other advantages over new entrants to capture more of the growth in

About the AuthorLeigh heads Jones Lang LaSalle’s Queensland Research team and also co-ordinates national retail market research. He is responsible for the delivery of strategic advice on the office, industrial and retail sectors to the Queensland business, as well as to the national Retail Investments and Management teams. Joining the firm in mid-2004,

Leigh has a strong background in economics, previously working as an economist for the Reserve Bank of Australia and Queensland Treasury. Since joining Jones Lang LaSalle, he has extensive experience providing strategic consulting advice to both private and public sector clients. He holds an honours degree in Economics from the University of Queensland.

online sales. As is the case internationally, many retailers are looking to use their store network as distribution points for online sales, which further re-enforces the need to be in good strategic locations within prime shopping centres.

The continued growth of online sales is going to force retailers to adapt their business models to a new competitive environment. This will mean centre owners will also have to adapt centre configurations and rental structures over time to accommodate this change. Nevertheless, a large amount of shopping will always remain about the experience and the service provided. Prime shopping centres will always be at the heart of facilitating this experience and Australia’s strong retail landscape means that dominant regional and CBD centres will continue to have destinational pull and be strong and consistent performing assets. Likewise, convenience centres heavily focused towards non-discretionary spending will remain largely unaffected by online sales growth and also continue to be solid and stable investments.

Toky

o: O

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Tokyo: Office

Vacancy rates are around 4%, indicating market equilibriumRental trends vary by property, while the overall figure remains flatInvestments by a J-REIT provides a benchmark in the post-quake market

DemandIn 3Q11, Japan’s economic activity picked up steadily as the constraints caused by the earthquake were mostly resolved. In this environment, vacancy rates fell to 4.1%, down 1.6% q-o-q and indicating market equilibrium. The decreased level of around 4% is the lowest since 3Q08. Net absorption totalled 69,000 sqm, up some 25% q-o-q as leasing demand came from consolidation by domestic companies. Tenants are taking up newer, more accessible office space with a higher specification, as Grade A market rents have fallen some 45% from their previous peak, and are now lower than rental levels in the CBD fringe areas.

A notable forward commitment included Mitsubishi Chemical Holdings and its core business companies of Mitsubishi Chemical, Mitsubishi Tanabe Pharma, Mitsubishi Plastics and Mitsubishi Rayon consolidating operations in the Palace Building (GFA: 140,000 sqm; NLA: 43,000 sqm), which is due for completion in the Otemachi/Marunouchi sub-market in January 2012.

SupplyNo new supply entered the market however project proposals in 3Q11 included a joint redevelopment project in Nihonbashi 2-chome by beneficiary certificate holders including Takashimaya and Sumitomo Realty & Development. Consisting of six blocks, office space will be provided in Block A (59,000 sqm GFA), Block C (144,000 sqm GFA including retail use) and Block E (134,500 sqm GFA). Completion of Block E is due by FY 2014, while Blocks A and C are expected to complete by FY 2018.

Asset PerformanceIn 3Q11, rents averaged JPY 27,286 per tsubo per month, or USD 1,286 per sqm per annum, down 0.4% q-o-q or 3.8% y-o-y. Although the overall figure remained flat, rental trends varied by property.

Investment in 3Q11 included the acquisition by the Mori Hills REIT of two strata titles, one (including co-ownership) to the Roppongi Hills Mori Tower from Mori Building for JPY 18.68 billion (USD 242 million) and a NOI cap rate of 4.5% and the other to the Ark Mori Building for JPY 17.2 billion (USD 223 million) and a NOI cap rate of 4.5%. Although the transactions took place between a J-REIT and its sponsor, they provide a benchmark of the post-quake investment market.

12-Month OutlookAccording to IHS Global Insight, real GDP is forecast to fall 0.6% in 2011 and then grow 3.5% in 2012 due to reconstruction-related demand. In this environment, new supply in 2012 will be at the equivalent of around 130% of the past ten year average. Take-up is expected to be relatively robust, supported by low rents, the forward commitments of new supply due in the Marunouchi/Otemachi sub-market, and tenants’ preferences for quality and safety in terms of office selection following the earthquake.

As vacancy rates reflect a market equilibrium, rents are expected to gain momentum as reconstruction-related demand kick starts the economy. In line with this, investment yields are expected to fall while capital values are predicted to rise.

•••

Note: Tokyo Office refers to Tokyo’s 3 Kus Grade A office market.

12-Month Outlook

Rental Value Capital Value

For 2007 to 2010, take-up, completions and vacancy rates are year end annual. For 2011, take-up, completions and vacancy rates are YTD while future supply is for 4Q11.

Financial Indices

Arrows indicate 12-month outlook Index base: 4Q07 = 100Source: Jones Lang LaSalle

Physical Indicators


Rental InformationRental Value^ JPY 27,286 per tsubo

per monthStage in Cycle Decline slowingNo. of Quarters Since Last Peak

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Osak

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Osaka: Office

Low rents lead to consolidation and expansion by domestic companiesCurrent demand alone is insufficient to maintain rental growth Investment volumes remain suppressed due to limited assets in the market

DemandIn 3Q11, Greater Osaka’s economy saw moderate growth as the impacts of the earthquake diminished. In the economic circumstances, vacancy rates fell to 7.0%, down 0.9% q-o-q, while net absorption increased to 13,000 sqm from a negative 8,000 sqm in the previous quarter. Relocations related to the improvement of business continuity planning strategies following the earthquake did not materialise. Leasing demand was predominately from domestic companies consolidating, upgrading, or expanding to Grade A space, taking advantage of low rents which fell to some 55% of their previous peak.

Major relocations included the consolidation of the Osaka branches of Ube Industries and its 11 group companies in Dojima Avanza.

SupplyTotal Grade A stock in Osaka remained stable at 1.4 million sqm in 3Q11 as no new supply has entered the market since 1Q11.

Asset PerformanceAt end-3Q11, rents averaged JPY 11,042 per tsubo per month (USD 520 per sqm per annum), down 0.3% q-o-q or 0.9% y-o-y. Demand alone was insufficient to maintain the rental growth seen in the previous quarter and net effective rents are seeing a more substantial decline as rent-free periods increase.

In 3Q11, no capital investment was confirmed in Osaka’s Grade A office market. Investment volume remains suppressed due to the lack of investment assets available in the market.

12-Month OutlookGoing forward, concerns facing Osaka’s economy include the impact of the electricity supply constraints as a result of the earthquake, the slowdown in global economy and exchange rate movements. In this environment, Grade A office supply is expected to remain suppressed in 2011 and 2012, and then to see supply equivalent to 220% of the past five-year average (up to 2012) in 2013. By 2013, with forward commitments on-going, supply is expected to spur demand to a certain extent. However, on the other hand, it is also expected to eventually cause the market to soften.

As a result, we expect vacancy rates to increase gradually. Rents are likely to remain largely flat as there is scarce room for further decreases. However, with adjustments to incentives, including rent-free periods, net effective rents are expected to fall further, ensuring the market continues to favour tenants.

In the investment market, yields are expected to rise marginally and capital values to fall modestly, notwithstanding the lack of investment-grade assets available on the market.

•••

Note: Osaka Office refers to Osaka’s 2 Kus Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators



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Seou

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Seoul: Office

Seoul office market sees positive net absorptionEffective rents in CBD fall in the face of new supplyTwo major portfolio deals close for a total of KRW 660 billion

DemandDue to incentives for tenants such as longer rent-free periods, take-up remained strong in 3Q11.

Some Jaebol groups (Conglomerates) leveraged off the current market situation, using their size and covenant strength to secure attractive deals that enabled them to consolidate from older and arguably out-dated buildings into new buildings in Seoul’s CBD, reflecting their growth.

For example, SK Engineering & Construction signed a lease for approximately 65,000 sqm of office space at the newly completed Mirae Asset Jeodong Tower. Similarly, the plant division of Daelim Construction, currently located in Yoido, has committed to lease the majority of office space at Twin Tree Tower, comprising approximately 42,000 sqm, in the CBD.

Gangnam recorded a prime vacancy rate of 1.0% in the quarter, as approximately 13,000 sqm of space was taken up in Gangnam Finance Center in 1H11. Overall vacancy rates in Gangnam continued to fall, from 3.2% in 2Q11 to 2.0% in 3Q11. Conversely, prime and Grade A vacancy in the CBD increased to 14.9% in 3Q11.

SupplyFour major new buildings with a combined GFA of 308,900 sqm were added to the CBD stock in 3Q11. Approximately half of the total GFA in Mirae Asset Jeodong and YG Building was successfully leased. However, Signature Tower, KT&G Seodaemun (new supply from 3Q11) and State Tower Namsan, from 2Q11, remained 100% vacant.

Asset PerformancePrime rents in Gangnam and Yoido increased due to low vacancy rates. Rents for Prime space fell 0.4% in the CBD while those for Prime space rose by 0.9% in Yoido and 1.0% in Gangnam in 3Q11 on a q-o-q basis.

Rents for Grade A buildings in CBD and Yoido remain unchanged while rent in Gangnam increased by 1.4% q-o-q. In line with the increase in rents, capital values of Prime space in Gangnam and Yoido rose 0.9% and 1.0% q-o-q. However, those in the CBD fell 1.2% q-o-q.

Lim Kwang Construction & Engineering sold its Lim Kwang One and Two buildings to PS Asset Management for KRW 257 billion. Samsung Investment Trust Management bought approximately two-thirds of the HSBC Building (floors B1, 8-18F), the Samsung Finance Building and Prime Tower from Grundbesitz Global (RREEF) for approximately KRW 402 billion.

12-Month OutlookDue to global economic uncertainty, it is difficult to forecast the performance of tenants’ business. However, rents are expected to stabilise over the coming year. Looking ahead, given the supply pipeline, tenant demand would have to exceed the historical average by a significant amount in order to absorb the space that will be added over the next 18 months. Therefore vacancy will remain high and going forward yield ranges are expected to widen due to investors’ preference for prime assets. Yields on assets with vacancy risk are expected to soften while yields on well let assets are projected to remain sharp.

•••

Note: Seoul Office refers to Seoul’s Prime and Grade A office markets.

12-Month Outlook


Supply, completions and vacancy rates are for Prime and Grade A.


Financial Indices


Physical Indicators


Rental InformationRental Value^ KRW 149,382 per

pyung pmStage in Cycle Rents stableNo. of Quarters Since Last Peak

10

^ Prime net effective, on NLA

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Beijin

g: O

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Beijing: Office

Strong demand continues to weaken tenants’ bargaining powerRental rates continue to experience robust growthYields remain stable, as no en-bloc deals were recorded

DemandDespite the volatile global financial market and lower expectations of economic growth worldwide, demand in the Beijing office market continued to be strong as MNCs experiencing rapid market growth in China continue to demand more office space to handle business expansions, consolidations or new set-ups. Meanwhile, domestic companies, such as SOEs or privately owned companies, continued to show insatiable demand for self-use buildings. Tenants’ bargaining power was further weakened in 3Q11.

In terms of leasing demand, financial entities, consulting firms, law offices, and high-tech and manufacturing companies were the leading drivers. With limited vacant space and record high rents in the market, some companies with plans to expand chose to renew or expand within their current location, while others were forced to relocate/expand externally. The latter was the case for many companies in the CBD, 3rd Embassy and East Chang’an Avenue areas.

The overall market vacancy rate remained at an historic low of 8.2% in 3Q11, down 0.1 percentage points q-o-q. All sub-markets, except 3rd Embassy with one newly completed office project, experienced declining vacancy rates. The CBD and Zhongguancun recorded the largest vacancy rate declines, dropping 2.3 and 2.8 percentage points q-o-q, respectively.

SupplyFour office projects were completed in 3Q11, offering a total of 200,000 sqm. Phoenix Place Tower F and Tower H (46,000 sqm) as well as One Indigo (56,000 sqm) were for lease only, while two towers at Chaoyang Plaza were purchased by domestic companies for self-use.

Asset PerformanceWith vacancy rates at record lows, landlords continue to aggressively raise rents across the market; the average overall net effective rent increased to RMB 269 per sqm per month (based on GFA), up by 10.5% q-o-q in 3Q11 and 29.7% year to date.

Capital values continued to appreciate, albeit at a slower pace, rising 10.8% q-o-q, compared with a 15.4% q-o-q rise in 2Q11. The deceleration was mainly the result of limited tradable assets and rising borrowing costs for both investors and self-occupiers. Capital values are now at an all-time high, while yields remain relatively stable at 6.2%.

12-Month OutlookDespite the forecast slowdown in global economic growth, Beijing is expected to continue to attract new set-ups and experience business growth, driving up office space demand. Companies’ increasing price-sensitivity to expensive rental costs and the slowing down of office expansion activities are expected to ease the aggressive growth in rents over the coming quarters; while the improving performance of office rental income is expected to continue driving capital value growth.

•••

Note: Beijing Office refers to Beijing’s overall Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ RMB 269 psm pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

7

^ net effective, on GFA

Index

4Q07 4Q08 4Q09 4Q10 4Q11 4Q12Rental Value Index Capital Value Index

60

100

220

180

140

Thou

sand

sqm Percent

07 08 09 10 11F 12F


0

750

1,500

0

10

20

25

30

5

15

500

250

1,250

1,000

Shan

ghai:

Offi

ce


Shanghai: Office

Expansion and upgrading by MNCs drives Puxi demandFour new Grade A buildings in the CBD are delivered in 3Q11Two office buildings are sold en-bloc

DemandLeasing demand and net take-up remained strong in Shanghai’s office market in 3Q11. In Puxi, expansion demand from MNC tenants drove the market for Grade A space with both new buildings and upcoming projects enjoying an active leasing market. For example, AkzoNobel pre-leased 15,500 sqm in Eco City, expanding its space by 40% while Omnicom reserved 7,500 sqm in the project, due for completion in 4Q11. In International Commerce Center Phase I, a Premium Grade A building completed in 2Q11, the commitment rate reached 57% with approximately 40% of space under negotiation. In Pudong, the financial sector continued to drive net take-up, with MNC banks the most active in Premium space. Two international investment banks took up 10,400 sqm and 3,900 sqm in Two ifc, evidence that their expansion plans in China were not hampered by global economic concerns. In the decentralized market, Kerry Parkside reached a commitment rate of 75% with most of its remaining space under negotiation.

SupplyFour new Grade A CBD buildings were delivered in 3Q11, three of which were in Pudong. Taiping Finance Tower in Lujiazui added a GFA of approximately 90,000 sqm and has enjoyed strong leasing with 76% committed. In Zhuyuan, Lujiazui Investment Tower (34,020 sqm) and Lujiazui Fund Tower (32,060 sqm) were completed. In Puxi, Yes Commercial Building was completed, adding 65,100 sqm to the Grade A market. Despite the new completions, strong pre-leasing in the new buildings ensured the vacancy rate in Pudong and Puxi only increased slightly to 9.3% and 7.0%, respectively. In the decentralized market, five buildings with a total GFA of 312,270 sqm were completed in 3Q11.

Asset PerformanceRents continued rising across Shanghai in 3Q11 as expansion and upgrade demand remained strong and landlords maintained bargaining power. Average Grade A rents reached RMB 8.6 per sqm per day, a 2.5% q-o-q and 14.3% y-t-d increase. Premium Grade A rents grew faster than overall rents, rising 3.6% q-o-q and 17.1% y-t-d to reach RMB 10.0 per sqm per day. SOHO China purchased Jiarui International Plaza, a Grade A building in Zhuyuan, for RMB 1.89 billion (RMB 44,000 per sqm). The project, renamed SOHO Century Avenue, is due to be completed in 2Q12. In SWFC, Huabao Investment purchased three floors for approximately RMB 83,000 per sqm. In Puxi, a domestic buyer purchased an office building in the Shanghai Port International Cruise Terminal for around RMB 60,000 per sqm.

12-Month OutlookLooking forward, we expect MNCs to continue with expansion plans. In Puxi, only a limited number of buildings are expected to reach the market before the completion of Phase II of the Kerry Center in 3Q12, and those that are completed will quickly be filled by demand from MNCs and domestic companies. In Pudong, a large portion of upcoming space will be taken by owner occupiers or developers, therefore landlords should maintain bargaining power. Concerns over Europe’s debt crisis, however, could impact demand in Pudong, which remains highly exposed to the financial industry.

•••

Note: Shanghai Office refers to Shanghai’s overall Grade A office market consisting of Pudong and Puxi.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ RMB 8.6 psm per dayStage in Cycle Rents risingNo. of Quarters Since Last Trough

8

^ effective, on GFA


60

80

120

100

140

Index

Thou

sand

sqm Percent


07 08 09 10 11F0

4

8

16

12

0

200

400

600

800

12F

Guan

gzho

u: O

ffice


Guangzhou: Office

Net absorption rises to 160,000 sqm, fuelled by expansions and relocationsStrong growth in rents for new build space helps speed up overall growthCity wide vacancy rates tighten as two-tier market takes shape

DemandIn the overall market, about 160,000 sqm of floor space was absorbed in 3Q11. Despite a slower pace of activity (140,000 sqm) in 2Q11, the leasing market has been healthier over a longer time span, with about 500,000 sqm of floor space absorbed this year to September, compared with net absorption of 420,000 sqm recorded for the whole of 2010. Citywide, vacancy rates fell by 0.6% from the previous quarter to an average of 11.7% at end-3Q11.

Expansions and relocations to new-build, premium office buildings contributed much of the activity. Agile Property for example, relocated its headquarters from Zhongshan City to 12,000-sqm in Guangzhou IFC, representing the largest deal recorded in the nine months ending September 2011. In Tianhe CBD, Canon and Toyota Tsusho leased 5,600 sqm and 2,800 sqm respectively in Taikoo Hui.

SupplyThe two office towers of Taikoo Hui, comprising 163,000 sqm of floor space, completed in 3Q11 and is the only 2011 completion in Tianhe CBD.

Asset PerformanceThe large supply set to be delivered in 1H12 had little impact on rental levels. Grade A office rents climbed at a faster pace of 3.4% q-o-q in 3Q11, reaching RMB 197 per sqm per month, after registering modest growth of 0.9% q-o-q in 2Q11. However, the surge in rents for premium buildings has already discouraged cost-conscious occupiers from moving to these prime locations. They were left with the option of moving into older buildings completed since 2005, driving rents up and pushing vacancy rates down in second-tier buildings in all sub-markets.

Investment activity continued to be robust. However, new property sales in non-prime projects accounted for most of the activity as availability of saleable Grade A stock in the primary market remained limited. As the result of buoyant sales in the primary market, capital values grew at 3.5% q-o-q in 3Q11, up from 1.4% q-o-q in 2Q11, to reach RMB 42,441 per sqm (net).

12-Month OutlookThe growing pessimism about the global economic outlook will likely undermine occupiers’ confidence in expansions over the next 12 months. Moreover, more occupiers have already found themselves priced out of the market, especially the new-build projects in ZJNT. While this will likely exert upward pressure on vacancy rates in upcoming projects, we do not expect a sharp fall in occupier demand as domestic firms will likely help underpin activity in the near term.

On the supply front, we believe that the downward pressure on rents due to excessive supply in 4Q11 will ease somewhat as two projects have pushed back their completion dates to 2012 from 2H11. As a result, total supply in 2011 was revised down to about 600,000 sqm from the nearly 1 million sqm we had projected in 2Q11. However, competition among landlords is expected to intensify next year, and the leasing market will in turn favor tenants. As a result, rents will endure downward pressure in the next 12 months.

•••

Note: Guangzhou Office refers to the overall Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ RMB 197 psm pmStage in Cycle Rents fallingNo. of Quarters Since Last Peak

1

^ net effective, on NFA


60

120

140

160

Index

80

100


07 08 09 10 11F0

800

400

600

200

Thou

sand

sqm

0

14

7

21

28

Percent

12F

Hong

Kon

g: O

ffice


Hong Kong: Office

Global economic woes weigh on demandRents in Central retreat for the first time in two yearsIncreases in capital values slows as transactions dry up

DemandGlobal economic concerns led to a noticeable drop in demand for office space towards the end of 3Q11. Net absorption in 3Q11 was 1.17 million sq ft (net), although a significant portion came from the completion of the self-occupied Central government offices complex in Central. For commercial Grade A office space, net absorption was a more modest 324,500 sq ft (net). Vacancy rates continued to fall across the markets, but were starting to move higher in Central towards quarter end. The overall vacancy rate stands at 4.4%.

Although uncertainties about the short-term business outlook caused some occupiers to put expansion plans on hold, the significant rental gaps that have opened up between individual buildings, and the consolidation and upgrading opportunities provided by large tracts of latent space available continued to drive relocations. For example, the Securities and Futures Commission reportedly leased 105,000 sq ft (lettable) in Cheung Kong Center as part of a wider move to consolidate in Central; Aon relocated into 51,000 sq ft (gross) in Times Square in Causeway Bay; Chubb upgraded into 53,500 sq ft (gross) in Octa Tower in Kowloon Bay; and Citizen upgraded into 20,000 sq ft (gross) in Landmark East in Kwun Tong.

In the investment market, wider economic uncertainty, a relative tightening of credit markets, the absence of new launches and a wide gap between buyers’ and sellers’ expectations led to transaction volumes falling 70% q-o-q.

SupplyNo new commercial Grade A office supply was completed in 3Q11 and the supply pipeline for 2011 has been fully realised after the completion date for 414 Kwun Tong Road in Kwun Tong, a redevelopment of the former WKK Building, was delayed from 4Q11 to 1Q12.

Asset PerformanceIn Central, the slow absorption of secondary space resulted in some landlords with significant vacancy at the top end of the market lowering asking rents, leading to a 0.9% q-o-q decrease in rents in 3Q11. Outside Central, rents continued rising on the back of narrowing vacancy rates, although a noticeable drop in momentum was recorded in September. Overall rents still grew by 2.3% q-o-q.

Capital values remained stable amid growing uncertainties in the leasing market, with investors pricing in downside risks. Citywide, capital values increased 0.8% q-o-q, slowing significantly from 8.2% q-o-q in 2Q11.

12-Month OutlookThe Eurozone crisis has put the solvency of banks back into question. With several banks already announcing plans to pare back their global workforce, demand is likely to remain lacklustre over the near term. However, demand from broader services sector should continue, although the growth rate is likely to slow down.

Over the short term, rents will remain under pressure, especially in Central. Investor demand for higher yields will also put downward pressure on capital values. Notwithstanding this, vacancy rates remain low and the 2012 supply pipeline is still significantly below the long-term average. Given this, any contraction in rents will likely be protracted and relatively shallower than seen in 2008.

•••

Note: Hong Kong Office refers to the overall Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ HKD 61.6 psf pmStage in Cycle PeakNo. of Quarters Since Last Trough

8

^ net effective, on NFA

Index


60

80

120

100

140

160


07 08 09 10 11F0

2

4

6

8

Percent

0

100

200

300

400

Thou

sand

sqm

12F

Taip

ei: O

ffice


Taipei: Office

Vacancy rates see a decrease for the third consecutive quarterOverall gross rents increase marginally by 0.2% q-o-qInsurers continue to allocate funds to real estate, causing yields to edge down

DemandIn 3Q11, vacancy rates in four sub-markets fell, causing the overall vacancy rate in Taipei’s Grade A office market to edge down by 1.2% to 13.7%, the third consecutive quarter of decline following the cyclical high seen in 4Q10. Due to favourable rental packages and the economic turnaround, demand from MNCs for relocation and expansion in Xinyi District was the main driver of take-up in the quarter. In addition, owner occupier and government-related office use expansion dominated absorption in the Non-Core CBD. In the meantime, vacancy rates in the Dunhua North and Dunhua South sub-markets saw a marginal increase due to a lack of transactions.

SupplyNo new supply will be added to the Grade A office market over the remainder of 2011 as the scheduled Taiwan Life Insurance headquarters building has been delayed to 2H12.

This 9,000-ping (29,752-sqm) owner-occupied building was expected to be completed this year, however the exterior construction was delayed and as a result the completion date has been postponed. Three buildings located in the Non-Core CBD are in the pipeline for completion in 2012. In addition to the Taiwan Life Insurance headquarters building, the other two buildings are the Songjian Nanjing MRT Joint Development offering an estimated 4,371 ping and the estimated 11,000-ping Union Entertainment Centre, which is the redevelopment of the JiaJia Bowling Centre located at the intersection of Songjian and Mingshen East Road.

Asset PerformanceTaipei’s Grade A office market remained favourable to tenants as corporations were able to easily negotiate preferable rents in sub-markets with high vacancy rates, such as Xinyi and Dunhua North. As a result, overall rents increased by 0.2% to NTD 2,418 per ping per month (USD 24.0 per sqm per month), the sixth consecutive quarter of growth.

In the second quarter following the implementation of the Luxury Tax, transactions of investment-grade commercial property unexpectedly increased by 150% y-o-y to NTD 50.0 billion (USD 1.6 billion). This significant jump was the result of insurers’ purchases of Real Estate Asset Trusts (REAT). The largest transaction was Cathay Life’s purchase of the Shinkong Dunnan REAT for NTD 9.6 billion. Next in line was the acquisition of the Cathay Dunnan REAT for NTD 8.5 billion. This saw the capital values of these two properties to increase three and two-fold respectively, compared with transactions over the previous five years. However, rent increases lagged behind capital values, causing cap rates in the Dunhua South sub-market to fall to around 2%.

12-Month OutlookThe worsening sovereign debt crisis in the Eurozone and deteriorating economic prospects in the US have made some MNCs uncertain about the outlook for the future, causing them to postpone office upgrades or expansion plans. We anticipate that MNCs will remain on the sidelines for 3-6 months until at least 1Q12.

•••

Note: Taipei Office refers to Taipei’s overall Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ NTD 2,418 per ping pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

6

^ gross achievable, on GFA


90

100

110

120

140

Index

130

07 08 09 10 11F

Percent


–80

–40

0

40

80

120

Thou

sand

sqm

–12

–6

0

6

12

18

12F

Bang

kok:

Offi

ce


Bangkok: Office

No new supply is seen in the quarterAverage gross rents rise 0.5% q-o-q, signaling a potential bottom No investment transactions are reported in 3Q11

DemandIn 3Q11, net take-up of Grade A office space in the CBD declined to 4,100 sqm, which accounts for actual physical occupancy rather than leases being signed. Net take-up in the quarter came mostly from relocations as tenants took advantage of falling rents to secure better grade office premises.

Given an active leasing market during the quarter, net take-up should rebound in 4Q11 as tenants take physical occupancy of their new locations. Vacancy rates declined slightly to 22.0% in 3Q11.

Supply During the quarter, no new supply was completed and the total stock remained unchanged at 1.3 million sqm. Meanwhile, the outlook for Sathorn Square, a Grade A office building on Sathorn Road that completed in 2Q11, has improved considerably, with approximately 50% of the space now committed.

In 4Q11, Park Ventures, a mixed-use project comprising a Grade A office building and hotel on Wireless Road, will be ready for occupation. Thereafter, there will be no new supply of Grade A office space in the CBD until at least 2013. Other Bangkok office supply currently under construction is relatively small in scale and in non-CBD locations.

Asset PerformanceRents for Grade A office space in the CBD showed signs of picking up in 3Q11, reaching an average of THB 614 (USD 19.7) per sqm per month, a 0.5% increase over the previous quarter. The limited future supply of Grade A office space in the CBD and a pick-up in demand helped to boost this figure. In addition, the average rent-free period fell slightly to 0.85 months per year.

The rise in average rents was behind the increase in notional capital values, which were higher by 1.8% q-o-q as yields remained at 7.8%. At the same time, the investment market remained quiet and no transactions were recorded in the quarter.

12-Month OutlookNet absorption is expected to improve over the remainder of 2011 as pre-committed tenants physically move into new premises. Despite a shakier global economy, fundamentals in the Thai economy remain relatively sound.

A sustained pick-up in demand should result in a decline in vacancy rates heading into 2012. Coupled with a lack of new supply in the medium term, rents and capital values are expected to rise over the course of next year.

•••

Note: Bangkok Office refers to Bangkok’s CBD Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ THB 5,792 psm paStage in Cycle TroughNo. of Quarters Since Last Peak

17

^ net, on NLA

Rental Value Index Capital Value Index

Index

4Q07 4Q08 4Q09 4Q10 4Q11 4Q1270

80

90

100

110


Thou

sand

sqm Percent

07 08 09 10 11F

25

50

75

100

125

0 0

5

10

15

25

20

12F

Ho C

hi M

inh

City

: Offi

ce


Ho Chi Minh City: Office

Cyclical factors lead to a slight slowdown in leasing activity in 3Q11Rents decline at a slower rateThe setting up of a legal framework for REITs is in discussion

DemandLeasing activity slowed slightly in 3Q11, probably due to cyclical factors as historically the first and third quarters are usually when leasing transactions are more subdued. Nevertheless, net absorption still amounted to 5,910 sqm, mainly contributed by a few major leasing transactions in newer buildings such as Bitexco Financial Tower, Vincom Center and Kumho Asiana Plaza.

As no new supply came on-stream, vacancy rates continued to fall by another 280 bps to reach 29.8% at the end of 3Q11.

Tenants continued to consider upgrading their office space to Grade A buildings. During 3Q11, MasterCard and Devere Group both moved to Bitexco Financial Tower from Saigon Trade Center and Bitexco Building, respectively. In recent quarters, most leasing transactions have come from relocations and/or expansions by existing occupiers. The most notable transactions observed were by companies in the consumer products and financial sectors.

SupplyTotal office stock in HCMC remained constant in 3Q11 at over 209,000 sqm. Vincom Center and Bitexco Financial Tower, both of which were completed in 2H10, currently account for around 49% of the total Grade A office supply.

Construction activity generally slowed during the quarter, except that undertaken by developers with strong financing.

Asset PerformanceAverage net effective rents decreased slightly to USD 41.5 per sqm per month. Most of the decline was caused by the Vincom Center which lowered its rents in return for higher occupancy rates. Other buildings maintained or increased their rents marginally.

The rate of rental decline reached 1.5% q-o-q in 3Q11, marking the fifth consecutive quarter of the rent decline slowing since 3Q10.

Similar to 2Q11, yields remain in the 12-13% range, although capital values are not widely reported in the HCMC Grade A office market.

12-Month OutlookDemand is expected to start gaining more momentum towards the end of 2011 and throughout 2012 as business confidence gradually returns.

Rents are expected to bottom out in 4Q11 or during 2012 and to remain relatively flat towards the end of 2012.

Notwithstanding the discussion on setting up a legal framework for REITs, the underdeveloped investment market for Grade A offices may continue to remain quiet over the short term.

•••

Note: Ho Chi Minh City Office refers to the Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ USD 498 per sqm paStage in Cycle Decline slowingNo. of Quarters Since Last Peak

12

^ net effective, on NLA

NA

4Q07 4Q08 4Q09 4Q10 4Q11 4Q12

Index

Rental Value Index

60

80

100

120

140

160

07 08 09 11F10


–20

0

20

40

60

120

100Th

ousa

nd sq

m

–7

0

14

7

21

28

42

35

Percent

80

12F

Mani

la: O

ffice


Manila: Office

Negative net absorption due to tenant movements pushes vacancy rates upRents continue to climb on the back of robust office demandCapital values continue in line with rents as yields settle at 11.0-11.2%

DemandTenants relocating from select Grade A developments to other emerging districts, and the release of space in existing buildings previously on hold, contributed to a decline in net absorption to –16,200 sqm in the quarter. Consequently, vacancy rates increased to 4.2%, from 3.3% in 2Q11.

The majority of take-up in 3Q11 was in Bonifacio Global City (BGC), underscoring its growing importance as one of the key business districts in Metro Manila. An estimated 10,700 sqm of office space was pre-committed by a single O&O tenant in Science Hub Tower 1 in BGC, suggesting sustained demand from the O&O sector.

SupplyNo new developments completed in 3Q11 as the majority of office stock due this year will complete in 4Q11. Notably, however, significant new office construction was seen over the quarter, namely, the W Fifth Avenue, the NAC Tower, the Eco Tower and the Clipp Center.

Meanwhile, proposed projects announced in the quarter included office buildings by Filinvest Land, Inc. (FLI) and Ayala Land, Inc. (ALI) in Makati. These new additions prompted landlords to lock in leases before tenants gain leverage from the large supply of office space that will enter the market.

Asset PerformanceRents continued to increase at a similar pace seen in previous quarters, reaching PHP 9,064 per sqm per annum in 3Q11 from PHP 8,441 per sqm per annum in 2Q11. The rise in rents can be traced to the growing demand for office space in newer buildings in BGC. Also, landlords have hiked rents to secure a stream of income in light of the large volume of future office stock that may cause a rent reduction.

Similarly, capital values remain on an upward trajectory, posting 4.4% growth q-o-q in 3Q11. Recent office transactions included the sale of an 8,000-sqm property along Chino Roces Avenue in Makati City. Meanwhile, investment yields improved, settling between 11.0% and 11.2%.

12-Month OutlookThe supply of office space is expected to peak over the next 12 months, with the large volume likely to propel vacancy rates further upward and bring rents down to competitive levels. The O&O sector is expected to continue to drive office demand, particularly as O&O firms continue to invest in the country.

The office sector currently remains unaffected by global market externalities. However, the presence of these factors poses a continual threat to the sector and may contribute to its slowdown over the coming months.

•••

Note: Manila Office refers to the Makati and Bonifacio Global City Grade A office market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ PHP 9,064 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

7



Index

4Q07 4Q08 4Q09 4Q10 4Q11 4Q1280

90

100

110

130

120


07 08 09 10 11F0

50

100

150

200

250

300

Thou

sand

sqm

0

2

6

10

12

Percent

4

8

12F

Kuala

Lum

pur:

Offic

e


Kuala Lumpur: Office

Increasing supply outstrips demandTenant favourable market prevailsMany investors remain cautious

DemandThe average vacancy rate in the city centre reduced to 14.9% in 3Q11 from 15.7% in 2Q11 despite the completion of Plaza Dijaya which is yet to be physically occupied. The 19-storey building has registered approximately 90% pre-commitments from oil and gas industry companies.

Net absorption in the city centre improved to approximately 26,413 sqm in 3Q11 after being negative in 2Q11.

The majority of the net absorption was contributed by the relocation and expansion of Bank Islam at Menara Bank Islam, located on Jalan Perak.

Other notable leasing activity involved the relocation and expansion of Mutiara Goodyear Development Bhd from Menara Tun Razak to Menara Standard Chartered and the expansion of Bumi Armada Bhd at Menara Perak.

SupplyFollowing the completion of Plaza Dijaya (13,935 sqm) in the Golden Triangle, the total existing supply of prime office space in the city centre increased to 1.854 million sqm.

City centre offices are expected to receive 216,629 sqm of prime office space in 4Q11 given all construction works are progressing as scheduled. Offices expected to be completed in 4Q11 include Menara Worldwide, Glomac Al-Batha Tower and KLCC Tower 3.

Asset PerformanceIn 3Q11 the average net rental increased marginally by 0.6% q-o-q to MYR 613 per sqm per annum. The landlords of well occupied buildings continued to maintain their higher rental rate expectations. Despite the ability of some landlords to hold rents in 3Q11, the huge incoming supply of superior quality buildings will inevitably pressure many landlords, particularly those with high vacancy rates, to offer greater incentives to attract tenants.

Menara Multi-Purpose, a 17 year old office building situated at Jalan Munshi Abdullah was sold by Multi-Purpose Holdings Bhd to the Malaysian Chinese Association (MCA), a political party. The 50,298 sqm building was transacted at MYR 375 million, equivalent to MYR 693 per sq. ft.

12-Month OutlookAs new supply continues to enter the market and outpace demand, the vacancy rate is expected to increase. Landlords of poorly occupied new buildings will inevitably reduce their asking rents or offer various incentives in order to attract potential tenants.

Underpinned by several factors such as the construction of better quality offices and rising building costs, capital values are expected to increase but as rental rates consolidate, investors are expected to adopt a cautious approach until the market improves.

The government has initiated Invest KL, with the task of bringing foreign MNCs to Malaysia. The continuous promotion of Kuala Lumpur as a commercial hub is expected to further establish the city as one of the Asia Pacific region’s most attractive commercial cities from which to operate a business.

•••

Note: Kuala Lumpur Office refers to Kuala Lumpur’s Grade A office market.

12-Month Outlook



Financial Indices

Arrows indicate 12-month outlook Index base: 4Q07 = 100Source: Jones Lang Wootton

Physical Indicators

Source: Jones Lang Wootton

Rental InformationRental Value^ MYR 613 psm pa Stage in Cycle Rents risingNo. of Quarters Since Last Trough

1

^ net, on NLA


4Q07 4Q08 4Q09 4Q10 4Q11 4Q12

Index

90

95

105

100

110

Thou

sand

sqm Percent


07 08 09 10 11F0

60

300

0

4

8

20

16

120

240

12180

12F

Sing

apor

e: O

ffice


Singapore: Office

Addition of new supply contributes to a rise in vacancy ratesRaffles Place rents continue to grow but at a slower paceCapital values increase moderately as investors continue to seek opportunities

DemandDemand for office space has slowed in 3Q11 as rising economic uncertainties and slowdowns have caused occupiers to delay relocation and/or expansion plans. Absorption of space has been slower than expected, with new and older buildings displaying little quarterly change in occupancy.

Net absorption of space in Raffles Place increased from 63,000 sqm to 89,000 sqm in 3Q11, while the vacancy rate rose from 6.9% to 8.6%. The increase in net absorption and the vacancy rate can be attributed to the addition of about 117,000 sqm of net-lettable area on completion of Asia Square Tower 1. The relocation of tenants from their existing space to Asia Square has left some older buildings with higher vacancy, however it is providing the opportunity for the remaining tenants to expand into the vacated space and for new start-ups to seek good-quality space.

SupplySupply for the quarter increased with the completion of Asia Square Tower 1. Currently a total of about 232,000 sqm of space has been introduced to Raffles Place. By year end, the total new supply should rise to more than 260,000 sqm as 1 Raffles Place Tower Two is expected to complete without delay in 4Q11. This supply in 2011 will be the highest level in 20 years.

After that, no new supply will be introduced into the Raffles Place submarket until mid-2012 when Marina Bay Financial Centre Tower Three completes. The building is over 70% pre-leased, with anchor tenant DBS committed to more than 55,000 sqm. Overall, the expansion in supply will provide tenants with maturing leases with more options for relocation and leverage in negotiations with landlords.

Asset PerformanceRents continued to grow slowly in the office market, rising in Raffles Place by 0.5% q-o-q in 3Q11 to SGD 1,058 (USD 806) per sqm per annum. A bleak outlook for the future of the global economy and an appreciating SGD in 3Q11 has made occupiers more cautious about capital expenditure and more resistant to high asking rents.

Capital values increased moderately compared with the previous quarter as local investors continued to seek buying opportunities in light of the strong SGD and speculation over rising interest rates. However, growth was constrained by negative global economic sentiments. The valuation-based capital value for Raffles Place registered a 2.3% q-o-q increase to SGD 25,883 per sqm for the quarter, causing market yields to compress further.

12-Month OutlookThe continued economic slowdown is likely to result in little change in demand for office space as occupiers maintain a wait-and-see approach. Further slowdown in the growth of rents and capital values is expected, exacerbated by rising supply and increases in vacancy rates over the next 12 months. Yields should see further moderation to a 3%-4% level.

•••

Note: Singapore Office refers to Singapore’s CBD Grade A office market in Raffles Place, Shenton Way and Marina Centre.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ SGD 1,058 psm paStage in Cycle Growth slowingNo. of Quarters Since Last Trough

6



20

60

120

Index

100

80

40


–50

0

100

200

300

07 08 09 10 11F –2

0

4

8

12

2

6

10

50

150

250

Thou

sand

sqm Percent

12F

Jaka

rta: O

ffice


Jakarta: Office

Limited available space curbs demand growth in the Grade A office marketRents enjoy double digit growth as vacancy falls to ten year lowWith significant growth in rents, capital values increase accordingly

DemandStrong demand in the Jakarta office market, fuelled by the positive economic and business environment, led to a jump in occupancy as seen in the past few quarters. Yet, net absorption in 3Q11 slid to approximately 40,700 sqm, around two-thirds of the figure seen in 2Q11 due to limited available space. Leasing activity continued to be dominated by tenant upgrades, expansions, relocations and consolidations. Energy and natural resources, banks, telecommunications and financial companies are the sectors that are active in the market. As such, vacancy fell to 7.1% in 3Q11 compared with 9.9% in 2Q11 as no new supply was delivered over the period. Notable deals included Deloitte’s relocation to The Plaza with over 5,000 sqm taken up in the new building. Leasing activity by newly established SMEs also flourished, particularly in the newly completed strata-title Equity Tower.

SupplyNo new developments entered the market in 3Q11, keeping supply unchanged at around 1.45 million sqm. As no projects are scheduled over the remainder of 2011, the Jakarta office market is perceived as having a limited supply of Grade A office space, while leasing enquiries are likely to continue.

Asset PerformanceDue to solid demand, rents grew at around 13.6% q-o-q in 3Q11, following the 14.6% q-o-q increase in the previous quarter. Solid enquiries encouraged landlords to remain confident about asking new tenants for higher rents, particularly those looking for smaller office space. This was predominantly seen in projects with better quality buildings, such as The Plaza, Sentral Senayan III and One Pacific Place. Overall, average rents climbed to USD 181 per sqm per month. Capital values moved in line with rental growth, up by 14.2% q-o-q on the back of declining vacancy rates. With some changes in rents and capital values, yields compressed slightly to stabilise at 8.2%.

12-Month OutlookThe office market is expected to continue enjoying robust demand due to the healthy economy and strong business environment, as reflected in high occupancy rates. Corporate expansions are likely to trigger more leasing activity as companies upgrade or seek more space in the buildings they currently occupy. Supply over the coming year is expected to come solely from World Trade Center II. In view of the improving market performance, rents and capital values in the investment-grade market are expected to rise over the next two years.

•••

Note: Jakarta Office refers to Jakarta’s Investment (Grade A) office market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ USD 181 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

4



Index

80

100

120

140

180

160


07 08 09 10 11F0

50

100

150

200

250

Thou

sand

sqm

0

5

10

15

20

25

Percent

12F

Delh

i: Of

fice


Delhi: Office

Demand remains strong in the suburbs of Gurgaon and NoidaRents show upward movement in all sub-markets except SBD Capital values increase marginally despite limited investor activity

Demand Demand in 3Q11 was adversely affected by the possibility of a global economic slowdown, with net absorption dropping nearly 31% q-o-q overall. Net take-up totalled 1.23 million sq ft (114,412 sqm), with the majority of demand seen in the Gurgaon and Noida suburban sub-markets. Overall vacancy increased 19.7% in 3Q11. CBD vacancy remained low and moderate churn in existing stock led to zero net absorption. Net absorption in the SBD was moderate with vacancy rates at 13.5% in 3Q11.

Global firms in NCR-Delhi expanded, consolidated or relocated from existing offices within suburban sub-markets. A few notable new lettings in the Gurgaon sub-market included Canon, leasing 100,000 sq ft (9,290 sqm) in DLF Building 5A and MakemyTrip, leasing 80,000 sq ft (7,432 sqm) in SP Infocity. The Noida sub-market saw Ericsson expanding by approximately 73,000 sq ft (6,785 sqm) in Knowledge Boulevard, and Schneider Electric and Vadel leased 58,000 (5,388 sqm) and 30,000 sq ft (2,787 sqm) in the IGL Business Park respectively.

SupplyThe suburban markets, Gurgaon and Noida, witnessed the completion of 2.1 million sq ft (199,374 sqm) of office space in 3Q11, of which four were IT projects, while two were non-IT projects. The CBD and SBD submarkets did not witness any completions during 3Q11.

Asset PerformanceThe lack of vacant space in the CBD and active turnover in existing stock contributed to rents moving up further, in 3Q11 INR 237-295 per sq ft per month. Rents in the Gurgaon sub-market rose to an average of INR 64 per sq ft per month, while those in Noida remained stable due to high vacancy.

Capital values continued to appreciate, although the increases remained range-bound with marginal growth of 1.9% q-o-q in 3Q11. Investors demonstrated cautious optimism as they continued to weigh their risk-return trade-off, mirroring the sluggish signals in global economies. Capital values in the CBD rose marginally by 1.6%. The Gurgaon sub-market saw capital values rise by 4.2% q-o-q due to active investor demand for leased office assets. Capital values in SBD and the Noida sub-market were stagnant as investor activity was limited.

12-Month OutlookThe CBD is expected to continue to see an increase in rents as vacancy rates remain extremely low. As active turnover continues in existing stock, landlords are expected to continue increasing rents to take advantage of market conditions. Meanwhile, in the SBD, a declining vacancy rate in 2012 and moderate demand are expected to underpin rental growth. Rents are expected to be constrained in the suburban sub-markets due to oversupply, although select precincts may see marginal appreciation. Capital values are expected to remain stable, with some growth across various sub-markets.

Investment sentiment is expected to recover slightly faster than the leasing market and capital values are predicted to rise faster than rents, which will compress yields in both the CBD and SBD. Yields in the suburban sub-markets are expected to be stable as investment activity may remain modest and in line with the leasing activity seen in these sub-markets.

•••

Note: Delhi Office refers to overall NCR Grade A office market.

12-Month Outlook


Physical Indicators are for overall NCR.


Financial Indices


Physical Indicators


Rental Information (CBD)Rental Value^ INR 237 psf pm Stage in Cycle Rents risingNo. of Quarters Since Last Trough

5

^ gross, on GFA

Financial Indicators are for CBD.

Index

40

100

120

80


60


07 08 09 10 11F

Thou

sand

sqm Percent

0

40

80

160

0

4

8

12

16

120

12F

Mum

bai:

Offic

e


Mumbai: Office

Leasing activity slow compared with the previous two quartersRental growth slows across all sub-marketsCapital values continue to grow faster than rents

Demand Uncertainties in the global economy combined with adverse macroeconomic factors such as rising interest rates and surging inflation led to a marginal slowdown in leasing activity in 3Q11. Net take-up was 2.3 million sq ft (213,025 sqm) in 3Q11, over 65% of which was attributed to pre-commitments in buildings that became operational in the quarter. In 3Q11, occupiers preferred to lease space in operational buildings rather than pre-committing to upcoming ones. Accounting for over 30% of the quarter’s net absorption, the SBD Central sub-market saw healthy leasing activity, primarily in the Indiabulls Finance Centre and One Indiabulls Centre.

Notable leasing transactions included RBS’s lease of 70,000 sq ft (6,503 sqm) at Maker Maxity, the lease by Stylus Business Centre of 40,000 sq ft (3,716 sqm) in R Tech Park, Future Generali’s lease of 42,000 sq ft (3,902 sqm) in Indiabulls Finance Centre, Cognizant’s lease of 160,000 sq ft (14,865 sqm) and the lease by Ness Technologies of 56,000 sq ft (5,203 sqm) at Mindspace 1 Buildings 5 and 6.

SupplyAbout 3.8 million sq ft (354,493 sqm) of office space across 12 office buildings became operational in 3Q11, which led to a rise in total stock to 70.5 million sq ft (6.5 million sqm), with an overall vacancy rate of 19.8%.

Major completions in Mumbai in 3Q11 included Hindustan Unilever Building, with 154,320 sq ft (14,377 sqm) in Churchgate; Crescenzo (Upper Floors), adding 423,000 sq ft (39,298 sqm) in BKC; Times Square, with 1 million sq ft (92,903 sqm) in Andheri (E) and Mindspace 1 Building 2, which added 350,000 sq ft (32,516 sqm) in Airoli.

Asset PerformanceRental growth slowed across most sub-markets. While the CBD, SBD Central, SBD North, and Thane and Navi Mumbai sub-markets saw stable rents in 3Q11, the SBD BKC, and the Western and Eastern Suburbs sub-markets saw marginal increases of just over 1%. Given the looming uncertainty of a double-dip recession in the US and European economies, along with other adverse macroeconomic factors, such as hikes in interest rates by the Reserve Bank of India (RBI) and surging inflation, financial indicators in the Mumbai office real estate market remained stable.

12-Month OutlookSupply will outweigh demand for office space in the near term. However, absorption is expected to remain range-bound on the back of healthy pre-commitments in upcoming completions. Renewals of leases signed in 2007 and 2008 will form a major portion of the demand for office space over the next year. Growth in rents and capital values will likely be constrained over the short term, particularly in sub-markets with oversupply.

•••

Note: Mumbai Office refers to Mumbai’s overall Grade A office market.

12-Month Outlook


Physical Indicators are for overall Mumbai.


Financial Indices


Physical Indicators


Rental Information (CBD)Rental Value^ INR 245 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

5

^ gross, on GFA



Index

40

60

80

100

120

07 08 09 10 11F

Thou

sand

sqm Percent


0

400

800

0

5

10

15

1,600

1,200

20

12F

Bang

alore

: Offi

ce


Bangalore: Office

Demand from the IT/ITeS sector continues to strengthen Rents remain stable in the CBD and increase in other sub-markets Capital values increase marginally in the SBD and Whitefield sub-markets

DemandBangalore continued to see healthy transaction activity in 3Q11, especially in large office formats. Total transaction volume of 1.8 million sq ft (167,225 sqm) was recorded in 3Q11. The combination of stable demand and restricted supply has been instrumental in bringing the overall vacancy rate down to 12.7% from 13.5% in 2Q11. Vacancy rates across the Special Economic Zones (SEZs) also fell significantly to below 1%.

Whitefield witnessed stronger leasing activity than other sub-markets. Leasing deals there include HUL’s lease of 400,416 sq ft (37,200 sqm) in Prestige Shantiniketan and Airbus’s lease of 120,000 sq ft (11,148 sqm) in Xylem. In the SBD, Broadcom leased 260,000 sq ft (24,154 sqm) in RMZ Ecospace and NetApp leased 112,029 sq ft (10,407 sqm) in Embassy Golf Links.

SupplyA total of 1.2 million sq ft (111,484 sqm) of office space opened in 3Q11, including JP IT Park, ITPL Society General Block, Kalyani Platina Phase 2, Bagmane World Trade Center 3 Phase 2 Block A, Bagmane World Trade Center 3 Phase 2 Block B and Prestige Atrium. All these projects, except JP IT Park in Electronics City, completed with over 90% occupancy.

Asset PerformanceAverage rents for office space in the CBD and Electronics City remained stable due mainly to BFSI sector demand in the former sub-market and low overall demand in the latter. In the SBD, rents rose marginally by 2.3% q-o-q due to limited supply and increased demand from IT occupiers due to its proximity to the city’s residential catchment areas. The Whitefield sub-market also saw a q-o-q increase in rents, up 3.3%, as it is generally preferred by IT occupiers due to larger floor plate availability and good-quality buildings.

Capital values in the CBD remained stable, while those in the SBD and Whitefield rose marginally, up 2.3% q-o-q in the SBD, an increase of 19.7% over the last trough in 3Q10, and up 3.8% q-o-q, in Whitefield, an increase of 15% over the trough in 4Q10. High occupancy rates due to growing demand resulted in the increase in capital values in these sub-markets, although neither sub-market saw any transactions in 3Q11.

12-Month OutlookWith many IT companies looking to pre-lease space to take advantage of favourable commercial terms from developers, Bangalore is expected to see stable demand over the remainder of the year, particularly in Whitefield and SBD sub-markets. Good pre-leasing in projects in the SBD, along with expected demand for space in completed and upcoming projects in Whitefield, will drive net absorption by end-2011. Rents and capital values are likely to increase across the sub-markets, while yields are expected to remain stable or compress in 2011 due to the perceived lower risk. The CBD and SBD sub-markets are predicted to favour landlords over the remainder of 2011 due to growing demand and limited supply, whereas the Whitefield and Electronics City sub-markets will likely favour tenants in 2012.

•••

Note: Bangalore Office refers to Bangalore’s overall Grade A office market.

12-Month Outlook


Financial Indices


Physical Indicators


Rental Information (CBD)Rental Value^ INR 81 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

4

^ gross, on GFA

Physical Indicators are for overall Bangalore.



Index


70

90

120

80

110

100


07 08 09 10 11F0

300

600

900

1,200

Thou

sand

sqm

0

4

8

12

16

Percent

12F

Chen

nai:

Offic

e


Chennai: Office

Despite cautious sentiment, gross leasing volumes are healthyRents increase in the CBD and SBD sub-marketsCapital values continue to rise in line with declining vacancy rates

Demand Despite concern over the global economy the Chennai office market recorded gross leasing volumes over 1 million sq ft (92,903 sqm). However, this was lower than the nearly 1.6 million sq ft recorded in 2Q11. The Chennai office market enjoys a diversified occupier base, with telecommunication firms and IT/ITES companies contributing nearly one-third each, along with a 16.0% share from manufacturing industries, and 13.0% from service-based industries. Telecommunication giants accounted for 37.0% of these transactions, with Verizon leasing 140,000 sq ft (13,006 sqm) in RMZ Millenia Campus 5 and Alcatel-Lucent leasing 120,000 sq ft (11,148 sqm) in TVH Agnitio Phase 1. Nokia leased space in RMZ Millenia Campus 5 and Atheros Qualcomm in TVH Agnitio Phase 1. Several IT/ITES leased space, including Hewlett Packard taking 150,000 sq ft (13,935 sqm) in Ramanujan IT City Hardy Tower Block C and Aricent, L&T Infotech, Vertex BPO, HCL Technologies, Siemens Information Systems and Object Frontier Software also took space. Net absorption totalled 889,597 sq ft leading to a vacancy rate decline from 29.3% in 2Q11 to 27.6% in 3Q11, largely due to thin supply over the remainder of 2011, as the completion of most projects was delayed to 2012.

SupplyPrestige Palladium, comprising 180,000 sq ft and located along Greams Road in the CBD sub-market, was the only completion in 3Q11. Apollo Hospitals leased 19,800 sq ft of office space in the non IT building at a gross rent of INR 65-70 per sq ft per month.

Asset PerformanceRents rose 1.6% q-o-q in the CBD sub-market due mainly to certain projects leasing office space at rents above the market average. Bannari Amman Sugars Building along RK Salai leased space at INR 90-95 per sq ft per month, and Prestige Palladium and Express Towers Hotel Block offered rents at INR 65-70 per sq ft per month. The SBD sub-market recorded a 2.6% q-o-q increase in rents and vacancy rates fell below 20%.

Capital values continued to appreciate, up by 1.8% q-o-q. Initial yields for office property remained at 10-11% across the city. Kalpathi Investments, a Chennai-based investment firm, acquired Rantech IT Park, which has a leasable area of 165,000 sq ft and is located in the IT corridor at Sholinganallur. Similar transactions are expected in the coming quarters along the IT corridor in Chennai, as developers continue to offer properties for purchase. The lower floors of non-IT office property continue to attract interest in outright strata-title transactions from retailers.

12-Month OutlookLeasing levels should remain firm, despite uncertainties, as companies continue to show cautious optimism. The relaxation of policies, especially with respect to the occupancy of IT projects by non-IT companies, and the development of infrastructure will offer more opportunities for a diverse occupier base to relocate and expand at lower costs and offering increased connectivity. The growth in rents and capital values over the near term will likely be limited to selected projects and locations where leasing remains healthy.

•••

Note: Chennai Office refers to Chennai’s overall Grade A office market.

12-Month Outlook


Financial Indices


Physical Indicators


Rental Information (CBD)Rental Value^ INR 62 psf pm Stage in Cycle Rents risingNo. of Quarters Since Last Trough

3

^ gross, on GFA

Physical Indicators are for overall Chennai.



Index


60

120

80

100


07 08 09 10 11F0

200

400

600

800

Thou

sand

sqm

0

8

16

24

32

Percent

12F

Sydn

ey: O

ffice


Sydney: Office

Backfill space increases vacancy as new supply completesRents rise as new lease deals in premium space set higher benchmarksInvestment activity picks up, driven by offshore buyers

DemandLeasing demand remains positive. Net absorption of 19,800 sqm was recorded in 3Q11. Relocation and consolidation within the CBD drove the majority of major tenant movements this quarter. The largest of these was Clayton Utz taking 23,390 sqm in the newly completed 1 Bligh Street development, vacating 1 O’Connell Street. Net absorption over the past 12 months in the Sydney CBD was 83,800 sqm.

Financial market volatility and associated uncertainty has not had a demonstrable effect on vacancy, yet. Total vacancy increased to 8.4% in 3Q11, up from 8.0% in 2Q11. This was largely due to the inclusion of the newly developed 1 Bligh Street and its 18,970 sqm of available space. The backfill space vacated by Clayton Utz in their move from 1 O’Connell Street was a major contributor.

SupplyNew supply in 3Q11 was limited to the completion of DEXUS and CBUS Properties 1 Bligh Street (42,360 sqm). Three major projects were under construction at the end of 3Q11.

Westfield’s 85 Castlereagh Street project is scheduled to complete early in 1Q12 with 35,030 sqm of office space of which approximately 8,330 sqm remains available for lease. Nearby, 161 Castlereagh Street/242 Pitt Street will complete in 2013 with ANZ Bank and Freehills as major tenants. This will facilitate the expected refurbishment and repositioning of ANZ Bank’s current headquarters at 20 Martin Place, recently purchased from ANZ by Pembroke Real Estate (USA) for circa AUD 95 million. The last project under construction is the new 19,800 sqm tower at 8 Chifley Square for which no formal leasing announcements have been made.

Asset PerformanceIn line with leasing deals concluded in recent months, prime gross effective rents increased 4.5% in 3Q11, strongly influenced by the premium range upper end recording sharp growth, having remained steady for over two years. Vacancy in premium grade stock has steadily tightened in recent quarters.

Investment activity increased in 3Q11. Nine major office sales were recorded in 3Q11, totalling AUD 980.4 million. Continuing the theme evident in Sydney office transactions in recent years, many of the sales this quarter were to offshore groups or involved offshore capital. The largest sale this quarter was the AUD 395.0 million purchase of Suncorp Place, 259 George Street by Memocorp Australia Pty Ltd.

Average equivalent investment yields were unchanged at 6.25% to 7.50% for prime grade stock and 7.25% to 8.25% for secondary grade stock in 3Q11. The prime grade capital value indicator continues to increase, up 4.8% for the quarter and 6.8% in the year, in line with the increase in market rents.

12-Month OutlookNet absorption in 2012 is expected to slow from the strong pace recorded in 2010 and 2011. However, it is still expected to exceed net supply and result in a gradually declining vacancy rate by the end of 2012. Lower vacancy is expected to support further steady growth in effective rents and a slight tightening of yields.

•••

Note: Sydney Office refers to the Sydney CBD office market (all grades).

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ AUD 597 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

8

^ gross effective, on NLA

07 08 09 10 11F

Take Up (gross) CompletionsFuture Supply Vacancy Rate

Thou

sand

sqm Percent

–100

–50

0

50

100

150

–8

–4

0

4

8

12

12F


Index

70

80

110

100

120

90

Melb

ourn

e: O

ffice


Melbourne: Office

Vacancy is currently 5.9%, below the 40 year average of 9.9%Prime gross effective rents remain unchanged in 3Q11Prime equivalent yields now range from 6.50%-7.75%

DemandLeasing activity was relatively subdued in 3Q11. Over the quarter, positive net absorption of 2,600 sqm was recorded. Despite the modest level of absorption over the quarter, the result was relatively positive given the uncertainty surrounding the global economic outlook. A lack of large contiguous space options is also preventing further take-up and a number of outstanding tenant requirements remain in the market.

Major leasing deals during 3Q11 include Griffith Hack (3,200 sqm) at 161 Collins Street, TRUenergy (3,100 sqm) at 507-581 Flinders Street and American Express (3,000 sqm) at 333 Collins Street. Headline vacancy tightened in 3Q11 to 5.9%. Vacancy in prime grade stock is at 3.9% while the secondary market is higher at 8.5%.

SupplyNew supply in 2011 will be limited to the refurbishment at 321 Exhibition Street (31,000 sqm), expected to complete in 4Q11. Two other refurbishments are expected to complete in early 2012. These are 555 Bourke Street (17,300 sqm) and 357 Collins Street (30,000 sqm).

There are a further nine projects totalling 208,600 sqm under construction. Including the project refurbishments, total stock under construction comes to 286,800 sqm. Of this space, 77% is already pre-committed. Major pre-commitments include: BHP (12,000 sqm) at 171 Collins Street, Melbourne Water (12,200 sqm) at 990 LaTrobe Street, Australian Taxation Office (35,300 sqm) and Marsh Mercer (26,000 sqm) at Building 1 & 2, Collins Square and National Australia Bank (61,000 sqm) at 700 Bourke Street.

Asset PerformanceMany businesses are employing a ‘wait and see’ strategy with regards to their long-term business decisions. As a result, there has been a temporary pause in rental growth. Prime gross effective rents remained unchanged from the previous quarter at AUD 413 per sqm per annum.

Prime equivalent investment yields tightened at the upper end by 25 bps and now range from 6.50% to 7.75%, in line with the long term average yield spread.

12-Month OutlookLead indicators for the office market are mixed. The ANZ Job Advertisement Series shows job ads have fallen for five of the past six months. Uncertainty surrounding the economic outlook is likely to trim demand for office space in the short-term. However, we believe the economic upturn has been delayed, not cancelled. According to the Reserve Bank of Australia, year-end GDP growth for 2012 and 2013 is forecast at 3.75%. Should the economy evolve in-line with the RBA’s central forecast, we expect strong employment growth and renewed leasing activity to emerge.

•••

Note: Melbourne Office refers to the Melbourne CBD office market (all grades).

12-Month Outlook



Financial Indices


Physical Indicators



9



Index

70

90

80

100

110

120

07 08 09 10 11F

Thou

sand

sqm Percent


0

50

100

150

200

0

2

4

6

8

12F

Brisb

ane:

Offi

ce


Brisbane: Office

Net absorption in 3Q11 is 29,500 sqmVacancy rises marginally to 6.9%Prime effective rents and yields remain largely unchanged

DemandNet absorption of 29,500 sqm was recorded in 3Q11. Strong tenant demand from the resources sector continued this quarter. Net absorption was boosted by Rio Tinto taking their 29,000 sqm pre-commitment in 123 Albert Street. Net absorption over the past 12 months in the Brisbane CBD has been strong at 69,800 sqm.

The overall CBD vacancy rate increased marginally by 0.2% to 6.9%. Since reaching its peak in 2Q10 at 10.6%, Brisbane’s CBD vacancy rate has fallen by 3.6%. A lack of new supply additions and strong tenant demand has led to the fall in the CBD vacancy rate over this period. Prime vacancy increased during the quarter by 0.7% to 3.7% due to the completion of 123 Albert Street. Secondary vacancy fell to 9.6%

Supply3Q11 saw 38,000 sqm of prime space added due to the completion of Dexus’ 123 Albert Street development. This is the first major supply addition for the Brisbane CBD office market since the refurbishment of the Transit Centre completed in 1Q10.

At the end of 3Q11 three new projects were under construction totalling 110,000 sqm of space. These projects are: GPT’s 111 Eagle Street development (64,000 sqm, 40% pre-leased or under offer) scheduled for completion in 2Q12; Grocon’s 55 Elizabeth Street development (fully pre-leased to the Australian Tax Office); and Leighton Properties 145 Ann Street development (27,950 sqm, 70% pre-leased or under offer) and due for completion in 4Q13.

Asset PerformancePrime gross effective rents continued to stabilise over 3Q11 and remained unchanged at AUD 457 per sqm per annum. This is the third consecutive quarter that effective rents have largely remained unchanged. The average level of leasing incentives increased slightly to 30 months’ rent free for a 10-year lease. Secondary gross effective rents increased 2.3% percent to AUD 330 per sqm per annum. The continued lack of immediately available prime contiguous space options has increased demand for secondary grade space.

Five major sales (≥ AUD 5.0 million) totalling AUD 202.3 million were recorded in 3Q11. This included the Suncorp Centre at 306-310 Ann Street, which sold for AUD 63 million to Armada Funds Management, 229 Elizabeth Street which sold for AUD 46 million to the Roman Catholic Archdiocese of Brisbane, and 86-100 Edward Street which sold for AUD 46 million to Cangrowers Australia. Both prime and secondary investment yields remained unchanged at between 7.25% and 8.00%, and 8.25% and 9.50%, respectively.

12-Month OutlookThe Brisbane CBD office market is expected to continue its recovery. While the resources sector has been a strong driver of tenant demand in Brisbane’s CBD office market, we believe that Queensland is on the cusp of a broader economic recovery that will benefit other sectors. Demand is forecast to remain strong over the next 12 months with the potential for further rental growth in prime and secondary assets.

•••

Note: Brisbane Office refers to the Brisbane CBD office market (all grades).

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ AUD 457 psm paStage in Cycle Rents stableNo. of Quarters Since Last Peak

3


40

60

100

120

4Q07 4Q08 4Q09 4Q10 4Q11 4Q12

Index


80


07 08 09 10 11F

Thou

sand

sqm Percent

0

40

80

120

160

240

200

0

2

4

6

8

12

10

12F

Adela

ide:

Offi

ce


Adelaide: Office

Vacancy increases, despite positive net absorptionNew supply is set to peak in 2012 and 2013Investment activity remains subdued with investors exercising caution

DemandLeasing enquiry has slowed over the quarter, as tenants are delaying plans of expansion or relocation until caution over wider economic influences lessens and confidence returns to the market.

Net absorption for 3Q11 was 1,100 sqm. For the 12 months to 3Q11 new stock and demand for prime grade space drove net absorption for prime assets to 28,100 sqm, while negative net absorption of 18,700 sqm was recorded in secondary grade space. Despite positive net absorption over the quarter, total vacancy increased to 7.2% in 3Q11 from 7.0% in 2Q11. This was largely due to tenants taking less space in new tenancies, sub-lease space being put back on the market and the closure of an international college.

SupplyNew supply in 3Q11 included the completion of the South Australian Police Headquarters at 100 Angas Street. However, the impact of the new space (18,000 sqm) was limited due to the fact that the police backfill space was taken out of stock for refurbishment.

Further new supply in the pipeline includes City Central Tower 8 (36,215 sqm), Light Square Office Building (2,000 sqm) and offices for Consolidated Power Properties (1,751 sqm). These projects are nearly fully leased and due for completion in 2012. In 2013, a speculative office development at 58-76 Franklin Street (26,900 sqm) and the Rundle Place office component (22,000 sqm) will complete. Vacancy is expected to remain tight in the short term until potential backfill space from new developments is offered to the market.

Asset PerformanceRents for prime grade stock remained unchanged at AUD 358 per sqm per annum, as lower levels of tenant enquiry were monitored over the quarter. Annual growth for prime gross effective rents over the 12 months to September 2011 was 7.6%. Secondary gross effective rents performed strongly in 3Q11, increasing by 4.9% for the quarter and 9.3% for the past 12 months.

Limited supply of office stock is available for sale on the market, demonstrated by only one sale transacting in 3Q11. This was a direct transaction with the developer, totalling AUD 34.0 million. The Adelaide investment market is currently dominated by private investors and syndicators with interest from offshore funds.

Average equivalent investment yields were unchanged at 7.50% to 9.75% for prime grade stock and yields for secondary grade stock tightened by 25 bps at the lower end to 9.00% to 10.50% in 3Q11. The Adelaide CBD prime grade capital value indicator continues to increase, up 1.0% for the quarter and 8.2% for the year due to increases in rental levels in the last year.

12-Month OutlookTenant enquiry is expected to remain steady for the remainder of 2011. Along with subdued levels of tenant demand, vacancy is expected to remain around current levels for the next 12 months before increasing as new supply is added and backfill space is released to the market. Yields are forecast to tighten next year as consumer confidence returns to market.

•••

Note: Adelaide Office refers to the Adelaide CBD office market (all grades).

12-Month Outlook



Financial Indices


Physical Indicators



9


80

90

110

140

4Q07 4Q08 4Q09 4Q10 4Q11 4Q12

Index


120

130

100


07 08 09 10 11F

Thou

sand

sqm Percent

–20

0

20

40

60

100

80

–2

0

2

4

6

8

10

12F

Auck

land:

Offi

ce


Auckland: Office

Vacancy levels peak as occupier conditions strengthenPrime rental growth expected, albeit moderateStable lending conditions are underpinning yields to hold at current levels

DemandOccupier conditions strengthened over the first half of 2011, as economic activity and business confidence improved. This lift has transitioned into the office sector with the overall Auckland office vacancy rate declining from 13.7% in 2H10, to 13.1% in 1H11. While occupier conditions are healthier than a year ago, there is a two-speed recovery occurring with the prime sector recalibrating faster than the secondary sector. The prime vacancy rate (A & B grade) declined to 13.3%, with minimal A-grade options over 1,000 sqm. The secondary vacancy rate (C, D & E grade) increased to 15.2% from 14.1% in 2H10.

SupplyThe latest increase in supply is due to the practical completion of Auckland Britomart’s East Building, which comprises 27,300 sqm of high quality, low rise office accommodation. The building houses Ernst and Young, Westpac Bank and Southern Cross Health Society. However, there are no more major developments forecast for the traditional CBD Core & Frame area for the next five years. The proposed 5 green star ASB development undertaken by KIPT, which consists of 18,000 sqm in the Viaduct Harbour Precinct in Wynyard Quarter, is the only pre-committed major development scheduled for the next five years. Building has commenced and completion is expected in 2013. The neutral supply outlook will enable the market to focus on consolidating occupiers into existing space, reducing vacancy rates and tensioning market conditions.

Asset PerformanceFor the first time since mid-2008, stability in face rents at the top-end has been achieved in the Auckland CBD office sector. Average face rents remained static over 1H11 at the premium end of the market, with average premium rents remaining at NZD 408 psm, ranging between NZD 340 psm to NZD 475 psm. The average net effective rent for Premium and A-grade buildings currently averages around NZD 359 psm per annum. It is evident that investors have become much more active over 1H11, however, they remain cautious and will only pursue assets that have the right fundamentals for passive or add-value purchasing. Lending conditions have remained relatively stable over the last six to 12 months, which is keeping yields steady. This is indicated by Average Prime Core initial investment yields remaining at 8.63% in 2Q11, having remained stable over the last 24 months.

12-Month OutlookRising occupier demand for prime space in tandem with the neutral five-year supply pipeline in the Auckland CBD is likely to result in the vacancy rate declining over the short-term. Stronger economic conditions and employment growth is likely over the remainder of 2011, which could result in take up of vacant space overflowing into the secondary sector. It is likely that premium office net face rents will experience a lift over the remainder of 2011 and into 2012, as demand for prime office space rises. Suitable options for Auckland CBD prime space is likely to steadily diminish over the next 12 months, which will lead to a reduction in tenant incentives.

•••

Note: Auckland office refers to CBD, Symonds Street and Viaduct Harbour.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ NZD 359 psm paStage in Cycle Decline slowingNo. of Quarters Since Last Peak

12

^ net face, on NLA


Index

60

70

80

90

100

110


07 08 09 10 11F 12F

Thou

sand

sqm Percent

–20

0

20

40

–5

0

5

10

60 15

Beijin

g: R

etail


Beijing: Retail

Fashion retailers accelerate their expansion plansSeveral shopping malls are undergoing repositioningNet effective rents continue to experience growth

DemandAs competition among shopping malls becomes fierce, several shopping malls in the CBD, Wangfujing and Xidan commercial areas began upgrading their tenant mixes and shopping environments in a bid to strengthen their competitiveness. Many luxury and fast fashion brands are taking the place of underperforming brands.

Luxury brands expanded rapidly in 3Q11. For example, FENDI, MAX&Co and Giuseppe Zanotti will open in China World Shopping Mall Phase I, squeezing out a number of poorly performing retailers; JOYCE, a luxury retailer from Hong Kong, opened in China World Shopping Mall Phase III with a GFA of 2,000 sqm; DIOR and DIOR Homme began fitting out in Shinkong Place; and Moncler opened its fourth store in China in Village North, where MIUMIU, Marni and other luxury brands are expected to arrive soon.

Fashion retailers accelerated their pace of expansion, while new brands continued to rush into the market. H&M, GAP, ZARA, Stradivarius and Massimo Dutti are quickly replacing other fashion brands to become the most popular retailers. Furthermore, shopping malls are introducing new brands to attract consumers. For example, Oysho, a Spanish brand, opened its first store in Beijing in Solana, where American Eagle also plans to launch its first China store.

Meanwhile, F&B, electrical equipment and cosmetics chain stores, along with other retailers, were also active. In this category are such operators as Singaporean restaurant Seven Nana, Watsons and Costa, which is part of the Whitbread Group. Apple is also expanding its market share through direct and authorised stores, and a new Apple experience store just opened in Shine City.

Supply In 3Q11, Shine City opened near the South Third Ring Road. Positioned as a community shopping centre, it has a total GFA of 50,000 sqm, and has successfully attracted UNIQLO, Vanguard and Xingmei Movie. Meanwhile, Longfor Starry Street and Living Mall opened in Haidian District.

Asset PerformanceIn 3Q11, average net effective retail rents reached RMB 679 per sqm per month (based on NLA), a 1.7% increase q-o-q and an 11.8% rise y-o-y. As many shopping malls began repositioning, the overall vacancy rate in the market was pushed up, reaching an average of 11.5%, an increase of 0.7% q-o-q.

12-Month OutlookJones Lang LaSalle predicts that demand will maintain its momentum in the final quarter of 2011. Due to the repositioning of shopping malls and fierce competition for limited retail space, rents will continue to rise. Guoson, Phoenix Shopping Centre, Gongsan Plaza, Seasons Place Phase II and XinAo Shopping Centre will all open before the end of the year, adding about 400,000 sqm of new space to the market.

•••

Note: Beijing Retail refers to Beijing’s Urban retail market.

For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply is for 4Q11.

Financial Indices


Physical Indicators


12-Month Outlook



7


Index


80

100

120

140

160

Completions Future Supply07 08 09 10 11F 12F

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sqm

0

400

600

800

200

Shan

ghai:

Ret

ail


Shanghai: Retail

Strong leasing demand keeps vacancy rates lowAverage ground floor rents in the prime retail market remain flatChannel One, a mature shopping mall, sells

DemandLeasing activities remained strong as retail sales increased slightly in 3Q11. Shanghai Commerce Centre’s retail sales index remained stable in July and August, but retail sales increased in September as department stores and shopping malls offered large discounts during the Mid-Autumn Festival. Across Shanghai, mid-range fashion and F&B retailers were the main drivers of leasing demand. For example, Brazilian shoe brand Melissa opened stores in Xintiandi Style and Grand Gateway. On Nanjing East Road, Plaza 353 and Hongyi Plaza continued to attract more upscale tenants. In Plaza 353, Hollister is replacing an existing tenant with an expiring lease, while Hongyi Plaza has leased 1,000 sqm to Gap. Raffles City’s upgrade and reshuffling is nearly complete; the Japanese fashion retailers Cross and Beberose both entered Shanghai by securing 100 sqm spaces in Raffles City. F&B retailers also remained active in 3Q11. The Hangzhou restaurant chain Grandma’s Kitchen expanded quickly in Shanghai, leasing space in Channel One, CRC Times Square, Hongkou Cloud Nine and New Road.

SupplyHenderson Metropolitan held a soft-opening in September, adding 35,000 sqm to the prime market. The commitment rate reached 85% with anchor tenants including Apple, Sasa and Azul by Moussy. The project also has many F&B tenants, filling a gap in the market along East Nanjing Road. In the decentralised market, Minhang Cloud Nine, Kerry Parkside and Tianshan Parkson department store opened with near 100% occupancy, contributing 165,000 sqm to decentralised stock. Minhang Cloud Nine relieves pent-up demand for mid-range retail in Shanghai’s highly-populated southwest and has seen heavy foot traffic – well above average for a newly opened mall.

Asset PerformanceAverage ground floor rents in the prime retail market remained basically unchanged at RMB 50.2 per sqm per day, an increase of 0.5% q-o-q. Income growth continues to come from upper floors and from higher turnover, rather than from higher ground floor rents. Decentralised ground floor rents increased 1.7% q-o-q to RMB 25.1 per sqm per day. The decentalised Channel One shopping mall was sold for RMB 1.46 billion to Hong Kong New World Development, representing the first time a mature shopping mall with low vacancy has been transacted in Shanghai.

12-Month OutlookExpansion by fashion brands and F&B will continue to contribute to leasing demand in the near future, as evidenced by expansion plans for retailers such as Gap and American Eagle. A number of retail companies have also been actively expanding corporate offices in Shanghai, suggesting further expansion of their store networks in Shanghai and across China is likely. While little space is currently available for expansion, nearly 650,000 sqm of retail space is projected to be delivered by the end of 2012. Recent reductions in the national income tax rate for low and middle income earners are expected to boost consumption and retail sales. A proposed reduction in luxury tax, still under discussion, could also provide a boost in sales for ground floor tenants in Shanghai’s prime area.

•••

Note: Shanghai Retail refers to Shanghai’s overall Prime retail market.

12-Month Outlook


For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply is for 4Q11 and 2012.

Financial Indices


Physical Indicators


Rental InformationRental Value^ RMB 50.2 psm per dayStage in Cycle Rents risingNo. of Quarters Since Last Trough

4

^ net, on NLA

Index


90

100

110

140

130

120

150

Thou

sand

sqm

07 08 09 10 11F 12FCompletions Future Supply

0

300

200

100

400

500

600

Guan

gzho

u: R

etail


Guangzhou: Retail

Retail sales growth in Guangzhou increases steadilyTenant-mix upgrades by Tianhe shopping centres drives leasing activityPrime rents and capital values rise on stronger occupier and investor demand

DemandGuangzhou’s retail sales continued to post double-digit growth in the first eight months of the year to August, up 16.4% y-o-y. The growth rate decelerated modestly by 0.1% compared with the first seven months.

While demand for retail space in most prime shopping centres was solid, a few failed to lure new tenants into vacant space due to management problems. As a result, overall vacancy rates edged up 0.1% to an average of 3.6% at end-3Q11.

In the Tianhe CBD, operators of existing shopping centres continued to refine their tenant mix by adding foreign retailers, driving leasing activity in the district. For example, three notable leases were concluded at OneLink Walk in Tianhe, including Swiss watchmaker Tissot’s leasing approximately 160 sqm; international fashion chain Mango leasing 300 sqm; and Frances Fashion TV leasing 75 sqm. Other noteworthy examples included international skincare and cosmetics retailer Origins opening its first Guangzhou store (100 sqm) at Grandview Plaza and a pre-lease by American fashion chain DKNY in Tee Mall.

F&B retailers continued to be active in taking up new space during the quarter. Examples included American yogurt chain Yogurt Tyme, which leased about 180 sqm of space at Grandview Plaza; the opening of a Lavazza coffee shop in Phase II of Seasons Mall and An Nan Vietnamese Restaurant’s pre-lease of space in Phase II of the Mall of the World.

SupplyNo new prime shopping centres came on stream during the quarter, leaving total prime retail floor space delivered in the first nine months of the year unchanged at 120,000 sqm.

A number of new shopping centres are expected to complete in 4Q11, likely delivering 287,000 sqm of prime retail space by end-2011. Beyond 2011, about 664,250 sqm of space is expected to arrive on the market over the next five years.

Asset PerformanceBuoyed by solid leasing demand and retail sales growth prospects in Guangzhou, average effective rents in the prime Guangzhou retail market rose 2.7% q-o-q in 3Q11.

Without en-bloc properties being put up for sale, increased investment activity was confined largely to strata-title assets. Steady rental growth and expectations of asset appreciation helped to lift capital values by 3.4% q-o-q in the quarter.

12-Month OutlookTotal prime retail stock is expected to expand by about 20% over the remainder of the year from the end of 3Q11. About 70% of the new supply over the next 12 months will be concentrated in the Tianhe CBD and Zhujiang New Town (ZJNT). Although the large amount of new supply is likely to drive vacancy rates higher, strong pre-leasing activity in upcoming iconic schemes, such as Happy Valley and Phase I of Mall of the World is likely to ease upward pressure on vacancy rates.

We are optimistic that rents in the prime Guangzhou retail market will continue to register moderate growth in line with our projection in 2Q11.

•••

Note: Guangzhou Retail refers to Guangzhou’s Prime retail market.

12-Month Outlook


For 2007 to 2010, completions are year end annual. For 2011, completions are YTD while future supply is for 4Q11 and 2012.

Financial Indices


Physical Indicators



9

^ net, on NFA

Index


90

100

120

130

110

Completions Future Supply07 08 09 10 11F

0

100

200

300

500

Thou

sand

sqm

400

12F

Chen

gdu:

Ret

ail


Chengdu: Retail

Suning Plaza opens in 3Q11Strong leasing activity pushes up average effective rents in New South AreaCompetition likely to be fierce as a result of significant supply

DemandChengdu’s retail market continued to perform strongly in 3Q11, with accumulated retail sales reaching USD 28.9 billion over the first eight months of the year, up 18.2% y-o-y. This strong performance and new supply led to brisk leasing activity in the quarter, with absorption reaching 275,938 sqm, the highest level seen since 4Q07.

F&B chains were among the most active tenants. For example, Chongqing Cygnet and Papparoti, a domestic bakery chain, opened stores in GTC Galleria in the quarter, while Golden Jaguar, a domestic high-end buffet brand, opened its first store in southwest China in Suning Plaza. International jewellery and watch brands are also confident about the Chengdu market, with CHAUMET opening its first store in Chengdu in Maison Mode, and IWC and GEORG JENSEN leasing space in the recently opened Far Eastern Department Store in the city centre. Fast fashion brands ZARA and H&M, which entered Chengdu in 2010, have already opened two and three stores respectively in the city. They are also actively seeking space in forthcoming properties for further expansion. Zara took 3,000 sqm in the R Deluxe Shopping Center which is rumored to be the Zara flagship store in China and it may bring in other lines, such as Zara Home, in addition to its core Zara apparel lines.

SupplySuning Plaza mall was delivered to the market in 3Q11, adding 120,000 sqm to total stock. Another two new retail properties, Uno Mall, which opened in 4Q10, and the Far Eastern Department Store, opened in 3Q11, were included, raising total prime retail stock to 760,000 sqm. Despite reaching the roof-sealing point in September, the opening of Raffles City was postponed to 1H12.

Asset PerformanceThe performance of new supply, together with brisk leasing activity, pushed rents up in Chengdu’s prime retail market. The average net prime rent for G/F shops in shopping centres rose slightly to RMB 423 per sqm per month, up 0.1% q-o-q but a drop of 0.8% y-o-y. Suning Appliances, the flagship store in Suning Plaza, has enjoyed strong performance since opening in January 2011. Robust growth in the retail market led to a rise in rents in the New South Area sub-market, with prices for F&B leases on GTC Galleria’s 4/F increasing 30%-40% compared to the levels seen when the mall opened in 4Q10. Even so, rents in the New South Area are still lower when compared with retail properties in the CBD.

12-Month OutlookThe market will see significant supply over the next three quarters. In addition to MixC in the East Second Ring Road area, properties developed by notable developers will be concentrated in the southern part of the city, among them the Ito-Yokado New South Area Store, the Wangfujing Shopping Centre, Raffles City and Nine Square, most of which are positioned at the mid- to high-end level. On the one hand, this new supply provides more choice for retailers seeking to expand while, on the other, it is bound to intensify competition, especially in the southern area of Chengdu.

•••

Note: Chengdu Retail refers to Chengdu’s Prime retail market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ RMB 423 psm pmStage in Cycle Rents risingNo. of Quarters Since Last Peak

4

^ net, on NLA

Index


90

100

110

120

140

130


Thou

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sqm

0

400

800

200

600

Hong

Kon

g: R

etail


Hong Kong: Retail

Buoyant retail sales, with strong support from tourism growth International retailers continue to drive high-profile lettingsBoth capital value and rental growth accelerate

DemandThe recent correction in global stock markets did not have a noticeable negative impact on Hong Kong’s retail market, with total retail sales growing a further 27.5% y-o-y in 3Q11, bringing the y-t-d growth to 25.4%. Similarly, visitor arrivals increased 19.0% y-o-y in 3Q11, bringing the y-t-d growth to 16.2%. The share of Mainland Chinese visitors rose from 65.7% in 1H11 to 69.3% over the same period. Total visitor arrivals broke the four-million mark in August, a new record high for a single month.

There was no apparent slowdown in leasing demand. Luxury brands, in particular, remained optimistic and continued with expansion plans. For example, Longchamp leased 7,974 sq ft over three floors in Silvercord shopping centre in Tsimshatsui for HKD 7.5 million per month. After opening its first Hong Kong store (15,000 sq ft) in Central’s ifc mall and pre-leasing 20,000 sq ft in the upcoming Hysan Place in Causeway Bay, Apple leased another 32,800 sq ft in Toy House in Tsimshatsui for HKD 11 million per month. American clothing retailer GAP pre-leased 7,000 sq ft in Hysan Place, while also committing to 15,000 sq ft spanning over three floors in the MPM shopping centre in Mongkok for approximately HKD 3.2 million per month.

In the largest investment transaction ever recorded in Hong Kong, Swire Properties sold the entire Festival Walk commercial development to Singapore institutional investor Temasek Holdings Mapletree Investments for HKD 18.8 billion. The development includes a 980,000 sq ft shopping mall.

Lane Crawford won a seven-year management contract for Queensway Plaza from the Government Property Agency by agreeing to pay a lump sum up front of HKD 202 million and a monthly rental of HKD 6 million, or 70% of the premises’ gross monthly income, whichever is higher.

SupplyNo prime retail scheme completed in 3Q11.

Asset PerformanceTightened credit availability and a cloudy economic outlook combined subdued investment market sentiment. However, investors remained relatively positive about Hong Kong’s retail market, supporting capital value growth. Despite the fall in transaction volume, high street shops continued to transact at high prices and capital value growth accelerated over 1H11.

Prime retail rental growth also accelerated slightly from 2Q11, supported by minimal space availability and sustained levels of leasing demand from reputable brands.

12-Month OutlookThe city’s economic fundamentals remained generally sound in 3Q11, despite the increasingly gloomy outlook for global financial markets. However, key economic indicators suggest a potential slowdown in economic growth in Hong Kong in 2012. This may translate into softer local consumption, particularly if the labour market shows signs of contraction. A reduction in wealth stemming from stock market corrections may also affect consumer confidence in the short-term. Inbound tourism, however, is expected to remain a pillar for Hong Kong’s retail market, providing solid support for prime retail rents.

•••

Note: Hong Kong Retail refers to Hong Kong’s overall Prime and High Street retail markets.


Financial Indices


Physical Indicators


Rental Information (Overall Prime Shopping Centres)Rental Value^ HKD 114.2 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

8

^ net, on LFA

12-Month OutlookRental ValuePrime Street Shops

Capital ValuePrime Street Shops

Premium Prime Shopping CentresOverall Prime Shopping Centres

Rental Information (Premium Prime Shopping Centres)Rental Value^ HKD 225.4 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

10

^ net, on LFA

Rental Information (Prime Street Shops)Rental Value^ HKD 413.8 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

10

^ net, on GFA

80

100

120

220

200

140

160

180

Index

4Q07 4Q08 4Q09 4Q10 4Q11 4Q12RV Index (Street Shop)CV Index (Street Shop)RV Index (Premium Prime Shopping Centres)RV Index (Overall Prime Shopping Centres)


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Bang

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Bangkok: Retail

Renovation of Central Ladprao completesOccupancy rates remain stable, rents are up slightlyCapital values increase, yields remain steady

DemandIn 3Q11, net take-up in the retail market expanded due to the re-opening of Central Ladprao. Kidzania leased 8,000 sqm in Siam Paragon, one of the notable new openings during the quarter. Uniqlo also opened its first outlet in Bangkok to much fanfare at Central World and expects to eventually open another store in Central Ladprao.

Vacancy rates remained at 7.4%, but the large supply in the pipeline suggests that rates will rise in the short term as new projects complete and tenants move in gradually.

SupplyTwo malls, The Nine (11,000 sqm) and The Portico (3,190 sqm), completed and became operational in 3Q11, adding 14,190 sqm to the total stock.

TCC’s Asiatique (30,000 sqm) and Raimon Land’s The Vue (4,100 sqm) are progressing and are expected to complete on schedule in 4Q11. The grand opening of the “airport-themed” Terminal 21 is also approaching, although contractors for Central Rama IX will need to rush to complete on time for the scheduled November opening. These four projects will add a total of 109,100 sqm to the total stock by the end of the year.

The renovation of Central Ladprao is complete, with the mall offering 41,000 sqm of retail space, an increase in the space available prior to the renovation. Zen @ Central World is still undergoing refurbishment following the fire and is now scheduled to re-open in 4Q11.

Asset PerformanceRents continued to climb in 3Q11 and the average net figure is now THB 20,380 per sqm per year, a 0.08% increase q-o-q. Rents are expected to rise further as demand from both retailer expansion and rising consumption continues to grow.

Notional capital values rose from THB 157,263 to THB 157,314, up by 0.03% q-o-q and 1.02% y-o-y, on the back of both better rents and stronger demand for retail assets.

Tesco Lotus has announced that it will launch a property fund that will hold 15 hypermarkets worth around THB 14 billion.

12-Month OutlookThailand’s political issues appear to be more settled, boosting the confidence of both residents and foreigners. The expansion of modern retail formats will continue to drive net absorption, increasing new supply at year-end and in 2012. Capital values should continue to rise in line with rising rents.

•••

Note: Bangkok Retail refers to Bangkok’s Prime retail market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ THB 20,380 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

10

^ net, on NLA


Index

80

85

90

100

95

105

110

Completions Future Supply07 08 09 10

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11F 12F

Kuala

Lum

pur:

Reta

il


Kuala Lumpur: Retail

The city centre’s average vacancy rate will decline in the short termRental values remain stableStrong investor appetite for Malaysian retail assets continue

DemandIn the city centre, the average vacany rate increased by 0.4% to 11.6%. At Suria KLCC, part of Parkson’s space was closed for renovations and this contributed to the higher vacancy rate in the city centre.

In the suburbs, the average vacancy rate decreased by 1.0% to 8.1%. Aeon Jusco, having undergone refurbishment, reopened at 1 Utama Shopping Centre in August 2011.

Empire Shopping Gallery has been temporarily closed due to a gas leak which resulted in an explosion in September 2011. Business is expected to resume in November 2011 and the centre remained as part of the monitored stock.

In the city centre, Pavilion Kuala Lumpur unveiled its newest concept, Tokyo Street. The Japanese inspired precinct features an array of Japanese retailers including Action City and Daiso. At Suria KLCC, Aigner vacated and French Sole and Moschino commenced operations in the recently completed Ramlee Extension of Suria KLCC. New Balance and Rockport opened at Fahrenheit 88. In the suburbs, Enspired Concept Store commenced operations at e@Curve, whilst MBO Cinemas and Starbucks commenced operations at Subang Parade.

SupplyIn the city centre, no new completions were recorded in 3Q11 and no further completions are due for the remainder of 2011.

In the suburbs, Publika@Dutamas (formerly known as Solaris Dutamas) in Mont’ Kiara was completed. The five storey retail podium forms part of a 17 acre integrated development with office, retail and condominium components. The niche neighbourhood retail centre with a unique concept of fusing art and culture with urban shopping and dining is home to notable retailers including Ben’s Independent Grocer (BIG), British India and MPH Bookstores.

Asset PerformanceIn both the city centre and the suburbs, rental values were stable whilst capital values increased marginally. Despite a lack of prime en-bloc transactions in 3Q11, good investor appetite for prime retail centres continued in 3Q11.

12-Month OutlookIn the city centre, the average vacancy rate is anticipated to improve upon completion of tenants’ fit-outs and refurbishments; mostly taking place at Suria KLCC. Prime retail centres, in particular, are forecast to enjoy low vacancy rates as a result of sustained demand and limited supply in the development pipeline. In contrast, recent improvements in the average vacancy rate in the suburbs are expected to be short-lived due to abundant future supply in the development pipeline in the next 12 months.

Rental values are expected to increase steadily over the next 12 months and investor appetite for Malaysian retail assets is expected to remain robust, spurring on further increases in capital values as many owners are only willing to sell if their price expectations are met.

•••

Note: Kuala Lumpur Retail refers to Kuala Lumpur’s Prime shopping centre market.


Financial Indices


Physical Indicators


12-Month Outlook


Rental InformationRental Value^ MYR 3,450 psm paStage in Cycle Rents stableNo. of Quarters Since Last Trough

5

^ net, on NLA

90

100

120

130

Index


110

Thou

sand

sqm

07 08 09 10 11F 12FCompletions Future Supply

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100

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400

Sing

apor

e: R

etail


Singapore: Retail

Strong performance in tourism continues to drive retailer demandRents remain stable despite weaker economic activity Capital values grow 2.1% as the market prices in longer term potential

DemandThe performance of Singapore’s retail market softened in 3Q11. Across the island, rents in all sub-markets dipped, although sustained interest from investors continued to support the increase in capital values up across all submarkets.

In July 2011, seasonally adjusted retail sales increased by 10.7% y-o-y. Excluding motor vehicles, retail sales remained at 10.7% y-o-y as motor vehicular sales remained stable – suggesting that consumer confidence could be softening in the near term. Measured at current prices, all retail segments, except optical goods and books, posted higher sales over the same period a year ago, underpinning retailer demand. This can be seen from the strong response to the turnout at the H&M flagship store at Orchard building in late August. However, uncertainty about the economy caused by the deteriorating debt situation in the Eurozone has brought about renewed fears and the impact of this will be apparent in the data for the upcoming months.

In the latest data from the Singapore Tourism Board, tourism statistics remained positive in 3Q11, with visitor arrivals reaching 2.45 million for July and August, reflecting growth of 17.2% y-o-y.

SupplyIn 3Q11, there was only one completion, with the retail component of Asia Square Tower One adding 3,345 sqm to the Marina sub-market. There were no completions in the Prime or Suburban sub-markets.

Over the remainder of the year, Scotts Square (6,600 sqm) in the Orchard sub-market is due for completion while, in the Suburban sub-market, the refurbished Katong Mall (19,200 sqm), the retail component of the PSA building (7,200 sqm) and Rochester Mall (5,600 sqm) will add new retail space.

Asset PerformanceRents for retail space in the Marina sub-market fell as it continued to face downward pressure with more retail space coming on stream in the form of Asia Square Tower 1. Rents in the Suburban sub-market also declined slightly, down by 0.4% q-o-q in a temporary dip following six consecutive quarters of growth. Rents in the Prime sub-market were stable at the previous quarter’s levels.

Investment activity was muted in 2Q11. There were 33.3% fewer transactions in the quarter and the total value of these transactions fell by 21.6% q-o-q, suggesting a widening gap between sellers’ and buyers’ expectations.

Average capital values across all sub-markets increased. Valuation based capital values in the Prime and Suburban sub-markets rose by 1.6% and 2.3% q-o-q respectively, while those in the Marina sub-market inched up slightly by 0.6%.

12-Month OutlookWith the change in the economic outlook and lower consumer confidence in 2H11, rents in the Marina and Suburban sub-markets should see limited increases. As the Prime sub-market continues to reinvent itself, the effects of increasing demand for retail space will be offset by the upcoming increase in supply and weaker economic conditions. Rents in the Prime sub-market are not expected to show growth over the next 12 months.

•••

Note: Singapore Retail refers to Singapore’s Prime, Suburban and Marina retail markets

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ SGD 4,231 psm paStage in Cycle Rents stableNo. of Quarters Since Last Trough

6



80

90

110

Index

100

Future SupplyCompletions07 08 09 10 11F 12F

0

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Thou

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Jaka

rta: R

etail


Jakarta: Retail

Demand remains healthy on the back of growing consumption and lifestyleLeasing deals are dominated by small-to-medium-size stores Rental picks up further as landlords introduce new rates more progressively

DemandDemand in the retail market remained healthy in 3Q11, despite a slight slowdown in take-up due to limited available space, particularly larger options. Quarterly net take-up slipped to around 21,000 sqm, yet occupancy rate in the market improved. While leasing transactions were dominated by small-to-medium-size shops filling newly completed malls, notable deals included the lease by Pongs Do It Best of approximately 4,000 sqm of space in Mal Kelapa Gading. The market is benefitting from a growing middle class and continuing to attract foreign investors, including Galleries Lafayette, which plans to open its first store in Pacific Place within the next year. With positive absorption, vacancy rates contracted to 6.7% from 8.4% in 2Q11.

SupplyThe market remained quiet as no new prime retail developments were delivered in the quarter, keeping supply in 3Q11 stable at around 1.3 million sqm. The market is not expecting any additional supply over the remainder of 2011 and only two prime retail projects – Kota Kasablanka and Ciputra World – are slated to complete in 2012.

Asset PerformanceLimited supply and healthy demand led to an increase in rents in several major shopping malls, with prices rising by 1.8% q-o-q compared with the 0.6% q-o-q increase seen in 2Q11. In line with the positive leasing environment and the growth in rents, capital values rose accordingly. However, with modest adjustment to rents and capital values, yields remained stable at around 11%.

12-Month OutlookThe Jakarta prime retail market should continue to see positive trends on the back of robust consumption and improving lifestyles, particularly in the growing middle class. Potential high demand over the next few years is indicated by positive absorption in proposed retail developments. Several large retailers have taken up large spaces in Kota Kasablanka, while Ciputra World has been fully leased to the Korean retailer Lotte, which plans to occupy most of the space and to sublet the remainder to other retailers. Hypermarkets, department stores, entertainment outlets and fashion stores are likely to continue being active in the market. Rental growth is expected to continue, reaching a peak within the next two years before slowing down. Capital values should grow hand in hand with rents given the solid market fundamentals.

•••

Note: Jakarta Retail refers to Jakarta’s upper class retail market.

For 2007 to 2010, completions are year end annual. For 2011, completions are as YTD while future supply is for 4Q11.

Financial Indices


Physical Indicators


12-Month Outlook


Rental InformationRental Value^ IDR 4,668,058 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

2



Index

90

95

100

105

110


0

50

100

150

200

Thou

sand

sqm

Delh

i: Re

tail


Delhi: Retail

Absorption in 3Q11 is the highest seen in the past 15 quartersStrong performance is seen in selected retail projects Rents and capital values strengthen across all sub-markets

DemandWith sustained consumer confidence translating into an increase in footfalls and positive business sentiment, retailers continued to expand in 3Q11, however with a renewed emphasis on strategic growth. Retail expansions were restricted to retail malls with good performance history or newer developments that operate on a pure lease model, offering flexible, revenue share lease structures and also excellent visibility, branding and design with an active, professional management team.

With robust pre-leasing activity observed in previous quarters in retail projects that opened in 3Q11, coupled with moderate to healthy leasing activity in existing stock, net absorption was 653,250 (60,688 sqm) sq ft for 3Q11. This was the highest absorption recorded over the last 15 quarters in the NCR retail market. Overall, vacancy reduced to 29.6%, slightly lower than the 30.3% recorded in 2Q11. Pre-commitments in new completions were in the range of 30-45%. The majority of demand was recorded in the Suburbs sub-markets.

A few notable leases include: Clarks leasing 3,500 sq ft (325 sqm) in DLF Courtyard, and Excess Café leasing 4,411 sq ft (410 sqm) in South Court – both in Prime South sub-market. In Pacific Mall in the Prime Others sub-market, Titan and Catalogue leased 1,500 (139 sqm) and 1,300 sq ft (121 sqm), respectively.

SupplyThere were two completions in 3Q11 – both in the Suburbs sub-market as MGF Metropolis - 600,000 sq ft (55,742 sqm) and Gurgaon Dreamz - 125,000 sq ft (11,613 sqm) became operational. The occupation rate was in the range of 30-45% in these projects.

Asset Performance Overall, rents rose marginally in 3Q11. Rental growth was sustained in Prime South, albeit at a slower pace as vacancy remained low in malls with good performance. Marginal improvement in rents in Prime Others continued for the second consecutive quarter as the completions over the previous two quarters continued to enjoy good leasing activity. A slight improvement was recorded in the Suburbs sub-market after five successive quarters of rent stagnation.

Over the past five quarters, capital values have grown in line with rents, which have kept yields near constant across all the sub-markets. The trend continued in 3Q11, keeping yields at 10.7%.

12-Month OutlookRetailer’s strategic expansion plans were sustained and the stream of tenant queries is expected to continue over the coming quarters. Both large-format and vanilla retailers are expected to chase deals in projects currently under construction that provide good branding and business potential. However, activity will be concentrated in well performing malls that attract higher footfalls and achieve a healthy footfall-to-sales conversion ratio. Transactions are expected to follow the trend towards a revenue-sharing model rather than straightforward leasing deals.

The Prime South sub-market and new developments in the Prime Others sub-market are expected to continue to see good demand, pushing rents up. However, the large supply expected in the Prime Others and the Suburbs sub-markets is expected to continue to dampen rental growth.

•••

Note: Delhi Retail refers to Delhi’s overall retail market.

Physical Indicators are for all micro-markets.


Financial Indices


Physical Indicators


12-Month Outlook


Rental Information (Prime South)Rental Value^ INR 240 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

3

^ gross, on GFA

Financial Indicators are for Prime South.

Index


50

60

100

70

80

90

110

07 08 09 10 11FCompletions Future Supply

Thou

sand

sqm

0

100

200

300

400

500

12F

Mum

bai:

Reta

il


Mumbai: Retail

Demand continues in well managed malls in strategic locationsRents increase in all sub-markets except Prime North sub-marketCapital values see marginal improvement across all sub-markets

DemandOverall retail demand has improved in recent quarters due to robust economic fundamentals, optimistic business sentiment and good consumer spending. However, the polarisation of demand continues as selected malls with better catchment areas, better designs and superior mall management practices are able to attract more retailers. Total net absorption of 256,902 sq ft (23,867 sqm) was realised in 3Q11, more than 95% of which was concentrated in the Suburbs sub-market. Robust pre-leasing activity was seen in selected malls that are expected to become operational in the next two years.

Several retail brands from Reliance and the Future Group have expanded significantly in recent quarters. In 3Q11, Reliance Timeout took up 29,700 sq ft (2,759 sqm) in Infiniti Mall, Malad, and 12,500 sq ft (1,161 sqm) in Market City, Kurla. In addition, Reliance Trendz leased 22,000 sq ft (2,044 sqm) in Viva City Mall in Thane and Reliance Digital leased 10,500 sq ft (975 sqm) in Market City in Kurla, respectively. All these malls are located in the Suburbs sub-market.

SupplyNo new completion was seen in the quarter. However, there is 0.9 million sq ft of mall space in the advanced stage of construction and expected to become operational by end-2011.

Asset PerformanceOverall rents increased 3.1% q-o-q in 3Q11. The highest increase in rents were observed in the Suburbs sub-market because of the concentration of demand. The Suburbs sub-market saw a rental increase by 4.4% q-o-q in 3Q11. The Prime South sub-market saw a rise of 0.9%. Rents in the Prime North sub-market were stable at 2Q11 levels because of continued sluggish demand from retailers as malls in this sub-market lack quality. This sub-market also continued to face tough competition from high streets.

Overall capital values increased moderately by about 3.5% q-o-q in 3Q11. The rate of increase was highest in the Suburbs sub-market (4.7% q-o-q), followed by the Prime South (1.8% q-o-q) and Prime North (0.4% q-o-q) sub-markets. Yields were stable in all sub-markets except Prime North, which recorded a 10 bps compression.

12-Month OutlookDemand in terms of net absorption is expected to strengthen further over the remainder of 2011 and in 2012 due to the quality of supply in the pipeline. Major retailers in India, such as the Future Group, Reliance and Tata, are likely to continue with their expansion plans. International luxury brands are expected to open more stores in malls in the Suburbs sub-market, despite being present largely in the Prime South sub-market. For instance, Zara has opened an outlet in Infiniti mall in the Malad Suburbs. Rents and capital values are likely to increase gradually in all sub-markets, albeit at differing degrees.

•••

Note: Mumbai Retail refers to Mumbai’s Prime retail market.

12-Month Outlook




Financial Indices


Physical Indicators


Rental Information (Prime South)Rental Value^ INR 230 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

2

^ gross, on GFA; Prime South Mumbai

Financial Indicators are for Prime South.


60

100

110

Index

80

70

90


Thou

sand

sqm

0

100

200

300

400

12F

Bang

alore

: Ret

ail


Bangalore: Retail

Demand is weak in 3Q11Rents are stable across all sub-markets Capital values remain stable across all sub-markets

DemandDemand for space in malls in Bangalore remained weak in 3Q11. However, large-format retailers, such as Reliance and the Future Group, expanded in the city’s high streets.

Net absorption in 3Q11 was 585,000 sq ft (54,348 sqm) in 3Q11. The high streets in Indiranagar, Koramangala, Whitefield, BEL Road and Old Madras Road accounted for 116,646 sq ft (10,836 sqm) of leasing activity. Overall vacancy rates increased from 4.9% in 2Q11 to 7.9% in 3Q11 due to the completion of the Park Square Mall in Whitefield and Soul Space Arena along the Outer Ring Road, each with an average occupancy rate of about 66%.

Key transactions in 3Q11 included Reliance Digital’s lease of 21,000 sq ft (1,951 sqm) in the high street on Residency Road and Inmark’s lease of 14,000 sq ft (1,301 sqm) on the high street on Infantry Road in the Prime City sub-market. Tanishq leased 10,000 sq ft (929 sqm) in Jayanagar and Hyundai leased 5,400 sq ft (502 sqm) on Airport Road, both in the Secondary sub-market, while, in the Suburbs sub-market, Bodycraft leased 7,200 sq ft (669 sqm) in Whitefield.

SupplyThe Park Square Mall by Ascendas completed in Whitefield in 3Q11, adding 450,000 sq ft (41,806 sqm) to the market and Soul Space Arena along the Outer Ring Road added a 250,000 sq ft (23,226 sqm). The Park Square Mall commenced operations with a healthy occupancy rate due to good pre-commitments in previous quarters, and anchor tenants include Spar Hypermarket and Inox.

Asset PerformanceRents in the Prime and Secondary sub-markets remained stable at 2Q11 levels in 3Q11, while those in the Suburbs sub-market rose marginally by 3.7% q-o-q due to the completion of the Park Square Mall by Ascendas, where rents are above the sub-market’s average.

Capital values in malls in the Prime City and Secondary sub-market also remained stable, although they increased by 4.4% q-o-q in malls in the Suburbs sub-market as these spaces commenced operations with healthy occupancy rates.

12-Month Outlook With some 54% of the expected supply in 2H11 already pre-committed, net absorption is forecast to increase to 2.3 million sq ft (213,677 sqm) of the total annual supply of 3.3 million sq ft (306,580 sqm) by end-2011. With low leasing activity, Bangalore is unlikely to see a significant increase in demand for at least another six months. We do not expect demand to keep pace with supply and vacancy rates are forecast to increase from 7.2% in 3Q11 to 7.7% at end-2011. Despite this, we expect rents to recover across all sub-markets by the end of the year as new, good-quality malls come on stream.

•••

Note: Bangalore Retail refers to Bangalore’s overall retail market.



Financial Indices


Physical Indicators


12-Month Outlook


Rental Information (Prime City)Rental Value^ INR 178 psf pmStage in Cycle Decline slowingNo. of Quarters Since Last Peak

11

^ gross, on GFA

Financial Indicators are for Prime City.

Index


70

80

100

90

110

07 08 09 10 11F 12F

Thou

sand

sqm

0

200

100

150

50

250

Completions Future Supply

Chen

nai:

Reta

il


Chennai: Retail

Strong performance in high street locations as demand remains robustRents remain stable in the cityNo major sales transactions are recorded in the retail mall sector

DemandChennai’s retail market saw weak absorption in 3Q11, despite the completion of the Spectrum Mall. However, strong leasing activity in high street locations was recorded, signifying ongoing strong retailer interest in the city. Net take-up was 100,800 sq ft (9,364 sqm) in 3Q11, over 40% of which was attributed to pre-commitments in Spectrum Mall.

Notable leasing transactions included Big Bazaar’s lease of 33,000 sq ft (3,066 sqm) in the Spectrum Mall. Bata leased 2,000 sq ft (186 sqm) in both Spectrum Mall and Express Avenue Mall. The Fame multiplex leased 58,000 sq ft (5,388 sqm) in the Chandra Mall.

Supply The 150,000-sq-ft Spectrum Mall in Perambur opened in 3Q11 with only 27.0% commitment. The mall is in one of the key areas in the northern part of Chennai, Perambur and its completion is likely to attract a higher footfall from among the local population in the near future.

The lack of well-established high streets in Chennai’s suburbs, unlike city centre, is expected to be the key driver to the success of malls. The residential populations of Ayanavaram, Tondiarpet and Royapuram are the typical target segments for retailers in Spectrum Mall. The lack of quality mall space has remained a challenge in Chennai and has constrained the pace of growth of the organised retail market in the city. However, with good-quality malls in the pipeline, the city is set for a rapid makeover in the near future.

Asset PerformanceFinancial indicators, including rents, in the Chennai retail market remained stable. However, the newly completed malls in the city centre commanded a premium over average rents in the market. The high rents and capital values quoted in prime malls within the city limits, along with the relatively lower financial indicators in malls in the Secondary and Suburban sub-markets, averaged out to keep rents stable in the quarter.

Capital values also remained stable in 3Q11 as no major sales transactions have been recorded in the retail mall sector over the past few quarters. Emerging retail markets in India, such as Chennai, have thrived primarily on the sale model, unlike such mature cities such as Mumbai and NCR-Delhi, where the lease model is as popular as the sale model.

12-Month OutlookChennai’s retail market is expected to see a massive influx of retail supply over the coming quarters. The explosion in residential and commercial developments in suburban areas is likely to make them an attractive retail destination. Although absorption is expected to be healthy at least until 2012, low pre-commitment levels in upcoming supply are expected to push vacancy rates up by end-2011. The oversupply that has prevailed in Chennai’s office market has emerged as an innovative opportunity for the city’s retail segment as a few developers are contemplating converting their upcoming office premises into retail. This trend is expected to increase retailer penetration in the city and the suburbs in particular.

•••

Note: Chennai Retail refers to Chennai’s overall retail market.

12-Month Outlook




Financial Indices


Physical Indicators


Rental Information (CBD)Rental Value^ INR 87 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Peak

7

^ gross, on GFA

Financial Indicators are for Prime City.

Index


70

100

80

90

120

110


Thou

sand

sqm

0

30

60

90

120

12F

Aust

ralia

: Reg

iona

l


Australia: Sub-Regional Shopping Centres

Tenant demand remains subdued in line with a cautious retail environmentRental growth stalls in 3Q11 and rents up just 0.6% over the past yearYields are stable, with one asset selling for AUD 29 million

DemandThe general retail environment remains subdued, although there has been moderate improvement in recent months. National retail turnover growth was positive in July and August and turnover is 2.1% higher over the year to August 2011. The Westpac/Melbourne Institute consumer confidence index also rose by a surprisingly strong 8.1% in September to 96.9 points.

Tenant demand for retail property generally remains very soft. However, there is considerable difference in performance between prime sub-regional centres and those in weaker catchments or without dominant anchor tenants. Our six-monthly vacancy survey was not conducted in the quarter, but average sub-regional vacancy across all markets was 3.3% in June 2011.

SupplyNo sub-regional construction projects completed for the second consecutive quarter. However, three projects totalling 59,000 sqm completed in 1Q11. There remain five projects totalling 29,200 sqm under construction and scheduled to complete before the end of the year, including the new 16,500 sqm Pakenham Marketplace centre in Melbourne and three extension projects in both South East Queensland and Sydney. A further 43,500 sqm of space is under construction and due in 2012, including two projects totalling 10,000 sqm that commenced in 3Q11.

Asset PerformanceThe average specialty store rent across all monitored markets was unchanged in 3Q11 and just 0.6% higher over the year to 3Q11. This represents a marked slowing compared to 2.5% growth achieved over 2010. Rents grew moderately in Melbourne and Perth, but were offset by a decline in Adelaide rents.

Just one sub regional asset sold in the quarter, and only five assets totalling AUD 394.5 million have sold in 2011 to date. Mirvac sold Ballina Central Shopping Centre for AUD 29 million to a private investor at an initial yield of 8.30%. The yield range for sub-regional assets nationally was unchanged in 3Q11 for the sixth consecutive quarter at between 6.50% and 9.00%.

12-Month OutlookGlobal economic uncertainty is likely to keep retail turnover and tenant demand subdued in the short-term, but we expect conditions to improve in 2012. Vacancy is likely to be relatively stable and rental growth is likely to remain limited in coming quarters, but with a return to growth next year. Investment demand is expected to remain solid, when opportunities arise. Sub-regional yields appear attractive for active core-plus investors if value can be added through re-leasing or medium-term development activities.

•••

Note: Australia Sub-Regional Shopping Centres refers to sub-regional shopping centres in Australia’s major metropolitan markets.

Physical Indicators are for Sydney sub-regional only.


Financial Indices


Physical Indicators


12-Month Outlook


Rental InformationRental Value^ AUD 989 psm paStage in Cycle Rents stableNo. of Quarters Since Last Trough

8

^ net, on GFA

NA

Rental Value Index4Q07 4Q08 4Q09 4Q10 4Q11 4Q12

Index

90

100

110

120

Future SupplyCompletions07 08 09 10 11F

Thou

sand

sqm

0

10

5

15

20

25

12F

Auck

land:

Ret

ail


Auckland: Retail

Retail development gathering momentum in suburban precinctsPrime assets experience rental growthInvestors focus on property with good growth prospects and low risk profile

DemandRecent retail spending data shows consumers have become increasingly confident over 2011. Total value of retail sales increased 0.9% in the June quarter. This is a relief to many retailers and landlords alike, with consumer confidence improving, resulting in heightened discretionary spending levels. This has ensured that the Auckland CBD and Suburban retail vacancy rate remained relatively steady over 1H11, up only slightly to 5.0%. Closer analysis reveals when comparing the vacancy rates between 2H10 and 1H11, the CBD vacancy rate rose marginally (3.6% to 4.7%), but remained stable in suburban areas (6.5% to 6.4% in Newmarket and flat at 4.1% in Takapuna).

SupplyAuckland’s total retail stock increased over 1H11 with the completion of a six-level carpark building in Britomart with street-level retail use. Les Mills occupies approximately 2,000 sqm of the 3,000 sqm for a term of 20 years. Also in Britomart, the completion of the East Building provided just over 1,600 sqm of new street level retail space. Activity is also being witnessed in the suburban areas, with approximately 50,000 sqm plus currently under construction in the wider Auckland region. A new 25,000 sqm retail development is under construction in the Silverdale town centre. It consists of anchor tenants The Warehouse and Countdown supermarket, along with a number of smaller strip retail premises. A development is also proposed in the Takapuna precinct called ‘McKenzie’, which is expected to start construction in the early stages of 2012.

Asset PerformancePrime CBD Auckland retail rents rose marginally over 1H11, with Prime rents now ranging between NZD 1,500 and NZD 2,200 psm. Due to the increase in occupier demand in suburban locations, Prime Suburban rents increased to an average NZD 1,175 psm over 1H11. This is the first increase in Prime Suburban rents since the peak in the last cycle of NZD 1,375 psm was reached in late 2007. The retail investment sector remains buoyant with average Auckland Prime CBD investment yields firming to 7.50% over 1H11. Some investors are breaking through these levels to secure sought after assets. Analysis of the latest asset sale transaction volumes shows that over NZD 660 million of large quantum retail assets have sold over the last 18 months, representing around 40% of the total asset sales above NZD 5 million across office, retail and industrial sectors.

12-Month OutlookEmployment demand and housing market activity have displayed signs of a steady recovery over 2011, which has driven a rebound in consumer confidence. We expect this is likely to flow through to continued improvement in retail spending over the next 12 months. Vacancy is likely to remain fairly stable at or near current low levels over the next three years. Prime CBD rents are expected to remain high as retailers are left with minimal options, which is likely to keep the investment market buoyant.

•••

Note: Auckland Retail refers to CBD, Newmarket and Takapuna strip and shopping centre retail.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ NZD 1,850 psm paStage in Cycle Rents risingNo. of Quarters Since Last Peak

12

^ net, on NLA


Index

70

80

90

100

110


sqm

0

2,000

4,000

6,000

8,000

10,000

Beijin

g: R

esid

entia

l


Beijing: Residential

Leasing demand is strong from MNCs in the pharmaceutical sectorTransactions of high-end and luxury apartments increase 18.4% q-o-q Transaction prices decrease 3.4% q-o-q to RMB 40,078 per sqm

Demand Leasing demand for serviced apartments continued to increase in 3Q11, especially from the pharmaceutical and automobile sectors. The continued strong demand pulled down the average vacancy rate to 7.5%, leaving only 604 units of serviced apartments available in the market. Leasing activity in the luxury apartment market was also very robust and mostly came from tenants forced to relocate to more affordable locations as rents in some apartment complexes now exceed the housing allowances of some companies.

After two consecutive quarters of decreases, transactions of high-end and luxury apartments increased 18.4% q-o-q. Driving the rise are cash-rich homebuyers who are purchasing better quality housing to improve their living conditions and as a store of wealth. With inflation still high and few alternative investment options, housing is still the preferred place to invest.

SupplyEast Gate Plaza closed in 3Q11 and will be strata-title sold in 2012; the closure caused the existing serviced apartment stock to fall to 8,095 units. No.5 Vanke Park was completed in 3Q11, introducing 869 units of luxury apartments to the leasing market. Eight high-end apartment projects launched into the sales market, totalling 3,319 units, an increase of 50.0% compared to 2Q11. Only one villa launched new units to the sales market, adding 93 detached villas.

Asset PerformanceServiced apartment rentals grew the fastest, reflecting the shortage of supply. Some serviced apartment projects experienced rental increases of more than 20% y-o-y. The rentals of luxury villas grew slowest, illustrating the limited demand for these projects. Rental growth for luxury apartments slowed to 3.7% q-o-q, down from a 4.4% q-o-q increase in 2Q11. With rents slowing, landlords are cutting back on amenities, such as providing new furniture to new tenants.

The capital values of high-end and luxury apartments decreased 3.4% q-o-q and 7.6% y-o-y to RMB 40,078 per sqm, falling from a peak of RMB 43,395 per sqm in 3Q10. The capital values of high-end and luxury villas has fluctuated over the last four quarters because of this market’s sensitivity to changes in one or two projects. The decrease in the average capital value of villas to RMB 39,047 per sqm was mainly due to no transactions occurring in the most expensive project, which had eight units transact at RMB 89,136 per sqm in 2Q11.

12-Month OutlookWith leasing demand expected to decelerate in 2012 and more new supply forecast to launch in the market, rental growth is predicted to slow in 2012. The new supply of high-end and luxury apartments is expected to increase in 2012, and luxury apartment projects with prime locations should experience price stability. However, high-end apartment projects located outside of the Fourth Ring Road are expected to start discounting in the face of increasing competition. As prices come down, more potential buyers will choose to purchase housing, which will push up transactions to levels higher than that of 2011.

•••

Note: Beijing Residential refers to Beijing’s Luxury and High-End residential market.


Financial Indices


Physical Indicators


12-Month Outlook


Rental InformationRental Value^ RMB 109.7 psm pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

7

^ gross, on GFA

Index


60

100

140

180

220


Units

0

3,000

6,000

9,000

12,000

Shan

ghai:

Res

iden

tial


Shanghai: Residential

Shanghai tightens enforcement of existing purchase restrictionsHigh-end prices flat in the primary market; fall in the secondary marketStrong leasing demand leads to a further drop in serviced apartment vacancies

DemandIn July, Shanghai implemented stricter enforcement of existing purchase restrictions for non-local buyers, further suppressing demand. Non-local buyers may now only buy homes if they are able to provide proof of tax or social insurance payments for 12 of the previous 24 months; paying back taxes all at once will no longer suffice. With tightening policies remaining in place and potential buyers waiting for prices to fall, sales volume of commodity housing in the primary market decreased 2% m-o-m in July, 25% m-o-m in August and 2% m-o-m in September. In the high-end segment, sales totaled 194 units in 3Q11, only slightly higher than the record-low seen in 2Q11. No units were transacted in 3Q11 in projects such as Dynasty on the Bund, Bund House, City Apartment and Artdeco Mansion II.

Leasing momentum in the high-end market remained strong in 3Q11. Leasing demand for short stays increased, driven by abundant business exhibitions in Shanghai. Meanwhile, demand for medium to long stays continued to grow as expatriates and domestic employees were relocated to Shanghai to facilitate business expansion plans. The strong leasing demand led to a further decline in serviced apartment vacancy rates, falling from 12.1% in 2Q11 to 10.9% in 3Q11.

SupplyThere was a surge in new supply of high-end apartments, with 784 units in four high-end projects launching for sale in 3Q11. Star River Phase II in Pudong New District put 209 units onto the market; The Bound of Bund in Huangpu District released 98 new units; Hai Po Fu Di on the Xuhui riverfront launched 111 residential units and 168 commercial-titled residential units. The Palace in Xuhui District launched phase I with 198 units. No new serviced apartments were completed in 3Q11.

Asset PerformanceDespite stricter home purchase restrictions and pessimistic market sentiment, sales prices of high-end apartments in Shanghai’s primary market remained largely unchanged in 3Q11 as no developers offered discounts for projects in downtown areas. In the secondary market, however, some individual sellers began lowering asking prices to attract buyers. As a result, average capital values of high-end apartments in the secondary market decreased slightly by 1% q-o-q to RMB 55,488 per sqm. In the leasing market, rising demand coupled with falling vacancies enhanced landlords’ confidence, resulting in a 4.0% q-o-q increase in serviced apartment rents and 3.1% q-o-q growth in non-serviced apartments rents in 3Q11.

12-Month OutlookTightening measures are expected to remain for the remainder of 2011 and well into 2012, barring rapid deterioration in the economic outlook. In the high-end primary sales market, developers will likely hold prices as they regard the high-end projects as irreplaceable due to limited developable land in downtown Shanghai. However, in the secondary market, a minor price correction is expected as the market shifts to favour buyers. In the leasing market, rental growth may moderate during the short-term as global economic uncertainty could slow MNCs’ business expansion plans in China.

•••

Note: Shanghai Residential refers to Shaghai’s High-End residential market.

12-Month Outlook



Financial Indices


Physical Indicators



7

^ gross, on GFA

Index


80

100

120

140

Completions Future Supply07 08 09 10 11F

Units

0

4,000

2,000

6,000

8,000

10,000

12F

Hong

Kon

g: R

esid

entia

l


Hong Kong: Residential

Sales volume drop alongside global stock market correctionsNo fire sales to date due mainly to low holding costsPrices edge down marginally as investment demand weakens

DemandIn 3Q11, housing sales slowed to their lowest levels since 1Q09 as both buyers and sellers took a wait-and-see approach amid turbulent financial markets and uncertainty about the global economy. Higher interest rates for new mortgages among local lenders as a result of tightened liquidity also limited demand. As such, the number of residential sale and purchase agreements fell by 59.3% y-o-y and 41.1% q-o-q in 3Q11 to 15,516 units.

Following the strong momentum in 2Q11, sales of new homes decreased roughly in line with the overall market decline and developers slowed the pace of new project marketing due to weaker demand. Consequently, only three new projects went on sale during the quarter. Kerry Properties launched Soho 189 in Sheung Wan (146 units) while Sun Hung Kai Properties launched i.UniQ Grand in Shau Kei Wan (79 units). Over 95% of the units in both projects sold. In Tseung Kwan O, Cheung Kong sold about 500 of a total of 1,168 units in La Splendeur.

The government sold six residential sites in 3Q11, fetching a total of HKD 19.1 billion. However, sites with more development restrictions, such as the one in Shatin (STTL 525) and that in Tseung Kwan O (TKOTL 113), were less sought after by developers. Meanwhile, preliminary data suggested that sales of properties priced at or above HKD 50 million were down 60% q-o-q in 3Q11 to 47 units.

Concerned about the global economic outlook, MNCs held back on some expansion plans, transferring fewer foreign executives to the city during the quarter. Leasing activity was mainly driven by rent-saving exercises as expatriates under personal leases were on the rise.

SupplyA total of 6,612 residential units completed in the first eight months of 2011, 134 of which were luxury units. One of the larger high-end schemes was New World Development’s The Signature in Tai Hang, comprising 66 apartments.

Asset PerformanceAfter rising 16.2% in 1H11, capital values for luxury residential properties edged down 0.6% q-o-q in 3Q11, due mainly to softened demand amid stock market corrections. The trend of corporate tenants shifting from company leases to personal leases has led to reduced demand for top-end properties, resulting in slower rental growth of 1.2% q-o-q for 3Q11.

12-Month OutlookThe gloomy economic environment is expected to extend into 4Q11 and 2012 should there be no solid and effective plans for the European sovereign debt crisis. We expect investment demand will continue to be soft for the rest of 2011, although low holding costs will remain a valid weapon to help existing landlords defend their holding positions. Nevertheless, in a market with reducing demand, capital values are expected to trend down further, but low holding costs and a shortage of new supply will avoid a free-fall scenario. Generally, we do not see strong disposal pressure. This position may change if current market turbulence develops into a surge in unemployment and/or the stock market slump starts to affect investors’ liquidity.

•••

Note: Hong Kong Residential refers to the Luxury residential market.


Financial Indices


Physical Indicators


12-Month Outlook


Rental InformationRental Value^ HKD 39.8 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

10

^ net, on GFA


Index

60

100

120

140

180

160

80


0

200

400

600

800

1,000

Units

Maca

u: R

esid

entia

l


Macau: Residential

Gaming revenues for the first nine months up 46.0% y-o-yHome sales plunge 44.5% in June-July as the SSD takes its toll Prices show resilience, rents soar 8.1% q-o-q

DemandMacau’s economy continued to expand strongly in 2Q11, with GDP posting real annual growth of 24.0%. Moreover, figures released in October by the Gaming Inspection and Coordination Bureau indicated that the upward momentum continued over the first three quarters of 2011, despite turbulence in the financial market and fears over a slowdown in China’s economy. Gaming revenues in the January-September period grew 46.0% y-o-y to MOP 194.35 billion.

Although the city’s economy remained relatively solid, housing market sentiment was dampened by the Special Stamp Duty (SSD) introduced in June. As a result, the number of residential property transactions registered in June-July fell 44.5% compared to the preceding two month period to 3,246 units, according to the DSEC. However, the figure was up 18.0% on a y-o-y basis.

As most investors retreated, activity was supported largely by local owner-occupiers. For example, of the 40 units for sale at The Bayview, a high-end project, 25 were sold to end-users within one week of release. The flats are located on mid and upper floors, and fetched prices of between HKD 3,100 and HKD 3,600 per sq ft. Located close to the future Light Railway Station and landing point of the HK-Zhuhai-Macau Bridge, the project comprises five residential towers offering 942 flats (1,581-1,603 sq ft, gross).

In the leasing market, faster rental growth was fuelled by an increased expatriate worker population. According to DSEC figures, the number of foreign workers in July grew 2.2% over June to 87,127 and by 20.7% compared with July last year.

SupplyThere were no new completions in 3Q11. Looking ahead, about 655 units are scheduled for completion in 4Q11. Eight projects are located on the Macau Peninsula, providing 459 units, while 196 units will be supplied at a project in Taipa.

Asset PerformanceCapital values of high-end residential property remained resilient, with the average holding steady at HKD 4,442 per sq ft (gross). However, the leasing market experienced significantly higher rental growth. While average rents increased only 1.0% in 2Q11, rents rose 8.1% in 3Q11. As such, market yields improved by 20 bps to an average of 2.3% per annum.

12-Month OutlookThe sales market will likely remain sluggish throughout 4Q11 if the European debt crisis continues to weigh on the financial markets. In the primary market, developers are also likely to push back project launches in the coming quarter. Thus, we expect sales volumes to improve only after the Chinese New Year in late-February.

However, we are optimistic that pricing levels will hold firm over the coming 12 months for two reasons. First, local owner-occupiers will be a dominant force in the sales market because they are less exposed to financial market risks and benefit from the area’s strong economic fundamentals. Second, robust rental growth driven by an increasing expatriate population will help keep home values stable, given that a low interest rate environment persists.

•••

Note: Macau Residential refers to the High-end residential market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ HKD 8.54 psf pmStage in Cycle Rents risingNo. of Quarters Since Last Trough

9

^ net, on GFA

Index


60

80

100

120

140

Units


0

1,000

2,000

3,000

4,000

12F

Bang

kok:

Res

iden

tial


Bangkok: Residential

Less new supply enters the market, while take-up remains steadyRents increase slightly in 3Q11 due to improved occupancy ratesCapital values are flat, yields increase marginally

Demand Demand remained stagnant in 3Q11 as buyers waited for new tax incentives for first-home purchases from the new government. Announced in late-September, the incentives apply to first-time purchases of condominiums priced below THB 5 million and therefore should not have much impact on the sale of Luxury and High-End condominiums in Bangkok’s CBD.

In contrast, the leasing market was active in the quarter as many expatriate contracts were renewed.

Although global economic conditions continued to influence demand for Bangkok’s high-end condominiums, Thai buyers remained the major source of demand for new units, both for self-occupancy and investment purposes.

SupplyThree projects completed in 3Q11, namely the luxury 30-year-leasehold Oriental Residences, which was delayed from the previous quarter and is now ready for transfer, adding 44 units to the market; Saladaeng Residence (132 units) on Sathorn Road; and Aequa (153 units) on Sukhumvit 49. The addition of 329 units to the existing stock took the total in 3Q11 to 21,749 units.

By the end of 2011, additional supply of 2,179 units from five more projects is due for completion. The projects are Collezio (95 units), The Address Sukhumvit 28 (246 units), Quattro (446 units), Sukhothai Residence (196 units) and Bright Sukhumvit 24 (292 units).

No new high-end condominium projects were launched in 3Q11. Nevertheless, several prime sites in the CBD remain ready for development and more projects are expected to be launched in the near future.

Asset PerformanceEffective rents have increased by 0.4% q-o-q from THB 4,174 to 4,192 per sqm, with leasing activity supported by the arrival of foreign workers and the renewal of expatriate contracts. With rising rental demand and fewer new completions, rents have moved into the upward phase of the cycle.

Capital values remained flat at THB 100,862 per sqm as no new transactions were recorded in the quarter and interest rates continued to rise. Yields picked up slightly in the quarter, rising by 10 bps to 4.2%.

12-Month OutlookA stable political environment and tax incentives from the government should help boost demand among renters and end-user buyers. Investment demand may continue to be under pressure as yields are less attractive than in the past. At the same time, the amount of new supply being completed is falling compared to previous years and, therefore, rents and capital values should hold up.

•••

Note: Bangkok Residential refers to Bangkok’s Central High-end luxury residential market.


Financial Indices


Physical Indicators


12-Month Outlook


Rental InformationRental Value^ THB 4,192 psm paStage in Cycle Decline slowingNo. of Quarters Since Last Trough

1



Index

70

80

90

100

110


Units

0

1,000

2,000

3,000

4,000

Kuala

Lum

pur:

Resid

entia

l


Kuala Lumpur: Residential

Developers test the market with higher pricesDownward pressure on rentals continuesCapital values remain stable during 3Q11

DemandIn 3Q11, no new high end condominiums were officially launched.

There are however a number of developers who are testing the market with higher prices and they have started to selectively open their units for registration and bookings before officially launching their projects to the public.

There has been a noticeable move by developers to build smaller units, which are more affordable in absolute terms and more attractive to investors seeking rental returns.

The remaining unsold units (excluding penthouses) in the market are generally the larger size units (3,500 sq.ft and above) or the less desirable units within a condominium block.

SupplySupply increased from 18,683 units to 19,983 units with the completion of 1,300 in Damansara Heights, Mont’ Kiara and Sri Hartamas.

Twins @ Damansara Heights by Panareno Sdn. Bhd. (a joint-venture between Lion Group, Koh Brothers, The Heeton Group and AIG Group) was completed in Damansara Heights. This freehold development comprises 318 units in two blocks of 36 storeys.

Two freehold developments, 11@Mont’ Kiara developed by Sunrise Bhd and Kiara 9 developed by Mitrajaya Holdings were completed. 11@Mont’ Kiara comprises 380 units in five blocks of 37 storeys and Kiara 9 comprises 192 units in one block of 41 storeys.

In Sri Hartamas, two blocks within Plaza Damas were completed. This freehold seven storey development by Mayland comprises 410 small studio units.

Asset PerformanceGenerally capital values remained stable at an average of MYR 6,684 per sqm in 3Q11.

After a steady declining trend since 2Q10, the average rental value remained stable at MYR 345 per sqm per annum. The decline in rentals was due to the large existing supply and limited demand which pressurised some owners to reduce rental rates. Despite consolidation in 3Q11, further reductions could occur in the future.

With stable capital values and rental rates, the average yield for high-end condominiums remained stable at 5.2% in 3Q11.

12-Month OutlookDue to the similarities between many high end condominiums, developers are expected to be more innovative and creative to differentiate their projects. Some have indicated futuristic architectural design and some have tied up with reputable ‘brands’ to either design/furnish and/or manage their projects.

Occupancy rates are expected to reduce further in the short term due to the growing supply and demand imbalance. Thus, a tenant favourable market is expected to prevail in the short term as prospective tenants will have an increasingly wide range of choice of vacant units. Capital values may increase very marginally in the short term whilst rental rates compress further.

•••

Note: Kuala Lumpur Residential refers to Kuala Lumpur’s Prime residential market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ MYR 403 psm paStage in Cycle Rents fallingNo. of Quarters Since Last Peak

12

^ gross, on NLA


Index

80

90

100

110

120


Units

0

1,000

2,000

3,000

6,000

5,000

4,000

Mani

la: R

esid

entia

l


Manila: Residential

Positive sentiment in the luxury market encourages new launchesRents climb 5.0% as leasing demand from expatriates is sustainedRising investor interest drives capital values higher

Demand Demand in the residential market remained positive in 3Q11 despite recent global developments. Leasing demand in the luxury housing market continued to be buoyed by housing requirements for expatriates, primarily from offshoring and outsourcing (O&O) firms. However, vacancy rates rose slightly as recent completions are not yet fully let and more units in existing developments were made available to the leasing market.

The market was also relatively active in terms of sales in existing developments, with increased demand coming from MNCs and O&O firms seeking to house expatriate employees. The upbeat sentiment in the market was also evident in the sales of upcoming projects and developers continued to report growth in sales of condominium units. In the high-end market, developer Ayala Land reported a 15.0% take-up over two weeks for its newly launched Park Terraces (Tower 3).

Supporting the positive performance of the residential market were stable interest rates as Bangko Sentral ng Pilipinas refrained from raising policy rates, which form the basis of lending rates by commercial banks.

SupplyOne residential development in Bonifacio Global City (BGC) completed in 3Q11, adding around 244 units to the total stock. Much of the new supply for 2011 is expected to complete in 4Q11.

New launches in 3Q11 included Park Terraces – Tower 3 by Ayala Land Premier, as well as the branded Trump Tower to be developed by Century Properties. Meanwhile, property developer Federal Land, in a joint venture with the Japanese company Orix Corporation, is expected to launch a high-end condominium component in its mixed-use development in BGC in the next few months.

Asset PerformanceRents in the luxury condominium market continued to rise in 3Q11, reaching PHP 7,620 per sqm per annum, supported by sustained leasing demand from expatriates.

Meanwhile, activity increased in the investment market in 3Q11, propping up capital values at an average of PHP 110,000 per sqm. With rents and capital values growing at a similar pace, investment yields hovered at 6.9%.

12-Month OutlookAlthough many analysts have downgraded growth forecasts for the Philippines for 2011 and 2012, the revised forecasts are still expected to support growth in the residential market. A growing concern, however, is the continued sluggish performance of the US economy and the eurozone debt crisis, which may have a negative impact on overseas Filipinos’ remittances. This may, in turn, affect residential demand, especially in the mid-end market.

The volume of new supply expected over the next 12 months is estimated to be around 4,500 units, a substantial figure that will likely put downward pressure on rents and capital values, limiting their growth.

•••

Note: Manila Residential refers to the Makati CBD and Fringe Residential Condominium Market.


Financial Indices


Physical Indicators


12-Month Outlook


Rental InformationRental Value^ PHP 7,620 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

8



Index

80

90

100

110

120

140

130


Units

0

2,000

8,000

6,000

4,000

Sing

apor

e: R

esid

entia

l


Singapore: Residential

Supply pressure remains in the prime districts as 1,182 units completeSales volume falls as demand weakens Rents for both luxury and prime residential properties fall

DemandPreliminary estimates of the sales volume1 in the prime districts reached 613 units2 in 3Q11, compared with the 1,272 units recorded in 2Q11, which, although more caveats are likely to be lodged, is unlikely to be surpassed.

New launches also stalled, with no new projects launched in the prime districts in 3Q11. Data from the Urban Redevelopment Authority shows that just 256 new units were launched in July and August in the Core Central Region, which incorporates the prime postal districts of 9, 10 and 11. All of these units were at previously launched properties, the majority of them (180 units) at D’Leedon. A further 23 units were launched at The Boutiq on Killiney Road, where demand has been strong with 93% of the units already taken up, and 25 units were launched at Buckley Classique, where the sales rate is currently at 90%.

SupplySupply pressure continued as an estimated 1,182 units completed in 3Q11, an increase of 14.6% q-o-q. The main contributor to this increase was Soleil@Sinaran in Novena, where 417 units completed. Wheelock Properties’ Scotts Square development along Scotts Road also completed in 3Q11, adding a further 338 units to supply. Other projects granted TOP in 3Q11 included Newton Edge (104 units), Ritz Carlton Residences (58 units), The Lumos (53 units) and Residences at Emerald Hill (40 units).

Asset PerformanceAverage rents for luxury prime property in 3Q11 decreased by 2.1% q-o-q to SGD 564 per sqm per annum, while the figure for typical prime property also decreased, down by 0.4% q-o-q to SGD 453 per sqm per annum. This drop in rents was driven by the continued influx of supply in the prime markets, combined with a fall in demand. Current uncertainties in global financial conditions have led to many large financial organisations initiating a hiring freeze, which has had a negative effect on demand. People are no longer maximising their housing budgets and are instead choosing less expensive properties and/or downsizing their existing properties to reduce accommodation costs.

In 3Q11, the average resale capital value for luxury prime properties remained stable for the sixth consecutive quarter at SGD 26,910 per sqm per annum. Resale capital values for typical prime properties also remained flat at SGD 14,962 per sqm per annum.

12-Month OutlookUncertainty surrounding the global economy is expected to have an impact on demand for residential property as businesses put a freeze on recruitment and people look to downsize in order to reduce housing costs. As such, we do not anticipate any further growth in rents or capital values over the remainder of this year.

•••

Note: Singapore Residential refers to Singapore’s Prime and Luxury residential markets.

1 Total sales volume includes new sales, sub-sales and resale transactions2 Based on caveats lodged retrieved from the Urban Redevelopment Authority (URA) Real Estate Information System

(REALIS) on 30 September 2011


Financial Indices


Physical Indicators


12-Month Outlook


Rental InformationRental Value^ SGD 564 psm paStage in Cycle Rents fallingNo. of Quarters Since Last Peak

1


4Q07 4Q08 4Q09 4Q10 4Q11 4Q12RV Index (Prime)CV Index (Prime)

RV Index (Luxury)CV Index (Luxury)

60

70

90

110

Index

80

100

Future SupplyCompletions07 08 09 10 11F

Units

0

1,000

2,000

4,000

3,000

12F

Toky

o: In

dust

rial


Tokyo: Industrial

Production, exports and retail sales are recovering to pre-quake levelsRental growth becomes positive amid solid demand following quakeForeign capital investors increase interests in the sector

DemandIn 3Q11, production, exports and retail sales continued to increase as they generally recovered to pre-quake levels with the resolution of most supply-side constraints. In this environment, leasing activity accelerated over the quarter as demand for modern logistics facilities was solid, having recovered after temporarily stalling after the quake. Demand came primarily from internet, mail order and telemarketing sales enterprises, and third party logistics (3PL) players that sublease property to these enterprises. Sales in the sector have increased two-fold over the past ten years.

Leasing transactions made public in the quarter included DHL Supply Chain’s take-up of 35,000 sqm at GLP Urayasu III (GFA: 69,000 sqm) in August and 3PL service provider Trancom’s commitment in the Kita-Kanto Logistics Centre (GFA: 24,000 sqm) in Saitama commencing in October.

SupplyNo new supply entered the Tokyo Bay area in 3Q11. However, supply in the inland area was relatively ample with the completion of the Kuki Logistics Centre (GFA: 24,000 sqm) and the Yashio Logistics Centre (GFA: 23,000 sqm) in Saitama, and D Project Kita-Hachioji B (GFA: 19,000 sqm) in Tokyo.

Groundbreakings in the quarter included Logi Port Kita Kashiwa (GFA: 127,000 sqm), a development by LaSalle Investment Management (LIM) in Chiba, due in October 2012.

Asset PerformanceIn 3Q11, rents averaged JPY 5,792 per tsubo per month, or USD 273 per sqm per annum, an increase of 0.2% q-o-q, and the first time growth has been seen in 15 quarters.

In 3Q11, the investment market saw foreign capital inflow increase as investors expect sustainable demand for modern logistics facilities, with LIM acquiring two facilities currently operating in the Tokyo Bay area. Global Logistics Properties and the Canadian Pension Plan Investment Board formed the Japan Development Fund to develop and hold institutional-quality, modern logistics facilities. With USD 500 million of equity over a projected three-year investment horizon, the Fund is open-ended, with a long-term focus on building multi-tenant and build-to-suit facilities, mainly in the Greater Tokyo and Osaka areas.

12-Month OutlookProduction and private consumption are expected to increase as reconstruction efforts kick in, while exports are predicted to rise in line with overseas demand. However, persistent concerns over the eurozone crisis could lead to a slowdown in overall activity.

In this environment, the Tokyo Bay area is expected to see suppressed supply in the foreseeable future, due largely to the scarcity of land available for development, although demand is expected to remain robust as companies seek effective distribution. Given this, the market is likely to remain tight and we expect rents to continue to rise. As rental growth gains momentum, investment yields should fall and capital values are likely to rise gradually.

•••

Note: Tokyo Industrial refers to Tokyo’s Industrial Logistics market. In collaboration with Ichigo Real Estate Service Co, Ltd

12-Month Outlook



per monthStage in Cycle Rents risingNo. of Quarters Since Last Trough

1

^ gross, on NLA

Freight Traffic Volume

Source: Bureau of Port and Harbour, Tokyo Metropolitan Government

Container Throughput

Source: Bureau of Port and Harbour, Tokyo Metropolitan Government

NA

0.7

0.8

0.9

1.0

1.1

1.2

TEUs

(Milli

on)

TEUs shipped per quarter2Q06 2Q07 2Q08 2Q09 2Q10 2Q11

Metric

tons

(Milli

on)

Freight Volume2Q06 2Q07 2Q08 2Q09 2Q10 2Q11

16

18

20

22

24

26

Beijin

g: In

dust

rial


Beijing: Industrial

The large amount of new supply in 3Q11 is quickly absorbedContinued robust demand drives vacancy rates down to 1.2%Rental growth accelerates due to strong demand and limited supply

DemandIn 3Q11, the Beijing logistics market continued to experience strong demand, mainly from retailers, e-commerce firms, and third party logistics (3PL) companies. The majority of the demand came from e-commerce firms. As e-commerce businesses expand at a faster pace and sales volumes rise rapidly, warehouse space is increasingly required for storing, transferring and delivering goods. Net take-up reached 129,928 sqm, mostly attributed to two newly completed projects achieving 100% pre-commitment rates in Daxing and Beijing Airport Logistics Park (BALP). Most warehouses are fully leased, leaving only a few warehouses with space still available. Consequently, the overall market vacancy dropped to 1.2%, a decrease of 0.5% q-o-q.

Supply Two projects entered the market, namely GLP Park Daxing and GLP Park Beijing Airport B-5 in Shunyi District, adding 125,229 sqm of new supply and pushing the total market stock to 1,292,549 sqm. The two new projects were preleased by companies from e-commerce, retail and third party logistics (3PL) sectors. Though a significant amount of new supply entered the market in 3Q11 (exceeding the amount that was launched in all of 2010), net absorption has been moving faster than new supply can be completed, leaving little vacant space in the market.

Asset Performance Driven by robust demand, limited available space, rising development costs and increasing capital values, the average net effective rent hit RMB 0.97 per sqm per day, growing 5.3% q-o-q and 15.1% y-o-y.

The average capital value of logistics properties stood at RMB 4,219, rising 6.0% q-o-q. Rising land values and limited warehouse supply are contributing to the increase in capital values while market yields remained relatively stable as capital value appreciation stayed in line with rental growth.

12-Month Outlook In 4Q11, Shoufa Logistics Center Phase II located in Fangshan District is slated to enter the market bringing 25,000 sqm of new supply, but this development hardly alleviates the supply constraints. Thus, several e-commerce giants, such as Dangdang, Taobao and New Egg have announced, or are considering building their own logistics centres in the near future.

Leasing demand is expected to remain strong through the rest of the year and into 2012. A large number of firms are seeking suitable space to establish or expand operations. In addition, more tenants are choosing to prelease space much further in advance than before. Vacancy is anticipated to drop further in 4Q11 due to supply constraints and pent-up demand.

Rents are expected to continue their growing momentum next quarter due to strong preleasing demand and the high absorption rates of new projects. Capital values are forecast to continue to appreciate at a rapid pace due to rising land values and increasing rents.

•••

Note: Beijing Industrial refers to Beijing’s Industrial Logistics market.

12-Month Outlook



7


Utilised F.D.I.

Source: Beijing Municipal Commission of Commerce

Exports

Source: General Administration of Customs

0

2

4

6

8

10

12

14

16

18

USD

(Billi

on)

Total Value of Exports3Q06 3Q07 3Q08 3Q09 3Q10 3Q11

Billio

n RMB

3Q06 3Q07 3Q08 3Q09 3Q10 3Q11Utilised FDI per quarter

0

5

10

15

20

25

Shan

ghai:

Indu

stria

l


Shanghai: Industrial

Two new non-bonded warehouses are completed Rental growth slows in non-bonded and bonded markets Shanghai has only limited land supply for logistics projects

DemandIn the non-bonded logistics market, demand remained strong in West Shanghai as logistics and e-commerce companies continued to seek space for distribution centres. However, a lack of vacant space has meant they have had to look in other submarkets. Due to Pudong’s high costs and inferior location – far from manufacturing and population centres – companies do not consider it as an attractive alternative to the West Shanghai submarket. Instead, most companies view cities along Shanghai’s western border such as Kunshun and Taicang to be the best alternative locations. As a result, demand in Pudong’s non-bonded market remains limited to logistics companies handling exports and imports through Pudong’s airport and port infrastructure. For example, Expeditors International and Deppon Express both leased 10,000 sqm in GLP Park PVG this quarter. The non-bonded vacancy rate increased from 7.4% in 2Q11 to 9.4% in 3Q11 due to the completion of GLP Park PVG. In the bonded market, a logistics company leased 6,000 sqm in Phoenix Bonded Logistics Centre in Waigaoqiao, pushing the bonded vacancy rate down 0.6 percentage points to 22.0%. The bonded market in Lingang continued to remain quiet with little demand for space and a high vacancy rate.

Supply In the non-bonded market, two new projects with a total of 133,908 sqm of space were completed in 3Q11. In West Shanghai, Vailog Songjiang Logistics Park Phase III added 37,890 sqm of space to the market. The project was filled by pre-leasing demand in 1Q11, reflecting the high demand for space in supply-constrained West Shanghai. In Pudong, GLP Park PVG was completed this quarter, adding 96,018 sqm of space to the market. The bonded market remained inactive with no new supply delivered in 3Q11.

Asset Performance Driven by strong demand and the tight market in West Shanghai, average non-bonded rents rose by 1.6% q-o-q to RMB 1.12 per sqm per day. Rental growth slowed from last quarter because the limited demand and large amount of vacant space in Pudong prevented rents there from rising. Bonded rents remained flat at RMB 1.06 per sqm per day. Bonded rents in Waigaoqiao remain substantially higher than in Lingang, where vacancy is high and demand for space weak.

12-Month Outlook In the non-bonded market, upcoming supply in West Shanghai will be quickly absorbed and the vacancy rate will remain near zero. It has become more difficult in recent quarters for developers to receive government approval for logistics projects, which contribute less in tax revenue and economic activity than other land-use types. To prove that developments will benefit an area, developers will need to show the government that they have signed on an important tenant as a partner or that they will provide a distinguishing feature such as cold storage. Moving forward, the amount of land available in Shanghai to build relatively low-value logistics warehouses will continue to shrink, and companies will increasingly need to consider alternative sites in cities in neighbouring Jiangsu Province.

•••

Note: Shanghai Industrial refers to Shanghai’s Industrial Logistics market.

12-Month Outlook


Freight Traffic Volume

Source: Government Statistics Bureau

Rental InformationRental Value^ RMB 1.10 per sqm

per dayStage in Cycle Rents risingNo. of Quarters Since Last Trough

5

^ gross, on GFA

Container Throughput

Source: Government Statistics Bureau

TEUs shipped per quarter

9.0

10.0

2Q06

TEUs

(Milli

on)

2Q07 2Q08 2Q09 2Q10 2Q112.0

3.0

4.0

5.0

6.0

7.0

8.0

260

Metric

Ton

s (Mi

llion)

Freight Volume2Q06 2Q07 2Q08 2Q09 2Q10 2Q11

140

160

180

200

220

240

Guan

gzho

u: In

dust

rial


Guangzhou: Industrial

Leasing demand from the automotive industry continues to expandBusiness parks are increasingly the preferred destination for R&D centresOverall rental growth slows as more warehouse supply puts pressure on rents

DemandLeasing activity in 3Q11 was spurred on by the announcement from Nissan that it will invest RMB 3.6 billion over the next few years in expanding production capacity at its Guangzhou engine plant. Four suppliers for Honda, Toyota and Nissan have already established manufacturing plants in the Sino-Singapore Guangzhou Knowledge City (SSGKC) in Luogang district. Elsewhere, Shunjie Logistics and Domtar Corporation have pre-leased 40,000 sqm and 20,000 sqm of space respectively in GLP Park in Xintang, which is near Guangzhou Honda’s Xintang manufacturing base.

In the business park sector, more space was occupied by new R&D centres built for the car manufacturing, technology and banking sectors. For example, F.tech, a Japanese car parts manufacturer, set up an R&D centre in SSGKC during the quarter. In addition, Tianhe Software Park said that it had acquired two land parcels in the Gaotang sub-park to develop an R&D facility for Bluedon, an Internet security firm, and ATM manufacturer Kingteller. These two domestic companies plan to run their own R&D centres in the location by occupying 7,650 sqm and 15,731 sqm of land, respectively.

SupplyA warehouse property in GLP Park Xintang was delivered in 3Q11, adding some 20,000 sqm of floor space to the total stock. The rest of the space in the logistics park, amounting to some 90,000 sqm, is scheduled for completion by end-2011.

There were no completions in the business park sector during the quarter.

Asset PerformanceWhile demand for warehouse space continued to rise gradually, overall rents remained fairly stable, up a modest 0.6% over 2Q11 to an average of RMB 29 per sqm per month (gross) in 3Q11. This was due to the fact that the rental market for warehouse property is entering a slower growth cycle after seeing strong growth over the past few quarters and to the increased supply from neighbouring cities that has eased upward pressure on rents.

In the business park sector, although activity remained focused on investment and the development of self-built office schemes, rents rose a healthy 3.1% q-o-q to an average of RMB 653 per annum as of 3Q11.

12-Month OutlookDespite a gloomier global economic outlook, China’s domestic consumption is believed to be able to absorb some of the shock from the worldwide downturn, given that Guangdong Province has a stronger retail market than the rest of the country. As such, we believe that demand for distribution centres from foreign manufacturers will continue to strengthen, fuelling rental growth over the next 12 months.

As with local manufacturers, foreign manufacturers are also expected to invest more in R&D in order to develop products for local markets. Therefore, Guangzhou’s business parks, benefitting from their proximity to the manufacturing base in south China, will increasingly become a preferred destination for R&D centres.

•••

Note: Guangzhou Industrial refers to Guangzhou’s Warehouse and Business Parks markets.

12-Month Outlook


Rental InformationRental Value^ RMB 653 psm paStage in Cycle Rents risingNo. of Quarters Since Last Trough

10

^ net, on GFA

Utilised F.D.I.

Source: Guangzhou Municipal Bureau of Statistics

F.D.I. Contracts

Source: Guangzhou Municipal Bureau of Statistics

NA

FDI contracts signed per quarter

150

175

200

225

250

275

300

325

350

Numb

er

2Q06 2Q07 2Q08 2Q10 2Q112Q09

Billio

n RMB

Utilised FDI per quarter

0

2

4

6

8

10

12

2Q06 2Q07 2Q08 2Q10 2Q112Q09

Hong

Kon

g: In

dust

rial


Hong Kong: Industrial

Recovery in regional supply chains offset by an export market slowdownLow vacancy rates drive rents higherInvestment activity drops as investors head for the sidelines

DemandThe recovery of regional supply chains, which had been disrupted by the natural disasters in Japan earlier in the year, helped Hong Kong’s external trading sector expand by 6.7% y-o-y in 3Q11. However, with key export markets in Europe and the US again on the brink of recession and trade growth moderating throughout the quarter, growth was lower than the 9.1% recorded in 2Q11.

The slowdown in the growth of export trade was reflected in the leasing market, where a moderate drop in demand was observed from export-oriented 3PL operators as they put expansion plans on hold. This was, however, offset by growing demand from retailors and local distributors, which benefitted from the strong performance of Hong Kong’s retail market, where sales grew by 29.0% y-o-y in July-August.

Notable new lettings driven by retailor expansion included: Lane Crawford leasing 32,000 sq ft in Tuen Mun Distribution Centre in Tuen Mun; IKEA expanding by an additional 60,000 sq ft in ATL Logistics Centre in Kwai Chung; and Kerry Logistics leasing 120,000 sq ft in Jumbo Plaza in Sheung Shui.

There were no notable transactions involving purely warehouse properties in the quarter. With capital values looking increasingly overpriced at more than 20% above previous record highs and amid uncertainties emerging in global trade markets, investors headed for the sidelines.

SupplyTwo smaller warehouse developments were completed in 3Q11, namely Chinachem’s 114,527-sq-ft facility on Lok Yip Road in Fanling and Nanyan Brothers Tobacco Company’s 118,157-sq-ft facility at 13 Ping Tong Street South in Yuen Long, which was fully retained for self-use.

Asset PerformanceThe slowdown in demand had little impact on rents as landlords continued to push for new highs on the back of improving occupancy levels. By end-3Q11, rents were at an average of HKD 8.2 per sq ft per month, up 3.9% q-o-q.

Capital values also continued to rise, albeit at a moderating rate, growing by 3.9% q-o-q. Growth was, however, driven largely by valuations in the absence of transactions.

12-Month OutlookRecent downgrades in the city’s economic outlook are expected to curtail demand. Tenants downsizing on natural lease expiry and the build-up and return of secondary space will also cause vacancy rates to rise.

Although rents are expected to climb to their record highs in 4Q11 because of tight vacancies, increasing vacancy pressure will likely lead to a 10-15% rental correction in 2012.

The buyer-seller standoff over pricing will keep investment volumes low. Investors will also demand higher yields to justify higher borrowing costs and negative rental growth. Capital values are still expected to hold firm in 4Q11, but will likely decline by 15-20% in 2012.

•••

Note: Hong Kong Industrial refers to Hong Kong’s Industrial Warehouse market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ HKD 8.2 psf pmStage in Cycle PeakNo. of Quarters Since Last Trough

7

^ net, on GFA


90

100

110

150

130

120Index

140


0

100

150

200

250

Thou

sand

sqm

50

Sing

apor

e: In

dust

rial


Singapore: Industrial

Leasing demand softensEffective rents remain unchanged amidst sluggish market sentimentCapital values of high tech space increases due to sales activity

DemandAccording to the August data released by the Economic Development Board, Singapore’s manufacturing output expanded by 21.7% y-o-y, by 13.1% y-o-y on a three-month moving average basis and by 3.9% m-o-m (seasonally adjusted) in August 2011. Biomedical manufacturing was the greatest contributor to these increases, with output surging by 145.8% y-o-y in August due to a large increase in output from the pharmaceuticals segment and the production of a mix of higher value-added active pharmaceutical ingredients. Output from the precision engineering cluster climbed by 4.1% y-o-y in August largely attributed to the machinery and systems segment, which saw increased production of semiconductor-related and process control equipment and rising mechanical engineering works.

Leasing demand in the business park market remained good, but was weaker than in 2Q11. Year-to-date net absorption reached around 108,000 sqm from 74,000 sqm in 2Q11, causing the average vacancy rate to decline to 20.7% from the 23.4% reported in 2Q11.

SupplyNo business park space was delivered in 3Q11, making the only business park completed so far this year Biopolis Phase Three at Biopolis Drive, developed by Crescendas.

In 2012, Infinite Studios @ Mediapolis, a one-north project on Portsdown Road, will complete, adding a total GFA of 24,000 sqm. Other business parks due for completion next year include One @ Changi City and UE BizHub East.

Asset PerformanceEffective rents for high-tech space have remained stable in 3Q11 amidst weaker market sentiment and fewer leasing deals island-wide.

Average capital values for high-tech space reached SGD 5,597 per sqm because of a change in focus by investors, who have been shifting their attention away from the residential market. As a result, yields in 3Q11 compressed by 70 bps to 5.9%. Industrial REITs continued to acquire yield-accretive properties. For example, the Ascendas REIT purchased the Nordic European Centre at International Business Park (IBP) for SGD 121.55 million.

12-Month OutlookThe on-going global economic turmoil is expected to affect Singapore’s leasing market and rents for high-tech space are expected to remain flat over the next 12 months. High-tech properties with good quality building specifications and tenants with good covenant strength are likely to continue to attract investors, creating opportunities for industrial investments beyond the current period of economic uncertainty.

•••

Note: Singapore Industrial refers to Singapore’s Island-wide Business Park market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ SGD 332 psm paStage in Cycle Rents stableNo. of Quarters Since Last Peak

12



Index

4Q07 4Q08 4Q09 4Q10 4Q11 4Q1240

60

100

140

160

180

80

120


07 08 09 10 11F

Thou

sand

sqm Percent

0

200

100

50

150

250

0

10

15

5

–50 –5

20

25

12F

Sydn

ey: I

ndus

trial


Sydney: Industrial

Tenant demand remains positive, led by leasing of existing vacancyRents grow modestly in the quarter as supply remains subduedInvestment activity is steady, while yields remain stable

DemandGross take-up of 141,900 sqm was recorded in 3Q11. Take-up has steadily increased each quarter in 2011. However, take-up levels remain down on 2010 due to the lack of large pre-lease deals that were the primary driver of activity in 2010.

Leasing activity in 3Q11 was driven by a broad base of businesses in the transport and logistics, retail trade and wholesale trade sectors.

SupplyIn 3Q11 183,300 sqm of new projects completed, all in western Sydney. This represents a pick up on previous quarters this year. New supply additions in 2011 have eclipsed the extremely low level delivered in 2010. There has been 296,400 sqm of new stock added so far in 2011 and a further 174,900 sqm is scheduled to complete in 4Q11.

New supply largely continues to be demand-led. Nearly all projects that completed in 3Q11 were fully pre-committed and were purpose built for the likes of Kmart (51,660 sqm), Volkswagen (33,810 sqm), DHL (30,600 sqm), DHL (20,600 sqm) and Cassons (17,400 sqm).

Asset PerformanceGrowth in industrial net face rents for existing stock remained modest in 3Q11. The strongest growth has been recorded in the Outer Central West at 4.8% in the year to 3Q11. Other sub-precincts to record growth were the Outer North West (2.6%), South Sydney (1.6%) and Inner West (1.0%). Both the Outer South West and North recorded small declines in average prime rents of -0.5% and -0.3%. Rents for existing space are being supported by limited supply and occupiers opting for ‘stay put’ options given current macroeconomic uncertainties.

There has been little evidence of renewed appetite from developers for land. Average land values have been flat in most Sydney precincts and downward adjustment may emerge if demand for development sites remains weak.

Eight sales were recorded in the Sydney industrial market in 3Q11, totalling AUD 220.7 million. Yields have been stable for around a year. Three noteworthy sales in 3Q11 drove this result. The St Leonards Corporate Centre at 39 Herbert Street, St Leonards changed hands for AUD 86.7 million. Orchard Funds Management sold the facility to Altis Property Partners. Also in 3Q11, Mirvac sold a 50% share in two Hoxton Park developments to Aviva Investors for a combined AUD 96.9 million.

12-Month OutlookTenant demand is expected to remain steady over the next 12 months. New supply will be driven by projects already under construction or new pre-lease deals. There is little evidence of a surge in speculative development emerging in the near term. Face rents for existing stock are expected to record moderate positive growth, while prime grade yields are expected to remain flat or tighten moderately at the lower end of the range.

•••

Note: Sydney Industrial refers to all grades of the Sydney industrial market.

12-Month Outlook


For 2007 to 2010, completions and take up are year end annual. For 2011, completions and take up are YTD while future supply is for 4Q11.

Financial Indices


Physical Indicators



5

^ net, on GFA


Index

70

80

90

110

100

Take Up (gross) CompletionsFuture Supply

07 08 09 10 11F 12F0

200

400

600

800

1,000

Thou

sand

sqm

Melb

ourn

e: In

dust

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Melbourne: Industrial

There is ample upcoming supply with 335,000 sqm under constructionRents remain stableFive major transactions occur in the quarter totalling AUD 39.9 million

DemandThe lead indicators for the industrial sector remain mixed. Container trade through the Port of Melbourne recorded year-end growth of 10.4% in August 2011. Container throughput totalled 233,000 TEUs (20-foot equivalent units) in the month of August, marking a new national record. Strengthening trade volumes are helping to support demand for industrial space, however, this is being offset by weaker retail turnover growth. Housing investment remains high in Victoria relative to the other states; however total housing approvals have fallen 4.9% (seasonally adjusted) in the three months to August 2011 compared to the previous three month period. There were only two leasing deals within existing stock in 3Q11 totalling 15,300 sqm and a further two design and construct deals totalling 14,000 sqm. Tenants are finding very few suitable options within existing space which has led to the latest development cycle.

SupplyThree major projects reached practical completion in 3Q11, totalling 74,300 sqm. These projects were: the Pacific Brands Distribution Warehouse at Permas Way, Truganina (43,000 sqm); the extension of the Omega Chemicals facility (14,000 sqm) at the Angliss Industrial Estate, Laverton North; and the speculative facility at 2-10 Foundation Road, Laverton North (17,350 sqm).

Approximately 330,000 sqm of new supply is under construction across 16 projects that are scheduled to complete to by the end of 2012. Despite the relative leasing success of recent speculative developments, the bulk of space under construction is pre-committed (80%).

Asset Performance Rents were unchanged in 3Q11 across all markets with the prime net existing rents remaining at AUD 69 per sqm per annum (West), AUD 66 per sqm per annum (North), AUD 80 per sqm per annum (South East) and AUD 121 per sqm per annum (City Fringe).

Land values for an average standard services allotment (2,000 sqm) during the quarter were mostly unchanged. Land values are currently assessed at AUD 170 sqm in Laverton North, AUD 185 sqm in Campbellfield, and AUD 250 sqm in Dandenong. Prime investment yields were unchanged in 3Q11 and range from 7.75% to 8.75% (West), 8.25% to 9.25% (North), 7.75% to 8.50% (South East) and 7.50% to 8.50% in the City Fringe. There were five major transactions in 3Q11, totalling AUD 39.9 million.

Prime investment yields were unchanged in 2Q11 and range from 7.75% to 8.75% (West), 8.25% to 9.25% (North), 7.75% to 8.50% (South East) and 7.50% to 8.50% in the City Fringe. Investment activity in the Melbourne Industrial market is beginning to gain momentum. In 2Q11, there was AUD 176.8 million of transactions including portfolio acquisitions.

12-Month OutlookWhilst the outlook has softened over the past quarter, growing container trade through the Port of Melbourne and relatively strong housing investment will continue to support the industrial sector. Downside risks remain elevated with consumption and spending growth being eroded by weak consumer confidence. We believe the economic upturn has been delayed, rather than cancelled and should the economy return to trend growth, we would expect renewed confidence and spending growth to return to more normal levels.

•••

Note: Melbourne Industrial refers to all grades of the Melbourne industrial market.

12-Month Outlook



Financial Indices


Physical Indicators


Rental InformationRental Value^ AUD 69 psm paStage in Cycle Rents stableNo. of Quarters Since Last Trough

5

^ net, on GFA

NA

4Q07 4Q08 4Q09 4Q10 4Q11 4Q12

Index

Rental Value Index

90

95

100

105

110


07 08 09 10 11F 12F

Thou

sand

sqm

0

200

400

600

800

1,000

Adela

ide:

Indu

stria

l


Brisbane: Industrial

Gross take-up up to 85,900 sqmSupply additions total 54,900 sqm in the quarterBoth prime and secondary rents increase slightly

DemandGross take-up (over 3,000 sqm) of 85,900 sqm was recorded in 3Q11. This follows a weak quarter of activity in 2Q11 where only 65,200 sqm of take up was recorded. Nevertheless, conditions are difficult and tenants remain cautious due to recent global economic volatility. Leasing activity was boosted by three deals: Australia Container Freight Services leased 11,000 sqm at 1-5 Bishop Drive, Port of Brisbane; Axima Pty Ltd leased 10,690 sqm at 1094 Lytton Road, Murarrie; and Visy Logistics leased 8,890 sqm at 48 Randolph Street, Rocklea.

SupplySupply additions have generally picked up in 2011, but still remain low compared to pre-GFC levels. Five projects (≥ 3,000 sqm) completed in 3Q11, with new supply additions totalling 54,900 sqm. Year to date, new supply additions total 143,200 sqm, an increase of 80% on the same period last year. This compares to the trough of the market in 2010 when supply additions totalled just 154,000 sqm. Projects completed in the quarter included a 21,270 sqm warehouse for Grace Group at 450 Sherbrooke Road, Willawong, and an 18,000 sqm warehouse for Energex at Lot 21, Schneider Road, Eagle Farm.

Asset PerformancePrime Brisbane industrial rents increased slightly across all precincts in 1Q11. Prime rents now average AUD 124 per sqm per annum in the Trade Coast, AUD 120 per sqm per annum in Northern Brisbane and AUD 114 per sqm per annum in Southern Brisbane. Secondary rents remained relatively stable over the quarter, with Southern Brisbane and Trade Coast recording modest increases.

Brisbane industrial land values (2,000 sqm lots) stabilised over the quarter following falls in 2Q11. Yatala (Southern Brisbane) was the only exception, with a small decline. Average land values for 2,000 sqm serviced lots now range from AUD 210 per sqm in Yatala to AUD 400 per sqm in Eagle Farm (Trade Coast). Brisbane industrial rents are now on average 27% below their peak in 1Q08.

Prime investment yields remained unchanged for the second consecutive quarter in 3Q11. Yields for Prime grade assets now range between 7.75% and 8.50% (Southern); 8.00% and 8.75% (Northern); and 7.75% and 8.50% (Trade Coast). Secondary yields remained unchanged in 3Q11.

Three major transactions (> AUD 5.0 million) totalling AUD 17.1 million were recorded in 3Q11. This figure does not include the sale of a 150,000 sqm parcel of land at Swanbank Enterprise Park, Ipswich. In 3Q11 a 7,000 sqm warehouse on 20 Radius Drive, Larapinta sold for AUD 11.0 million, and a 23,000 sqm parcel of land at 776 Boundary Road, Richlands sold for AUD 6.1 million.

12-Month OutlookBrisbane’s industrial market has taken longer to recover than originally anticipated as global economic volatility keeps tenants cautious and further delays recovery. Nevertheless, the fundamentals of industrial property demand should improve over the next 12 months. With limited space under construction and few existing prime grade assets vacancy is likely to fall further and see moderate upward pressure on rents.

•••

Note: Brisbane Industrial refers to all grades of the Brisbane industrial market.

12-Month Outlook



Financial Indices


Physical Indicators



7

^ net, on GFA


Index

70

80

90

100

120

110


07 08 09 10 11F 12F

Thou

sand

sqm

0

200

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Real Estate

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