COLLIERS INTERNATIONAL MARKET INDICATORS CBD Office spring 2006 Record Net Absorption

181 William Street, Melbourne Pre-commitment According to the latest Property Council of Australia Dawson Waldron (8,800m²), AXA (28,700m²), Ericsson by IAG (27,100m²) and data (July 2006), the Melbourne CBD recorded a (10,000m²), Lend Lease (5,000m²), Australian Customs Blake Dawson Waldron (8,800m²). staggering net absorption figure in the last six Services (10,000m²) and National Foods (12,000m²). months of 173,121m², bringing the total absorption Forecast for the last twelve months to 213,159m². These are Further pre-commitments and speculative development the highest six and twelve month net absorption figures is expected to provide measured new supply over (6 months) for Melbourne since PCA records began in 1990. the next 36 months, but in the next twelve months the market will tighten significantly.

Overall Performance: ➔ Melbourne has now had solid and sustained net

Supply: ➔ absorption over the past three years totalling 465,000m². Incentives have generally reduced across precincts and office grades and are expected to continue to Tenant Demand: ➔ The data reveals the overall vacancy rate has fallen ➔ Vacancy: ➔/ from 8.3% in January to 7.5% in July. Vacancy in tighten for the remainder of 2006 resulting in increases

➔ Premium and A Grade properties decreased while B in effective rentals. Incentives: Grade vacancy increased slightly indicating a flight Investment activity has provided several significant

Effective Rents: ➔/ ➔ to quality from tenants in B Grade buildings to A and Premium Grade buildings. transactions during the last twelve months, including

Capital Values: ➔

➔ the sale of 321 Exhibition Street for $120 million and Yields: Most of the positive absorption in the first half of 2006 a 50% interest in for $285 million. occurred in A Grade with the completion of two new buildings, the Southern Cross East Tower and The Other recent sales included, 380 Lonsdale Street Key Facts: Urban Workshop, both of which have been occupied ($30.5 million), 399 Lonsdale Street ($30 million) • Overall vacancy rates by the State Government. and 380-390 LaTrobe Street, which sold for $88 decreased to 7.5% million. Yields have tightened a further 25 basis points Major pre-commitment deals in the last twelve months on average over the last 12 months and now average • Incentives reduced in included ANZ (83,000m²), IAG (27,100m²), Blake 6.25% - 7% for prime properties. Prime Grade market • New construction Melbourne CBD Office Market Indicators – Spring 2006 cycle underway Grade Stock Vacancy Average Average Average Average Average • Yields tightened (m2) Rate Net Face Incentive Outgoings Capital Yield 2 2 2 further by 25 points % Rent ($/m pa) (%) ($/m pa) Values ($/m ) (%) Total 3,584,627 7.5% Low High Range Low High Low High Premium 605,050 5.6% 315 485 10%-15% 113 5,000 7,000 6.25% 6.75% A Grade 1,379,988 6.9% 290 370 12%-18% 97 3,500 5,000 6.50% 7.00% B Grade 929,108 8.8% 230 255 15%-20% 82 2,250 3,200 7.00% 8.00% NB-1 Rentals are based on high rise and low rise net rents of a basket of buildings as at Q3 2006. NB-2 Incentive is rent free or fit-out equivalent as at Q3 2006. Source: Colliers International Research. RESEARCH M arket Indicators Report 1 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Economic Update

Global Economic Overview problem the economy is facing. The commodity boom Global economic activity remains strong overall, with has been the key impetus behind Australia’s economic global growth of 4.6% in 2005 forecast to continue at activity driving strong business investment, particularly a similar level of 4.7% in 2006 according to the ANZ in mining and related infrastructure, and providing a large Economic Outlook for the September Quarter 2006. increase in domestic income through high commodity Elevated commodity prices and tightening labour markets, prices and high terms of trade. however, have caused inflation to lift internationally. CPI headline inflation across the G7 countries has risen to Inflationary Pressures 2.7% in 2006, above the trend of 2.5%. Rising inflation is Continue to Build increasing the risk that interest rates will be raised in the Higher prices for energy, heavy commodities and base current tightening cycle. ANZ predicts the September metals have pushed up input costs for businesses. A quarter of 2006 heralds a synchronous cycle of interest sharp lift in output prices in the March quarter may rate rises across the major developed economies. indicate that cost pass-through is now taking place. The lift in core CPI inflation in the March quarter to Australian Economic Outlook 2.75% indicated that these rising costs are now being Developments in the global economy are being mirrored transferred into retail inflation. Inflation has lifted even domestically, resulting in a pick-up in core inflation and a more strongly over 3% during the June quarter of 2006 corresponding increase in interest rates in 2006. Growth which has propelled a hike in interest rates. has picked up from a period of softening in 2005 but is unlikely to exceed 3-3.25% in 2006 with the economy Interest Rates Rise and now facing capacity constraints. According to the ABS, quarterly GDP growth has slipped marginally since June Further Rise Pending 2005, down to 0.6% growth for the December 2005 quarter The Reserve Bank of Australia (RBA) responded to and the March 2006 quarter and 0.5% for the June 2006 emerging inflationary pressures in early May by lifting quarter. The Government has released an expansionary the cash rate 25 basis points to 5.75%. After a surge budget for 2006/07 with personal tax cuts and benefits in inflation during the June quarter, interest rates were payments to add 1.2% to household disposable income lifted again by a further 25 basis points to 6.00% in which is expected to drive consumer demand. Overall, August. If the current inflation pressure continues, though, the picture points to the fact that rate rises predictions are for a further rate rise before the end of and tax cuts aren’t addressing capacity which is the real the year. Australian Key Economic Indicators

GROSS DOMESTIC PRODUCT - TREND Percentage Change in GDP Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 0.7 0.8 0.7 0.6 0.6 0.5 Source: Australian Bureau of Statistics 2006

INTEREST RATES Oct-01 Dec-01 May-02 Jun-02 Nov-03 Dec-03 Mar-05 May-06 Aug-06 4.50% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00% Source: Reserve Bank of Australia 2006

CONSUMER PRICE INDEX All Groups - Percentage Changes (from corresponding quarter of previous year) Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Melbourne 1.7 2.3 2.0 2.1 3.1 2.7 2.8 3.9

Source: Australian Bureau of Statistics 2006

LABOUR FORCE Australian Job Growth Figures 2006 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 1,800 25,900 27,000 -3,200 56,000 52,000 50,700 23,400 Australian Unemployment Rate 2006 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 5.2% 5.2% 5.1% 5.1% 5.0% 4.9% 4.8% 4.8% Source: Australian Bureau of Statistics 2006

Market Indicators Report 2 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Employment Trends

VIC Employer’s Sentiment VIC Permanent Employment Expectations Rebounds (July - September 2006): By Industry

The Hudson Employment Expectations Report Professional Services Infomation Technolog Utilities provides quarterly findings on permanent employment Resources Construction/Property expectations amongst Australia’s employers. The report Transport Financial Services/Insurance delivers a key socio-economic indicator based on Government Telecommunications The Melbourne CBD Retail the premise that companies expecting to increase All Industries recorded positive Non profit or decrease their staffing levels reflects their likely Advertising/Marketing/Media net absorption of Healthcare (Govt) demand for office accommodation. Healthcare (Excl. Govt) 213,000m² (approx.) Wholesale Distribution Education in 12 months Tourism/Hospitality Hudson surveyed 7,614 employers across Australia for FMCG to July 2006 up from Manufacturing the September quarter 2006. They found employer 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 164,237m² (approx.) in 12 months sentiment remained healthy after a second quarterly Net Effect to July 2005. increase in employment expectations. Employers are expecting to increase their staffing levels in the July Source: Hudson Report Employment Expectations & HR Trends (July - September 2006) – September 06 quarter up 0.2 percentage points to +30.8%. All states and territories recorded positive net effects with increases shown in , South Melbourne CBD Net Absorption v Employment Expectations Australia and Queensland offset by declines in the ACT, Western Australia and New South Wales. 100,000 35.00 80,000 25.00 60,000 )

The information technology industry recorded the 15.00 40,000 highest level of employer sentiment nationally at 5.00 20,000

+45.4%, followed by the professional services Absorption m 0.00 0 Expectations (% Net

-5.00 ment industry with +45.3%. The telecommunications -20,000 oy

industry demonstrated the highest surge in sentiment, -40,000 -15.00 Empl

up 15.9% over the previous quarter to a net effect -60,000 -25.00

of +37.9%. l-01 l-02 l-03 l-04 l-05 Ju Ju Ju Ju Ju Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

Net Absorption m Employment Expectations (%) Employer sentiment in Victoria rebounded from two consecutive periods of decline in sentiment to a net Source: PCA, Hudson Report & Colliers International Research effect of +30.6%. In Victoria, the professional services industry recorded the highest level of optimism for the Information Technology sector, at a net positive employment growth over July to September ‘06 with effect of 49.8%. In contrast, the manufacturing sector a current net effect of +50% (up from +46% in the reflected the lowest level of employment sentiment previous quarter). There was a significant increase in with a current net effect of +10.5%.

Lowest National The labour force participation rate continues to grow, Unemployment Rate making for an extremely tight labour market and resultant pressures on labour costs. Upward pressure in Three Decades on wages in conjunction with rising world oil prices The national unemployment rate has declined will continue to put pressure on inflation in the since the beginning of 2006 when it was at 5.2% coming quarters and consequently, interest rates. and is now at its lowest rate in three decades Despite the recent surge in job growth numbers, at 4.8%. The ABS monthly job growth figures Hudson suggests employers nationally are in a for 2006 show national job growth soaring in consolidation phase with the majority more inclined recent months, 56,000, 52,000 and 50,700 new jobs to maintain their current staffing levels. It would per month for the months of May, June, and July seem that employers are now focused on developing respectively. These numbers are up significantly and retaining the talent in their current workforce, on average monthly new job figures over the past particularly in light of the current skills shortage in 12 months. the market.

Market Indicators Report 3 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Leasing Demand and Absorption Australian Company Profits Australian Company Profits v Net Absorption Australian company profits rose during the first half of 2005 but began to experience a downward trend from the third quarter of 2005. Since that time, company profits 200,000 30.00 25.00 are still positive but not as strong as early 2005. 150,000 20.00

15.00 Historical trends illustrate that strong company profits 100,000 10.00

fuel expansion and white-collar employment growth, 50,000 5.00

triggering base office demand and absorption, typically 0.00 0 six to twelve months after company profit growth. -5.00

-50,000 -10.00

Accelerated growth in company profit during 2004 & ul-00 ul-01 ul-02 ul-03 ul-04 ul-05 ul-06 J J J J J J J Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 2005 resulted in high net absorption during 2005 & Net Absorption m� % Change Aust Company Gross Profit 2006. Six-month absorption of 40,038m² in the last half of 2005 was followed by 173,121m² in the first Source: PCA, ABS & Colliers International Research six months of 2006. It is expected that absorption will remain positive for the remainder of the year 2006.

The Urban Workshop Positive White Collar Melbourne CBD White Collar Employment Growth Recently completed v Net Absorption 100% committed. Employment Growth Access Economics recorded a positive white-collar 250,000 10.00

employment growth rate during the 24-month period ) from July 2004 through to July 2006. 200,000 8.00 150,000 6.00 At its recent peak in July 2005, the growth rate reached 100,000 4.00 (12 months % Change

Absorption m 50,000 2.00

over 4%, but has since dropped back to just around ment Net oy 2.33% currently. With the national unemployment 0 0.00 rate continuing to decline to just 4.8% currently, -50,000 IT & T 2.00 WC Empl Other 9% Government the labour market is facing capacity limitations. -100,000 35% 10%4.00 ul-95 ul-96 ul-97 ul-98 ul-99 ul-00 ul-01 ul-02 ul-03 ul-04 ul-05 ul-06 This trend of declining growth rate is supported J J J J J J J J J J J J by Access Economics forecast for White collar Net Absorption m Whitecollar Employment % Change employment growth which is expected to drop to Source: Access Economics, PCA & Colliers International Research almost 0.5% by July 2007, but will still remain positive Legal period. The past7% ten years haveAdvertising, shown continual and start growing again thereafter. PR & Marketing employment growth with increases3% in white collar Statistics on white collar worker growth percentage employment in 18 out of 23 half year periods. change correlate with net absorption over a prolonged It is steady growth and real jobs.

Leasing Enquiry and Activity Enquiry Level The Melbourne CBD market has experienced very strong

leasing enquiry for the past three years. According Education & Training 1% to the Colliers International CORE database, current Government Legal Accounting, Finance Advertising, 9% 2% & Insurance PR & Marketing 28% leasing enquiries total 467,000m² (approximately). As 12% shown in the graph, accounting, finance & insurance accounted for 28% with property services at 21% followed Information Technology & Technology by Information technology & telecommunication at 13%

13%. Major enquiries in the market include Westpac Other Property (16,000m²), Victoria Police (55,000m²), IBM (23,000m²), 14% 21% Australia Post (25,000m²) and Primus (8,000m²). Source: CORE Database, Colliers International Research

Colliers International Research recently conducted an Survey Report 2006, which aims to assist building independent survey of 205 commercial office tenants owners and occupiers in understanding tenant demand located in the Australian CBD and metropolitan office and expectations for building requirements over the markets of Sydney, Melbourne and Brisbane. The purpose next five years. of the survey was to identify tenants expectations of the impact of drivers for change on their future Key outcomes from the tenant survey indicated office tenancy decisions. The findings of the survey are the importance of the attraction and retention revealed in the Colliers International Office Tenant of staff to tenants going forward. This factor was

Market Indicators Report 4 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006

identified by tenants as the second biggest cause The key differentiating building attributes which for relocation over the next five years after business tenants were seeking in the future were more growth. A building location in close proximity building amenities (eg. more common areas, cafes, to public transport and a building which offered retail, gyms, showers/change rooms, childcare etc.) high performing building services, in particular and notably building environmental performance, effective air conditioning, quick and efficient with tenants identifying this attribute as the area lifts and reliable and secure ICT were identified as where they predicted the second greatest level the most important building attributes sought of change in future building requirements, by tenants. after improved air conditioning. Supply New Construction Cycle Melbourne CBD Net Supply v Vacancy The Melbourne CBD has entered a new construction cycle with new developments required in the market 25.0

as limited supply is set to come on the market until 200,000 20.0 150,000 late 2007 / 2008. The most recent construction cycle 15.0 100,000 delivered 15 new projects - 13 of which are now 10.0 101 Collins Street, completed - totalling 470,000m². Ninety seven per cent 50,000 5.0 Melbourne of that space is now occupied or pre-committed. 0 0.0 -5 50% interest sold -50,000 -10.0 for $285 million. -100,000 According to the PCA, approximately 187,832m² -15.0

of new stock was added in the last six months -150,000 -20.0

including the two most recent developments - l-95 l-96 l-97 l-98 l-99 l-00 l-01 l-02 l-03 l-04 l-05 l-06 Ju Ju Ju Ju Ju Ju Ju Ju Ju Ju Ju Ju Southern Cross (72,000m²) and The Urban Workshop Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 (53,000m²) - both of which are now fully leased. The two remaining buildings to be completed by Source: PCA & Colliers International Research the end of 2006 are Council House 2 (9,373m²) and The Innovation building at Digital Harbour (15,500m²). Limited new supply in the short to medium term, in conjunction with declining vacancy and significant New supply to come to the market in 2007 will leasing transactions concluded in the last 12 months include 818 Bourke Street (21,000m²), Lend Lease is making it difficult for large (5,000m²+) occupiers to HQ at Docklands (10,000m²) and the AXA Centre at find suitable options and we do not see this situation Docklands (35,867m²). changing until new supply is delivered to the market.

Time Line - New Buildings Completed and Under Construction

2003 2004 2005 2006 18 Months 2007 2008+ 2 2 64,620m2 56,748m2 191,086m2 158,000m2 No New Supply Online 68,000m 172,500m 90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

, , , , , e, er, v 04 04 v v 04 v v 08 08 v v 07 v oods ow rkshop, Wo QV - Sensis - QV int - Jan 06 Jan - int ne Building, ne RACV Centre RACV oung Building, oung Po National F National Y vation Building vation eshwater Plac eshwater Street - Mar 05 Mar - Street Street - No - Street n Cross - Jun 06 Jun - Cross n Docklands - 2009 2009 - Docklands e Street - Dec 07 Dec - Street e Fr Docklands Dec 07 07 Dec Docklands ke , , ke Inno BHP Billiton T Billiton BHP robe Street - Sep 03 Sep - Street robe nst & & nst The Urban Urban The ANZ Victoria Victoria Er vation Building - Jul 06 Jul - Building vation William Street - Sep 08 08 Sep - Street William Souther Digital Harbour - Jul 04 Jul - Harbour Digital 700 Collins Street - No - Street Collins 700 City of Melbour of City Inno 50 Lonsdale Street - Jun 06 Jun - Street Lonsdale 50 501 Bour 501 737 Bour 737 181 181 8 Exhibition Street - Dec 05 05 Dec - Street Exhibition 8 eshwater Satge 2 - Sept 08 Sept - 2 Satge eshwater 750 Collins Street - No - Street Collins 750 818 Bourk 818 180 Lonsdale Street - Dec 03 Dec - Street Lonsdale 180 222 Lonsdale Street - No - Street Lonsdale 222 11 Exhibition Street - Mar 05 Mar - Street Exhibition 11 Fr 2 Southbank Boulevard - Jun 05 Jun - Boulevard Southbank 2 AXA, National @ Docklands - Jan 05 Jan - Docklands @ National 380-390 LaT 380-390 Lend Lease HQ, Lease Lend 218-242 Lt Collins Street - Jun 06 Jun - Street Collins Lt 218-242 Ericsson, Bendigo Bank, Bendigo

Source: Colliers International Research

Market Indicators Report 5 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Vacancy Melbourne CBD – Stock & Vacancy by Precinct & Grade

Precinct / Total Market Western Core Eastern Core / Civic Other Grade North East (including Docklands) Stock Vacancy Stock Vacancy Stock Vacancy Stock Vacancy Stock Vacancy (m²) Rate (m²) Rate (m²) Rate (m²) Rate (m²) Rate

Total - All 3,587,321 7.50% 1,514,450 9.20% 1,016,493 7.40% 382,856 1.60% 673,522 6.91% Grades 3,431,682 8.30% 1,512,150 10.90% 868,439 8.80% 395,715 6.20% 655,378 3.01% 605,050 5.60% 300,363 6.80% 239,278 5.59% 65,409 0.00% 0 0.00% Premium 605,050 8.70% 300,363 7.60% 239,278 12.48% 65,409 0.30% 0 0 1,379,988 6.90% 474,939 7.80% 558,224 9.68% 58,681 0.00% 291,471 1.36% A Grade 1,232,651 7.30% 472,972 10.30% 412,717 9.10% 58,818 0.00% 291,471 1.25% 931,802 8.70% 454,281 8.20% 124,001 2.49% 73,389 3.40% 276,804 13.60% B Grade 913,789 5.90% 451,417 7.70% 122,601 2.91% 73,389 5.30% 263,055 4.46% 670,481 8.70% 284,867 15.85% 94,990 4.94% 185,377 2.00% 105,247 4.57% C & D Grade 680,192 13.05% 287,398 20.24% 93,843 6.15% 198,099 10.38% 100,852 4.26%

380 - 390 La Trobe Street, NB-1. Other includes Docklands, Falstaff (North West ) and Spencer (West Fringe of CBD) PCA July 2006 Figures Melbourne NB-2. Secondary includes C & D Grade Stock. PCA January 2006 Figures Source: PCA & Colliers International Research

As mentioned on page 1 the latest PCA data shows Massive A Grade absorption of 142,230m² was the total vacancy rate has fallen from 8.3% to 7.5%, attributable to the completion of the Southern Cross with positive net absorption of 173,121m² recorded East Tower (78,000m²) and The Urban Workshop during the six months to July - the highest six months (62,225m²). net absorption on record. The B Grade market experienced an increase in Overall vacancy decreased for the CBD’s Premium vacancy during the first half of 2006 with the rate and A Grade stock in the first half of the year, but increasing from 5.9% to 8.7%. This reflects the increased in the B Grade market. The biggest decline upgrade in quality required by tenants and the flight in vacancy was recorded in Premium Grade buildings to quality being demonstrated across the market. with the vacancy rate dropping from 8.7% (Jan 2006) to 5.6% in July 2006. Apart from the introduction of the Southern Cross East Tower (78,000m²) and The Urban Workshop The Eastern core and North/ East precinct in particular, (62,225m²) to the Eastern and North Eastern Core saw the greatest decline in Premium grade vacancy - both of which are fully pre-committed - there from a precinct perspective during the first half has been very little new supply added to any of the of 2006, with the Premium Grade vacancy dropping CBD precincts in the last six months. The lack of from 12.48% to 5.59%. The A Grade vacancy new supply scheduled to come online in the rate dropped from 7.3% to 6.9% despite 147,337m² next 18-months will put further pressure on vacancy of new stock being added to the market. over the next two years.

Melbourne CBD Historical & Forecast Vacancy Melbourne CBD 10 Year Vacancy by Grade

16 30

14 25 Forecast 12 20 10 15 8 (%) 10 9.5% 6 8.7% 6.9% 4 5 5.6%

2 0 0

Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06

09 l-98 l-99 l-00 l-01 l-02 l-03 l-04 l-05 l-08 ly-06 ly-06 ly-07 Ju Ju Ju Ju Ju Ju Ju Ju Ju Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan- Ju Ju

Source: PCA OMR July 2006 and Colliers International Research Source: PCA OMR July 2006 and Colliers International Research

M arket Indicators Report 6

COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Key Market Indicators Effective Rents to Rise While there has been minimal change in average Melbourne CBD Historical & Forecast Rentals

net face rents over the last six to 12 months, incentives have reduced which has meant an increase 450 Forecast in effective rentals. 400 350 300 pa) pa)

The significant positive net absorption in the first 2 250 750 Collins Street, m half of 2006 and the resulting drop in vacancy, 200 Melbourne 150 AXA committed coupled with limited new supply coming online in ($/ Rent 100 the next 18 months, would indicate that the market 50 to 30,000m² approximately. 0 continue to tighten further for the remainder Jul-90 Jul-92 Jul-94 Jul-96 Jul-98 Jul-00 Jul-02 Jul-04 Jul-06 Jul-08 of 2006, with incentives declining further and an Premium Grade A Grade B Grade increase in effective rental growth.

Source: Colliers International Research

CURRENT INCENTIVE LEVELS & FORECASTS - SPRING 2006 Building Grade Current Average 6 month Forecast 12 month Forecast Incentive Levels Incentive Levels Incentive Levels Premium 10-15% A-Grade 12-18% B-Grade 15-20% Source: Colliers International Research Capital Values & Yields The CBD investment sales market saw yields tighten Melbourne CBD Premium Capital Values and Yields further in the last six months as institutions and private $7,000 9.00% syndicates continued to hold their assets in a market $8,000 9.00% 8.00% $6,000 characterized by strong demand and limited stock. $7,000 7.65% 7.50% 8.00% 7.00% 7.00% 7.00% $5,000 7.00% $6,000 6.50% 6.00% 6.00% 6.00% Strong$4,000 leasing activity and low vacancy rates should $5,000 5.00% 5.00% 5.00% further$3,000 stimulate the strong investment activity driving4.00% $4,000 4.00% 3.00% $3,000 yields$2,000 lower and capital values higher. 3.00% 2.00% $2,000 $1,000 2.00% 1.00% Yields are in the range from 6.25% - 6.75% for $1,000 1.00% $0 0.00% 0.00% Premium2000 Grade, 2001 6.5% 2002 - 7% 2003 for 2004 A Grade, 2005 and 2006 7% - 8% $0 for B Grade properties. Capital values are now in 2000 2001 2002 2003 2004 2005 2006 Low High Yields (%) the range of $5,000/m² - $7,000/m² for Premium, Low High Yields (%) $3,500/m² - $5,000/m² for A Grade, and $2,500/m² - Source: Colliers International Research $3,200/m² for B Grade space.

Recent major sales included: Melbourne CBD A-Grade Capital Values and Yields • 321 Exhibition Street - $120 million; $6,000 10.00% • 101 Collins Street (50% share) - $285 million; 8.75% 9.00% 8.25% 8.35% $5,000 7.90% 7.25% 8.00% • 399 Lonsdale Street - $30 million; 6.75% 7.00% $4,000 6.00% • 380 Lonsdale Street - $30.5 million; and, 6.00% $3,000 5.00% 4.00% • 460 Bourke Street - $18.39 million. $2,000 3.00%

$1,000 2.00% 1.00% $0 0.00% 2000 2001 2002 2003 2004 2005 2006

Low High Yields (%)

Source: Colliers International Research

Market Indicators Report 7 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Leasing Market Activity Analysis of a Deal 505 Little Collins Street, Melbourne

Tenant: Transurban Group Start Date: May 2006 Building Grade: B Grade NLA (m2): 6,453 Rent $/m2: Confidential Incentives (%): Confidential Term (Years): 10 Comments: Transurban have signed a 10 year lease on levels 1-4, 505 Little Collins Street prior to the vacation of floors by the outgoing tenant. The deal was concluded as the result of Colliers International and our client working closely with the tenant to identify and meet the tenants longer term needs. As a result, Transurban got an efficient building to meet their needs and vacancy time for the floors was negligible. 8 Exhibition Street, Melbourne 95% occupied with major Recent Leasing Activity tenants including Ernst & Young, UBS, Address Lease Start Area (m²) Tenant Maunsell and Qantas. Date 181 William Street, Melbourne Apr-09 8,832 Blake Dawson Waldron Site 2A, Docklands Dec-08 12,000 National Foods 525 Collins Street, Melbourne Jul-07 5,878 Middletons 53 Queen Street, Melbourne Nov-06 807 Nerok Pty Ltd 101 Collins Street, Melbourne Nov-06 940 JP Morgan 385 Bourke Street, Melbourne Oct-06 1,284 Piper Alderman Lawyers 530 Collins Street, Melbourne Oct-06 3,530 St George Bank Ltd 101 Collins Street, Melbourne Oct-06 1,568 Cisco Systems Australia 101 Collins Street, Melbourne Sep-06 430 Gersh Investment Partners Ltd 500 Collins Street, Melbourne Jul-06 921 Lymwick Pty Ltd , Melbourne Jul-06 529 Robert Half Australia Pty Limited 140 William Street, Melbourne Jun-06 1,269 Madgwicks 8 Exhibition Street, Melbourne Jun-06 1,619 SAI Group Pty Ltd 140 William Street, Melbourne Jun-06 717 PanUrban Pty Ltd 60 Collins Street, Melbourne Jun-06 757 Walker Corporation 8 Exhibition Street, Melbourne Jun-06 757 Tricom Futures Services Pty Ltd 425 Collins Street, Melbourne May-06 577 Sino Investment Services Pty Ltd 575 Bourke Street, Melbourne May-06 500 WIN NBN 505 Little Collins Street, Melbourne May-06 6,453 Transurban 570 Bourke Street, Melbourne May-06 3,420 Willis Australia 555 Collins Street, Melbourne Apr-06 23,500 National Bank of Australia

120 Collins Street, Melbourne Feb-06 8,000 ASIC

Market Indicators Report 8 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Sales & Investment Activity Analysis of a Deal 321 Exhibition Street, Melbourne

Sale Price: $120 million Sale Date: July 2006 Building Grade: A Grade NLA (m2): 30,851 Capital Value ($/m2): $3,911 Initial Yield (%): 7.76% Vendor: Record Realty Purchaser: Cromwell Corporation Comments: The property comprises a 20 level office tower divided into 2 rises. The building was constructed in 1990 with a Net Lettable Area of approximately 30,950m². The property is 100% leased. The major tenant is Australia Post who occupy 25,866m² with major leases expiring 28 February 2010 with no option. 333 Exhibition Street, Melbourne Office component sold Recent Sales Activity for $15.75 million.

Address Grade Sale Sale Price Capital Initial Vendor Purchaser Date ($ mill) Value ($/m²) Yield (%) 313-325 Exhibition Street A Jun-06 $120,000,000 $3,911 7.76% Record Realty Cromwell Corporation 460 Bourke Street B Aug-06 $18,390,000 $2,485 - Trinity Property Undisclosed 380 Lonsdale Street B Jun-06 $30,500,000 $5,592 7.35% Rothfield Family Undisclosed 399 Lonsdale Street B Apr-06 $30,000,000 $2,948 7.30% Cass Foundation FKP Property Group 580 St Kilda Road A Apr-06 $25,700,000 $3,534 8.00% MFS Becton Office Property Trust 333 Exhibition Street B Dec-05 $15,750,000 $2,072 8.00% OFM GE Capital Investment Group 575 Bourke Street B Dec-05 $50,850,000 $3,084 6.34% Selected Valad Property Group City Property 380-390 LaTrobe Street A Dec-05 $88,000,000 $3,893 6.88% APN Group Cromwell 422 Little Collins Street B Dec-05 $21,100,000 $3,879 - Undisclosed Sovereign MF 350 Collins Street B Nov-05 $55,000,000 $3,118 6.57% Investa SAI Teys McMahon 101 Collins Street P Nov-05 $285,000,000 $6,855 6.23% Commonwealth The Public Sector Property Fund and Commonwealth Superannuation Schemes 350 William Street B Oct-05 $13,000,000 $4,103 - Holding Redlich Undisclosed 440 Elizabeth Street B Oct-05 $28,000,000 $2,027 8.76% Australian Selected Growth Manufacturing Property Trust Workers Union 11-33 Exhibition Street P Oct-05 $136,000,000 $6,014 6.60% Commonwealth Real I.S. Property Fund 394-400 Lonsdale Street B Aug-05 $11,400,000 $1,583 - Juslyn Pty Ltd Private Investor 120 Harbour Esplanade A Aug-05 $34,700,000 $4,082 - Devine Ltd Australian Property Network 454 Collins Street C Jul-05 $7,000,000 $2,863 NA Windermere Co Macquarie Bank Limited 637 Flinders Street B Jun-05 $71,000,000 $3,080 9.57% Macquarie Bank SAI Teys McMahon

Market Indicators Report 9 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Status of CBD Development Sites and Future Office Development

Melbourne CBD Office – Recently Completed and Projects Under Construction 2006

Project Name/Address Total NLA Status Estimated Developer Tenant Current (m²) Completion Pre-commitment Occupancy Rate , 50,360 Complete Australand & Colonial Pricewaterhouse 98% 2 Southbank Boulevard First State Coopers RACV, 501 Bourke Street 14,000 Complete RACV Deacons 100% 11-13 (11) Exhibition Street 21,486 Complete Commonwealth William Mercer 100% Property Fund Victoria Point Stage 1, 7,250 Complete APN Funds Bendigo Bank 100% 120 Harbour Esplanade Street Management Southern Cross Tower Ernst & Young Building, 45,000 Complete Australian Super Ernst & Young Recently completed 100% 8 Exhibition Street Developments committed by Government. The Urban Workshop, 61,101 Complete ISPT Victorian 100% 46-54 Lonsdale Street Government Southern Cross East, 76,000 Complete Multiplex Victorian 100% 113-149 Exhibition Street Government Council House 2, 9,373 U/C 2006 City of Melbourne City of Melbourne 100% 218-242 Little Collins Street Innovation Building, 16,000 U/C 2006 Digital Harbour Stage Australian Customs 90% Cnr La Trobe Street 1A Services & Harbour Esplanade Aquavista Tower, 13,000 U/C 2007 Aquavista Tower Pty NA NA 401 Docklands Drive Ltd (MAB) 181 William Street 48,000 U/C 2008+ Australian Super IAG 75% Developments AXA Centre, 750 Collins Street 35,867 U/C 2008+ AXA 70% ANZ, 83,000 U/C 2009 Lend Lease ANZ 100% Collins Street Freshwater Place Stage 2 31,500 U/C 2008 Australand Speculative NA

Melbourne CBD Office – Mooted Commercial Developments 2007-2010+

Project Name / Address Proposed Status Owner NLA (m2) Melbourne Central, 20,000 DA Approved GPT 300 Lonsdale Street 360 Degrees, 17,290 Early Feasibility Pacific Harbour Investments LaTrobe on Docklands 150 Collins Street 15,000 Early Feasibility Scots Church / APN Property Group Southern Cross - West Tower, 42,000 DA Approved Multiplex / Babcock & Brown 121 Exhibition Street Melbourne CBD 567 Collins Street 50,000 DA Approved APN Property Group 171 Collins Street 27,700 Early Feasibility Macquarie Mazda Site, 60,000 DA Applied Drapac Property 388-400 William Street 664 Collins Street 35,000 DA Applied ABN Amro 2 Queen Street 4,800 DA Applied Macquarie Source: PCADMR July 2006 & Colliers International Research

Market Indicators Report 10 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Docklands Update Over the past few years, Melbourne’s Docklands has Victoria Harbour. This precinct is owned by emerged as a major office precinct. The workforce Lend Lease which has planned 190,000m² of office continues to grow with the 6,000 workers today expected space including: to grow to 6,500 by end of 2006. • NAB Headquarters. The 58,800m² campus style According to the project’s 12 to 15 year plan, Docklands development consists of two low rise, eight storey, is expected to become a home for 20,000 residents, a interconnected buildings housing approximately workplace for 30,000 workers, and a tourism precinct 3,600 NAB staff. for an average 55,000 visitors per day. • 818 Bourke Street. A 21,000m² building with 1010 LaTrobe Street, pre-commitment from Ericsson for 10,000m², to be Melbourne On completion commercial development is expected completed by late 2007. 10,000m² committed by to account for approximately 33% of all Docklands Australian Customs Services. development at around 756,000sqm. • Lend Lease HQ. The 10,000m² building with pre-commitment from Lend Lease for 5,000m², to be The Docklands precinct includes the following completed by late 2007. commercial developments including projects either recently completed, under construction or proposed. • ANZ Bank. A 83,000m² building committed by the ANZ Bank in September 2006. Due for completion Batman’s Hill Precinct. More than half of this precinct in 2009, it is expected to house 5,500 staff. is already committed or under construction with major projects including: Victoria Point. This precinct is a $330 million mixed use development being undertaken by Devine • 700 Collins Street - a joint venture between Limited with approximately 7,000m² of office space. Folkestone and Leighton Properties comprising Bendigo Bank is the anchor tenant. 32,000m² with tenants including the Bureau of Meterology, Vic Urban and Medibank. Digital Harbour @ Commonwealth Technology Port. • AXA Centre, 750 Collins Street - a campus style Jointly owned by JGL and Babcock & Brown this building of 40,600m² currently under construction precinct will comprise two commercial buildings. (Grocon) and due for completion in late 2007. AXA will house AXA Asia Pacific’s Melbourne office and • Innovation Building - approximately 5,800m² of will relocate from 447 Collins Street. office space completed in April 2004 with major tenants including Telstra, ADI, Kodak Nexpress and • Site 2A, 757 Bourke Street - A 16,000m² building the Australian Film & TV School. with pre-commitment from National Foods for 12,000m², to be completed by late 2008. • Port 1010 Building - approximately 15,000m² currently under construction due for completion by the end of 2006. Currently has pre-commitments from Australian Customs Services, Vic Track and Film Victoria.

Market Indicators Report 11 COLLIERS INTERNATIONAL MARKET INDICATORS Melbourne CBD Office Spring 2006 Outlook

The Melbourne CBD office market continues for tenants to move into Premium and A Grade its very strong run of the last couple of years, space continues. with tight leasing conditions and a thriving investment market. The Premium /A Grade market should see growth in effective rents with increases in face rents and While a new construction cycle is commencing, incentives expected to fall, while increasing the fundamentals are so strong in the Melbourne vacancy levels in the B Grade market should keep a lid on effective rents. Waterfront City CBD that the market is expected to strengthen even further over the next few years. White collar employment growth and business activity On the investment front, sales continue to go 241 Offices Worldwide from strength to strength with several significant will continue to drive tenant demand and transactions in the last 12 months. Tight leasing 130 Americas on this basis, a healthy level of positive net market conditions, strong competition between 98 United States absorption is expected for the remainder of 2006 18 Canada investors, and the immense weight of money and into 2007 as eager tenants snap up good 14 Latin America chasing assets, is likely to see the investment quality stock. 72 Europe, Middle East & Africa market strengthen even further. Several significant leasing transactions in the 39 Greater Asia Yields have tightened a further 25 basis points first half of 2006 have resulted in a reduction for Premium grade properties and further 54 Countries on 6 Continents in the CBD vacancy rate to 7.5% and a general compression is predicted by the end of 2006. tightening within the office market despite the Argentina Macau Capital values for Premium Grade property, Australia Mexico addition of two new buildings. With the very which currently range between $5000m² and Austria N. Ireland limited new, uncommitted, supply scheduled Baltic States Netherlands $7000m², have increased in the last six months Belgium New Zealand to come on the market in 2006, we should and will continue to do so for the remainder of Brazil Norway see a continued tightening in the vacancy rate the calendar year. Bulgaria Peru during 2006/2007. Canada Philippines Caspian Region poland Overall, the outlook for the Melbourne CBD Chile Portugal Leasing activity will remain buoyant for the office market for the remainder of 2006 and China Romania remainder of 2006 as tenants continue to seek Colombia Russia heading into 2007 remains positive with Costa Rica Serbia and Montenegro a “flight to quality” by taking advantage of the increasing tenant demand and a tightening Croatia Singapore release of new stock, and as several larger tenants market. A combination of the strong tenant Czech Republic Slovakia continue to look for new space. Incentives Denmark South Africa demand and the commencement of the new France Sweden for secondary space are likely to remain development cycle will see strong demand for Germany Switzerland stable for the next six months as the trend quality stock within the market. Greece Taiwan Hong Kong Turkey Hungary Ukraine India United Arab Emirates Indonesia United Kingdom Ireland United States Italy Venezuela Japan Vietnam Korea For more information contact: Colliers International Amita Mehrotra Research Analyst

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Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. Whilst all care has been taken in the preparation of this report, we have no belief one-way or the other in relation to the accuracy of such information, figures and projections contained herein. Colliers International will not be liable for any loss or damage resulting from any statement, figure, projection or any other information that you rely upon that is contained in the material. COPYRIGHT - Colliers International 2006