Jones Lang LaSalle • • LaSalle Lang Jones Asia Pacific Property Digest Property Pacific Asia

• • First Quarter 2008 Quarter First

Asia Pacific Property Digest Greater First Quarter 2008

 Jones Lang LaSalle Research – Asia Pacific

ASIA PACIFIC SOUTH EAST ASIA Dr Jane Murray singapore Head of Research – Asia Pacific Dr Chua Yang Liang +852 2846 5274 Head of Research – South East Asia and Singapore [email protected] +65 6474 3721 [email protected] GREATER CHINA Indonesia Anton Sitorus Marcos Chan Head of Research – Indonesia Head of Research – Hong Kong and +62 21 515 5665 +852 2846 5276 [email protected] [email protected] THE PHILIPPINES macau Katherine Marcelo Alvin Mak Research and Consulting Manager Assistant Manager +63 2 751 8131 +853 2871 8822 [email protected] [email protected] THAILAND Dan Tantisunthorn Kenny Ho Head of Research – Thailand Head of Research – China +66 2 679 6500 +86 21 6133 5450 [email protected] [email protected] VIETNAM Buu Le Benjamin Christensen Manager – Research and Consulting Head of Research – Beijing +84 8 910 3981 +86 10 5922 1379 [email protected] [email protected] Malaysia (Jones Lang Wootton in association Shelly Xie with Jones Lang LaSalle) Senior Research Analyst Malathi Thevendran +86 28 8665 1022 Executive Director – Research [email protected] tel +60 3 2161 2522 [email protected] Lily Li Head of Research – Guangzhou WEST ASIA +86 20 3891 1238 Manisha Grover [email protected] Head of Research and Consulting – West Asia +91 80 4118 2922 TIANJIN [email protected] Stefanie Zou Research Analyst india +86 22 8319 2233 Abhishek Kiran Gupta [email protected] Head of Research – India +91 22 6658 1000 [email protected] Jeffrey Hurren Head of Research – AUSTRALASIA +886 2 8758 9886 Kathryn Matthews [email protected] Head of Research and Consulting – Australasia and Australia +61 2 9220 8511 NORTH ASIA [email protected] Japan Takeshi Akagi New Zealand Head of Research – Japan Chris Dibble +81 3 5501 9235 Researching and Consulting Manager [email protected] +64 9 366 1666 [email protected] SOUTH KOREA Darren Krakowiak INDUSTRIAL RESEARCH Head of Research and Consulting – South Korea Barnaby Martin +82 2 3704 8836 Industrial Research Manager [email protected] +86 21 6133 5442 [email protected]

 Ta b l e of C o n t e n t s

Asia Pacific Economy Residential...... 25 Luxury Residential...... 38 and Property Market...... 4 Industrial ...... 26 High-End Residential...... 39 Industrial - Business Parks. . 40 Greater China...... 10 Chengdu ...... 27 Industrial - Logistics...... 41 Office...... 27 Hong Kong...... 12 Industrial - Manufacturing. . 42 Retail...... 28 Grade A Office...... 12 Industrial - Business Parks. . 29 Tianjin...... 43 Retail...... 18 Industrial - Manufacturing. . 30 Office...... 43 Luxury Residential...... 19 Retail...... 44 Industrial - Warehouse. . . . . 20 Guangzhou ...... 31 Industrial - Logistics...... 45 Office...... 31 Macau...... 21 Retail...... 32 Taipei...... 46 Retail...... 21 Industrial - Business Parks. . 33 Office...... 46 High-End Residential...... 22 Industrial - Business Parks. . 51 Shanghai...... 34 Beijing...... 23 Office...... 34 Office...... 23 Retail...... 37 Prime Retail ...... 24 Jones Lang LaSalle • • LaSalle Lang Jones Asia Pacific Property Digest Property Pacific Asia

• • First Quarter 2008 Quarter First

 Asia Pacific Economy Global Growth Weakens, but Asia Pacific Will Continue To Outperform Dr Jane Murray Head of Research - Asia Pacific

Spillover from the global slowdown… Global economic growth will decelerate in 2008 due modestly as emerging economies account for a large share largely to a sharp slowdown in some of the world’s major of its exports including commodities. Direct impacts from economies, including the US, UK, Eurozone and Japan. the financial market upheaval will be felt less acutely in Major central banks have injected massive amounts most of the region’s economies as banks generally have of liquidity into the financial system to bolster credit less exposure to sub-prime related debt and the financial availability, and the US Federal Reserve may further systems of many countries such as China have been reduce interest rates this year in addition to the 325- sheltered by government restrictions. basis-point easing between September 2007 and April 2008. The effects of the sub-prime crisis have been most …partly offset by internal momentum pronounced in the US and Western Europe to date, but all Most economies in Asia Pacific can still count on the countries will be affected to some extent through global strength of domestic demand. China’s annual GDP growth linkages. According to the Economist Intelligence Unit slowed to 10.6% in 1Q08 from 11.2% in 4Q07, but growth (EIU), world output in 2008 is projected to expand by in fixed investment continued to surge ahead at a rate 2.8%, or 1.5 percentage points less than the average of the of 25.9% y-o-y in 1Q08. The EIU expects China’s growth last four years. this year will moderate to 9.6%, still an aggressive rate of expansion. A similar mild slowing of growth in India is The global slowdown is expected to chiefly affect the Asia expected this year, with GDP forecast to slow to 7.8% from Pacific region through the international trade channel, 9.2% in 2007. Investment growth from both domestic and while FDI inflows should be relatively unaffected. international sources should continue at a brisk pace. Exports from China and North Asia will be hardest hit by In the mature economies of Hong Kong, Singapore and weakened import demand in the developed economies, Australia, tight labour markets and announced tax cuts but a knock-on effect will be felt in the rest of the region should help shore up consumer demand this year. An particularly South East Asia due to intra-regional trade exception to the domestic demand story is Japan, where links. Australian export growth is likely to slow only

Figure 1: Real GDP Growth Figure 2: Consumer Price Inflation

12 20 18 10 16 8 14 12 6 10

y-o-y (%) y-o-y (%) 8 4 6 2 4 2 0 0

China India India China Taiwan Korea Japan Korea TaiwanJapan Vietnam Malaysia ThailandAustralia Vietnam AustraliaThailand Malaysia SingaporePhilippines IndonesiaHong Kong Indonesia Philippines SingaporeHong Kong New Zealand New Zealand

2007 2008F 2009-12F 2007 2008F 2009-12F Source: Economist Intelligence Unit, April 2008 Source: Economist Intelligence Unit, April 2008

 Key Performance Indicators GDP (%) Prime Lending CPI (%) Employment Retail Sales Industrial Rate (%) Growth (%) Growth (%) Production (%) 2008F 2009F 2008F 2009F 2008F 2009F 2008F 2009F 2008F 2009F 2008F 2009F Hong Kong 4.0 4.6 5.9 6.4 4.3 3.4 1.9 1.5 5.5 3.1 0.4 -0.4 China 9.6 9.0 8.0 7.8 5.0 3.6 1.1 1.0 10.0 7.9 15.7 13.0 Taiwan 4.3 4.4 4.7 5.3 2.6 1.5 1.1 0.7 1.0 2.2 4.9 5.1 Japan 1.1 1.3 1.9 2.2 0.6 0.8 -0.9 -0.7 -0.6 1.6 2.2 2.7 South Korea 4.5 4.4 6.1 5.8 2.9 2.3 0.5 0.5 2.6 2.6 4.8 5.6 Philippines 5.4 5.5 8.7 9.3 5.1 3.6 2.4 3.1 3.7 5.3 5.5 5.5 Singapore 4.4 4.7 5.3 5.6 4.3 1.6 2.1 1.2 4.7 4.2 5.0 5.3 Malaysia 5.8 5.9 6.3 6.4 2.8 2.3 2.0 2.0 4.5 4.1 3.8 5.2 Thailand 4.7 4.3 6.4 6.2 5.0 2.9 1.2 1.2 -0.6 2.6 6.0 5.2 Indonesia 5.9 6.3 13.0 12.4 6.8 6.1 2.4 2.5 4.4 4.4 4.4 4.0 India 7.8 7.2 12.8 12.0 5.8 5.5 2.3 2.3 5.7 6.0 6.5 8.0 Australia 2.9 2.5 10.3 9.9 3.4 3.1 2.2 0.9 1.4 3.9 3.2 2.7 New Zealand 1.8 2.6 13.2 12.9 2.9 2.3 1.1 1.1 1.1 3.6 -0.4 1.5 Vietnam 8.0 8.4 11.8 12.0 18.2 9.0 2.2 2.5 0.8 4.9 15.4 16.5 World 2.8 3.0 NA NA 4.3 3.4 1.4 1.3 1.9 2.5 NA NA Source: Economist Intelligence Unit, April 2008

growth has been slowing, due partly to a major decline 16% since January and the Reserve Bank of Australia has in housing investment and more bearish consumer raised its cash rate target by fifty basis points since the sentiment (Figure 1). beginning of the year. The Reserve Bank of India raised

the banking sector’s cash reserve ratio to 8.25% in April, • LaSalle Lang Jones Inflation a growing threat… the thirteenth increase since mid-2004. Hong Kong is an Led by surging demand for food and energy and high exception to this trend and has seen major declines in rates of capacity utilisation, cost pressures are picking interest rates over the last six months due to the pegging up in most of the region. China is still grappling with of the local currency to the US dollar. escalating consumer prices which recorded an 8.3% Digest Property Pacific Asia increase in March, with food price inflation running Regional outlook remains strong at an alarming 21.4%. In India, the CPI for industrial The global economy faces a considerably more workers rose 7.9% y-o-y in March, the fastest pace since challenging environment over the next 12 months 1999 and well above the Reserve Bank’s target of 5%. In than in the last few years. There is still a high degree Hong Kong, the gradual appreciation of the renminbi and of uncertainty as to how the sub-prime crisis will play the weakening of the US dollar have resulted in higher out. At this stage, the general consensus is that world

• • import prices, which are being passed through to retail output will continue to expand moderately in 2008 and 2008 Quarter First prices. Inflation in Singapore has accelerated from 1.6% that emerging economies in Asia, the Middle East, Latin in 1Q07 to 6.6% in 1Q08. Meanwhile inflation in Australia America and Central and Eastern Europe will continue to has broken through the central bank’s 2-3% target band outperform by a significant margin. to register a 4.2% annual increase in the March quarter. According to the EIU, the aggregate output of the Asia Japan remains the only major regional economy that is Pacific region excluding Japan is still expected to expand seeing comparatively little inflationary pressures (Figure at a strong pace of 6.9% in 2008. This is only slightly 2). lower than the 7.1% pace projected in January, and almost …leading to higher interest rates three times the forecast growth of the global economy. Of the major economies, China and India will lead the Governments around the region remain vigilant to way, while at the other end of the spectrum, Japan’s inflation risks, recognising rapidly rising prices as a major aggregate output is expected to expand only marginally threat to economic and social stability. Most central banks by 1.1%. The ASEAN economies are expected to grow by are leaning towards monetary tightening to help moderate an average of 5.5%, while Australia and New Zealand are inflation going forward. For example, the People’s Bank expected to expand by a healthy 3% or so. of China has increased bank reserve ratios from 14.5% to

 Asia Pacific Property Market Increased Caution But Fundamentals Remain Strong

In the previous edition of the Asia Pacific Property Digest, sector has benefited from buoyant labour market we highlighted the emergence of increased market risks conditions to date, with continued strength in leasing and and the need for a careful watching brief as global events sales activity. unfolded. While the property markets in Asia Pacific have lagged both the US and Europe in being impacted by the …while investment activity sees some sub-prime fallout, there is now evidence that they will softening not escape unscathed. To date, this has been seen mainly Direct commercial real estate investment in Asia Pacific in relation to investment volumes, while leasing activity reached a new high of USD 121 billion in 2007, up 27% and associated indicators have posted another healthy on 2006. In early 2008, the region’s capital markets quarterly result. have felt some impact from the sub-prime fallout. Debt availability has tightened across most of the region with Continuing occupier demand with some loan-to-valuation ratios falling, interest rates trending caution creeping in… higher and stricter lending covenants in place. Emerging Over the first quarter of 2008, occupier demand held markets including China and India are less exposed to the up well in the region’s office markets. Tenants have a global credit crunch, but debt funding is also limited there renewed focus on costs, but this is yet to be reflected due to local monetary tightening measures to cool the in headcount reductions. Combined with minimal new economy and rein in inflation. supply in most markets, vacancy levels have remained The impact on pricing and transaction volumes has at low, often sub-frictional, levels. Beijing, Bangkok been most evident in the region’s more mature markets. and Jakarta are exceptions to this trend, each seeing In Tokyo, Singapore, Sydney and Melbourne, office significant injections of new supply to the market by year capital values appear to have peaked, while a slowing end. Rental rates have reached new highs in key financial in price growth is also likely for Hong Kong. Because markets including Hong Kong, Tokyo, Singapore and these markets account for the lion’s share of investment Sydney, where Grade A vacancy levels are all below 5% activity, we do expect a decline in overall transaction (Figure 3). volumes in Asia Pacific this year following the record To date, there has been a mixed reaction in the office result in 2007. markets most vulnerable to the sub-prime fallout. For That said, there is still plenty of equity looking to be example, a sharp slowing in rental growth is under way in placed in real estate assets by investors such as German Tokyo, Singapore is seeing the beginnings of a softening core funds who are less reliant on debt funding. Another in pre-let rates, while Shanghai has begun to brace itself interesting trend is the re-emergence of Japanese for slowing demand in amongst its vital financial investors in overseas markets, particularly in the services tenants. At the other end of the spectrum, the developing markets of China, India and Vietnam. A more Manila office market has seen strong growth in business process outsourcing due to the increased emphasis by MNCs on lowering operational costs. Consistent with Figure 3: Grade A Vacancy Rate for Key Office Markets, 1Q08 the latter trend, the decentralisation from expensive

CBD locations to cheaper peripheral or suburban sites Ho Chi Minh City is key to the real estate strategies of many corporations. Auckland Seoul Singapore, for example, is seeing strong enquiry levels for Hong Kong built-to-suit options in business park locations, driving Shanghai Singapore up rental levels in these districts. Tokyo Sydney The retail sector continues to be supported by tight Manila Mumbai labour market conditions and solid domestic spending Delhi in most countries, a notable exception being Japan where Taipei Kuala Lumpur consumer demand remains sluggish. Additional factors Bangkok driving retail sales include the growth in tourist volumes Beijing and expansionary government budgets in Hong Kong, Jakarta 0% 5% 10% 15% 20% 25% Singapore and Australia. High occupancy costs as well as supply constraints remain the major impediments to Source: Jones Lang LaSalle retailer expansion. Similarly, the high-end residential

 Grade A Office Prime Retail

Prime Residential Industrial Jones Lang LaSalle • • LaSalle Lang Jones

* The concentric circles represent the estimated length of the current property cycle in each of the respective markets. Digest Property Pacific Asia

general pick-up in investment activity levels is expected About the Author towards the end of the year. Dr Jane Murray joined Jones Lang LaSalle in 1998 and in April

Asia Pacific outlook remains positive • • First Quarter 2008 Quarter First Underpinned by rapidly changing economic and financial 2005 was appointed as Head environments, the next twelve months promises to of Research - Asia Pacific. In be a particularly interesting period for the global and this role, Jane leads a team of regional property markets. Within Asia Pacific, some 140 professional researchers softening in occupier demand and associated indicators in the region, which forms part is likely compared with the very strong activity levels of of a network of around 300 the last year. However, it is important to note that the researchers in 60 countries underlying market fundamentals remain in good shape, around the globe. a situation which is very different to recent cycles when The Asia Pacific Research team produces a range of outputs to vacancy levels and corporate profitability were not so assist the clients of the Firm with their decision making, including healthy. These characteristics, together with the relatively comprehensive market monitoring and analysis across major attractive returns on offer and significant structural institutional-grade real estate markets in the region; forecasts of changes under way, will also help to shore up regional key real estate indicators; consultancy projects; thought leading investment activity over the short to medium term. research papers on topical issues as well as regular publications.

 Grade A Office Market Vacancy Rental values* Capital Values Yield (%) Rate (%) q-o-q+ y-o-y+ USD psm 12-month q-o-q+ y-o-y+ USD 12-month (%) (%) pa++ outlook (%) (%) psm++ outlook Tokyo CBD 3.0 1.1 13.4 1,796 -2.1 17.0 39,528 3.2 Seoul CBD 0.0 4.2 5.6 595 4.6 21.2 6,584 5.5 Beijing 16.5 1.7 21.2 430 6.8 13.8 3,348 7.5 - 9.5 Shanghai (Central Puxi) 2.0 3.1 13.6 456 3.1 19.1 5,865 7.3 - 8.9 Guangzhou 27.1 -0.4 -0.7 288 1.6 9.8 3,493 7.8 - 9.4 Chengdu 24.9 4.6 18.4 170 3.4 14.2 1,627 9.5 - 12.0 Tianjin 26.0 3.0 11.5 241 3.2 12.0 2,500 9.7 Taipei CBD 8.4 1.3 7.3 300 5.6 19.0 6,254 4.8 Hong Kong Central 1.1 12.7 38.7 1,796 7.4 45.6 22,103 4.9 - 7.4 Singapore 2.7 9.1 51.9 1,370 0.0 44.3 22,636 5.5 - 6.1 Kuala Lumpur CBD & GT 9.3 0.2 2.4 160 0.3 5.3 2,073 7.15 - 7.35 Makati CBD 3.5 2.4 18.2 207 1.2 11.2 1,862 10.0 - 10.5 Bangkok CBD 14.3 -0.9 -2.6 199 -0.8 0.1 2,524 6.6 - 8.2 Jakarta CBD 19.7 1.9 6.9 113 0.7 4.1 1,385 - 8.0 - 8.2 Ho Chi Minh City CBD 0.0 15.0 86.0 756 - - - - - Delhi CBD & SBD 4.9 6.8 37.1 939 6.1 31.1 8,157 11.5 Mumbai CBD & SBD 3.8 0.6 17.6 898 0.0 16.0 7,968 11.3 Bangalore CBD & SBD 0.3 0.4 17.6 187 0.0 17.4 1,705 11.0 Chennai CBD & SBD 8.2 0.0 8.4 181 0.0 14.1 1,642 11.0 Hyderabad CBD & SBD 2.0 3.6 42.9 185 2.4 46.9 1,781 10.4 Kolkata CBD & SBD 1.4 7.7 42.3 366 5.2 44.0 3,274 11.2 Sydney CBD 3.4 6.1 25.4 667 -0.3 18.6 10,583 5.25 - 6.00 Melbourne CBD 0.9 3.6 12.5 369 -0.5 12.7 6,574 5.75 - 6.75 Brisbane CBD 0.4 1.8 36.0 766 -2.2 41.6 9,902 5.75 - 6.25 Auckland CBD 0.3 1.2 9.4 342 1.2 7.3 4,632 6.75 - 8.00

* Refers to net rent except for Tokyo (gross rent), Singapore,Jakarta, Beijing, Chengdu and Ho Chi Minh City (effective rent), Melbourne, Sydney and Brisbane (gross effective rent), Hong Kong (net effective rent on NFA), Tianjin, Guangzhou and Shanghai (net rent on GFA), Taipei, Mumbai, Delhi, Bangalore, Chennai, Hyderabad and Kolkata (gross rent on GFA). ** Capital values are quoted on NLA except for Beijing, Shanghai, Hong Kong, Guangzhou, Chengdu, Tianjin, Delhi, Mumbai, Bangalore, Chennai, Hyderabad and Kolkata (all quoted on GFA). + Percentage changes are based on local currency of individual markets except Jakarta. ++ The USD exchange rate as at end-Mar 2008.

Prime Retail Rental values* Capital Values Yield (%) q-o-q+ y-o-y+ USD psm 12-month q-o-q+ y-o-y+ USD 12-month (%) (%) pa++ outlook (%) (%) psm++ outlook Beijing -0.5 -1.3 986 -0.5 -1.4 6,949 6.8 - 8.8 Shanghai 4.0 11.6 2,265 4.9 13.6 19,556 11.1 Guangzhou 5.7 14.0 948 - - - - - Chengdu 2.8 6.2 647 3.5 23.8 8,445 7.7 Tianjin 5.3 22.5 635 2.5 9.1 7,168 8.9 Macau (Prime Street Shops) 7.4 11.7 1,857 6.2 13.5 30,940 6.0 Hong Kong (Prime Street Shops) 8.4 23.6 5,532 5.8 22.1 140,879 3.9 Hong Kong (Premium Prime 3.5 13.0 3,059 - - - - - Shopping Centres) Hong Kong (Overall Prime Shopping 5.0 13.5 1,960 - - - - - Centres) Singapore 0.5 2.5 3,321 2.8 13.2 63,616 5.2 Kuala Lumpur (City Centre) 2.5 14.7 970 7.9 19.7 9,989 7.0 - 10.0 Metro Manila 1.2 5.8 448 0.6 5.0 3,790 11.0 - 11.5 Bangkok 0.8 2.5 569 0.7 6.3 4,766 11.4 - 12.4 Jakarta 0.4 1.0 488 0.0 -0.3 3,182 15.0 - 15.5 Delhi 0.0 12.9 1,128 0.0 7.8 10,252 11.0 Mumbai 0.0 9.1 967 0.0 4.5 8,827 10.9 Bangalore 3.0 22.1 551 0.0 20.3 4,845 11.4 Chennai 1.3 16.9 245 0.6 7.5 2,215 11.1 Hyderabad 0.0 23.3 596 0.0 23.8 5,316 11.2 Kolkata 0.0 5.5 934 0.0 6.7 8,400 11.1 Sydney (Regional) 0.9 4.6 1,659 - - - - - 5.9 Sydney (Sub-regional) 1.0 4.1 825 - - - - - 6.5 Auckland 0.8 3.0 1,564 0.8 -2.6 22,747 6.25 - 7.50

* Rents are net prime rent except Beijing and Guangzhou (net effective rent on NLA), Chengdu and Tianjin (net rent on GFA), Delhi, Mumbai, Bangalore, Chennai, Hyderabad and Kolkata (gross rent).  ** Capital values are quoted on NLA except for Beijing, Chengdu, Hong Kong, Macau and Guangzhou (all quoted on GFA). + Percentage changes are based on local currency of individual markets. ++ The USD exchange rate as at end-Mar 2008. Luxury Residential Rental values* Capital Values Yield (%) q-o-q+ y-o-y+ USD psm 12-month q-o-q+ y-o-y+ USD 12-month (%) (%) pa++ outlook (%) (%) psm++ outlook Beijing (Luxury Apt) 16.5 6.2 200 12.3 50.2 3,359 5.5 - 7.5 Shanghai (Luxury Apt) 1.2 -0.5 369 0.8 15.7 4,924 5.1 - 7.2 Shanghai (High-end Apt) -1.1 -0.5 199 0.2 14.1 3,297 4.5 - 8.5 Macau (Overall) 6.9 22.4 149 11.9 36.2 4,698 3.2 Hong Kong (Overall) 5.9 22.2 690 10.0 31.0 23,142 3.0 Singapore 1.7 27.4 580 0.0 36.7 21,309 2.7 Kuala Lumpur 0.4 1.0 151 0.5 3.7 1,955 7.5 - 8.0 Makati 1.8 10.9 150 3.9 18.1 2,179 6.8 - 7.4 Bangkok -1.9 -7.0 125 -0.1 -1.0 2,545 4.9 - 5.2 Jakarta 0.0 0.9 144 0.4 -1.9 1,315 10.8 - 11.2

* Rents are net rent except for Shanghai (gross rent), Beijing (net effective rent) and Jakarta (effective rent). ** Capital values are quoted on NLA except for Beijing, Shanghai, Hong Kong and Macau. + Percentage changes are based on local currency of individual markets except Jakarta. ++ The USD exchange rate as at end-Mar 2008.

Industrial LOGISTICS Rental values Capital Values Yield (%) q-o-q+ y-o-y+ USD psm 12-month q-o-q+ y-o-y+ USD 12-month (%) (%) pa++ outlook (%) (%) psm++ outlook Hong Kong 2.9 4.3 118 3.0 5.7 1,686 6.5 - 7.0 Sydney 0.0 1.7 95 -5.3 -0.6 1,354 7.00 - 7.50 Melbourne -0.2 4.4 62 - - - - 6.75 - 7.50 Brisbane 0.0 4.0 113 - - - - 7.00 - 7.75 Shanghai 3.0 10.9 64 1.9 18.6 670 9.6 Tokyo (Bay Area)^ ------Tokyo (Inland)^ ------Tianjin* -0.3 4.6 46 1.2 11.2 488 9.5 Auckland* 0.8 3.2 103 0.8 4.9 1,308 7.25 - 8.50 Jones Lang LaSalle • • LaSalle Lang Jones

BUSINESS PARKS Rental values Capital Values Yield (%) q-o-q+ y-o-y+ USD psm 12-month q-o-q+ y-o-y+ USD 12-month (%) (%) pa++ outlook (%) (%) psm++ outlook Taipei 10.0 10.0 177 15.0 37.9 3,084 5.0 Asia Pacific Property Digest Property Pacific Asia Shanghai 5.5 13.4 180 4.7 10.5 1,716 10.5 Singapore 7.8 132.8 304 5.1 64.9 3,005 9.9 - 10.3 Beijing 3.5 - 192 - - - - - Chengdu 2.9 16.7 45 3.9 14.5 645 7.0 Guangzhou 1.5 6.5 81 - - - - -

• • First Quarter 2008 Quarter First

MANUFACTURING Rental values Capital Values Yield (%) q-o-q+ y-o-y+ USD psm 12-month q-o-q+ y-o-y+ USD 12-month (%) (%) pa++ outlook (%) (%) psm++ outlook Singapore 6.8 52.2 126 4.5 65.5 2,248 5.4 - 5.8 Melbourne 5.0 16.8 76 3.7 14.9 1,014 7.0 - 8.0 Brisbane 0.7 5.7 97 -4.4 2.6 1,257 7.0 - 7.75 Chengdu^^ 8.6 6.1 20 - - - - Shanghai 2.0 7.0 37 4.5 28.3 441 8.4 Bangkok 0.1 -2.2 62 - - - - - Jakarta^ ------Chennai* - - 73 - - - - - Hyderabad* - - - - 0.0 14.6 115 - -

* Indicates newly covered markets. + Percentage changes are based on local currency of individual markets. ++ The USD exchange rate as at end-Mar 2008. ^ Tokyo and Jakarta updates coverage twice per year. As such, the quarterly percentage change is based on half-yearly data. ^^ Chengdu and Jakarta updates manufacturing coverage twice per year.

 How Will China’s Property Markets Perform in Challenging Economic Conditions? Kenny Ho Head of Research – China

Domestic woes Negative economic news dominated the international Meanwhile, the currency gained a whopping 4% in the and domestic headlines throughout the first quarter of first quarter against the US dollar, thereby reducing the 2008. In China, inflation registered an 11-year high of competitiveness of Chinese exports in already declining 7.1% increase y-o-y in January, only to grow even faster at foreign markets. 8.7% in February and 8.3% in March. In response to these headline inflation numbers, the People’s Bank of China Tough times for developers rose bank reserve ratios from 14.5% January to 16.0% Amidst already challenging macroeconomic conditions, since January. Also in February, just ahead of the Chinese Chinese developers recently have become the main New Year, large parts of central and southern China were targets of government tightening measures. After a year hit by record levels of snowfall, damaging infrastructure of record sales, capital raising and land acquisition, and leaving millions of people unable to return home for many developers now find themselves short of cash. the holidays. As explained in our previous articles, the Chinese In the financial markets, even though some Chinese government’s concern has not been to lower overall banks also suffered from sub-prime related losses, the housing prices, but to ensure the availability of affordable Chinese financial system as a whole was well protected housing supply. One action the government took to from troubles in the U.S., thanks to a largely domestic achieve this policy goal was to increase rural land supply capital market. Nevertheless, the Chinese stock in anticipation that developers will use it to develop markets experienced the worst sell-off in recent years affordable residential units. as the price bubble deflated and valuations returned to However, fervent land prices in the second half of 2007 more reasonable, but by no means cheap, levels. The acted against such government actions and effectively Shanghai Index fell from a high of 6,200 in November turned land meant for affordable housing into future 2007 to a low of just under 3,500 by the end of March.

10 Figure 1: Seasonal rebound in transaction volume not necessarily translate into future rental growth. In fact, we are concerned that the increasing pace of RMB appreciation will begin to pull against rental growth. For the office sector, even though we saw solid rental increases in 1Q08 on the back of the strong leasing market, tenants are likely to have tighter cost controls going forward and be more reluctant to accept increases in both the exchange rate and real rent. For the luxury and high-end residential leasing markets, where expatriate housing demand growth is slowing and supply is plenty, we are already seeing rentals softening. In Shanghai, for example, luxury residential rents (in RMB terms) have been on a constant decline, dropping by 2.7% since 3Q05. In other words, US dollar rents have been rising while renminbi rents have been falling. This high-cost residential units. In response, the government trend is likely to continue over the next twelve months. cut off developers’ finances by tightening domestic loans The only sector in which we do not expect the strong and by restricting foreign direct and indirect (via capital renminbi to have an impact on rentals is the retail sector. markets) investments into Chinese real estate companies. Since retailers make their sales revenue in local currency, Compared to just a quarter ago, when developers had the currency gains from sales should offset currency little interest in partnering with property investment losses in occupancy costs. funds, today these same developers are scrambling to secure investment from anyone and everyone. Conclusion: Cash is king, but only in renminbi Occupier demand for real estate unaffected In conclusion, our view is that the current market thus far slowdown is largely due to uncertainty surrounding In contrast to the tight real estate investment and capital macroeconomic conditions, both domestic and abroad. • LaSalle Lang Jones markets, occupancy demand for real estate remains Inflation is expected to ease in the second half of the year high in all sectors. According to our latest first-quarter while the economy remains on a pace to achieve over data, office demand continued to be strong in the major 9% annual growth. With real demand staying strong, we cities as rental levels showed significant increases in believe that current market conditions provide a good Shanghai (up 3.1%) , Beijing (up 1.7%), Chengdu (up buying opportunity for investors. Given the government’s Digest Property Pacific Asia 4.6%) and Tianjin (up 3.0%). The feedback from our tight control of real estate capital markets, we believe it leasing teams has been that, with the exception of a few will be the foreign investors with access to renminbi and large international banks which suffered significant losses domestic players with strong balance sheets who shall recently, the majority of corporations are sticking to their come out ahead. expansion plans. Even for corporations that might be rethinking their expansion plans, we believe this to be

• • First Quarter 2008 Quarter First a temporary delay rather than a reversal of their China About the Author business strategy. On the residential side, contrary to media reports of a market rebound in certain cities such Kenny leads a team of forty as Shanghai, we found no evidence of a substantive researchers covering office, rebound. In fact, the reported rebound proved to retail, residential and industrial be mostly seasonal and was consistent with market property sectors across twenty performance during the same periods in 2006 and 2007 cities in China. He is an expert (Figure 1). in issues relating to property investment and development RMB appreciation begin to weigh in on in China, and he has frequently rental growth commented in international as well as local media. He has While it is too early to determine the full impact of been instrumental in the significant expansion of the Firm’s the US economic downturn on the Chinese economy, premier Real Estate Intelligence Service (REIS) in China, we maintain a positive outlook on mid- to long-term offering quarterly market data, forecast and analyses on sixteen real estate demand. However, demand growth might emerging Chinese cities.

11 Hong Kong: Grade A Office With many of the larger requirements in market now Demand satistfied, demand is likely to Occupier demand for Hong Kong’s Grade A office space remained strong in taper in the next 12 months, 1Q08. In spite of growing uncertainties in global financial markets, banking and especially if the contagion of the finance sector tenants continued to be amongst the most active in expanding US sub-prime mortgage market- offices within the city. induced credit crunch spreads The limited availability of vacant space and higher rentals in traditional core area further into Asia and curbs markets continued to underpin market activity in the non-core area markets. economic growth. JPMorgan, PricewaterhouseCoopers, Morgan Stanley, and Citibank, were among some of the more notable companies leasing office space in the non-core area markets in 1Q08. The completion of the heavily pre-committed One Island East (OIE) in Hong Kong East contributed to boosting net take-up to about 1.9 million sq ft (net) in 1Q08. With low vacancy curbing net take-up in the core-area markets, the majority of new demand was largely met in recently completed buildings such as 633 King’s Road and OIE in Hong Kong East; International Commerce Centre (ICC) in West Kowloon; and Millennium City 6 and Kwun Tong 223 in Kowloon East. Great Eagle’s announced sale of the Langham Place development (excluding Langham Hotel) in Mongkok for HKD 12.5 billion to Champion REIT was the largest transaction recorded in 1Q08. Included in the sale was the 772,500-sq ft (gross) office tower portion of the development, reportedly priced at HKD 6,815 per sq ft (gross). The sale is expected to be finalised in 2Q08.

Supply Swire Properties’ flagship OIE Grade A office building in Quarry Bay was the only new supply completed in 1Q08. With a total office floor area of 1.17 million-sq ft (net), it is amongst the largest and tallest buildings in Hong Kong. The building was 87% pre-committed at the time it was issued with its occupation permit. The unwavering demand from occupiers saw overall vacancy drop to 4.2% at end-1Q08. All the key office sub-markets recorded a tightening in vacancy levels, including Hong Kong East despite the completion of OIE.

Asset Performance Tightening vacancy levels allowed landlords to continue raising rentals, For 2008, take-up, completions and vacancy rate especially in the core area markets where the supply-demand imbalance was are YTD figures. Future supply is for the full year. most acute. The 13.2% q-o-q growth posted in 1Q08, pushed average rentals in the overall market to a new all-time high for the Hong Kong Grade A office Growth Rental Value Capital Value market. q-o-q 13.2% 6.3% 1 Year 33.9% 33.6% On the other hand, higher prices and a heightened aversion to risk by investors 3 Years 147.3% 67.7% saw the growth in overall capital values slow to 6.3% q-o-q in 1Q08 after surging * Rental values are based on NFA 15.1% q-o-q in 4Q07. ** Capital values are based on GFA

1Q08 12-Month Outlook Vacancy Rate 4.2% While demand for Grade A offices was relatively robust in 1Q08, this was largely (Overall) due to the release of pent-up demand. With many of the larger requirements in Net Effective Rent HKD 64.0 psf pm market now satistfied, demand is likely to taper in the next 12 months, especially Capital Value HKD 10,625 psf if the contagion of the US sub-prime mortgage market-induced credit crunch Investment Yield 3.4% - 7.4% spreads further into Asia and curbs economic growth. Notwithstanding, rental levels are expected to remain high in view of the low vacancy levels across the 12-Month Outlook city, especially in the core-area office markets. rental Capital Value Value 12 Hong Kong: Grade A Office – Central

Demand Despite being the most affected by the ongoing turmoil in the global capital markets, banking and finance sector tenants remained amongst the most active in leasing offices in Central in 1Q08. Pre-commitment leasing in Central’s only source of upcoming Grade A office supply in 2008, Nexxus Building, began to gather momentum, with 30% of the building already being leased by end-1Q08. However, the low vacancy environment in Central also continued to drive strong interest from long-term Central tenants into newly completed buildings outside of Central such as International Commerce Centre (ICC) in West Kowloon and One Island East (OIE) in Quarry Bay. In view of the low vacancy situation, net take-up in Central amounted to only 119,420 sq ft (net) in 1Q08. Though several Grade A office buildings were reportedly being marketed for sale, no en bloc sales involving Grade A offices buildings in Central transpired in 1Q08. Sales were confined to traditional strata-titled office properties such as , Cosco Tower, Lippo Centre, 9 Queen’s Road, and Bank of America Tower.

Supply No new Grade A office buildings were completed in Central in 1Q08. Works continue on Nexxus Building, the refurbishment of the former Hang Seng Building, which remains on schedule for completion in 3Q08. The building is the only source of new Grade A office supply in Central in 2008. At 1.1%, vacancy in Central was down to a near 20-year low at end-1Q08. The low vacancy was due in part to the large number of Grade A office buildings at

100% occupancy, especially amongst the highest quality buildings. • LaSalle Lang Jones

Asset Performance The acute supply-demand imbalance in Central saw landlords continue to push rentals to new record highs. After breaching their historic all-time highs at the Asia Pacific Property Digest Property Pacific Asia end of 4Q07, average rentals increased a further 12.7% q-o-q in 1Q08. A 7.4% q-o-q increase in 1Q08, saw average capital values eclipse their previous 1994 peaks to reach a new all-time high for the Central Grade A office market. For 2008, take-up, completions and vacancy rate are YTD figures. Future supply is for the full year. Major Leasing Transactions Growth Rental Value Capital Value > BBVA leased 25,000 sq ft (lettable) in Two International Finance Centre; q-o-q 12.7% 7.4%

• • > Baker & Mckenzie leased 20,400 sq ft (gross) in Admiralty Centre I; 1 Year 38.7% 45.6% 2008 Quarter First > Johnson Stokes & Master leased 23,800 sq ft (gross) in Vicwood Plaza; 3 Years 194.8% 75.6% > ICAP leased 25,145 sq ft (gross) in The Center; and * Rental values are based on NFA ** Capital values are based on GFA > Taubman leased 14,000 sq ft (gross) in Aon China Building.

Major Sales Transactions 1Q08 Vacancy Rate 1.1% > 9, 11 & 16/F of Cosco Tower were sold to Joy Wisdom Ltd for HKD 569.9 million (HKD 9,620 per sq ft (gross)); Net Effective Rent HKD 108.2 psf pm > 79/F of The Center was sold to Magic Ace for HKD 293 million (HKD 22,175 per sq ft (gross)); Capital Value HKD 15,981 psf > 20/F of Worldwide House was sold to Magic Ace for HKD 215 million (HKD 12,880 per sq ft Investment Yield 4.9% - 7.4% (gross)); > 15/F of Bank of America Tower was sold to A12 Ltd for HKD 251 million (HKD 18,100 per sq ft 12-Month Outlook (gross)); and rental Capital > Units 4-5 on the 30/F of Nine Queen’s Road Central were sold to Modern Metro for HKD 101.9 Value Value million (HKD 18,760 per sq ft (gross)).

13 Hong Kong: Grade A Office – Wanchai/Causeway Bay

Demand Leasing activity in Wanchai/Causeway Bay continued to be underpinned by the relocation of tenants from Central and the in-house expansion of tenants. Examples of some larger tenants from Central opting to lease offices in Wanchai/ Causeway Bay in 1Q08 included Samsung relocating to Central Plaza and global conglomerate GE leasing offices in The Lee Gardens to accommodate a partial relocation of their offices away from Central. However, the inflow of tenants relocating from Central was partially offset by the outflow of tenants into other sub-markets after being unable to secure expansion requirements within Wanchai/Causeway Bay. Tenants such as P&T Architects & Engineers and Allianz Insurance were amongst the most notable to do so in 1Q08. The inflow/outflow of tenants together with low vacancy curbed net take- up in the sub-market to 32,550 sq ft (net) in 1Q08. The slowdown in investment activity saw sales transactions largely confined to strata-titled properties, with regularly transacted strata-titled office buildings such as Convention Plaza, Wu Chung House and Harcourt House all recording sales in 1Q08.

Supply There were no new Grade A office buildings completed in Wanchai/ Causeway Bay in 1Q08. Vacancy within the sub-market continued to trend downwards through 1Q08 despite being at near 20-year lows entering the quarter. As at end-1Q08, vacancy was down to 1.9%, the first time below the 2% level since 1988.

Asset Performance Average rentals surged a further 15.1% q-o-q in 1Q08 as landlords sought to capitalise on the limited availability of vacant space on Hong Kong Island and in Tsimshatsui. The rate of growth was the strongest in a quarter since 2Q93. The subdued sentiment of investors saw growth in average capital values slow to 4.6% q-o-q in 1Q08 after increasing 14.9% q-o-q in 4Q07.

For 2008, take-up, completions and vacancy rate Major Leasing Transactions are YTD figures. Future supply is for the full year. > Samsung leased 39,910 sq ft (lettable) in Central Plaza; Growth Rental Value Capital Value > Pfizer leased 7,630 sq ft (lettable) in Central Plaza; q-o-q 15.1% 4.6% > Buspak leased 8,245 sq ft (lettable) in Sunning Plaza; 1 Year 31.6% 27.5% > Jetro leased 9,445 sq ft (lettable) in Hopewell Centre; 3 Years 113.3% 63.8% > GE leased 31,000 sq ft (lettable) in The Lee Gardens; and * Rental values are based on NFA > Maxim’s leased 6,315 sq ft (lettable) in Dah Sing Financial Centre. ** Capital values are based on GFA

Major Sales Transactions 1Q08 > 24/F of OTB Building was sold for HKD 60.2 million (HKD 8,200 per sq ft (gross)); Vacancy Rate 1.9% > 25/F of OTB Building was sold for HKD 64.4 million (HKD 8,780 per sq ft (gross)); Net Effective Rent HKD 49.0 psf pm > Units 4-9 on the 22/F of Wu Chung House was sold to Ever Real Holdings for HKD 97 million Capital Value HKD 9,388 psf (HKD 6,560 per sq ft (gross)); and Investment Yield 3.8% - 5.8% > 9/F of Harcourt House was sold to a local investor for HKD 180 million (HKD 10,555 per sq ft (gross)). 12-Month Outlook

rental Capital Value Value

14 Hong Kong: Grade A Office – Tsimshatsui

Demand The Tsimshatsui Grade A office market continued to experience relatively strong levels of transaction activity in 1Q08, albeit with the majority of new lettings being for small-to-medium offices, typically less than 10,000 sq ft. Demand was largely underpinned by the expansion requirements of incumbents and the relocation of tenants from Hong Kong Island. Prudential Assurance, Novi Footwear, and NYK Logistics were some of the tenants that took up expansion space in Tsimshatsui during 1Q08. Meanwhile, ANA, China Construction Bank and Replay were amongst the most prominent tenants to relocate offices from Hong Kong Island to Tsimshatsui. The robust levels of leasing saw net take-up in the sub-market amount to about 43,440 sq ft (net) for 1Q08. While sales of smaller office properties below HKD 20 million remained strong, activity for more expensive properties slowed in line with the overall market. Sales above HKD 20 million concluded in 1Q08 were largely focused on traditional strata-titled Grade A office properties in Tsimshatsui East.

Supply No new Grade A office buildings were completed in Tsimshatsui in 1Q08. Relatively stronger levels of demand for Wharf’s portfolio of buildings along Canton Road helped vacancy in Tsimshatsui tighten down to 4.2% at the end of 1Q08.

Asset Performance Tightening vacancy and steady levels of demand led to landlords adopting a Jones Lang LaSalle • • LaSalle Lang Jones more aggressive stance in rental negotiations. As a result, average rentals grew by 15.2% q-o-q in 1Q08, the strongest amongst all the key office sub-markets in Hong Kong. The relatively more active investment market, compared with the other office sub-markets, helped push average capital values up by 8% q-o-q in 1Q08. Again, Digest Property Pacific Asia this was strongest growth among the key sub-markets in 1Q08.

For 2008, take-up, completions and vacancy rate Major Leasing Transactions are YTD figures. Future supply is for the full year. > ANA leased 7,585 sq ft (gross) in II, Tower 6; Growth Rental Value Capital Value > Prudential Assurance expanded 7,820 sq ft (gross) in The Gateway, Tower 3; q-o-q 15.2% 8.0%

> China Construction Bank leased 6,070 sq ft (gross) in The Gateway II, Tower 6; • 1 Year 27.4% 23.8% 2008 Quarter First > Yue Yuen Industrial Holdings expanded in-house 6,375 sq ft (gross) in The Gateway II, Tower 3 Years 82.8% 63.7% 6; and * Rental values are based on NFA > The Hong Kong Polytechnic University leased 11,455 sq ft (gross) in Chinachem Golden Plaza. ** Capital values are based on GFA

Major Sales Transactions 1Q08 > Units 1-5 & 10-14 on the 12/F of Wing On Plaza were sold to Cheer Mega for HKD 138.9 million Vacancy Rate 4.2% (HKD 10,115 per sq ft (gross)); Net Effective Rent HKD 41.2 psf pm > Units 1-5 on the 4/F of Silvercord Block 2 were sold to Giovinni for HKD 72.5 million (HKD Capital Value HKD 8,894 psf 7,760 per sq ft (gross)); Investment Yield 3.5% - 5.0% > Units 6-8 on the 26/F of Concordia Plaza were sold to a private investor for HKD 76.16 million (HKD 12,000 per sq ft (gross)); and > Units 9-11 on the 26/F of Concordia Plaza were sold to Gain Legend Development for HKD 31.3 12-Month Outlook million (HKD 12,000 per sq ft (gross)). rental Capital Value Value

15 Hong Kong: Grade A Office – Hong Kong East

Demand The low vacancy in Hong Kong East entering at the start of 1Q08 saw leasing activity focusing on 633 King’s Road in North Point, a building completed in 2Q07, and One Island East (OIE) in Quarry Bay. As one of only two new Grade A office buildings to be completed on Hong Kong Island until 2010, OIE drew strong interest from tenants across a variety of industry sectors, especially those from banking and finance. The quarter saw JPMorgan, CLSA, Fidelity and Citigroup all commit to space within the building, joining DBS Bank as key tenants. Meanwhile, demand for 633 King’s Road also picked up noticeably in 1Q08, attracting strong interest from Hong Kong Island tenants seeking offices for relocation and expansion. Amongst the largest tenants to relocate to the building in 1Q08 was P&T Architects & Engineers, who leased five floors as part of their relocation from offices in Wanchai. The completion of OIE, which was 87% pre-committed when issued with its occupation permit, helped push net take-up to 1.15 million sq ft (net) in 1Q08, more than the total amount achieved in the sub-market over the past five years, combined. Investment activity in Hong Kong East slowed in line with the overall market. The few transactions recorded were restricted to Island Place Tower and Citicorp Centre.

Supply Swire Properties’ 1.17 million-sq ft (net) OIE Grade A office development in Quarry Bay was the only new supply completed in the sub-market in 1Q07. The strong levels of pre-commitment leasing achieved in OIE not only kept vacancy levels in Hong Kong East low but combined with steady demand in other buildings within the sub-market, tightened vacancy to 2.9% at end-1Q08.

Asset Performance The high level of pre-commitment leasing at OIE coupled with low vacancies across Hong Kong Island, pushed average rentals up by 10.9% q-o-q in 1Q08.

Average capital values, on the other hand, registered only a 1.2% q-o-q increase For 2008, take-up, completions and vacancy rate for the quarter, reflecting the relative slowdown in transaction activity in 1Q08. are YTD figures. Future supply is for the full year.

Growth Rental Value Capital Value Major Leasing Transactions q-o-q 10.9% 1.2% > Neo Derm leased 21,195 sq ft (lettable) in One Island East; 1 Year 17.6% 11.8% > Club 21 leased 39,770 sq ft (lettable) in One Island East; 3 Years 124.5% 47.3% > Allianz Insurance leased 16,395 sq ft (lettable) in Cityplaza 4; * Rental values are based on NFA > P&T Architects & Engineers leased 55,225 sq ft (gross) in 633 King’s Road; and ** Capital values are based on GFA > Deutsu Young & Rubicam leased 10,045 sq ft (gross) in 633 King’s Road. 1Q08 Major Sales Transactions Vacancy Rate 2.9% > Union Park Tower was sold en bloc to a local investor for HKD 203 million (HKD 5,145 per sq ft Net Effective Rent HKD 31.8 psf pm (gross)); Capital Value HKD 5,243 psf > 11/F of Island Place Tower was sold to King Strand Ltd for HKD 106.4 million (HKD 6,550 per Investment Yield 5.0% - 6.4% sq ft (gross)); and > 7/F of Island Place Tower was sold to Ontop Creation for HKD 102.6 million (HKD 6,320 per sq 12-Month Outlook ft (gross)). rental Capital Value Value

16 Hong Kong: Grade A Office – Kowloon East

Demand Leasing activity in Kowloon East continued to benefit from tightening vacancy levels across the other key office sub-markets. The sub-market continued to attract tenants seeking offices to cater for expansion, cost-effective accommodation and upgrading opportunities. Some Hong Kong Island tenants that leased offices into Kowloon East in 1Q08 included S.W.I.F.T. (FE), EC Harris, and PricewaterhouseCoopers. Millennium City 6 and Kwun Tong 223, both completed in 2007, drew the strongest interest within the sub-market, with occupancy in Millennium City 6 rising to 83% by end-1Q08. Meanwhile, in one of the largest leases transacted in 1Q08, PricewaterhouseCoopers became the first tenant to lease offices in Kwun Tong 223 after committing to about 93,000 sq ft (gross) in the building. Net take-up in Kowloon East amounted to about 196,060 sq ft (net) in 1Q08, buoyed by the strong leasing in Millennium City 6 and Kwun Tong 223 which accounted for more than 70% of the total net take-up achieved in the sub-market during the quarter. The investment market was highlighted by the release of 12 floors for strata- titled sale in the 18-storey Millennium City 3 by Sun Hung Kai Properties. As of end-1Q08, a total of three floors had been sold to two independent parties.

For 2008, take-up, completions and vacancy rate Supply are YTD figures. Future supply is for the full year. No new Grade A office buildings were completed in Kowloon East in 1Q08. The strong leasing in Millennium City 6 and Kwun Tong 223 drove vacancy in Kowloon East down to 13.6% at end-1Q08. Jones Lang LaSalle • • LaSalle Lang Jones Asset Performance Growing interest in Kowloon East as a viable office location for traditional core- area tenants and the limited availability of vacant space in the overall market enabled landlords to increase average rentals by 10.7% q-o-q in 1Q08 despite double-digit vacancy. Digest Property Pacific Asia Meanwhile, the relative strength of demand from owner-occupiers together with Kwun Tong 223 the increase in rentals saw average capital values increased by 3.7% q-o-q in Image courtesy of Henderson Land 1Q08.

Growth Rental Value Capital Value Major Leasing Transactions q-o-q 10.7% 3.7%

• •

> 2008 Quarter First General Mills leased 18,445 sq ft (gross) in Enterprise Square 5; 1 Year 25.0% 10.6% > S.W.I.F.T. (FE) leased 17,115 sq ft (gross) in Millennium City 6; 3 Years NA NA > PricewaterhouseCoopers leased 93,000 sq ft (gross) in Kwun Tong 223; * Rental values are based on NFA > Black & Veatch leased 18,860 sq ft (gross) in Millennium City 6; and ** Capital values are based on GFA > EC Harris leased 17,605 sq ft (gross) in Millennium City 6. 1Q08 Major Sales Transactions Vacancy Rate 13.6% > 20/F of Millennium City 3 was sold to Wealthfaith Holdings for HKD 48.84 million (HKD 6,000 Net Effective Rent HKD 24.6 psf pm per sq ft (gross)); Capital Value HKD 4,741 psf > Units 1-3, 5-8 on the 28/F of Enterprise Square 3 were sold to Eagle Luck for HKD 105 million Investment Yield 4.5% - 5.2% (HKD 6,520 per sq ft (gross)); and > 7-8/F of Millennium City 3 were sold to Hong Kong Baptist University for HKD 89.54 million 12-Month Outlook (HKD 5,500 per sq ft (gross)). rental Capital Value Value

17 Hong Kong: Retail

Demand Hong Kong’s retail consumption levels remained relatively high through 1Q08. Retail sales were buoyed by optimism in the labour market and year-end bonuses which fuelled local spending, and an expanding inbound tourism market, which saw visitor arrivals increasing by 9.4% y-o-y in the first two months of 2008. Coupled with the higher consumption around the Chinese New Year holiday period, retail sales values grew by 16.4% y-o-y in the first two months of the year. Big-ticket item retailers and luxury brands remained keen on expanding their presence in the city in spite of the surge in prime retail rents. Gucci, for example, relocated and expanded to a 4,000-sq ft (gross) store in ; Bvlgari opened its first set of ‘twin stores’ in Pacific Place; Louis Vuitton opened a 36,000-sq ft (gross) store in Harbour City, their second largest store in the world; while other prominent brands such as Cartier, Coach and Hermès are also expected to open new flagship stores in the near future. The Financial Secretary, in his 2008/09 Budget Speech, proposed a number of wealth sharing measures costing a total of HKD 28 billion in the upcoming fiscal year, equating to about 3% of Hong Kong’s total private consumption expenditure in 2007. These rebates and tax savings are likely to translate into higher local spending, albeit not until later in the year. Activity in the investment market was subdued in 1Q08 with relatively fewer

transactions being recorded compared with previous quarters, particularly Growth q-o-q 1 Year 3 Years for properties above HKD 100 million. The market was highlighted by the Premium Prime 3.5% 13.0% 37.6% announced sale of Great Eagle’s Langham Place development (excluding Shopping Centres the Langham Hotel) in Mongkok to Champion REIT for HKD 12.5 billion. Rental Value The 589,845-sq ft (gross) component of the development was Overall Prime 5.0% 13.5% 34.6% Shopping Centres reportedly sold for HKD 7.4 billion or about HKD12,520 per sq ft. Rental Value Prime Street Shops 8.4% 23.6% 38.1% Supply Rental Value Prime Street Shops 5.8% 22.1% 25.7% Five of the recently converted office-to-retail floors in World Trade Centre in Capital Value Causeway Bay, whose retail element is branded under the name of wtc more, * Rental values of shopping centres are based opened in 1Q08 with all floors being occupied by F&B operators. Another 50,000 on LFA. ** Rental and capital values of prime street shops sq ft (gross) of floor space is still under conversion is expected to be completed are based on GFA. in 2Q08. *** basket was re-audited in 1Q08.

1Q08 Rental Capital Yield Asset Performance Value Value Landlords of retail properties continued to capitalise on the rising demand from Premium Prime HKD 184.3 NA NA retailers, who remained active in securing premises to cater for expansion. As a Shopping Centres psf pm result, rentals remained on the rise in 1Q08, with average rentals for Premium Overall Prime HKD 118.1 NA NA Shopping Centres psf pm Prime Shopping Centres rising 3.5% q-o-q , while those in Prime Centres rose Prime Street HKD 333.3 HKD 3.9% 5% q-o-q. Average rentals in High Street Shops rose 8.4% q-o-q. Shops psf pm 101,857 psf The strength of leasing demand lent support to the growth in capital values in 1Q08 despite a relative slowdown in investment activity. Average capital values 12-Month Outlook of High Street Shops rising by 5.8% q-o-q in 1Q08. rental Value Capital Value Prime Prime 12-Month Outlook StREET StREET The tight labour market and the positive effects arising from the rebates and Shops Shops tax cut measures proposed in 2008/09 Budget are likely to strengthen domestic Premium demand. While some of this optimism may dissipate if the turmoil in the global prime Shopping finance market prevails, any uncertainties in the short-term future may be offset CENTRES by a strengthening inbound tourism market, stemming from the continuing overall emergence of Macau’s gaming industry and the Beijing Olympic Games. prime ShopPING 18 CENTRES Hong Kong: Luxury Residential We expect expatriate demand for luxury properties to remain Demand relatively high for the remainder Following cuts to the US Federal Fund Rate, Hong Kong’s Best Lending Rates of the year and coupled with (BLRs) saw a further 150-basis-point cut in 1Q08 to a range of 5.25-5.5%, low vacancy and the limited bringing nominal mortgage rates down to an average of 2.5%, the lowest since availability of new supply, will February 2005. lend support to a further rise in The number of residential Sale and Purchase Agreements (ASPs) contracted both rental and capital values 8.9% q-o-q to 36,917 in 1Q08 as the market euphoria that gripped buyers in 4Q07 over the next 12 months. subsided on the back of growing concerns over the global economic outlook. Notwithstanding, the total number of ASPs transacted in 1Q08 was still up 58.3% y-o-y and at their highest level for a corresponding quarter since 1997. The primary luxury residential sales market was highlighted by the launch of Sun Hung Kai Properties’ stratification of The Royal Tower in the Mid-levels. The initial 30 units made available for sale were reportedly sold at prices above HKD 20,000 per sq ft. Meanwhile, in the secondary market, the price divergence between older properties and new detached houses in traditional high-end residential areas continued to widen. In one of the most notable transactions recorded during the quarter, a unit in Severn 8 on The Peak was sold for HKD 54,951 per sq ft, about three times the Hong Kong Island average. Leasing demand for high-end properties remained robust through 1Q08, with quality properties on Hong Kong Island remaining the most popular. In spite of the uncertainties in the global economy, housing allowances for expatriates residing in the city remained broadly stable. The most prominent transaction in 1Q08 was for a house in 40 Peak Road (5,874 sq ft) at The Peak, which was leased for HKD 330,000 per month exclusive.

Supply • LaSalle Lang Jones A total of 469 residential units were completed in the first two months of 2008, of which 12 were luxury units. The 2008/09 Application List saw the total number of residential sites increased to 42, up from 33 in the previous list. The new list has the potential to deliver a total of about 13,000 units. Asia Pacific Property Digest Property Pacific Asia Asset Performance Capital values of luxury residential properties continued to accelerate in 1Q08, increasing a further by 10% q-o-q, albeit with the bulk of the growth being achieved in the first month of 2008 when sentiment was high. With the supply- Growth Rental Value Capital Value demand imbalance remaining firmly in the favour of landlords, rents for luxury q-o-q 5.9% 10.0% residential properties increased 5.9% q-o-q. • 1 Year 22.2% 31.0% 2008 Quarter First 3 Years 46.5% 36.9% 12-Month Outlook * Rental and capital values are based on GFA The Hong Kong economy has so far escaped the brunt of the financial turmoil that has slowed the US and EU economies. As of end-1Q08, there was no apparent contraction in corporate headcounts, even amongst the global 1Q08 investment banks that have been hardest hit by the financial turmoil. Indeed, we Net Rent HKD 41.6 psf pm expect expatriate demand for luxury properties to remain relatively high for the Capital Value HKD 16,732 psf remainder of the year and coupled with low vacancy and the limited availability Investment Yield 3.0% of new supply, will lend support to a further rise in both rental and capital values over the next 12 months.

12-Month Outlook

rental Capital Value Value

19 Hong Kong: Industrial – Warehouse Hong Kong’s external trading sector has thus far remained Demand resilient amidst contracting Demand for warehousing space in Hong Kong remained relatively robust exports to the US. However, through 1Q08 on the back of an expanding external merchandise trading sector. growth over the next 12 months Growing trade with the EU, other Asian countries, and Mainland China helped is likely to moderate as demand offset the continuing contraction of exports to the US. The total value of all trade for Mainland experts weakens in 1Q08 amounted to HKD 1,345.4 billion, representing an 11.1% y-o-y increase. on the back of a slowing global Some of the more notable transactions concluded during the quarter included: economy. > an end-user leasing 9,650 sq ft (gross) in Lucky Industrial Building in Kwai Chung for HKD 5 per sq ft per month; > a Japanese logistics company leasing 25,165 sq ft (gross) in Global Gateway (HK) in Tsuen Wan for HKD 7.5 per sq ft per month; > a 3PL operator leasing 21,085 sq ft (gross) in Texaco Centre in Tsuen Wan for HKD 4.5 per sq ft per month; > a logistics operator leasing various units totalling 40,000 sq ft (gross) in Texaco Centre in Tsuen Wan for HKD 4.2-4.5 per sq ft per month; and > Avion Logistics leasing 7,420 sq ft (gross) in QPL Industrial Building in Tsuen Wan for HKD 4 per sq ft per month. Property fund Goodman continued to expand their warehouse portfolio in Hong Kong, acquiring Tins Plaza in Tuen Mun en bloc for HKD 862.7 million, the largest sales transaction recorded during 1Q08.

Supply No new warehouses were completed in 1Q08. Cathay Pacific won a 20-year non-exclusive franchise contract to build and operate a new cargo handling facility at Hong Kong International Airport. The new facility will have a total Construction Floor Area of about 2.5 million sq ft and is scheduled to be completed by 2011. Meanwhile, Nan Fung’s 844,600-sq ft development in Kowloon Bay was changed from warehouse to office use and hence removed from our 2009 supply schedule.

Asset Performance Low vacancy coupled with relatively stable levels of demand growth, allowed landlords to push rentals higher, leading to average rentals increasing 2.9% q-o-q in 1Q08. The relative strength of demand and the potential for higher rental reversions Growth Rental Value Capital Value helped lift average capital values by 3% q-o-q in 1Q08. q-o-q 2.9% 3.0% 1 Year 4.3% 5.7% 12-Month Outlook 3 Years 29.3% 45.0% Hong Kong’s external trading sector has thus far remained resilient amidst * Rental and capital values are based on GFA contracting exports to the US. However, growth over the next 12 months is likely to moderate as demand for Mainland exports weakens on the back of a slowing 1Q08 global economy. While, growing domestic consumption levels on the Mainland Vacancy Rate NA may help reduce the relative severity in the slowdown of trade, warehousing demand is nonetheless expected to wane in the quarters ahead. Notwithstanding, Net Rent HKD 7.1 psf pm low vacancy and the limited availability of new supply over the same period will Capital Value HKD 1,219 psf help keep rental and capital values on an even keel. Investment Yield 6.5% - 7.0%

12-Month Outlook

rental Capital Value Value

20 Macau: Retail Rising population and escalating tourism receipts are set to Demand underpin Macau’s retail growth With the opening of MGM Grand Macau in December 2007, Macau’s tourist in the next few years. We do not arrival increased by 13.9% y-o-y to 4.8 million visitors in the first two months expect any notable setback in of 2008. The opening of new casinos and retail offerings also raised the total Macau’s retail productivity in number of imported labour to 87,705 as of end-February, up 27.4% y-o-y. Both the medium to long run. rising visitor arrivals and imported labour boosted retail sales to surge by 40.3% to MOP 4.2 billion in 4Q07. In particular, sales of big-ticket items like jewellery and watches saw the strongest y-o-y growth of 77%. In some cases, large retailers were willing to pay higher rent to keep their shops in prime locations. For example, a cosmetic chain store has renewed its lease in Rua de S. Domingos at about HKD 500 per sq ft (gross), doubling the average rental value in the area.

Supply The expansion of the retail portion in Wynn Macau was completed in 1Q08, adding 11 new luxury brand outlets to the arcade. In Grand Canal Shoppes of The Venetian Macao, a number of new shops including Q’ggle, Marathon Sports and

Manchester United were opened during the quarter. MGM Grand Macau Moving forward, more new supply is coming in the pipeline. While New Yaohan Department Store delayed its relocation to Nam Van District to May, The Shoppes at Four Seasons in Cotai Strip, with 211,000 sq ft of retail space, is expected to open in mid-2008.

Asset Performance In view of the optimistic retail market, growing retailers’ demand for prime retail space helped pull high-street shop rentals up by 7.4% in 1Q08. Capital values also rose by 6.2% during the quarter, edging up the investment yield to 6%. Jones Lang LaSalle • • LaSalle Lang Jones

12-Month Outlook In our March 2008 edition of Macau Economic Insight, we pointed out that both rising population and escalating tourism receipts are set to underpin the retail growth in the next few years. Our forecast shows that Macau’s retail sales will Digest Property Pacific Asia grow at a robust CAGR of 35% per annum between 2008 and 2010. Even with the ample supply due for completion in the next few years, we do not expect any notable setback in Macau’s retail productivity in the medium to long run. However, competition for tenants will likely remain the case in many of the upcoming malls, limiting rental growth potential in the near future. Growth Rental Value Capital Value q-o-q 7.4% 6.2%

• • 1 Year 11.7% 13.5% 2008 Quarter First 3 Years NA NA * Rental and capital values are based on GFA

1Q08 Vacancy Rate NA Net Rent HKD 111.9 psf pm Capital Value HKD 22,370 psf Investment Yield 6.0%

12-Month Outlook

rental Capital Value Value

21 Macau: High-End Residential The deepening of the negative real interest rate environment Demand continued to boost demand for Following the US interest rate cuts, Macau’s average best lending rates were property investment. The bright further lowered from 6.75% to 5.25% during 1Q08, the lowest level since May local economic outlook, coupled 2005. Coupled with the rising inflation, the deepening of the negative real with the deepening of negative interest rate environment continued to boost demand for property investment. real mortgage rates, will continue Meanwhile, the impressive government land sale results helped improve to lend support to real estate market sentiment. Two residential sites at the waterfront of Fai Chi Kei with an assets. On the other hand, the estimated combined GFA of about 670,000 sq ft were sold by public tenders in January. Local developer, Tin Wai Investment won both tenders for a total of continuous inflow of expatriates is MOP 1.42 billion (accommodation value of MOP 2,264 per sq ft and MOP 2,048 putting stronger demand pressure per sq ft, respectively). on leasing properties. In view of the positive sentiment, developers launched a number of residential projects for sale during the quarter. In Tower 2 of The Praia, the first batch of 120 units were launched for sale, and over 93% of the units were sold for HKD 3,500– 4,700 per sq ft (gross). The remaining 80 units in La Cite in the Pearl district were also launched for sale, and over 75% of the units were sold for an average price of HKD 3,500 per sq ft (gross). The Residencia Macau at the waterfront of the Pearl district was also launched for sale with prices ranging from HKD 4,000 to HKD 5,500 per sq ft (gross). In Taipa, about 75% of the 196 units in The Buckingham were sold for an average price of about HKD 5,000 per sq ft (gross). Of this, Marriott Vacation Club International acquired 30 units with a total GFA of about 41,380 sq ft (gross) for its time-sharing business.

Supply There was no new supply in 1Q08. However, it is estimated that about 2,700 residential units will be completed in the remainder of the year.

Asset Performance The strong investment demand stemming from lower interest rates and rising inflation, helped push capital values up a further 11.9% in 1Q08. The growing leasing demand from expatriates and backed by the tight availability of supply also put upward pressure on high-end residential rentals, which grew by 6.9% during the quarter. This caused the investment yield to fall slightly to 3.2%.

12-Month Outlook Although there are increasing concerns about potential price consolidation after years of run-up, the bright local economic outlook, coupled with the deepening * Total private residential of negative real mortgage rates, will continue to lend support to real estate assets. Growth Rental Value Capital Value On the other hand, the continuous inflow of expatriates is putting stronger q-o-q 6.9% 11.9% demand pressure on leasing properties, especially those having a close proximity 1 Year 22.4% 36.2% to the emerging Cotai Strip. As such, we remain optimistic that both the capital 3 Years 59.5% 62.9% values and rents will grow further in the next 12 months. * Rental and capital values are based on GFA

1Q08 Net Rent HKD 9.0 psf pm Capital Value HKD 3,397 psf Investment Yield 3.2%

12-Month Outlook

rental Capital Value Value 22 Beijing: Office

The first quarter of 2008 brought a continued high level of growth and activity in Many large MNCs are taking the Beijing office market. Several new buildings entered key areas, and expansion advantage of current market and relocation requirements drove strong demand across the market. conditions not only to expand Demand their space, but also to upgrade Many large MNCs are taking advantage of current market conditions not only into higher-quality buildings at to expand their space, but also to upgrade into higher-quality buildings at comparable rental levels. comparable rental levels. Recognising the impossibility of doing fit-outs during the Olympic Games period, occupiers are either pushing to get fully moved in before June or are signing short-term extensions with the intention of delaying relocation activity until September. On the back of this demand, total absorption reached 245,532 sqm in 1Q08—comparable to the high absorption levels witnessed in 2H07. In 1Q08, the CBD continued to be the most popular destination for relocation and expansion with firms absorbing 95,338 sqm of new space. Some noticeable transactions in the CBD in 2Q08 include Cisco moving from its 8,000-sqm space in Oriental Plaza into a 12,000-sqm space in Yintai Centre, and PwC leasing approximately 5,000 sqm of space in Prosper Centre to complement its existing space in Fortune Plaza.

Supply With the completion of five projects, 397,172 sqm of new supply was delivered to the market in 1Q08. Three of the new buildings—PICC Tower, Taikang International Financial Centre and China Central Place Tower Three—are located in the CBD. Despite entering with some pre-leasing commitments, new completions drove CBD vacancy up 3.3% q-o-q to 30.4%. Fifth Square, a Grade

A building, entered the East Second Ring Road area. It will bring substantial • LaSalle Lang Jones competition to older, more established buildings in the Chaoyangmen area such as Fullink Plaza and China Life Tower. Despite the substantial influx of new space, overall vacancy rose by less than 1% to 16.5%.

Asset Performance Digest Property Pacific Asia Strong rental growth in Finance Street and Zhongguancun, combined with stability in the CBD, pushed overall average rentals up 1.7% q-o-q to RMB 251 per sqm per month. Capital values rose 6.8% q-o-q to RMB 23,478 per sqm. Resulting from these changes, yields for the overall office market compressed For 2008, take-up, completions and vacancy rate are YTD figures. Future supply is for the full year. 0.5% q-o-q to 9.2%. There was an inordinately high level of second-hand strata- titled office transactions in 1Q08, as some local companies sought to purchase Growth Rental Value Capital Value

• • as opposed to lease space, and some owners moved to offload these assets. The q-o-q 1.7% 6.8% 2008 Quarter First decision on the part of owners is potentially driven by the realisation that strata- 1 Year 21.2% 13.8% titled office space is increasingly less competitive as more wholly owned Grade A 3 Years 21.4% 22.2% space enters the market. * Rental Value is based on NLA ** Capital Value is based on GFA 12-Month Outlook *** Series have been revised in 1Q08 to better reflect the current market conditions A total of 618,574 sqm of prime office space is expected to enter the market in 2Q08, which will serve to drive up overall vacancy rates despite expected 1Q08 strong demand. Importantly, several of the upcoming projects are high-quality Vacancy Rate 16.5% buildings located in less-established office areas such as Wangjing and the Effective Rent RMB 251 psm pm Olympic Green area. Over time, these areas are poised to emerge as secondary Capital Value RMB 23,478 psm office sub-markets, creating decentralised options for more rent-sensitive Investment Yield 7.5% - 9.5% tenants. 12-Month Outlook

rental Capital Value Value 23 Beijing: Prime Retail

Demographic drivers for the Beijing retail market grew dynamically in 2007. With an eye on promising Urban Resident’s disposable income increased 11.2% y-o-y to RMB 21,989 per economic and demographic capita per annum and total retail spending increased 14% y-o-y to RMB 377 billion. In January and February 2008, retail sales continued to grow, expanding conditions and the upcoming by 14.9% y-o-y over this two-month period. Olympic Games, demand for quality retail space was robust in Demand 1Q08. With an eye on promising economic and demographic conditions and the upcoming Olympic Games, demand for quality retail space was robust in 1Q08. Many of the more established shopping centres, such as Oriental Plaza and China World Trade Centre, continue to enjoy very high occupancy. The vacancy rate for the overall prime retail market dropped 3% q-o-q to 7.1%. Strong demand is further demonstrated by active leasing in new projects and dynamic pre-leasing in developments scheduled for completion before the Olympic Games. Vacheron Constantine opened a second Beijing store in Oriental Plaza, Bulgari opened a flagship store in Shin Kong Place, C & A opened their first Beijing store in the recently refurbished Beijing apm and Uniqlo, a Japanese fashion retailer, opened stores in both Beijing apm and Joy City. Also of note, Zara is expanding their presence in Beijing with confirmed leasing deals at Joy City in Xidan and Solana near Chaoyang Park.

Supply Completion of renovations at Beijing apm (formerly known as Beiing Sun Dong An Plaza) re-introduced 120,000 sqm of retail space in 1Q08. Joy City, located in the Xidan Area was also completed, adding 76,400 sqm to the market. Sun Hung Kai Properties’ decision to refurbish Beijing apm is likely driven by the increasing quality of new supply and the necessity to improve their shopping environment to maintain competitiveness.

Asset Performance Both overall rental value and capital value decreased 0.5% q-o-q with net effective rent dropping to RMB 576 per sqm per month and capital value decreasing to RMB 48,722 per sqm. This relative stability in the market is a result of well balanced supply and demand dynamics.

12-Month Outlook Growth Rental Value Capital Value With an estimated 710,630 sqm of new supply expected to enter the market q-o-q -0.5% -0.5% before the Olympic Games, the overall vacancy rate is projected to increase to 1 Year -1.3% -1.4% approximately 20%. Pre-leasing is active currently, but most new developments 3 Years 17.3% 63.9% will still enter with at least 30% to 40% vacancy. Importantly, most of those * Rental Value is based on NLA retailers that hope to have new venues operational in August have already ** Capital Value is based on GFA signed pre-leasing deals. It will be critical to have fit-out work completed before the government stops providing the necessary construction licenses, which is 1Q08 anticipated to come into effect in May or early-June. Vacancy Rate 7.1% Beyond the Olympic Games it is projected that we will see some slowdown in Net Effective Rent RMB 6,912 psm pa leasing activity, although retailers will persist in viewing the Beijing market Capital Value RMB 48,722 psm as a key priority. Growing incomes, developing consumerism, and increasing Investment Yield 6.8% - 8.8% amounts of quality supply are all critical factors behind continued retailer expansion and new set-ups. 12-Month Outlook

rental Capital Value Value

24 Beijing: High-end and Luxury Residential

According to statistics from the Beijing Real Estate Transaction Website, total Despite signs of stabilisation transaction volume in 1Q08 fell 36% y-o-y. This sharp decline in transaction in the mass market, there was volume correlates with substantially slower housing-price growth in the first two months of 2008. Research from the National Development and Reform substantial growth in the luxury Commission and National Bureau of Statistics indicate that average sales price residential market, indicating growth in the overall market slowed to 1% m-o-m in January and 0.3% m-o-m in continued, strong demand for February. what is perceived to be limited supply. Demand Despite signs of stabilisation in the mass market, there was substantial growth in the luxury residential market, indicating continued, strong demand for what is perceived to be limited supply. This demand is further driven by rising disposable incomes and a continued lack of investment options for wealthy Chinese. Prices at the upper echelons of the market continue to grow, with Park Hyatt Residences in the CBD recording transaction prices above RMB 62,000 per sqm in 1Q08. Leasing demand was very strong in 1Q08, driven by the forthcoming Olympic Games as well as by MNC expansion—especially those companies in the professional and financial services industries. With the expectation that short-term tenants will pay exorbitant rentals during the two-week Olympic Games period, many high-end and luxury-apartment owners are demanding substantially higher rents even for long-term leases. This was the first quarter where this Olympics effect had a salient impact on the market, and rental increases were most pronounced for serviced apartments. Interestingly, vacancy in luxury apartments rose 2% q-o-q, as some landlords withheld their units from the long-term leasing market in the hope that they could find a short-term,

highly lucrative tenant for August 2008. • LaSalle Lang Jones

Supply A total of 1,905 high-end and luxury units were completed in 1Q08, bringing the total supply to almost 36,000 units. The price per square metre for these new projects, which are primarily located in the vicinity of the CBD and Third Digest Property Pacific Asia Embassy District, ranged from RMB 24,000 to RMB 32,000 per sqm. Most of these properties were completed with between 80% and 95% of units already sold.

Growth Rental Value Capital Value Asset Performance q-o-q 16.5% 12.3%

• • With solid demand for luxury apartments and increasing quality in new supply, 1 Year 6.2% 50.2% 2008 Quarter First capital values rose sharply, climbing 12.3% q-o-q to RMB 23,555 per sqm. Owing 3 Years -4.8% 49.0% to the upcoming Olympic Games, luxury apartment rent for the overall market * Rental and capital values are based on GFA grew 16.5% q-o-q to RMB 117 per sqm per month. On the back of this strong rental growth, initial yield rose from 6.5% in 4Q07 to 6.8% in 1Q08. This is the first time in the last two years that gross rental yield has risen q-o-q. Luxury Apartments 1Q08 Vacancy Rate NA 12-Month Outlook Net Rent RMB 1,404 psm pa The growth in rental values witnessed this quarter is expected to be a short-term Capital Value RMB 23,555 psm phenomenon as rents are anticipated to return to near end-2007 levels after the Investment Yield 5.5% - 7.5% Olympic Games. In the sales market, the enforcement of the 70/90 policy (70% of a development’s gross floor area must be used to build units smaller than 90 12-Month Outlook sqm) will serve to constrict the number of large layout, luxury units, creating a premium for those units available in the second-hand market. rental Capital Value Value

25 Beijing: Industrial

The ongoing government-driven upgrade away from pollution-intensive The logistics market is industry and towards high-value manufacturing and R&D is changing the expected to continue to be the landscape of the Beijing industrial market. key industrial sector as the Demand government is supportive of low-impact developments and Demand for logistics facilities remained very strong in 1Q08. The key drivers are increased cargo activity in Tianjin Port and Beijing Capital International Airport, demand drivers are anticipated growing consumption in Beijing and rising demand from major retailers for to further expand. logistics services. Vacancy in the logistics market reached 16% in 1Q08—a slight q-o-q decrease. In the manufacturing sector, key indicators were stable. Large- scale and medium-scale manufacturers in Beijing generally build factories and offices for self-use, creating less demand in the leasing market. Exceptions to this are smaller-sized, higher-quality manufacturing units such as those in Fuxing Group Park (BDA), which enjoyed very strong demand from international and domestic small and medium enterprises (SMEs). There has also been an increase in the number of larger CBD-type tenants considering campus-style space in peripheral areas, specifically Zhongguancun and the BDA.

Supply There were no substantial completions in the Beijing industrial market in 1Q08. Looking at future supply trends, it is important to observe how recent regulations governing industrial land zoning will impact developments. The Ministry of Land and Resources implemented a regulation stipulating that no more than 7% of a land plot zoned for industrial use can be utilised for administration space. This is challenging, considering that most logistics facilities utilise at least 10% of developed land for office and administration. The objective of this new regulation is to ensure that large industrial plots are not utilised for commercial or residential development, but it will nonetheless be challenging to implement.

Asset Performance Logistics development is relatively open to foreign investment, unlike residential, commercial and retail markets, where there are substantial regulatory hurdles. This makes logistics facilities a popular option for international investors as they look for ways to gain exposure to Beijing’s dynamic property market. There were no major transactions in 1Q08, but there are investors that are actively seeking opportunities, indicating that we may see some transactions in 2Q08. Rentals for logistics, manufacturing and business park facilities remained Average Gross Rental (RMB per sqm per annum) relatively stable at RMB 29.1 per sqm per month, RMB 29.7 per sqm per month Zone 1Q08 and RMB 112.2 per sqm per month, respectively. Owing to limited transaction activity, it is difficult to accurately quantify capital values in the Beijing industrial Logistics Sector 349 market. However, for well-located logistics facilities, values are currently Manufacturing Sector 356 estimated at RMB 5,000 per sqm. Business Parks 1,346

12-Month Outlook The logistics market is expected to continue to be the key industrial sector as the government is supportive of low-impact developments and demand drivers are anticipated to expand. Although three properties, with a total GFA of 87,000 sqm, will enter the logistics market in 2H08, capital values of well-located properties will likely continue to rise in the next 12 months. With more MNCs entering business park space, there will be upward pressure on rentals in this 12-Month Outlook sector. Lease-only business park space is limited as the majority of existing space, especially in the BDA, is oriented towards smaller domestic users that rental Capital Value Value typically prefer to purchase rather than lease. 26 Chengdu: Office

Demand Influenced by the Chinese New Year, the Chengdu office leasing market slowed down in 1Q08, with net take-up amounting to 6,593 sqm—approximate a third of that in 4Q07. Considering the seasonal setback in the first quarter of every year, this figure was quite encouraging for the Chengdu office market as the absorption in 1Q07 only amounted to 1,114 sqm. In 1Q08, high-quality offices performed well in the leasing market while old Grade A buildings contributed little. Newly completed buildings such as Shangri- La Centre witnessed several whole-floor leasing transactions. For instance, Nike leased an entire floor of 1,111 sqm in Shangri-La Centre. On the other hand, old Grade A buildings such as First City Plaza were losing competitiveness in the market due to their ageing facilities. This was evidenced by the gradual relocation of some high-end tenants to better-quality buildings. For example, Hesen Power, a local power company, relocated to Shangri-La Centre from First City Plaza this quarter, leasing 2,914 sqm. As few small-sized to medium- sized local companies entered the market in 1Q08, the vacancy rate of these old buildings started to pick up, while the overall vacancy rate continued to fall by 2.1 percentage points q-o-q to 24.9%. In terms of tenant profile, financial services companies were still the major force of office space absorption, accounting for 34.4% of the total leasing transaction recorded in 1Q08. Enterprises from industry and consumer product sectors also formed a sizeable portion of the recorded transacted space, accounting for 22.1% and 20.6%, respectively.

Supply There was no new completion in 1Q08. The new supply expected in 2008—Air Jones Lang LaSalle • • LaSalle Lang Jones China Century Centre and Lippo Tower—will complete their fit-outs and enter the market in 2Q08, adding 136,500 sqm to the Grade A office stock.

Asset Performance

Although some old Grade A offices command lower prices, the average effective Digest Property Pacific Asia rental rose by 4.6% q-o-q to RMB 99.30 per sqm per month in 1Q08. The dynamics of the rise in rentals for the overall market are mainly high-quality For 2008, take-up, completions and vacancy rate buildings, which are very popular in the leasing market. are YTD figures. Future supply is for the full year.

12-Month Outlook Growth Rental Value Capital Value q-o-q 4.6% 3.4%

There will be more relocations of MNCs and high-profile domestic companies • First Quarter 2008 Quarter First from ageing Grade A buildings, which will bring large demand for high-quality 1 Year 18.4% 14.2% projects. Meanwhile, new entrants will continue to be the active force of office- 3 Years NA NA area absorption. Marsh, the world’s leading risk and insurance services firm, * Rental and capital values are based on GFA has obtained approval from the China Insurance Regulatory Commission to set up branches in Chengdu. In terms of supply, the leasable areas from the two 1Q08 new supply this year will be limited as these buildings are strata-titled and the majority of space will be occupied by owners. With huge demand against limited Vacancy Rate 24.9% supply, we expect the rental and capital values of Chengdu Grade A offices to Net Rent RMB 1,192 psm pa continue rising. However, old Grade A buildings may negatively affect the overall Capital Value RMB 11,408 psm vacancy. Investment Yield 9.5% - 12.0%

12-Month Outlook

rental Capital Value Value

27 Chengdu: Retail

Demand With retail sales and urban disposable income recording average growth rates of 13.3% and 9.7%, respectively, since 2000, Chengdu’s retail sector has been robust. While the majority of retail properties were targeted at mid-range consumers, the city also became home for many luxury brands such as Louis Vuitton and Dior, as well as upmarket department stores such as Maison Mode and Isetan. In the cycle of a supply boom since 2004, Chengdu has seen generally decreasing vacancy rate with slight fluctuations when new supply enters the market. With an average vacancy rate of 18.82% from 2005 to 2007, the overall vacancy fell 10.8% y-o-y to 11.3% in 1Q08. With no new supply coming into the market, take-up is relatively small compared with that in 4Q07, when 413,000 sqm was delivered. Of the 5,383 sqm of net absorption in 1Q08, F&B operators were particularly active. Talk, which was established by Maison Mode, is located on the fifth floor of Maison Mode Tianyi Store. It took up 1,300 sqm of space in the store and is regarded as the only high-end restaurant located in the high-end retail property. Little Swan, a hotpot chain from Chongqing, occupied 1,000 sqm in Fortune Centre.

Supply Currently, there are three major retail precincts in Chengdu. Chunxi Road and Yanshikou in the city centre and Luomashi in the north-west of downtown Chengdu are the most popular retail destinations. The Chengdu prime retail market boom started in 2004, following the development of a number of shopping malls. Currently, the city has 19 department stores and 11 shopping malls, with a total stock of 1,422,300 sqm. No new supply came into the market this quarter. The tight supply situation is expected to continue throughout 2008. The only new supply will be the 150,000- sqm E-go shopping mall, which is expected to enter the market at year-end. E-go is located in Yanshikou and will cater to youth fashion and will target the mass segment.

Asset Performance Rentals for prime retail space in Chengdu continue to grow, with a healthy pace of growth of around 3.4% q-o-q over the past three years. Rentals slightly rose by 2.77% to RMB 378 per sqm per month in 1Q08. Growth Rental Value Capital Value q-o-q 2.8% 3.5% As Chunxi Road and Yanshikou are established prime retail precincts, rents in these two areas have always been the highest. Top properties in core locations 1 Year 6.2% 23.8% continued to command high rentals, especially as there was no new supply in 3 Years NA NA these areas in the near future. However, rents of strata-titled properties even in * Rental and capital values are based on GFA

some traditional retail precincts like Luomashi decreased to attract tenants and lower vacancy rate. 1Q08 Vacancy Rate 11.3% 12-Month Outlook Net Rent RMB 4,538 psm pa The year 2008 is anticipated to be uneventful for the prime retail market as there Capital Value RMB 59,215 psm will be no large supply in the market. Nevertheless, lured by the fast-growing Investment Yield 7.7% economy and rising disposable income in Chengdu, retailers, especially F&B and recreational operators, will more actively seek retail space to tap the potential of the market. Meanwhile, demand from foreign banks that are actively seeking 12-Month Outlook prime street-front shops, along with the tight supply in 2008, may drive up the rental Capital rental level. Value Value

28 Chengdu: Industrial – Business Parks

Demand Demand for business park space continued to be very strong in 1Q08, with a total take-up of 40,461 sqm and vacancy rate declining from 11% to 6.5%. Chengdu High-Tech Development Zone (CDHT) South Zone performed the best, with a total take-up of 29,735 sqm, accounting for 73.5% of the whole market. According to the CDHT government’s plan, the New South area, where CDHT South Zone is located, has developed from being ‘the sub-centre’ to ‘the new business centre’ of Chengdu. This shift requires a more diversified industry structure, such as real estate and financial services. For instance, Hutchison Whampoa Properties leased 450 sqm in South Chengdu High-Tech Plaza (phase II) in 1Q08. Vacancy rate in other districts saw slight decline ranging from 2% to 8%, mainly boosted by state-owned enterprises (SOEs) and private companies in a broad-based industry. The main sales-and-lease-back transactions included: > Oracle (Chengdu) Solutions Centre leasing 2,800 sqm in Icon Hi-Tech International Plaza (D);

> a large state-owned company acquiring 15,000 sqm in Tianfu Creative Garden;

> Wuhou Agriculture Investment Company purchasing 800 sqm in Dcosi in Wuhou National Science Park; and

> Neptune Group Ltd (a Hong Kong-based electrical equipment and supplies company) acquiring 1,000 sqm in Icon Hi-Tech International Plaza (D).

Supply

Only 3,400 sqm of new supply in Wuhou National Science Park entered the Average Effective Rental market in 1Q08. South Chengdu High-Tech Plaza phase II (19,295 sqm) and (RMB per sqm per annum) Redstar 35 (17,000 sqm), which were scheduled for completion this quarter,

Zone 1Q08 • LaSalle Lang Jones postponed their delivery date again. By end-2008, a large supply of 554,037 Chengdu Hi-Tech Industrial 417 sqm will be delivered to the market, 5.9 times higher than that in 2007. CDHT Development Zone will provide 378,437 sqm of space, accounting for 68.3% of the total. Private Jinjiang Industrial Zone 374 companies were encouraged to develop business parks. In addition, some Qingyang Concentrated 340 Industrial Development Zone companies from other provinces also showed interests in business park Digest Property Pacific Asia investment. For example, Sichuan Duoyuan Real Estate from Zhejiang Province Chengdu Cross-Straits 215 has invested in International Fortune Park in Longtan City Industry Zone Technological Industry Park of Chengdu, which will be completed in October 2008. The park is targeting Wuhou National Science Park 261 small and medium enterprises (SMEs), which are mainly engaged in high-tech Jinniu Concentrated Industrial 306 industries. Development Zone

• • Asset Performance Average Capital Value 2008 Quarter First (RMB per sqm) The effective rentals grew by 3% q-o-q from RMB 310 to RMB 318 per sqm per Zone 1Q08 annum in 1Q08. The rise in rentals was mainly attributed to the strong demand Chengdu Hi-Tech Industrial 6,067 in CDHT. Rentals in Chengdu South High-Tech Plaza rose from RMB 480 per Development Zone sqm per annum to RMB 528 per sqm per annum due to the shortage of available Jinjiang Industrial Zone 4,000 space in CDHT. The average capital value rose 3.88% q-o-q to RMB 4,524 per Qingyang Concentrated 5,000 sqm because of the huge demand in all districts. Owing to the faster growth Industrial Development Zone of capital value, market yield witnessed an increase to 8.56%, 2.85% higher Chengdu Cross-Straits 2,500 compared with that in 4Q07. Technological Industry Park Wuhou National Science Park 4,080 12-Month Outlook Jinniu Concentrated Industrial 5,500 Development Zone Despite the large supply in 2008, future projects in the next 12 months are unlikely to have a negative impact on the vacancy rate. This is because Tianfu Software Park phase II will account for 46% of the overall supply in 2008 and it 12-Month Outlook mainly targets large-scale companies that need large space. Some projects that have already started pre-leasing registered very high occupancy rates. With the rental Capital good performance of the sales and leasing segments, we anticipate that sales Value Value prices and rentals will continue to rise gradually in the next 12 months. 29 Chengdu: Industrial – Manufacturing

Demand The first quarter of 2008 saw a take-up of 74,200 sqm, most of which was contributed by Chengdu Cross-Straits Technological Industry Park (CNSTP) and Longtan City Industry Zone of Chengdu (in Chenghua district). Two properties, Huayin Industrial Port phase I and Chengdu Cross-Strait SMEs Science- Technology Park (part of phase II) in CNSTP, which were delivered to the market at end-2007, both recorded high occupancy rate of 75%. Small-sized and medium-sized enterprises (SMEs) were quite active in space absorption. After the issuance of a new regulation that stipulated that all land plots for industrial use must be transacted through public auction, more SMEs that are lacking in capital were forced to lease standard factories instead of setting up their own. Standard manufacturing in Chengdu Export Processing Zone, which is located in Chengdu High-Tech Development Zone (West), attracted foreign companies, owing to its high-quality and favourable policies such as VAT and consumption tax exemptions. For instance, Japanese invested company Sumico (a heavy machinery manufacturer) leased standard factories of 10,000 sqm. In addition, Fiberxon, an American-owned optical telecommunications company, leased 13,000 sqm in Chengdu Export Processing Zone.

Supply A total of 92,586 sqm of new supply was delivered to the market in 4Q07-1Q08. Average Effective Rental CNSTP and Longtan City Industry Zone of Chengdu offered new supply of (RMB per sqm per annum) 60,586 sqm and 32,000 sqm, respectively. Some companies from other provinces Zone 1Q08 also invested in manufacturing in Chengdu. For example, Huayin Group from Chengdu Hi-Tech Industrial 189 Zhejiang Province invested in Huayin Industrial Port (40,586 sqm). By end-2008, Development Zone CNSTP will offer new supply of 120,000 sqm, which mainly target SMEs from Chengdu Economic and 150 food, medicine, mechanical, electronic, light industry etc. Technology Development Zone Chengdu Cross-Straits 113 Asset Performance Technological Industry Park Qingyang Concentrated 170 The overall rental rose 4.4% from RMB 145 to RMB 151 per sqm per annum Industrial Development Zone compared with that in 3Q07. Areas such as Qingyang Mould Park saw a Chengdu Modern Industry Port 143 noticeable rental rise from RMB 144 per sqm per annum to RMB 180 per sqm Longtan City Industrial Zone of 143 per annum, owing to their good investment environment and location. In terms Chengdu of capital value, there is only one project—Qingyang Mould Park—that is currently available for sale. Prices of space in the project reached RMB 2,500 per sqm, 8.7% higher than that in 3Q07. Average Capital Value (RMB per sqm) 12-Month Outlook Zone 1Q08 Chengdu Hi-Tech Industrial 450 In 2007, the value-added industrial output of Chengdu rose 22.3% y-o-y, Development Zone contributing to 49% of the economy’s growth rate compared with 47.6% in 2006. Chengdu Economic and 405 Driven by the robust economy, an increasing number of private companies are Technology Development Zone beginning to invest in manufacturing and are building standard factories in Chengdu Cross-Straits 180 industrial districts such as Wenjiang and Pixian County. All projects that will be Technological Industry Park completed in 2008 involve investment from local companies. SMEs from food Qingyang Concentrated 525 manufacturing, machinery, medicine, high technology and biotechnology will Industrial Development Zone continue to be the major drivers of demand. As such, we expect both rentals and Chengdu Modern Industry Port 180 capital value to remain on the rise in the next 12 months. Longtan City Industrial Zone of 480 Chengdu

12-Month Outlook

rental Capital 30 Value Value Guangzhou: Grade A Office

Demand Following the strong demand level during 2007—the highest annual absorption since 2000—1Q08 continued to see substantial demand. Despite a potential US recession stemming from the sub-prime mortgage crisis, its impact on the expansion of foreign banking and financial institutions in Guangzhou was so far limited. This is due to the fast growth business strategies of financial companies in Guangdong Province and South China. A lot of foreign banks continued to expand considerable office space in newly completed Grade A premises in the Tianhe CBD and Zhujiang New Town. Both expansion and relocation cases for foreign banks over 1Q08 included Standard Chartered (4,000 sqm) and Korea Development Bank (1,000 sqm) at International Finance Place (IFP) in Zhujiang New Town. Among the absorbed office space of 64,099 sqm in 1Q08, demand is boosted by the newer Grade A office buildings in the Tianhe CBD and Zhujiang New Town, especially those properties with higher quality that were completed in 2007, such as IFP, China Shine Plaza and Teem Tower. In addition, the completion of China International Center in 1Q08 raised the absorption rate in the Dongshan sub-market, the first time since the relocation trend moving from Dongshan to (including Tianhe CBD and Zhujiang New Town) took place in the past two years.

Supply Guangzhou saw 137,000 sqm of new supply coming online throughout 1Q08, bringing the total office stock to reach 2,024,542 sqm. The 120,000-sqm China International Center was the only new supply that was completed after the completion in 2005 of Guangdong Telecom Plaza in Dongshan, the traditional precinct in Guangzhou, and there will be a lack of future supply in the next few • LaSalle Lang Jones years as well. Single-ownership buildings in the new supply in 2008 are still absent. With the exception of 25% of office space that was held by landlord for lease, the remaining space in China International Center and another new completion in the Tianhe CBD— phase II (17,000 sqm)—were sold strata-titled. Digest Property Pacific Asia Overall vacancy rate rose 1.9% q-o-q to 27.1% in 1Q08, as a result of continuous new completions entering the market. In view of the sustained demand, vacancy For 2008, take-up, completions and vacancy rate rate in Tianhe district fell from 27.9% in 4Q07 to 25.7% during 1Q08. are YTD figures. Future supply is for the full year. Growth Rental Value Capital Value Asset Performance q-o-q -0.4% 1.6%

• • Rentals continued to be stagnant due to sufficient new supply and high vacancy 1 Year -0.7% 9.8% 2008 Quarter First levels in the range of 20–30% over the past four quarters. Overall rental edged 3 Years 12.0% 32.9% down 0.4% q-o-q throughout 1Q08. With the exception of Tianhe district, * Rental and Capital Values are based on NFA where a slight increase was registered, rents in other sub-markets saw marginal ** Revision of property basket in 3Q07 decreases during the quarter. 1Q08 The investment market was stable on the back of tightening monetary policy and limited availability of supply for sale. Overall capital value grew by 1.6% Vacancy Rate 27.1% compared with in the previous quarter. In 1Q08, GZI REIT acquired Yue Xiu Neo Net Effective Rent RMB 168 psm pm Metropolis Plaza, a non-Grade A office in , for RMB 685 million Capital Value RMB 24,493 psm and added the property into its portfolio. Investment Yield 7.8% - 9.4%

12-Month Outlook 12-Month Outlook Given the significant supply stream in Guangzhou, coupled with the slow rental Capital absorption rate in some new supply, more concerns on demand will be brought Value Value up in the future. Nevertheless, increasing demand from domestic companies and a very moderate upcoming supply forecast over the next 12 months are likely to lower the overall vacancy level in 2008. As such, there remains a relatively stable 31 projection for rents in the near future. Guangzhou: Retail

Demand Despite the depressive real estate market in Guangzhou, retail sales of consumer goods maintained a high growth. For the first two months, total retail sales stood at RMB 50.2 billion, recording a 15% growth over the same period last year. During the seven-day Chinese New Year Holiday, sales of 12 major retailers in Guangzhou amounted to RMB 0.452 billion, marking an unprecedented y-o-y growth of 40.7%. Among these retailers, Friendship Store, Grandbuy, TeeMall, Trust Mart and Gome outperformed the total average. Cosmetics, luxury goods, high-end appliances and jewellery are still the favourite goods for consumers. Leasing transactions reported during 1Q08 include the following: > Salvatore Ferragamo, an Italian fashion brand, leased 200 sqm on the ground floor of La Perle, its first shop in Guangzhou; > Burberry expanded in La Perle despite already opening two shops in the shopping centre and the neighbouring Friendship Store; > Cavalli, an Italian fashion brand for the young, rented a store on the second floor of La Perle, making its first appearance in the Guangzhou market; > Orrefors, a Swedish crystal brand, leased a store on the ground floor of TeeMall, and it is scheduled to open in May. With the debut of more international brands in Guanghzou, another department store named Meidong Department Store will reportedly open in 2009 in Nonglin Road—the city’s famous shopping area where Wangfujin Department Store is also located. With a planned retail GFA of 40,000 sqm, Meidong Department Store is positioned as a high-end department store, which will have a tenant mix similar to that of La Perle. Carrefour signed a strategic partnership with Grandbuy Co Ltd, a leading local retailer in Guangzhou. Their co-operation will focus on retail property development in Guangdong Province and in the further southern China area.

Supply No new supply was witnessed in 1Q08 despite strong market demand for retail properties. The majority of the 195,500 sqm of retail space is scheduled to enter the market in 4Q08. As such, it is expected that fierce competition for prime retail stock will be seen and more international brands will make their debut in Guangzhou.

Asset Performance Growth Rental Value Capital Value Owing to tight supply, prime retail properties in the Tianhe CBD and Huanshi q-o-q 5.7% NA Road emerged as the first choice for new brands in the Guangzhou market. 1 Year 14.0% NA Average rental for prime shopping malls recorded a q-o-q growth of 5.7% in 3 Years NA NA 1Q08, reaching RMB 554 per sqm per month. Prime malls in the Tianhe CBD and * Rental values is based on GFA Huanshi Road are making adjustments of their tenants and have attracted more international brands. 1Q08 12-Month Outlook Vacancy Rate NA Lured by rapid economic growth and escalated consumption structure, more Net Effective Rent RMB 554 psm pm international brands, especially luxury brands, are eager to make a foothold or Capital Value NA expand their brand influence in the local market. Since most of the scheduled Investment Yield NA supply will come in late-2008, we are optimistic about rental growth in the local market. 12-Month Outlook

rental Capital na Value Value

32 Guangzhou: Industrial – Business Parks

Demand The economic growth of business parks in Guangzhou continued to be robust in 2007. The total GDP of Guangzhou Development District (GDD) reached RMB 94.8 billion in 2007—the fourth consecutive year that it topped all national development districts. GDD’s contracted FDI exceeded USD 2 billion for the first time and was recorded at USD 2.247 billion in 2007, a y-o-y growth of 23.06%. Detailed examples of FDI in GDD are as follows: > Nippon Express, the biggest logistics company in the Asia-Australia region and a Fortune 500 company, opened its multi-function logistics centre in Yonghe Economic Zone, which will mainly provide logistics service for automobile and related products. So far, the number of Fortune 500 companies in GDD reached 100. > Vasto, a world-famous luxury brand from Italy, rented a 9,000-sqm office in the comprehensive research and incubator area in Guangzhou Science City to house its Chinese headquarters. The research and incubator area includes a group of buildings for offices, R&D, retail, finance, entertainment and other purposes and is planned to be the future administration and service centre of Guangzhou Science City. Part of the area rented by Vasto is located on the first floors of two office buildings in Group A Buildings and will be used for product exhibition. > Guangzhou Steel Trading Center, the biggest and most diversified electronic steel trade market of Guangzhou, started operation in Guangzhou Science City. It covers a site area of 50,000 sqm and offers six platforms including trading, information and financial pledge services. It aims to develop into the biggest trade market in China in five years.

Supply In 1Q08, the biggest supply of offices in business parks came from the comprehensive research and incubator area in Guangzhou Science City. With a total construction area of 435,600 sqm, the area comprises three building clusters with different functions. Group A, totalling 201,100 sqm, consists of two buildings for retail and entertainment and four office buildings. Meanwhile, • LaSalle Lang Jones Group B and C with a total GFA of 234,500 sqm, are built for research and business incubators. According to Investment Promotion Bureau of GDD, exterior finish for these offices was completed this quarter, and the buildings will be operational in early 2Q08. On the other hand, it will take some time for the retail and entertainment buildings to open due to leasing difficulties. Digest Property Pacific Asia

Asset Performance Overall average rentals remained stable in 1Q08, with Science City and Tianhe Software Park recording slight changes in their rental rates. Average rentals Growth Rental Value Capital Value edged up 1.55% over that in 4Q07. Rentals for industrial offices ranged between q-o-q 1.5% NA

RMB 20 and RMB 95 per sqm per month (gross), with Tianhe Software Park • First Quarter 2008 Quarter First commanding the highest rents among all the business parks. 1 Year 6.5% NA 3 Years NA NA 12-Month Outlook

After being stable for a long time, the surge in property prices finally affected Average Effective Rental rents of business park offices inside the urban area. We believe that this rental (RMB per sqm per annum) increase is supported by limited stock and will remain stable in the future. Zone 1Q08 Meanwhile, it will take a long time for the market to absorb the 300,000 sqm of Science City 342 new supply in GDD, and rentals may experience a slight decrease. For the overall Tianhe Software Park 763 market, we expect rentals to stay stable in 2008. Haizhu & Panyu Area 558

12-Month Outlook

rental Capital na Value Value

33 Shanghai: Office

Demand Driven by strong expansion-driven demand, overall vacancy in the Shanghai office market remained extremely low at 1.66% in 1Q08. The decentralisation of large downtown tenants freed up substantial space in established downtown buildings, only to be quickly snapped up by service-sector tenants that are expanding. As a result, this quarter saw active pre-leasing of upcoming buildings along both sides of the Huangpu River. New space commitments are still designed to have ample space available for headcount growth. Park Place in Puxi is already 70% pre-leased and will not be handed over until 2Q08. Mirae Asset Tower in Pudong, which is scheduled for completion in 3Q08, also reached over 40% pre-commitment. The negative impact of the US sub-prime mortgage crisis on , Shanghai’s financial district, has been very limited.

Supply Two new projects in the central Lujiazui area in Pudong— (73,461 sqm) and Standard Chartered Tower (45,000 sqm)—were completed in 1Q08. Standard Chartered Bank occupies a large portion of the latter for its own use. In Puxi, Plaza 336 was completed, adding 29,154 sqm to the market. Eight additional Grade A offices are in the pipeline for 2008, with those in Pudong alone contributing a total of 544,773 sqm. Meanwhile, two new major projects along Nanjing West Road—Park Place and The Exchange—will be completed in Puxi. This will add a much-needed space of 153,000 sqm to the market.

Asset Performance On the back of robust demand, overall rents rose to RMB 9.10 per sqm per day in 1Q08, up 3.1% q-o-q. Rents in the core CBD area, the focus of many service- sector tenants, maintained a slight premium and showed hikes from RMB 9.70 per sqm per day to RMB 10.08 per sqm per day. Furthermore, several landlords of office buildings in Puxi such as The Headquarters Building and 1 Corporate Avenue were asking higher rents for the limited remaining space in their properties. Shanghai Industry Investment Group acquired Wan Tai Building, an office and For 2008, take-up, completions and vacancy rate retail complex located near Jing’an Temple, from China Enterprises for RMB 870 are YTD figures. Future supply is for the full year. million or RMB 30,313 per sqm of GFA. This was the only notable en bloc sales transaction this quarter. Growth Rental Value Capital Value q-o-q 3.1% 3.0% 12-Month Outlook 1 Year 16.3% 22.2% We will continue to watch for any change in demand in the Lujiazui area, 3 Years 44.6% 56.1% especially among foreign banks. However, we expect that the landlord market * Rental and capital values are based on GFA in Pudong will remain unchanged until 3Q08, when 544,773 sqm of office space comes online. Therefore, rentals in Pudong are expected to rise to a plateau by 1Q08 mid-year. By end-2008, rental levels will be slightly higher than that at end- 2007. Rental growth in Puxi will continue at a solid pace throughout the next Vacancy Rate 1.7% 12 months. We will continue to watch whether Puxi occupiers that need large, Net Rent RMB 3,321 psm pa high-quality space will move to Pudong, although there is no obvious sign of this Capital Value RMB 42,619 psm trend picking up so far. Investment Yield 7.3% - 8.9%

12-Month Outlook

rental Capital Value Value

34 Shanghai: Office – Pudong

Demand Demand for office space in Pudong continued to be strong, as most service- sector occupiers pushed ahead with their robust expansion plans. Two newly completed offices witnessed high leasing activity. At the time of handover in 1Q08, pre-commitment in One Lujiazui and Standard Chartered Tower was 50% and 80%, respectively. Any negative impact stemming from the US sub-prime mortgage crisis was thus far limited, with the exception of the revised expansion plans for Citibank and UBS. Yamato Securities expanded and took 1,000 sqm in . Furthermore, we also saw many local financial firms that are quite aggressive in the Pudong market in 1Q08. For instance, Chang Xin Fund took 1,900 sqm in One Lujiazui, while Nanyang Commercial Bank leased 3,600 sqm in Mirae Asset Tower. Guo Tai Fund leased 4,000 sqm in SWFC, a key example of movement from Puxi to Pudong. Formerly located in Huangpu district’s Grade B Gang Tai Building, the move also represents a swift flight to quality.

Supply Two new projects—One Lujiazui and Standard Chartered Tower—were completed in 1Q08, adding a total GFA of 118,461 sqm to the market. Partly due to unusually harsh construction weather throughout January and February, completions of several major projects were delayed. For instance, both the completions of SWFC and Mirae Asset Tower were delayed from 2Q08 to 3Q08. The first wave of the supply peak will occur in 2H08 in Pudong with six prominent buildings coming to the market, spaced out somewhat more evenly than previously expected. The completion of Golden Landmark was again postponed, and the building’s timeline remains unclear. Each new building in the market is also pursuing its own distinct leasing strategy. These three issues taken together will likely continue to dampen competition and rental Jones Lang LaSalle • • LaSalle Lang Jones undercutting in Lujiazui buildings.

Asset Performance As a result of strong demand and quite limited supply, rentals continued to rise in 1Q08. Average rentals rose by 3.21% q-o-q to RMB 9.82 per sqm per day. In Digest Property Pacific Asia the upcoming buildings, the large gap between asking and transaction rents, as mentioned in 4Q07, has started to decline. Furthermore, with better-quality For 2008, take-up, completions and vacancy rate office space added into the rental basket, Pudong’s average rent is not expected are YTD figures. Future supply is for the full year. to decline. While no notable en bloc transaction took place in the Pudong Grade A office market, Jasper Tower sold another two floors, totalling 3,974 sqm of Growth Rental Value Capital Value q-o-q 3.2% 3.2%

GFA, to a Jiangsu company for RMB 68,000 per sqm. The building had a strata • • title sale at only RMB 60,000 per sqm several months earlier. 1 Year 21.8% 29.3% 2008 Quarter First 3 Years 63.4% 71.2% Major Leasing Transactions * Rental and capital values are based on GFA > Chang Xin Fund took up 2,000 sqm in One Lujiazui; > Guo Tai Fund leased 4,000 sqm in SWFC; 1Q08 > Yamato Securities leased 1,000 sqm in Aurora Plaza; and Vacancy Rate 1.0% > Zhonghai Fund Management leased 3,000 sqm in One Lujiazui. Net Effective Rent RMB 3,586 psm pa Capital Value RMB 46,133 psm Investment Yield 7.5% - 8.2%

12-Month Outlook

rental Capital Value Value

35 Shanghai: Office – Puxi

Demand Demand in Puxi remained strong during 1Q08. Plaza 336, which was completed in 1Q08, ended the quarter with an 80% occupancy rate. Park Place, which is located near Jing’an Temple, achieved 70% pre-commitment, with an additional 20% nearly finalised. Large MNCs still showed aggressive demand for Grade A office space. For instance, EISAI China pre-leased 3,887 sqm in Park Place, while Inbev took 1,500 sqm in Shanghai Central Plaza. New space commitments are still designed to have ample space available for headcount growth. A few financial-sector tenants showed a preference for Puxi, which is previously assumed to be a Pudong-only phenomenon. For example, JP Morgan relocated from Pudong and pre-leased 5,375 sqm in Park Place. The decentralisation of large downtown tenants freed up substantial space in established downtown buildings, only to be quickly snapped up by service-sector tenants that are expanding. Agilent relocated from Raffles City to take up 6,000 sqm in Zhangjiang.

Supply Plaza 336 was the only new supply in 1Q08, adding 29,154 sqm of much-needed space to Puxi. Park Place and The Exchange are scheduled for completion in 2Q08 and 3Q08, respectively, providing an additional 153,000 sqm of space in total in the Puxi market. There are high hopes for The Exchange to benefit from the spill-over effect brought about by , as the two are within walking distance from each other. Although the current Grade A supply situation in Puxi is still tight, several renovation plans were seen among older buildings and value- added services were rolled out by landlords to face growing fierce competition from newer buildings and in order to achieve higher rentals. Westgate Tower is preparing a renovation in 2008 or 2009, and Plaza 66 already launched a shuttle- bus service to provide a convenient metro station link.

Asset Performance As a result of the strong demand and few supply options, rents remained on an upward trend in 1Q08. Average rentals in Puxi rose by 3.09% q-o-q to RMB 8.79 per sqm per day. We witnessed one major investment transaction in this quarter: Shanghai Industry Group purchased Wan Tai Building from China For 2008, take-up, completions and vacancy rate Enterprises for RMB 30,313 per sqm when the development is still in the process are YTD figures. Future supply is for the full year. of construction. This is the second time the building changed ownership. Growth Rental Value Capital Value Major Leasing Transactions q-o-q 3.1% 3.1% 1 Year 13.6% 19.1% > EISAI China pre-leased 3,887 sqm in Park Place; 3 Years 36.4% 49.8% > Inbev took up 1,500 sqm in Shanghai Central Plaza; * Rental and capital values are based on GFA > JP Morgan pre-leased 5,375 sqm in Park Place; and > NIS Group leased 1,000 sqm in .

1Q08 Vacancy Rate 2.0% Net Rent RMB 3,199 psm pa Capital Value RMB 41,112 psm Investment Yield 7.3% - 8.9%

12-Month Outlook

rental Capital Value Value

36 Shanghai: Retail

Demand Boosted by the Chinese New Year, total retail sales in Shanghai over the first two months of 2008 reached RMB 72.173 billion, up 17.7% y-o-y. In particular, the catering industry achieved sales of RMB 10.59 billion, up 21.5% y-o-y. Statistics show that China is now the third-largest luxury market in the world. This high expectation for the market lures international high-end retailers to expand in the country at a faster pace. In 1Q08, a 1,500-sqm jewellery and watch corridor opened in the basement of Plaza 66. The corridor comprises stores of 13 world-famous jewellery and watch brands, with some of the outlets being their first in China. These brands include Richard Mille, a high-end mechanical brand from Switzerland, and Chaumet, a luxury jewellery brand owned by LVMH Group. Overall, average vacancy rate declined moderately by 0.6 percentage points to a historical low of 3.1%.

Supply Dragon Gate Mall, a 36,000-sqm mall in Yu Garden with F&B as its main theme, opened for business in 1Q08. Another mall, which is called Metro Plaza—a mixed-use project with a total retail area of around 50,000 sqm—opened this quarter in Changning district. Current major tenants in the project are middle- end to high-end men’s wear shops, such as D’urban, Lubiam and Marco Azzali. Besides Metro Plaza, two other retail projects, Hongxin Plaza and Hongqiao International Business Centre, will also be opened soon. They will respectively provide 43,600 sqm and 25,000 sqm of retail space. The three malls are all located near the Loushanguan Road Station of metro line 2. A new retail cluster is taking shape around the transport hub.

Asset Performance • LaSalle Lang Jones On the back of strong demand, rents continue to rise at a stable pace in 1Q08. Average rent for prime ground-floor space in malls rose to USD 5.87 per sqm per day, up 3.99% q-o-q. Even F&B retailers, traditionally a retailer group

paying lower rentals than those in the fashion industry, have become ready to Digest Property Pacific Asia accept much higher rents. In some projects, F&B tenants are now generating comparable turnover to ground-floor fashion tenants. Leveraging on that, landlords can ask higher rents. Over the last two years, average rental for F&B retailers nearly doubled. Growth Rental Value Capital Value 12-Month Outlook q-o-q 4.0% 4.9%

• • In order to consolidate the domination of Nanjing Road (West) in the Shanghai 1 Year 11.6% 13.6% 2008 Quarter First retail market, the government made a new development plan to reposition some 3 Years 61.7% 82.1% projects and six branch streets along the road. Golden Eagle Department Store and Jiu Guang Department Store will undertake trade-mix upgrading in the next few months. Meanwhile, six mixed-use projects along Nanjing Road (West), with a total retail area of around 380,000 sqm, are under construction. All these 1Q08 projects are expected to help relieve the tightness of the market and create a Vacancy Rate 3.1% better retail atmosphere in the area. We expect that similar projects will be seen Net Rent RMB 15,882 psm pa in other prime retail areas, and competition among the areas will become fiercer. Capital Value RMB 137,120 psm Investment Yield 11.1%

12-Month Outlook

rental Capital Value Value

37 Shanghai: Luxury Residential

Demand The quarter started with a weak buying sentiment on the sales side due to the new government measure on housing mortgages, which was introduced in 4Q07. However, after the Chinese New Year, the luxury residential market in Shanghai witnessed a gradual pick-up in buying demand from overseas investors. This is evidenced by the active negotiations in the secondary market. Nevertheless, with no major new launches available in 1Q08, the primary sales market remained subdued. In contrast to the sales market, the luxury leasing market saw solid demand in 1Q08, driven by new expatriates coming to Shanghai. The increasing student enrolment at international schools in Shanghai indicates the rising number of senior expatriates coming to the city. As a result of the solid leasing demand from expatriates, Cascogne Apartment, a luxury serviced apartment project in Xuhui District, reached an occupancy rate of over 40% three months after its completion in December 2007.

Supply The sales market recorded no major project launching new units for pre-sale in 1Q08. Meanwhile, the leasing market saw 152 serviced apartment units that were opened for lease, with 116 units from Pinnacle Huashan in Changning district and 36 units from Cascogn Apartment in Xuhui District. However, in the sales market, several projects in the pipeline are expected to come online for pre-sale over the next 12 months. These include 474 units from Lakeville phase III, 60 units from Lanxin Apartment in Luwan District, 50 units from Prince Hills and 30 units from Central Residences II in Changning district. Meanwhile, Huashan Residence, a serviced apartment project in Jing’an District, will be opened in 2Q08, offering 43 units with sizes ranging from 310 to 450 sqm for lease.

Asset Performance On the back of solid leasing demand, average rents of luxury apartments stood at RMB 215.50 per sqm per month in 1Q08, up 1.2% q-o-q. Average capital values of luxury apartments in Shanghai continued to rise, although at a much slower rate of 0.8% q-o-q, driven by the continuous buying interest from wealthy locals as well as foreigners. In the residential investment market, institutional investors remained active although the government tightened control on foreign investment in China’s real estate market. A total of 105 units in Fortune Growth Rental Value Capital Value Residence in Lujiazui were sold to an undisclosed investor, with a registered q-o-q 1.2% 0.8% transaction price of RMB 28,000 per sqm. Meanwhile, Mirae Asset acquired 1 Year -0.5% 15.7% Shama Luxe at Xintiandi, a serviced apartment project in Luwan District, from Gateway Capital for a total consideration of over RMB 900 million. 3 Years 2.8% 6.4% * Rental and capital values are based on GFA 12-Month Outlook Potential home buyers, particularly from Hong Kong and Taiwan, remain 1Q08 optimistic over the future growth in housing prices of luxury apartments in Gross Rent RMB 2,586 psm pa downtown Shanghai. This is evidenced by a high level of purchase interest shown Capital Value RMB 34,525 psm in Lakeville phase III. The upward trend of capital values for luxury apartments Investment Yield 5.1% - 7.2% in Shanghai is anticipated to continue over the next 12 months. Given there is a significant amount of luxury serviced apartment units that are ready for the market in the next quarters, vacancy rates for luxury apartments are likely to be on the rise in spite of the increasing number of expatriates in Shanghai. 12-Month Outlook rental Capital Value Value

38 Shanghai: High-end Residential

Demand The rise in down payment for second-home buyers, coupled with the Chinese New Year festival, resulted in a low transaction volume in the mass housing market in 1Q08. The total transaction volume of new residential properties in 1Q08 in Shanghai dropped to 3.7 million sqm, down 37% q-o-q or 20% y-o-y. However, the high-end residential market in Shanghai continued to outperform the mass market. Buying demand remained solid this quarter. Home buyers were actively seeking to buy high-end residential properties in the secondary housing market due to the lack of new units available for sale in the primary market. In addition, after 174 units in Maison Des Artistes, which was developed by Hutchison Whampoa and is located in Changning district, were offered for pre-sale on 21 March, 47 units were sold by the end of March. Leasing demand for high-end apartments remained stable in 1Q08, as evidenced by the stable trend in vacancies for high-end apartments. It is worth mentioning that among the different areas, the Lujiazui area in Pudong District outperformed the average, with most leases being signed during the quarter. Vacancies for projects in the area such as Yanlord Garden and Shimao Riviera Garden dropped by 3–4% q-o-q in 1Q08. This was mainly attributed to the booming office market in the Lujiazui area.

Supply In 1Q08, 174 units from Maison Des Artistes in Changning district were the only major new supply in the high-end residential market. Major new completions this quarter include 169 units from Le Marquis in Xuhui District and 155 units from The Bund Side in Huangpu District. In the leasing market, Shama Xujiahui in Xuhui District, a serviced apartment project acquired by Morgan Stanley in

2006, was opened to the public, adding 217 units to the market. Looking forward, • LaSalle Lang Jones we expect to see more new supply of high-end apartments in terms of pre-sale. Projects that are anticipated to launch new units for sale in the next two quarters include Yongye Apartment phase II and Shanghai Dynasty in Luwan District, Maison Des Artistes in Changning District and Eight Park Avenue in Jing’an District. Digest Property Pacific Asia

Asset Performance On the back of solid leasing demand from expatriates, rental values for high- end serviced apartments rose by 0.62% q-o-q, reaching RMB 146.90 per sqm Growth Rental Value Capital Value per month in 1Q08. However, due to the increased supply from the secondary q-o-q -1.1% 0.2%

• •

market, rental values for high-end non-serviced apartments dropped slightly by 2008 Quarter First 1 Year -0.5% 14.1% 1.8% q-o-q to RMB 105.90 per sqm per month. In the secondary sales market, the majority of home sellers believe that the current market stagnation is not 3 Years 0.1% 1.0% likely to last long, and therefore they are not willing to lower their sales prices. As * Rental and capital values are based on GFA a result, capital values of high-end apartments remained almost unchanged this quarter at RMB 23,115 per sqm. 1Q08 Gross Rent RMB 1,394 psm pa 12-Month Outlook Capital Value RMB 23,115 psm With more new units available for sale in the primary market over the next Investment Yield 4.5% - 8.5% 12 months, it will be interesting to watch how well these new offerings will be accepted by the market. We expect buying demand in the primary and secondary sales markets to remain strong in 2008. The possibility of a decline in the sales prices of high-end apartments is believed to be remote in the next 12 months. 12-Month Outlook rental Capital Value Value

39 Shanghai: Industrial - Business Parks

Demand Demand for high-quality office space in Shanghai business parks remained strong during 1Q08, as MNCs continue to flow into the market. A growing number of downtown tenants are turning to business parks for large expansion rooms and lower rentals in these areas. Recently, Agilent relocated from Raffles City in Huangpu District to Zhangjiang, taking 6,000 sqm in the new Microports development. This quarter also saw some local companies being quite aggressive in leasing space in business parks. For example, 51.com, a domestic online recruitment company, expanded and leased 4,000 sqm in First Shanghai phase II. Location that offers easy access to mass transport links continues to be a key factor that drive demand. Microelectronics Port phase II, which is located near the Zhangjiang subway station, saw substantial pre-commitment of 70% only one year after its completion. The desire to be an owner-occupier remains quite strong. Kohler relocated its regional headquarters to Shibei Industrial Park, acquiring 12,000 sqm in the park.

Supply With the addition of City of Elite Blocks 6 and 7 in Jinqiao, about 20,000 sqm of space entered the market in 1Q08. Higher-grade offerings increasingly blurred the line between traditional decentralised office space and business parks. As a result, we are seeing pre-leasing, which was previously a characteristic of the office market, in many of the new projects under construction. Pre- commitments were also picking up in Capital of Leaders phase II in Zhangjiang. Six of the nine floors of Modern Services Complex Building B have been pre- leased in 1Q08. Small, stand-alone units continue to be popular, as shown in Gems Park and Shanghai Business Park.

Asset Performance Average Effective Rental (RMB per sqm per annum) With several new projects added to the business park property basket, vacancy Zone 1Q08 levels rose slightly to 11.1% in 1Q08. Rental levels are up 2.4% q-o-q, reaching Knowledge & Innovation 1,825 RMB 3.45 per sqm per day. Asking rents in excess of RMB 5 are appearing more Centres often in highly popular clusters around the Zhangjiang metro station. IBP 1,387 This quarter saw growing interest from investors in the business park sector. Zhangjiang 1,388 CapitaLand bought Modern Service Complex Building A (W16) in Caohejing Caohejing 1,131 before the project’s construction was completed. The pure office-use building Shibei 953 will be completed in 2Q08, with a total GFA of around 40,000 sqm. The Zizhu 730 transaction price of the investment has not been announced.

Average Capital Value 12-Month Outlook (RMB per sqm) Future demand is expected to remain robust, with steady, incremental Zone 1Q08 increases each month. However, plenty of new projects amounting to new IBP 19,000 supply exceeding 1 million sqm of GFA will come online in the market in 2008. Knowledge & Innovation 15,000 Centres Therefore, we expect more competition to emerge in the market as developers are becoming increasingly geared towards meeting the needs of tenants. For Caohejing 12,598 instance, Jin Qiao Business Park Blocks B, C and D and most parts of Pudong Zhangjiang 13,727 Software Park phase III will be offered as build-to-suit options. Shibei 8,810

12-Month Outlook

rental Capital Value Value

40 Shanghai: Industrial – Logistics

Demand Demand for high-quality warehouses remained strong in 1Q08. Local third-party logistics (3PLs) companies have started to make preparations for the coming 2010 World Expo. Such case was seen from Sinotrans, which leased 120,000 sqm of space in Pudong after being designated as the logistics provider for the expo. With an eye for future expansion, some manufacturing companies in Songjiang were seeking larger warehouse space, where their logistics operations could run closely to the production lines. Meanwhile, some manufactures were forced to relocate to higher-quality facilities after the warehouses they previously lease collapsed during the snowstorm in January and February.

Supply The quarter saw the completion of a warehouse in Qingpu, adding 150,000 sqm of space into the market. Some Japanese retailers have been showing strong interests in the project. Prologis acquired a 40,000-sqm manufacturing facility in Heqing, Pudong and started developing it into a standard warehouse. It is scheduled to be completed in 2Q08 after its interior upgrade and refurbishment.

Asset Performance Average rent in Shanghai was at RMB 1.23 per sqm per day, representing a stable 3.0% q-o-q growth. Due to the scarcity of developable land, logistics developers were looking for acquisition opportunities. Driven by this, 1Q08 witnessed another strong quarter for capital-value growth. Average capital value was at RMB 4,700 per sqm, up 1.86% q-o-q. Since the growth of capital value outpaced that of rentals, investment yield fell by 5 basis points to 8.85% in 1Q08. Jones Lang LaSalle • • LaSalle Lang Jones 12-Month Outlook Average Effective Rental In viewing future land supply shortage in Shanghai, international developers (RMB per sqm per annum) will accelerate their pace of acquiring land in neighbouring cities, where we have Zone 1Q08 seen a growing number of ongoing land transactions. In the leasing market, the Waigaoqiao 500 Lingang 402 need for upgrade will create another demand base for international-standard Digest Property Pacific Asia logistics facilities. Therefore, vacancy will remain low, and rental growth will not Baoshan 383 stop or even slow down. Songjiang 365 Pudong Airport 420 Northwest 442 Minhang 420

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Average Capital Value 2008 Quarter First (RMB per sqm) Zone 1Q08 Waigaoqiao 5,600 Baoshan 4,000 Northwest 4,800 Songjiang 3,900

12-Month Outlook

rental Capital Value Value

41 Shanghai: Industrial – Manufacturing

Demand Demand remained consistent in 1Q08. Hertz leased 3,000 sqm of space in Xinzhuang Industrial Park. Meanwhile, a German machinery manufacturer and a Swiss company respectively took up 2,500 sqm and 1,800 sqm of manufacturing space in Qingpu Industrial Park. At the same time, some factories in Jiading and Qingpu collapsed due to the snowy weather in January and February, which resulted in some urgent compulsory relocation needs.

Supply In 1Q08, two new projects were completed in Xinzhuang and Baoshan Industrial Park. The total new supply fell from 175,000 sqm in 4Q07 to 70,000 sqm in this quarter due to tightened land quota. In observing end-users’ strong needs for single-storey factories, developers have been building an increasing percentage of such facilities. Xinzhuang Industrial Park brought 45,000 sqm of space to the market, 44% of which were single-storey properties compared with only about 35% in 4Q07.

Asset Performance Average asking rentals rose to RMB 0.72 per sqm per day in 1Q08, up by 2% compared with in 4Q07. The growth was mainly attributed to Xinzhuang Industrial Park, where asking rentals rose to RMB 0.90 per sqm per day. Rents in other industrial parks remained almost unchanged. Average land value reached RMB 529 per sqm in 1Q08, up 2.2% q-o-q. Ufi Filters, a European auto-parts manufacturer, purchased 6,700 sqm of land in Qingpu Industrial Park for RMB 2.32 million.

12-Month Outlook Average Effective Rental Future supply tends to be tight since some industrial parks are trying to turn (RMB per sqm per annum) industrial-use land for commercial use. Such cases have been seen in Jinqiao Zone 1Q08 Industrial Park, Waigaoqiao and Jiading. The government of Jiading decided to Xinzhuang 329 relocate manufacturing space in Jiading Industrial Park from the south to the Songjiang 274 north and use the southern part for residential and commercial development Baoshan 292 in the future. Therefore, although Jiading district has set a strategy focusing on Nanhui 248 developing the automotive industry, we still expect that limited raw land will Jiading 219 be released to the market for auto manufacturers. Future competition in land Qingpu 245 acquisition in Jiading will be fierce, thus land prices will be driven up. Fengpu 219

Average Land Value (RMB per sqm) Zone 1Q08 Xinzhuang 750 Songjiang 465 Baoshan 450 Nanhui 420 Jiading 600 Qingpu 525 Fengpu 495

12-Month Outlook

rental Capital Value Value

42 Tianjin: Office

Demand Owing to the Chinese New Year, the Tianjin office market saw a slower pace of activity in 1Q08. Net absorption was only 1,269 sqm, resulting in a slight decline in vacancy from 27.2% in 4Q07 to 26.0% in this quarter. Almost all transactions occurred in the best building in town—The Exchange Tower 2. The service industry, namely professional services and finance corporations, were the key contributors. The Executive Centre, which is the first serviced-office operator in Tianjin, opened in The Exchange Tower 2 in March, occupying a whole floor of 1,409 sqm. MSD Pharmaceutical Company Ltd also leased 400 sqm in the same building to set up its representative office. Additionally, Overseas Chinese Banking Corporation Ltd (OCBC) relocated its Tianjin branch from Tianjin International Building to the Exchange Tower 2. Even though there were only a handful transactions, a number of tenants are aggressively looking for space in the city and are negotiating with landlords. The next quarter is expected to be more active.

Supply No Grade A project was delivered to the market during 1Q08, and this supply shortage is anticipated to continue throughout the year. The vacancy rate will further decrease until the completion of Tianjin Centre, a Grade B building, in early 2009. As the first serviced office in Tianjin, The Executive Centre is now offering space and service to clients that need instant and flexible occupation, especially those from the finance industry.

Asset Performance During 1Q08, asking rentals of Grade A properties experienced only mild fluctuation. As a result, effective rentals posted a 2.99% q-o-q growth, reaching • LaSalle Lang Jones RMB 141.03 per sqm per day, up from RMB 136.93 per sqm per day in 4Q07. The Exchange Tower 2, remains at a vantage point in Tianjin’s office market. Benefiting from the appreciation of quality office space, capital values reached RMB 17,528 per sqm in 1Q08. Asia Pacific Property Digest Property Pacific Asia

12-Month Outlook In the coming 12 months, only some potential Grade B supply will be delivered, For 2008, take-up, completions and vacancy rate which will help to ease the strong demand for quality office space to a certain are YTD figures. Future supply is for the full year. extent. More service-sector firms are coming into the city, while manufacturing Growth Rental Value Capital Value firms including Nokia, Murata, etc. are also actively expanding. We expect to q-o-q 3.0% 3.2%

• •

see the continuous set-up and expansion of foreign banks, taking advantage 2008 Quarter First 1 Year 11.5% 12.0% of the incentives of the master reform plan of Binhai New Area (BNA) and the establishment of the over-the-counter (OTC) market. In addition, qualified 3 Years -8.9% 20.0% financial corporations will be allowed to their launch pilot operation and * Rental and capital values are based on GFA financial product innovation in Tianjin.

1Q08 Vacancy Rate 26.0% Effective Rent RMB 1,692 psm pa Capital Value RMB 17,528 psm Investment Yield 9.7%

12-Month Outlook

rental Capital Value Value

43 Tianjin: Retail

Demand The first quarter of 2008 saw luxury brands actively open stores in several prime retail projects in Tianjin. Louis Vuitton opened its first store in the city in Friendship Department Store, covering 345 sqm of space. Bulgari also leased 124 sqm in the same retail property. After its renovation and upgrading, Friendship Department Store has successively attracted more than 20 global luxury brands. Fendi and Loewe opened their new stores in Hisense Plaza, another prominent high-end retail project in the city, occupying 178 sqm and 150 sqm respectively. Maison Mode leased 18,000 sqm in Magnetic International Shopping Mall to open its first outlet in Tianjin, offering brands like Chloé, Timberland, Nine West, etc. Before that, Maison Mode has already opened its first department store in Tianjin in International Plaza. The renovation of The Exchange Mall’s basement will be completed in June. Upon the basement’s reopening, the mall will offer a variety of new F&B brands to cater to the growing consumption demand.

Supply The only new supply in 1Q08 was the 25,700-sqm Phoenix Plaza, which was developed by Tianjin Modern Group. The developer has changed its leasing strategy, opting to lease the entire property to a single anchor tenant. As the project is situated in Hebei district, which is not a main retail sub-market, Phoenix Plaza was completed empty, pushing the overall vacancy rate up to 13.9%. No projects are in the pipeline through 2008, and we believe that the vacancy rate will be stable, while experiencing a mild decrease until the delivery of Tianjin Center in early 2009.

Asset Performance Traditionally, the first quarter of each year is the peak season due to the celebration of the New Year and Spring Festival. Thanks to the good sales momentum, rentals grew to RMB 431 per sqm per month in 1Q08, a rise of 5.26% q-o-q. Attractive sales turnover boosted wholly owned prime retail properties to command higher prices. Capital values grew by 2.5% compared with in 4Q07, reaching RMB 50,259 per sqm.

12-Month Outlook Growth Rental Value Capital Value In 2009, only two retail projects along Nanjing Road will enter the market. This q-o-q 5.3% 2.5% will lead to very limited new supply to be delivered before 2010. At present, a number of projects are undergoing tenant-mix adjustment and upgrading 1 Year 22.5% 9.1% to maximise their revenues as well as improve project image. Landlords are 3 Years 79.9% 61.8% showing preference for offering the best street-shop space to international brands that have excellent reputations.

1Q08 Vacancy Rate 13.9% Net Rent RMB 4,450 psm pa Capital Value RMB 50,259 psm Investment Yield 8.9%

12-Month Outlook

rental Capital Value Value

44 Tianjin: Industrial – Logistics

Demand The strong demand from 3PLs continues to drive take-up in Tianjin’s logistics market, with manufacturing corporations mainly absorbing large space. Aisan Electrical Motor occupied 600 sqm in TransWell Customs Supervision Warehouse, the only Customs supervision warehouse in the airport area. Hesheng Plastics recently leased 5,000 sqm in the newly completed ProLogis Park TEDA phase II. Jinji Logistics, the biggest 3PL provider for Samsung in China, pre-leased 17,000 sqm in ProLogis Park in Xiqing district, which is scheduled to be completed by early 2009. The overall vacancy rate rose to 27.75%, mainly because of the underperformance of some non-bonded projects.

Supply Two logistics projects were completed during 1Q08, delivering 92,558 sqm of quality warehouse space to the market. ProLogis Park TEDA phase II in TEDA and Tianjin Textile First Storage in Airport Industrial Park contributed 52,558 sqm and 40,000 sqm, respectively. This is just the prelude of the huge supply that will enter the market in 2008. A number of projects developed by international logistics players will be completed in the following quarters, and the airport and East Port will house most of the new supply.

Asset Performance Effective rental in 1Q08 reached RMB 0.89 per sqm per day. In addition, average rentals of most logistics properties are quite stable. However, ProLogis slightly lowered its asking rental to take up a larger share in the market. Capital values grew by 1.18% q-o-q, reaching RMB 3,419 per sqm. International investors are showing great interest in Tianjin’s logistics market, with the airport area getting the most attention in 1Q08. Recently, both Citi Property Investors and ProLogis • LaSalle Lang Jones signed agreements with Tianjin to promote their logistics business in the city. Additionally, the latter will set up its investment arm in Airport Industrial Park.

12-Month Outlook Asia Pacific Property Digest Property Pacific Asia Huge new supply is anticipated to be completed this year, leading to a supply peak and pushing vacancy rate significantly higher. This could be seen especially in some non-bonded projects that are facing stiff competition. We believe that the completion of a small portion of the new projects will be postponed to 2009. Nonetheless, Tianjin’s great growth potential – the central government’s goal Average Effective Rental to develop the city into an international logistics centre and the remarkable (RMB per sqm per annum)

Zone 1Q08 • progress Tianjin has made, is attracting more attention from international 2008 Quarter First developers and investors. For instance, Adidas AG decided to set up its Overall 325 international transshipment centre in Tianjin. Prior to this, Motorola Inc. and Toyota Motor Corporation have already set up their international logistics distribution centres in the city.

Average Capital Value (RMB per sqm) Zone 1Q08 Overall 3,419

12-Month Outlook

rental Capital Value Value

45 Taipei: Grade A Office

Demand The investment market’s appetite Demand for Grade A office space was strong prior to the March presidential for office stock grew stronger over election as it appears that some occupiers were intent on signing contracts to the quarter, but this increased circumvent the steep rental increases that were perceived to be in the offing. demand was met by a healthy The investment market’s appetite for office stock grew stronger over the quarter, boost to most vendors’ asking but this demand was met by a healthy boost to most vendors’ asking prices. prices. Supply Two owner-occupied Grade A office properties came on-stream during 1Q08, bringing an additional 13,622 ping (45,020 sqm) to the market. The 8,377-ping (27,686 sqm) AEGON Building is located along Jian Guo North Road in the Non-core CBD, while the 5,245-ping (17,335 sqm) Yuanta Core Pacific Securities building is situated in Dunhua South.

Asset Performance In recognition of the outcome of the recent presidential election, which has directly affected the commercial property market, we adjusted both our capital values and initial gross yields over the first quarter. While we are cognizant of the fact that there are no recent transactions to substantiate this movement, we are more concerned with providing an accurate depiction of what an investor could expect upon entering the market. Accordingly, we feel the change is justified and have attempted to place the said figures closer to what both vendors and purchasers have conveyed in recent meetings. In spite of this, we suspect that our adjustments are on the conservative side so we do not rule out further yield compression before rents begin to make up some ground on capital values. Although a number of prominent institutional landlords have stated their intention to significantly bolster their rent rolls, we have yet to see conclusive evidence that the market will accept this. While our assumptions are calling for strong rental growth going forward, it remains unclear what type of tenants will be willing to accept such increases. This is particularly the case with some attractive alternatives—primarily Neihu and Nangang—offering comparable building specifications on the city fringe, but at much more affordable rates.

For 2008, take-up, completions and vacancy rate 12-Month Outlook are YTD figures. Future supply is for the full year.

With the Grade A office market still providing a positive yield spread over debt, Growth Rental Value Capital Value we anticipate further cap rate compression over the next four quarters. This will q-o-q 1.3% 5.6% be further bolstered by the extremely strong sentiment felt among local players regarding the future of the Taipei office market. 1 Year 7.3% 19.0% 3 Years 14.1% 41.4% After discounting the excitement over recent political events, the fundamentals * Rental and capital values are based on GFA of the Grade A office market are still pointing to strong rental growth until mid-2009. Furthermore, depending on the pre-leasing progress of Walsin Lihwa Building—which represents the next Grade A space for lease—the market may 1Q08 continue to favour landlords even after the building comes to the market in 2009. Vacancy Rate 8.4% In keeping with the past, this rental growth will not be evenly distributed among Gross Rent NTD 2,512 per ping pm all four sub-markets, with Xinyi and Dunhua South as the beneficiaries. Capital Value NTD 628,000 per ping Investment Yield 4.8%

12-Month Outlook

rental Capital Value Value

46 Taipei: Office – Xinyi

Demand We saw little respite in the We saw little respite in the strong demand for Xinyi’s space over 1Q08, as strong demand for Xinyi’s space evidenced by the 3,269 ping (10,804 sqm) of new lease agreements that were over 1Q08, as evidenced by signed during the quarter. the 3,269 ping (10,804 sqm) of After three quarters of tepid take-up figures, Tower saw the re- new lease agreements that were emergence of strong demand for its space from occupiers, with deals concluded during 1Q08 amounting to 1,800 ping (6,000 sqm). Consequently, we anticipate signed during the quarter. that the massive tower’s occupancy will increase by roughly 4 percentage points in the near term. Exchange Square II, Taipei 101 Tower and President International Tower collectively accounted for almost all of Xinyi’s 2,663 ping (8,801 sqm) of absorption over 1Q08. As we have stated in the past, President International Tower is close to being fully leased and will continue to see its vacancy rate trend down as tenants complete their fit-outs and commence operations in the property.

Supply No new Grade A office stock was completed during the quarter. Although the sub-market’s skyline is dotted with construction cranes, not all of the projects that are under construction will be devoted entirely for office use. Our current estimates call for about 15,000 ping (49,500 sqm) of supply in 2009, followed by a similar figure in 2010. To put this into perspective, Xinyi has averaged a net absorption rate of about 18,000 ping (59,500 sqm) per annum over the preceding three years.

Asset Performance • LaSalle Lang Jones Xinyi’s average rents climbed a respectable 1.9% over 1Q08, marking a considerable 15.3% rise from a year ago. While the nearly 2% lift does not appear extraordinary in and of itself, we will add the caveat that the majority of landlords seem committed to seeing this growth gain momentum in the future. Asia Pacific Property Digest Property Pacific Asia Over 1Q08, we bumped up capital values to NTD 736,851 per office ping (NTD 222,950 per sqm) to bring them closer to where we feel they should be. While we have no concrete evidence to support this, we are confident that most investors For 2008, take-up, completions and vacancy rate would jump at acquiring an office property in Xinyi that provided them with an are YTD figures. Future supply is for the full year. initial investment yield of 4.7% (gross). The last en bloc office property to change Growth Rental Value Capital Value hands in Xinyi was Yageo Corp Building in 1Q07, which was transacted at close q-o-q 1.9% 6.3% to NTD 700,000 per office ping (NTD • First Quarter 2008 Quarter First 211,800 per sqm). 1 Year 15.3% 22.7% 3 Years 22.8% 36.7% Major Leasing Transactions * Rental and capital values are based on GFA > ING expanded into an additional 1,322 ping (4,369 sqm) in the Taipei 101 Tower; 1Q08 > Sisley signed on to take up 198 ping (654 sqm) Vacancy Rate 13.2% in the Taipei 101 Tower; Gross Rent NTD 2,886 per ping pm > The Boston Consulting Group (BCG) leased 129 Capital Value NTD 736,851 per ping ping (393 sqm) in the Taipei 101 Tower; and Investment Yield 4.7% > A local technology company committed to 266 ping (879 sqm) in Xin Ji building. 12-Month Outlook

rental Capital Value Value President International Tower

47 Taipei: Office – Dunhua North

Demand Over the last two quarters, 93% Although the Dunhua North sub-market recorded a drop of 2 percentage points of the district’s 4,200-ping in vacancy over 1Q08, it should not be misconstrued as demand that is evenly (13,900 sqm) net absorption dispersed throughout the district. To support this, it is worth noting that Shin Kong Min Sheng Building had 2,400 ping (7,900 sqm) of take-up, which is has come on the back of tenants greater than the entire district’s 2,000 ping (6,600 sqm). In other words, had moving into Shin Kong Min it not been for the absorption taking place in Shin Kong Min Sheng Building, Sheng Building. the sub-market would have seen its vacancy rate increase. Furthermore, in scrutinising the data over the last two quarters, 93% of the district’s 4,200-ping (13,900 sqm) net absorption has come on the back of tenants moving into this single property. Nonetheless, it is confirmation that a newer property in Dunhua North can still see strong demand for its space. Looking forward, there are two possible demand drivers in the works. One is the nearby Sungshan Airport hosting direct flights with China, and the other is the extension of the Brown (Neihu) MRT line. The latter will connect the area to Neihu Technology Park, although it is worth mentioning that Dunhua North does not have an MRT station at its epicentre.

Supply The next parcel of new supply that will come on-stream will be the refurbished 10,000-ping (33,000 sqm) Taipei Financial Center, which is slated for a 2010 completion date.

Asset Performance Over a three-year period, Dunhua North has exhibited the weakest rental growth among all the four sub-markets. Although it appears that demand for the area is still relatively strong, we have also seen that any attempt to increase rents by a substantial margin is met with the departure of tenants.

Major Leasing Transaction > Hewlett-Packard leased 1,500 ping (5,000 sqm) in Shin Kong Min Sheng Building.

Major Sales Transaction For 2008, take-up, completions and vacancy rate are YTD figures. Future supply is for the full year. > Precious Jade Construction purchased ten floors of Asiaworld Shopping Mall (five office Growth Rental Value Capital Value floors) from Asiaworld Group for NTD 3.72 q-o-q 0.8% 4.8% billion (USD 122 million). 1 Year 0.7% 13.7% 3 Years 2.0% 23.9% * Rental and capital values are based on GFA

Asiaworld 1Q08 Vacancy Rate 5.9% Gross Rent NTD 2,297 per ping pm Capital Value NTD 540,471 per ping Investment Yield 5.1%

12-Month Outlook

rental Capital Value Value

48 Taipei: Office – Dunhua South

Demand We anticipate that Dunhua Although there is a scarcity of Grade A space available for lease in Dunhua South, South’s average rents will the area consistently sees rental growth, underpinned by lease renewals from continue to see significant foreign and domestic financial companies. This strongly suggests that most growth on renewals. occupiers are content to ante up the sizeable rental increases to remain in the neighbourhood. Some notable occupiers that are poised to either expand their space requirements or take up vacant space in the sub-market include Deutsche Bank and BlackRock.

Supply The 5,200-ping (17,200 sqm) Yuanta Core Pacific Securities headquarters building received its occupancy permit in 4Q07. The 13-storey property came into the market 100% occupied by its owner. As such, it will only marginally affect our vacancy figures, but it will have no bearing on our rental statistics. The next building to come online in the sub-market will be the 13,600-ping (45,000 sqm) Chunghwa Telecom Building, slated for completion in 2009. Aside from the 15,000-ping (49,500 sqm) Walsin Lihwa Building in Xinyi, the Chunghwa Telecom Building will be the only other parcel of new supply in 2009. Consequently, we expect the property to become fully leased in a very short span, particularly given its location, which is very near Xinyi district.

Asset Performance The only other sub-market outside of Xinyi to register significant y-o-y rental growth at 5.9% was Dunhua South. Most of this rise came on the back of lease renewals, which is not surprising given that the area does not contain a large Jones Lang LaSalle • • LaSalle Lang Jones amount of vacant office space that is desirable to most occupiers. Going forward, we anticipate that Dunhua South’s average rents will continue to see significant growth on renewals, as the bottom of the last trough was recorded four to five years ago. This was a period when many occupiers signed lease agreements at a much lower rate, and they will now face steep increases to Digest Property Pacific Asia remain in their current location. It is worth noting that during the four quarters between 2Q04 and 1Q05, Dunhua South saw 14,000 ping (46,300 sqm) of take- For 2008, take-up, completions and vacancy rate up, representing about 17% of the sub-market’s leased space. are YTD figures. Future supply is for the full year.

In line with the adjustments we made to initial gross yields in other sub-markets, Growth Rental Value Capital Value we lowered Dunhua South’s cap rates by 20 basis points. This had the effect of q-o-q 1.3% 5.5% lifting capital values to NTD 618,500 per office ping (NTD 187,141 per sqm). The • First Quarter 2008 Quarter First most recent transaction for Grade A office space in the sub-market saw Cathay 1 Year 5.9% 15.3% Life Insurance increase its dominance 3 Years 11.8% 40.0% in the area by acquiring roughly 50% * Rental and capital values are based on GFA of Dun Nan Continental Building (CEC Dunnan) in 1Q07. At that time, Cathay 1Q08 Life paid roughly NTD 720,000 per office ping (NTD 217,851 per sqm), although it Vacancy Rate 4.2% is worth noting that the building is one Gross Rent NTD 2,474 per ping pm of the area’s premier properties. Capital Value NTD 618,500 per ping Investment Yield 4.8% Major Leasing Transactions > BlackRock leased 400 ping (1,322 sqm) in Dun 12-Month Outlook Nan Continental Building; and rental Capital > A local law firm signed for 400 ping (1,322 Value Value sqm) in Dun Nan Continental Building.

Chunghwa Telecom Building 49 Taipei: Office – Non-core CBD

Demand 1Q08 was a quarter that saw no There are a few large construction projects in the pipeline for the Non-core CBD. major lease agreements signed for However, it remains unclear whether they will translate into increased demand Grade A office space. for Grade A office space. Perhaps the most promising of the new projects is the Radium 9 development, which is situated across the street from the . The mixed-use, build-operate-transfer (BOT) 50-year leasehold project will come into the market in 4Q08, with all 800 residential units sold and the 6,000 ping (19,800 sqm) of office space used to house the Radium Life Tech Corp headquarters. In addition, the facility will offer 21,000 ping (69,400 sqm) of retail space, the five-star China Trust Hotel and a Warner Village Cinema, all of which are likely to be seen as desirable to office employees. Other future projects that should contribute towards invigorating the district include the Taipei Twin Towers—56-storey and 76-storey office buildings that are likely to incorporate retail and hotel amenities—and the redevelopment of land adjacent to Chiang Kai-shek Memorial Hall. All of this should be welcome news to landlords in the sub-market, as 1Q08 was a quarter that saw no major lease agreements signed for Grade A office space. Although there were no Grade A office properties to change hands over 1Q08, three smaller transactions took place over the period for an accumulative amount of NTD 901 million (USD 29.6 million).

Supply The 8,800-ping (29,000 sqm) AEGON Building (formerly Meifu Construction Building) received its occupancy permit in 4Q07. AEGON Taiwan will lease the entire building from Citadel (equity fund), who purchased it from Meifu Construction Corp in 3Q07. The next Grade A building slated for completion will be the 10,400-ping (34,400 sqm) CTCI. The property is aiming for a 3Q08 completion date and will enter the market 100% occupied as CTCI will use it as its headquarters.

Asset Performance As the only sub-market registering a contraction in y-o-y rental figures, the Non-core CBD has succeeded in differentiating itself from the other sub-markets For 2008, take-up, completions and vacancy rate as a Tier II market, which is most suitable to local SMEs. The premium between are YTD figures. Future supply is for the full year. the Non-core CBD and Xinyi has increased to 40%, while a similar comparison to Growth Rental Value Capital Value Dunhua South and Dunhua North equates to lease differences of 20% and 12%, q-o-q 0.5% 4.4% respectively. 1 Year -2.6% 10.8% 3 Years 4.7% 34.4% Major Leasing Transactions * Rental and capital values are based on GFA > TUV Rheinland expanded into an additional 235 ping (777 sqm) in Kuo Hua Life Insurance Building. 1Q08 Vacancy Rate 7.0% Gross Rent NTD 2,056 per ping pm Capital Value NTD 483,765 per ping Investment Yield 5.1%

12-Month Outlook

rental Capital Value Value

Aegon Building 50 Taipei: Industrial – Business Parks (Neihu)

Demand We anticipate further yield Demand for industrial office space in Neihu has tapered off, with the exception of compression in Neihu over the properties located near Reiguang Road. The artery, which bisects the Xihu sub- next 12 months as rents are market, serves as the main thoroughfare and represents the most sought-after section of the Neihu Technology Park. impeded by excessive supply and investors continue to bid up Our records indicate that very few lease agreements were signed over 1Q08, and the institutional landlords we have spoken with reported difficulty in sourcing prices based on what they feel may tenants for their vacant properties. transpire with regard to direct air links to the Mainland. Supply Supply has become a concern for some landlords, a few of whom have been struggling to fill their current holdings for an extended period of time. While some of our competitors have put the vacancy rate at less than 10%, we are of the opinion that the true figure is closer to 15%. This is the result of the large amount of property that is strata-titled among a variety of landlords.

Asset Performance Office rental growth in Neihu has been confined to the aforementioned properties along Reiguang Road and is most aptly characterised as modest. This is the consequence of Neihu still struggling to shake off the constraints off excessive supply, a problem which is further exacerbated by inconsistent demand. In spite of this, a number of investors continue to chase assets in Neihu, which has put upward pressure on capital values, driving them more than 30% compared with a year earlier. Jones Lang LaSalle • • LaSalle Lang Jones 12-Month Outlook The industrial property market will face two opposing forces going forward. On one hand, the sub-prime fallout may constrict demand for high-tech merchandises as well as the components needed to manufacture them, which are Asia Pacific Property Digest Property Pacific Asia produced by a number of Taiwan’s exporters. On the other hand, recent political events may stimulate demand for space and assets in Neihu, based on the expectation that the nearby Sungshan Airport will be one of the airports to host direct flights to mainland China. The implementation of such flights could see Neihu become a good location for high-tech companies to locate their regional headquarters.

• • We anticipate further yield compression in Neihu over the next 12 months as 2008 Quarter First rents are impeded by supply and investors continue to bid up prices based on Average Asking Rental NTD per ping per month what they feel may transpire with regard to direct air links to the Mainland. Zone 1Q08 However, the inception of MRT (subway) Line will alleviate some of the Neihu Technology Park NTD 1,480 downward pressure on yields, as rents in Xihu are buoyed once the system begins revenue service in mid-2009. Average Capital Value NTD per ping Zone 1Q08 Neihu Technology Park NTD 309,687

12-Month Outlook

rental Capital Value Value

51 About Jones Lang LaSalle Research Jones Lang LaSalle Research is a multi-disciplinary rates, investment yields, leasing and investment professional group with core competencies activity, and other significant trends and government in economics, real estate market analysis and policies relating to all sectors of the property market forecasting, locational analysis and investment including office, retail, residential, industrial and strategy. The group is able to draw on an extensive hotels. We deliver a range of global, regional range and depth of experience from the Firm’s and local publications as well as research-based network of offices, operating across more than consultancy services. 700 cities worldwide. Our aim is to provide high- www.research.joneslanglasalle.com level analytical research services to assist practical www.joneslanglasalle.com decision-making in all aspects of real estate. The Asia Pacific Research Group monitors rentals, capital values, demand and supply factors, vacancy

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