CBRE Vietnam Q2 2012 HCMC Tenants Evening

22nd May 2012

Presented by: Greg Ohan

Vincom Center , 47 Ly Tu Trong

District 1, HCMC, Vietnam

CBRE | Page 2

Today’s Message To You !...

2 drivers in business 1. Fear 2. Greed

Landlord & Tenants = motivated by same factors

“If you know the enemy & know yourself, you need not fear the result of a hundred battles” (Sun Tzu, The Art of War)

Renewal VS Relocation = Strategic Chess match, KNOW the market “Greed is Good” (Gordon Gecko, Wall St)… Is it ?

CBRE | Page 3

Presentation – What’s HOT & What’s Not?

Market Overview

Upgrading Your Lease

Leasing Strategies – What you need to know?

Supply – How this affects you?

Building Your Lease – Key factors

CBRE | Page 4

HCMC Vs Others…HCMC & Hanoi, Top 50 cities with highest prime rents – EVEN after sharp fall

HCMC = 27th (drop 8 spots)

Hanoi = 32nd (drop 3 spots)

HCMC 2nd & Hanoi 3rd most expensive in Sth East Asia after Singapore

HK & London’s West End, top 2

CBRE | Page 5

Recent Headlines

“There’s no way we can meet the economic growth target of 6 percent this year when so many companies are in serious trouble,” said Le Dang Doanh, an economist who has advised Prime Minister Nguyen Tan Dung

“May CPI, lowest since 2004!”

CBRE | Page 6

HCMC Office MKT Overview

S*x BACK in the city - Companies returning to the centre / fringe with more attractive terms on offer ... FOR NOW!Upgrading from Grade B to Grade A – without the $$

Landlords who were holding out for higher rental rates, have been flexible

Face rents flat – effective rents negotiable

Dong denominated leases in affect

Q1/2012, significant take up. Grade A absorptions in Q1/2012 50% greater than the quarterly average

Attractive Incentives in selected buildings

2012 Supply delayed – only 9,000 sm

CBRE | Page 7

What keeps your Landlord awake at night ?

1. Competition - Increased competition & new supply / relocation options in Q4/2012, Q1/2013

2. Vacancy - Landlord(s) looking to secure Tenants NOW, rather than face half empty buildings

Shift in key Landlord(s) mentalities are fuelling take up

Asking Rents (US$ psm per month) Grade AGrade B

Asking Rentals across Grade A & B steadily declining / flattening

HCMC Office MKT Overview

CBRE | Page 8

Tenants from decentralized districts / lower grades relocating to Prime CBD buildings

Tenants who were NOTconsidering relocation; have chosen to relocate

Key D1 buildings are allowing Tenants to shift their occupancy strategies

Good quality, location, availability have allowed key buildings to emerge as highly sought after options …

Upgrade? Overall D1

D1 - Excluding Key buildingsD1 - Key Active Buildings

Overall D1 D1 - Excluding Key buildings

D1 - Key Active Buildings

CBRE | Page 9

Tenants from decentralized / lower grade buildings relocating to Prime / Fringe CBD

Upgrade? – Key Transactions 1H 2012 Building Market TenantBitexco Financial Tower CBD Hoffmann‐la RocheBitexco Financial Tower CBD FonterraBitexco Financial Tower CBD Toyota Finance ServicesVincom Center CBD KirinVincom Center CBD VeoliaVincom Centre CBD PV Wells ServiceVincom Centre CBD Evonik DegussaSaigon Finance Centre CBD Viet Phat (Inbisco)Saigon Finance Centre CBD PayooGemadept CBD UASCGemadept CBD Jardine ShippingSunwah Tower CBD EmiratesGreen Power CBD Bao Viet Tokio MarineMetropolitan CBD Nokia VietnamRee Tower CBD New BalanceSFC CBD JW PharmaCentral Park CBD Grass SavoyeCapital Place CBD Cathay Insurance VietnamBao Viet Building CBD HalliburtonEtown Non CBD SwagelokRee Tower Non CBD ABBRee Tower Non CBD Fubon Life

CBRE | Page 10

CBRE Office Services Transactions for 1H 2012 • 94% - CBD• 39% - 2 key D1 buildings

Asking Rents (US$ psm per month) Grade AGrade B

Absorption in Grade A Market Q1/2012 ; > 13,000 smVS Q1/2011 ; 8,500 sm . Overall Grade A Occupancy now > 90%. Mature Grade A > 95%

As occupancy levels rise and New supply delayed, Grade A Market, appears to be approaching a ‘short term’ bottom

Upgrade?

CBRE | Page 11

Don’t Get Caught With Your Pants Down!

Jun2002

Apr2005

Jul2005

Dec2006

Dec2007

May2008

Jan2009

Jan2010

Jan2011

Jan2012

Low Zone 14 16 18 22 48 50 42 27 22 20

Mid zone 17 20 23 26 49 52 44 31 24 22

High Zone 20.5 24 28 28 50 54 46 32 26 24Notes: Rents excl SC & VAT

Doubled and Halved

2012 …2015/2011

CBRE | Page 12

Supply & Your Strategy

Only 9,000 sm of New Supply in 2012 (expectation was 84,000 sm). 11% of expected!

5 buildings targeted 2012 completion – realistically, 1 perhaps 2 will be completed

“What does this mean for Tenant’s? … ”

1. Limited relocation options available for a Q3 & Q4/2012 expiry !

2. 500 sm or > Tenant with expiry in 2H 2012, only has 1-2 mth window to secure a “stunning” deal

3. MUST think quick and act fast !

CBRE | Page 13

Supply: The Reality – Q4/2011 Vs Today Presidents Place – D1, A Grade (Nguyen Du / Nam Khi Khoi Nghia)

Target Handover Was June 2012 - AugustSize 9,100 sm leasable over 12/FFloor plate 748 sm NFA (LEED Gold)

Q4/2011 Q2/2012

VS

CBRE | Page 14

Saigon One Tower – D1, A Grade (Nguyen Hue / Ton Duc Thang)

Target Handover Was March 2012Size 40,000 sm leasable – Mixed useFloor plate 1,017 – 1,175 sm NFA (LEED Gold)

Q4/2011 Q2/2012

VS

Supply: The Reality – Q4/2011 Vs Today

CBRE | Page 15

Times Square - D1, A Grade (Nguyen Hue / Dong Khoi)

Target Handover Was March 2012 – Likely Q4Size 12,704 sm leasable over 8/F – Mixed UseFloor plate 1,588 sm NFA

Q4/2011 Q2/2012

VS

Supply: The Reality – Q4/2011 Vs Today

CBRE | Page 16

Le Meridian - D1, A Grade (Ton Duc Thang)

Target Handover Was July 2012, Now October TBCSize Now approx 9,125 smFloor plate 1,520 sm NFA approx

Q4/2011 Q2/2012

VS

Supply: The Reality – Q4/2011 Vs Today

CBRE | Page 17

After 2012….No Quality CBD Supply Until 2015!

Vietcombank Tower - (Ton Duc Thang / Hai Ba Trung)

BIDV Tower – (Nguyen Hue)

Q4/2011 Q2/2012

VS

VS

Q4/2011 Q2/2012

CBRE | Page 18

Securing a Good Deal – Drivers?

Strategy & Speed is KEY

CBRE | Page 19

Covenant Strength

Payment terms

Deposits

Longer Leases

Forego penalty-free termination clauses

Acquired space

Speed to deal

Rent Free

Stepped / Fixed Rents

Free / Reduced Parking

Attractive signage

The Give The Take

&

Securing a Good Deal?

Target effective Rentals after all incentives

CBRE | Page 20

Securing a Good Deal - When To Strike?

Rapid take up & tightening market 1H 2012 = limited options

Does your Landlord know this?Of course!

Vacancy (%) Grade AGrade B

1. Only 1-2 months remaining to secure a Net Effective sub $30 p/ sm p/mth rate in Grade A

2. Committing to a new building, prior to completion = Rental Premium (best deals done 3-9 mths after)

3. Landlord’s with rising occupancy now considering rental increases. Landlord’s reaching their break even point

CBRE | Page 21

Major Buildings - What Is Available Today?Occupancy / Q4  2011

Lettable Area (approx)

Occupancy / Q2  2012

Lettable Area (approx)

Bitexco Financial Tower D1 40.00% 24,102.00 sm 60.00% 13,000.00 smKumho D1 98.00% 1,100.00 sm 98.00% 300.00 smMetropolitan D1 98.00% 1,000.00 sm 95.00% 1,000.00 smSun Wah Tower D1 96.00% 961.00 sm 96.80% 856.00 smDiamond Plaza D1 100.00% 0.00 sm 98.00% 200.00 smSaigon Centre D1 96.00% 876.00 sm 90.00% 1,000.00 smSaigon Tower D1 98.00% 250.90 sm 99.45% 80.53 smMe Linh Point Tower D1 100.00% 0.00 sm 97.00% 631.00 smA&B Tower D1 93.83% 1,614.00 sm 98.00% 365.00 smGreen Power D1 70.20% 3,947.30 sm 90.00% 1,130.00 smVincom D1 51.00% 37,091.00 sm 67.00% 25,388.00 smCENTEC D3 98.00% 200.00 sm 98.00% 200.00 smSaigon Trade Center D1 92.00% 3,500.00 sm 93.00% 5,000.00 smMaritime Bank Tower D1 54.00% 8,786.00 sm 69.40% 6,032.00 smCentrePoint PN 97.50% 682.00 sm 98.00% 327.00 sme town TB 98.80% 1,000.00 sm 99.38% 900.00 smREE Tower D4 20.00% 13,800.00 sm 85.00% 2,550.00 smFlemington D11 75.00% 7,000.00 sm 75.00% 5,500.00 sm

TOTAL 105,910 sm 64,460 smSource: Verified by Landlords or Landlords Representatives

Q4/2011 Q2/2012Q4/2011 ‐ Q2/2012 = 41,450 sm LeasedQ1/2012 – Q2/2012 = 22,93 sm Leased

CBRE | Page 22

2007 Total 665,486 sm

2008 Total 908,972 sm

2009 Total 1,222,303 sm

2010 Total 1,648,216 sm

2011 Total 1,892,700 sm

Q1/2012 1,924,683 sm

HCMC Office Absorption Rate by Grade

2012 Take-Up*: Local 87.5% vs. Foreign 12.5%Sustainable? FDI Sensitive?

*Approximate numbers based on CBRE

CBRE | Page 23

Effective RentArea 1,361 smRent (based on NET area) $30.00 sm / monthService Charge $6.00 sm / monthVAT 10%Total Rent Inclusive $39.60 sm / month $39.60 sm / monthTotal Monthly Rent Only $40,830.00USDTotal Monthly Service Charge $8,166.00USDTotal Monthly VAT $4,899.60USDTotal Monthly Rental inclusive $53,895.60USDLease Period 60MonthsTotal Rent during Lease period $3,233,736.00USD

IncentivesRent Free 9MonthsRent Free amount $367,470.00USD

$4.50 sm / month $35.10 sm / month

Signage (1m x 1.2m) 1.20 smMarket Rate $250.00 sm / monthTotal Signage Cost for 5 year lease $18,000.00USD

$0.22 sm / month $34.88 sm / monthFree ParkingCars 4spacesMarket Rate $200.00monthTotal Car Parking for 5 year lease $48,000.00USD

$0.59 sm / month $34.29 sm / month

Motorbikes 70spacesMarket Rate $20.00monthTotal Motorbike parking for 5 year lease $84,000.00USD

$1.03 sm / month $33.26 sm / month

Contribution Towards Fitting Out$0.00 sm / month

Effective Rent after all incentives $33.26 sm / month

Incentives DO Count – 16% Saving Off The Face Rent

CBRE | Page 24

Area 365 sm 1,361 sm

Rent $40.00 sm / month $33.00 sm / month

1st year rent $35.00 sm / month $30.00 sm / month

Monthly Rent $14,600 / month $44,913 / month

Fit Out Cost $350 sm $350 sm

Approximate Fit Out $127,750.00 $476,350.00

Rent Free Period 2 month(s) 5 month(s)

Rent Free Amount $29,200.00 $224,565.00

Stepped Rent Saving $18,250.00 $28,581.00

Total Incentive $47,450.00 $253,146.00

Rent free as % of fit out 37.14% 53.14%

How Incentives Offset CAPEX – Live Examples

CBRE | Page 25

A Firmer Dong

For indicative purposes only – based on Vietcombank Transfer rate

Source: Standard Chartered Bank; https://research.standardchartered.com/researchdocuments/Pages/ResearchArticle.aspx?&R=77756

Date Exchange USD Effective VND % increase

October 20 2008 VND 16,600.00 $25.00 $25.00 VND 415,000.00

October 20 2009 VND 17,852.00 $25.00 $26.89 VND 446,300.00 7.54%

December 22 2010 VND 21,015.00 $25.00 $31.65 VND 525,375.00 26.60%

November 11 2011 VND 21,005.00 $25.00 $31.63 VND 525,125.00 26.54%

May 21 2012 VND 20,870.00 $25.00 $31.43 VND 521,750.00 25.72%

VND denominated lease agreements

Fixed annual increments ranging from 5-10%

Returning Deposit in Primary Currency

State Bank targeting 3% fluctuation

CBRE | Page 26

Think About Your NEW Space – Maximize Usage

Use an experienced space planner

Make best use of the space

Keep it flexible to allow for growth i.e. converting storage for desks as headcounts increase

CBRE | Page 27

Summary

The window is now CLOSING – your Landlords are ready and willing - BUT will not be waiting too much longer

Tenant’s with a Lease Expiry in 2012 need to act quick to secure a deal

Supply for 2H 2012, actual is 11% of what was forecasted –with no firm indication of remaining Supply

We are approaching a short term bottom – with Timing of the next wave of Supply, the biggest indicator …

Plan, Strategies, Call CBRE

CBRE | Page 28

Over 300 markets in more than 50 countries

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We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy andmake no guarantee, warranty or representation about it. It is submitted subject to the possibility of errors, omissions,change of price, rental or other conditions, prior sale, lease or financing or withdrawal without notice. We includeprojections, opinions, assumptions or estimates for example only, and they may not represent current or futureperformance of the property. You and your tax and legal advisors should conduct your own investigation of the propertyand transaction.

Thank You