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Institutional Sales

National Investment UpdateQ3 2015

Institutional Sales Contents

ADELAIDE 10

BRISBANE 6&7

MELBOURNE 8

CANBERRA 11

SYDNEY 4&5

PERTH 9

ASIAN MARKETS 12

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Institutional Sales Introduction

Welcome to the Q3 2015 edition of Knight Frank’s national Institutional Sales newsletter.Institutional sales markets across Australia continue to perform well, with a record amount of stock now on the market nationally during the final quarter of 2015.

The question on people’s mind is: with so much property coming onto the market, will there be enough buyers? The answer is that there is substantial depth to the buying market for properties showing appropriate value – those properties that are well priced, and make sense to the market. An ongoing high level of demand for investment stock continues to come from both offshore and local buyers.

A record volume of stock – approx. AUD 10 billion – is available during the final quarter of 2015. Previously, the biggest fourth quarter on record was for Q4 2014 with AUD 5.92 billion transacted.

Importantly, offshore buying activity remains at peak levels – despite the Chinese stock market correction – while new sources of capital inflow into Australia continue to emerge from places such as the US, Japan and Taiwan, with offshore investors taking advantage of the lower Australian dollar and Australian property yields, which remain high by global standards.

Asian investment into Australia is expected to continue to flow for the foreseeable future. Knight Frank is well positioned, with our Asian Markets team delivering great results. Dominic Ong, aka “The Dominator”, continues to secure unconditional contracts in the second round process with strong pricing. Examples of these transactions include success at 309 George Street, Sydney; 140 Arthur Street, North Sydney; 20 Berry Street, North Sydney and 166 Epping Road, Lane Cove West.

Knight Frank continues to expand our institutional sales team, with the most recent key strategic hire being Martin O’Sullivan as Head of Institutional Sales for Victoria.

I hope you enjoy our latest edition of the Institutional Sales newsletter. If you have any questions regarding Australia’s sales markets or general queries about the national commercial property market, please don’t hesitate to call either myself or one of our national team members.

Kind regards,

James ParryHead of Institutional Sales, AustraliaCapital Markets

Properties on or expected to come to market across Australia during Q4 2015

Property Approximate Pricing (AUD)

Property Estimated Price (AUD)

Brookfield Portfolio, NSW/VIC/WA $2,000,000,000+ 161 Collins Street, Melbourne $250,000,000

Charter Hall Group (CHOT and CPIF assets ) $700,000,000+ Westralia Square, 141 St Georges Terrace, Perth $240,000,000

SA Motor Accident Commission Portfolio $600,000,000+ Forrest Centre, 219 & 221 St Georges Terrace, Perth $225,000,000

Mill Green Complex, Perth $400,000,000+ 200 Bourke Place, Melbourne (43%) $200,000,000

Seymour Porfolio, QLD TBA 100 Arthur Street, North Sydney $200,000,000

420 George Street, Sydney (office - 75%) $320,000,000+ Westpac Building, Adelaide $185,000,000

1 Woolworths Way, Bella Vista $310,000,000+ 30 Convention Centre, Place, Melbourne $163,000,000

Valad Property Group Portfolio, Sydney TBA 41 George Street, Brisbane $140,000,000

GMG portfolio Macquarie Park, North Ryde $250,000,000+ 151 Castlereagh Street, Sydney $140,000,000

Primewest office portfolio - QLD, VIC, NSW & WA $250,000,000+ 45 Francis Street, Northbridge, Perth $139,000,000

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Institutional Sales Case study

White Bay Power Station28 Robert Street, Rozelle

Active Campaign

Price: Request for Proposal, closing February 2016

Vendor: UrbanGrowthNSW

Background

UrbanGrowthNSW has appointed Knight Frank as sole Agent in the divestment of this landmark development site. This is a prominent waterfront holding, which was decommissioned in 1983 and has not been utilised since. The nature of the site campaign will attract global attention, as well as a high level of public scrutiny. The willingness of the NSW Government to entrust a campaign of this importance to Knight Frank, on a sole agency basis, is testament to our integrity, professionalism and ability to achieve the best result for our clients.

The Campaign

The property is being taken to market via an international Request for Proposal (RFP) campaign, seeking response from suitably qualified parties with the capability and foresight to develop the expansive site in line with the government’s vision. The RFP campaign commenced 30th October 2015 and will close 25 February 2016. An Evaluation Period of potential purchasers will run between February to April 2016, with short listed proponents expected to be announced May 2016.

The Property

The White Bay Power Station sits on approximately 10 hectares of waterfront land adjacent to the Sydney Harbour and within two kilometers of the CBD. This is a prominent and well known site in Sydney’s inner-west, with excellent exposure to the Anzac Bridge. The site is targeted to deliver a substantial amount of developable area, including a targeted 100,000sqm of commercial floor space allocated across technology, education, health, energy and creative sectors. This is a trophy site, and forms a significant part of the wider NSW Government’s Urban Regeneration plan in the area.

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Top Sales Transactions (over $30m and since Jan 2015)

Address Sale Date Vendor Purchaser Sale Price WALE Yield Sales Rate ($/sqmNLA)

155 Clarence Street Aug-15 St Hilliers Eureka for Union Real Estate

$124,070,000 5.0 years 6.1% $9,925

4-6 Bligh Street Jul-15 Cromwell Fortius $68,000,000 2.9 years 7.5% $6,825

Space 207, Pacific Highway, St Leonards, NSW

Jul-15 PrimeWest Funds/Valad (50:50 Ownership)

Altis Property Partners $168,550,000 4.2 years 6.8% $8,447

20 Berry Street, North Sydney, NSW Jul-15 Private (Onshore) Private (Offshore) $59,000,000 5.4 years 7.3% $6,067

2-6 Cavill Avenue, Ashfield, NSW Aug-15 EG Holdings Pty Ltd Barana Group Pty Ltd $47,000,000 1.7 years 5.2% $4,426

Market Facts & Rumours

1. A number of prime transactions are under negotiation, which will solidify premium yields at sub-five per cent.

2. Macquarie Park yields have achieved new record levels, with 78 Waterloo Road achieving a yield of 6.3%

3. Non-core CBD markets such as Hurstville, Strathfield, Burwood, Pennant Hills, Epping and Frenchs Forest are seeing increased buying interest from investors, with increased stock withdrawal for residential.

4. With the $1bn + Northern Beaches Hospital due to open in 2018, opportunities in Frenchs Forest and Belrose are emerging.

1. A record volume of stock – approx. AUD 9 billion – is expected to come to the market during the final quarter of 2015. Previously, the biggest fourth quarter on record was for Q4 2014 with AUD 1.68 billion of stock on the market.

2. Offshore buying activity remains at peak levels, notwithstanding the Chinese stock exchange correction.

3. New sources of capital are emerging on a monthly basis (from the US, Japan, Taiwan and others), who are taking advantage of the lower and more favourable AUD.

4. Yields continue their downward trend, with expectations they will remain flat for the foreseeable future.

5. Non-CBD yields are looking generous when compared with the CBD, with offshore buyers now actively pursuing these markets.

Institutional Sales Overview

Institutional Sales Sydney – Q3 2015

Key Statistics

Vacancy (Total)

Incentives (Prime)

Yields (Prime)

Yields (Secondary) Net Supply#

CBD

6.3% 30.0% 5.7% 6.8% 142,070

Non-CBD*

8.2% 27.0% 7.1% 7.9% 48,672

* Non-CBD includes Parramatta, North Sydney, Chatswood, St Leonards and Macquarie Park # Net Supply is the forecast over the next 12 monthsNB. Arrows are indicative of short term forecasts – supply arrows are relative to prior period

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Institutional Sales Case study

The Brisbane Portfolio: Prime Office + Car Park Portfolio

Active Campaign

Price: TBC

Vendor: Seymour Group

Background

Seymour Group has appointed Knight Frank as Joint Agents to carry out the divestment of three landmark inner city assets. Offering outstanding investment and development attributes, the portfolio is attracting a high level of interest from international and domestic groups. Renowned for his ongoing development success, Kevin Seymour is planning to retire and has entrusted Knight Frank to divest the assets that are too large for the family portfolio.

The Campaign

The three exceptional inner city properties are currently being marketed via an international Expression of Interest (EOI) campaign, available individually or together as a portfolio. These truly rare assets present the flexibility for an astute investor or developer to benefit from a secure and diversified income profile with the potential to develop immediately or into the future. The EOI campaign commenced on the 15th of October 2015 and will close on the 2nd of December 2015.

The Portfolio

The Brisbane Portfolio presents three prime investment opportunities consisting of a landmark, fully leased CBD office tower investment, and two standalone car parking investments, each with strong underlying investment fundamentals. Positioned in the core of the Brisbane CBD and Fortitude Valley, the assets deliver flexibility and a portfolio WALE in excess of 5 years (by income), high occupancy of 98.8% underpinned by exceptional blue chip covenants, and the opportunity to harness a high quality diversified income stream and significant development upside. Opportunities to acquire a portfolio of this scale, quality, diversity, and flexibility are extremely rare. Combined, The Brisbane Portfolio will offer investors a unique opportunity to acquire three diverse assets in one of the world’s fastest growing mature cities.

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Address Sale Date Vendor Purchaser Sale Price WALE Yield Sales Rate ($/sqmGBA)

100 Wickham Street, Fortitude Valley Sept–15 Fortius funds Management

Keystone $50,000,000 2 yrs 13.09% $3,816

Waterfront Place, Brisbane Jun–15 Stockland & Future Fund

DEXUS $592,000,000 4.50 yrs 6.95% $9,958

313 Adelaide Street, Brisbane Oct–15 Cornerstone Properties

Deutche Bank

$125,000,000 4.0 yrs 7.25% $8,900


Institutional Sales Brisbane – Q3 2015


1. The end of the year is expected to see a number of CBD divestments occur.

2. 313 Adelaide Street has sold for a strong price.

3. Knight Frank appointed to sell the 171 and 179 Elizabeth Street (1,830sqm opposite the Hilton Hotel).

4. Knight Frank appointed to sell 138 Mary Street (opposite Brisbane Sky Tower development).

5. Knight Frank appointed to sell 601 Coronation Drive, Toowong.

6. The Queensland State Government has awarded the Queens Wharf (Casino) project to Destination Brisbane Consortium - Echo Entertainment, Far East Consortium and Chow Tai Fook.

1. We are seeing continued domestic and offshore investor demand for core CBD investments.

2. There are limited core CBD office opportunities available for purchase.

3. The yield premium for Brisbane investments compared to Sydney and Melbourne is proving attractive for foreign investors.

4. Recent transactions indicate prime yields for core assets are achieving 6 to 6.5 per cent.

5. Increased opportunities on the market due to a further tightening of cap rates.

Key Statistics

Vacancy (Total)

Incentives (Prime)

Yields (Prime)


CBD

15.0% 37.0% 6.8% 8.7% 83,151

Non-CBD*

12.6% 34.0% 7.3% 8.6% -3,725

* Non-CBD includes Brisbane Fringe (e.g. Newstead, Fortitude Valley, South Brisbane etc) # Net Supply is the forecast over the next 12 monthsNB. Arrows are indicative of short term forecasts – supply arrows are relative to prior period

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Address Sale Date Vendor Purchaser Sale Price WALE Yield Sales Rate ($/sqmNLA)

425 Collins Street, Melbourne Sep-15 Halim Group AMP (WPAF) $39,000,000 2.60 yrs 5.58% $7,236

913 Whitehorse Road, Box Hill Sep-15 Cromwell Offshore Institution $156,000,000 13.80 yrs 6.00% $7,823

South Wharf Tower, Melbourne Sep-15 DEKA $155,000,000 4.20 yrs 6.75% $7,454

114 William Street, Melbourne Aug-15 KYKO CorVal (Straits Real Estate)

$125,000,000 2.40 yrs 6.62% $5,945

222 Exhibition Street, Melbourne Aug-15 AMP LaSalle Investment Management

$235,000,000 3.20 yrs $7,758

^ Initial passing yield.


1. Interim Planning Controls will create a two-tier market. Proposed office and residential towers with existing permits or applications already lodged are now worth significantly more.

2. The pending sale of Southern Cross is likely to again re-rate yields across the CBD.

3. Knight Frank is forecasting effective rental growth of 7.6 per cent over the next five years.

1. Healthy tenant demand is underpinning unprecedented levels of investor appetite for core CBD assets.

2. Leasing markets are being driven by enquiry from smaller tenants and the migration of occupiers from fringe locations into the CBD.

3. Incentives are anticipated to be eroded during the remainder of 2015.

4. No new supply until the end of 2016 will see vacancy rates continue to trend downwards.

5. Investment demand remains strong from all sectors including offshore and domestic institutions.

6. Yield compression is evident with the recent sales of 114 William Street, 222 Exhibition Street and 460 Lonsdale Street.

Institutional Sales Melbourne – Q3 2015


Key Statistics

Vacancy (Total)

Incentives (Prime)

Yields (Prime)


CBD

8.1% 30.0% 5.8% 6.9% 29,144

Non-CBD*

9.0% 28.0% 7.0% 7.6% -64,516

* Non-CBD includes St Kilda Road and Southbank # Net Supply is the forecast over the next 12 monthsNB. Arrows are indicative of short term forecasts – supply arrows are relative to prior period

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59 Albany Highway, Perth Feb–15 Finbar Sim Lian Group $72,800,000 6.6 yrs 7.83% $5,682

AFP Building, Culquhoun Rd, Airport, Perth

Mar–15 Mezanine Financier Pindan Capital $18,407,693 14.0 yrs 7.8% $5,293

ATO Building, 45 Francis Street, Northbridge

Sep–15 Deka Australia Warrington PG $101,000,000 6.2 yrs 10.6% $4,588


1. Rio Tinto has extended their lease at Central Park until June 2030 for over 27,000sqm.

2. AMP did not exercise their first and last rights for purchasing Exchange Tower with an off-shore group in exclusive due diligence.

1. Various eastern states funds are looking at value-add office investments.

2. There is continued demand coming from offshore investors and high net worth private individuals.

3. We have seen an increased supply of office buildings for sale during the third quarter of 2015.

4. The ICWA Portfolio is into second round with a local group, off-shore and eastern states parties in the running.

5. There is increased demand from off-shore residential developers looking for buildings to convert to residential.

6. WA Government is set to continue with the asset sell-off including the Western Power head office and various development sites in the CBD.


Institutional Sales perth – Q3 2015

Key Statistics

Vacancy (Total)

Incentives (Prime)

Yields (Prime)


CBD

16.6% 45.0% 7.5% 8.5% 119,556

Non-CBD*

11.0% 30.0% 8.3% 9.0% 0

* Non-CBD includes West Perth # Net Supply is the forecast over the next 12 monthsNB. Arrows are indicative of short term forecasts – supply arrows are relative to prior period

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81 Flinders Street, Adelaide Feb–15 Norelco Local Syndicator $42,000,000 4.6 yrs 8.50% $12,371

60 Wakefield Street, Adelaide Mar–15 State Government Ascot Capital $37,750,000 TBC TBC TBC


1. Re-development of Law Courts has been terminated.

2. Transaction levels for the remainder of 2015 looking like they will far exceed previous years.

3. Rundle Place, value of circa AUD 380m, is potentially for sale and would be the largest transaction in many years.

1. Stamp duty on commercial property transactions will be phased out over three years from 1 July 2016.

2. Adelaide is back on the radar for major institutions and interstate buyers.

3. Several new potential entrants to the market are currently circling.

4. Myer Centre sold to Starhill Group from Singapore for $288m – another vote of confidence for the Adelaide market.

5. There is potentially $350m between three assets to come to market pre-Christmas.

6. The SA Government precinct on Victoria Square is currently in DD for over $200m.

Institutional Sales Adelaide – Q3 2015


Key Statistics

Vacancy (Total)

Incentives (Prime)

Yields (Prime)


CBD

13.5% 24.0% 7.9% 9.0% 32,231

Non–CBD*

8.0% 17.0% 7.9% 8.7% 0

* Non-CBD includes Adelaide Fringe # Net Supply is the forecast over the next 12 monthsNB. Arrows are indicative of short term forecasts – supply arrows are relative to prior period

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20 Allara Street, Civic May–15 Lend Lease Morris Property Group $20,500,000 0.4 yrs 12.74% $1,469

60 Marcus Clarke Street City Apr–15 Mirvac Centuria $49,060,000 2.1 yrs 8.7% $4,020

30 Morisset Street, Queanbeyan Feb–15 LaSalle Sandran $22,300,000 9.8 yrs 10.4% $3,176

44 Sydney Avenue, Forrest Dec–14 360 Capital Quintessential Equities $32,000,000 1.3 yrs 11.8% $3,207



1. Discussions about the government removing the Lease Variation Charge system (LVC) has resulted in increased interest in secondary assets.

2. Two additional major assets are likely to be sold by the end of the year and will contribute to market indicators.

3. When these assets exchange they are anticipated to highlight positive selling conditions for vendors in the current market.

1. Canberra CBD continues to represent good value to the investor, relative to other capital cities, due to its value-add secondary assets.

2. Given the underlying fundamentals, Canberra remains a counter-cyclical investment proposition, with most commenting that the market has reached the bottom and is poised for growth.

3. The recent purchase of 64 Allara Street by Cromwell, one of Canberra’s biggest landlords, demonstrates their ongoing commitment to investment in the local market.

4. Several major assets are currently on the market in Canberra, including 255 London Circuit and 134 Reed Street, Greenway. These are likely to sell before Christmas and will indicate where the prime market is moving towards.

5. Buyer interest for long-leased Commonwealth Government assets is now tracking at a circa six per cent yield, with some offers even sharper for selected assets.

6. Canberra remains a low-traded market with only five major sales completed in 2015. We anticipate 2016 to feature a number of large asset sales as owners capitalise on the current investment demand.


Institutional Sales Canberra – Q3 2015

Key Statistics

Vacancy (Total)

Incentives^ (Prime)

Yields^ (Prime)

Yields^ (Secondary) Net Supply#

CBD (Civic)

14.0% 21.0% 7.5% 9.7% -10,000

Non–Civic*

13.7% 21.0% 8.0% 10.5% -4,073

* Non-Civic includes all sub–markets excluding Civic # Net Supply is the forecast over the next 12 months ^ only includes Parlimentary Precinct (Barton, Parkes etc) and Town Centres (Tuggernong, Belconnen etc)NB. Arrows are indicative of short term forecasts – supply arrows are relative to prior period

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Institutional Sales Asian Markets – Q3 2015

1. Australia continues to witness solid demand from Asian investors. Prices remain strong and we have a limited supply of quality stock on the market. We anticipate that this will continue for the foreseeable future.

2. There is increasing evidence that we are moving into a favourable market for income-producing assets, with the office sector increasingly attractive for Asian-based investors. Over the past several years, Chinese investors have been looking at development sites in Australia. This is now evolving, with a lot more activity visible in the office investment market over the past 12 months.

3. A key reason for this evolution is that the investment market from Asia into Australia is becoming more mature. Development sites are great long-term investments which can take years to reach full potential, while office investments create instant cash flow.

4. Recent examples of transactions by Asian investors into Australia’s office market includes the sale of 175 Liverpool Street to Hui Wing Mau for AUD 390 million; the sale of 309 George Street for AUD 112 million to a private Hong Kong-based investment group; the purchase of 73

Miller Street in North Sydney by China’s Fosun for AUD 116.5 million; Yuhu Group’s purchase of 20 Berry Street for AUD 59 million and the sale of 140 Arthur Street, North Sydney to HK Realway for AUD 58 million.

5. Moving forward, we anticipate that Asian investors will begin to expand their interests into other major Australian cities, including Melbourne, Brisbane and Perth.

6. Within China, economic growth is at approximately seven per cent which is reasonable, however holds room for improvement. Similarly, the Chinese share market is still fluctuating, creating some cautiousness for high net worth individual investors.

7. Australia’s foreign exchange rate remains at 30 per cent lower in comparison with 2-3 years ago against USD and Chinese RMB. This is a big plus for foreign investors who see investment into Australia as having a significant discount.

8. Population growth, including immigration from China, will lead to increased long-term capital inflow into Australia.

Institutional Sales Overview from our Asian Desk

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Institutional Sales current listings – Q3 2015

300 Queen Street, Brisbane

NLA 19,364 sqm Passing Income $14,202,633 WALE 4.41 years

601 Coronation Drive, Toowong


138 Mary Street, Brisbane

NLA 1,143 sqm Passing Income $609,193 WALE 2.4 years

The North Shore Portfolio, Sydney


25 Bligh Street, Sydney


White Bay Power Station, Sydney

Total site area circa 10 ha. Target 100,000sqm commercial NLA, plus circa 4.5 ha of development land.

30 Flinders Street, Adelaide

NLA 13,835 sqm Passing Income $5,244,909 WALE 6 years

11-19 Grenfell Street, Adelaide


91 King William Street, Adelaide


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Knight Frank

Australia New Zealand

While our reach is global, we focus on the needs of our clients at a local level. To discuss your requirements, please contact your local Knight Frank office.

SydneyLevel 22, Angel Place123 Pitt StreetSydney NSW 2000T +61 2 9036 6666

MelbourneLevel 31, 360 Collins StreetMelbourne VIC 3000T +61 3 9602 5722

BrisbaneLevel 312 Creek StreetBrisbane QLD 4000T +61 7 3246 8888

PerthLevel 10, Exchange Tower2 The EsplanadePerth WA 6000T +61 8 9325 2533

Suite 2, 143 Adelaide TerraceEast Perth WA 6004T +61 8 9225 2500

AdelaideLevel 25, Westpac House91 King William StreetAdelaide SA 5000T +61 8 8233 5222

CanberraLevel 12, 221 London Circuit Canberra ACT 2608T +61 2 6230 7855

CairnsLevel 1, 32 Sheridan StreetCairns QLD 4870T +61 7 4046 5300

DarwinLevel 2, 46 Smith Street MallDarwin NT 0800 T +61 8 8982 2500

GladstoneShop 3, 191 Philip StreetGladstone QLD 4680T +61 7 4978 7212

Glen WaverleyGround Floor, Building 1540 Springvale RoadGlen Waverley VIC 3150T +61 3 8545 8600

Gold CoastLevel 2, The Wave89 Surf Parade Broadbeach QLD 4218 T +61 7 5636 0800

Hobart5 Victoria Street Hobart TAS 7000T +61 3 6220 6999

LauncestonSuite 2A, 41 York StreetLaunceston TAS 7250T +61 3 6333 7888

Mackay76 Gordon StreetMackay QLD 4740T +61 7 4940 0100

Newcastle Suite 2, Ground Floor400 Hunter Street Newcastle NSW 2300T +61 2 4920 5700

North SydneyLevel 4, 60 Miller StreetNorth Sydney NSW 2060T +61 2 9028 1100

Rockhampton171 Bolsover StreetRockhampton QLD 4700 T +61 7 4921 2347

StrathpineLevel 1, Shop 4259 Leitchs RoadBrendale QLD 4500T +61 7 3482 6000

Sydney South WestLevel 1, Suite 7 72-74 Bathurst StreetLiverpool NSW 2170T +61 2 9761 1814

Sydney WestLevel 2, 91 Phillip StreetParramatta NSW 2150T +61 2 9761 1800

Townsville Central, Ground Level520 Flinders StreetTownsville QLD 4810 T +61 7 4750 3000

Wagga WaggaShop 44, Kooringal MallLake Albert RoadWagga Wagga NSW 2650T +61 2 6923 8000

AucklandLevel 1, 381 Great South Road Ellerslie Auckland 1051T +64 9 377 3700

ChristchurchLevel 1, 145 Victoria Street Christchurch 8013T +64 3 377 3700

KnightFrank.com.au/Sales

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