74 Pirie Street (1,500m²), a 7 storey building is currently being refurbished by Maras Group and is expected to be completed in Q

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1 RESEARCH

Jul-7 Jul-8 Jul-9 Jul- Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-2 CBD prime yields firmed by 12 basis points from an average of 7.13% to 7.

It is expected that sales activity will remain strong in 218 as stamp duty will be abolished from 1 July 218. Average prime incentives in the CBD Core increased from 36.3% to 36.

The prime market recorded negative net absorption of 3,26m², whilst the secondary market recorded positive net absorption of 12,722m², in the six months to January 218.

Supply will be minimal until Q3 219, when Charter Hall s 21 level GPO Exchange development (circa 25,m²), located at 2- Franklin Street, is due to complete.

2 Jul-7 Jul-8 Jul-9 Jul- Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-2 CBD prime yields firmed by 12 basis points from an average of 7.13% to 7.1% in the six months to January 218, while secondary yields were broadly unchanged and stand at 8.49%. Transactions volumes totalled $414.7 million in for assets greater than $ million. It is expected that sales activity will remain strong in 218 as stamp duty will be abolished from 1 July 218. Average prime incentives in the CBD Core increased from 36.3% to 36.7% and now typically range between 32.5% to 4%. The prime market recorded negative net absorption of 3,26m², whilst the secondary market recorded positive net absorption of 12,722m², in the six months to January 218. The Adelaide CBD recorded low gross supply of 984m² in the six months to January 218, down from 5,227m², and significantly below the long term, six month average supply of 13,69m². Supply will be minimal until Q3 219, when Charter Hall s 21 level GPO Exchange development (circa 25,m²), located at 2- Franklin Street, is due to complete. Construction has started following a 49% tenant pre-commitment from the SA Attorney General s Department. The development will provide floor plates of c1,48m², incorporating an existing heritage building component on the lower levels. Other developments include Uniting Communities 19 storey mixed use development located on Pitt Street, offering office (6,6m²), retail, retirement living and disability respite accommodation. The project is expected to be completed in Q3 218 with 66% of the office space to be owner-occupied. 74 Pirie Street (1,5m²), a 7 storey building is currently being refurbished by Maras Group and is expected to be completed in Q King William Street, a mixed use development comprising two towers of 31 levels each, with residential, office (12,482m²), retail and hotel spaces remain mooted. After accounting for stock withdrawals, net CBD supply stood at -251m² for the six month period to January 218. There was 984m² in supply added and 1,235m² withdrawn in the secondary market. The annual net additions in fringe market (prime grade) were 2,724m². The main contributions to additions were 161 Greenhill Road which has been recently renovated, and Greenhill Road, currently under refurbishment. Adelaide Gross Supply Additions CBD Office ( s m²) Update Projection Research SA Other significant developments in the pipeline include the new headquarters for a hospitality training school, Le Cordon Bleu at 2 North Terrace. A 19 storey mixed use tower (26,m²) is to be built above the existing heritage listed building. Walker Corporation s Festival Plaza development (4,m²) and CBD GROSS SUPPLY 6 MONTHS TO... ('m²) 25 YEAR AVERAGE Grade Market Total Stock (m²) Vacancy Rate (%) Annual Net Absorption Annual Net Additions Average Gross Face Rent ($/ Average Incentive Average Core Market Yield Prime CBD 594, , Fringe 4, , Secondary CBD 829, , Fringe 176, Total Precinct CBD 1,424, ,32-52 Fringe 217, ,6 2,724 Total Market Adelaide 1,641, ,92 2,222 2

ADELAIDE OFFICE MARKET MARCH 218 RESEARCH 1 2 115 King William Street - 6,775m² Local Private Developer - October 216-15% committed 17 Frome Street - 3,9m² [Grant Thornton] Emmett Properties -

3 ADELAIDE OFFICE MARKET MARCH 218 RESEARCH King William Street - 6,775m² Local Private Developer - October % committed 17 Frome Street - 3,9m² [Grant Thornton] Emmett Properties - December % committed Pirie Street # - 1,5m² Maras Group - Q Pitt Street* - 6,6m² Uniting Communities - Q % owner occupied GPO Exchange, 2- Franklin Street - 25,m² [SA Govt] Charter Hall - Q % committed Festival Plaza / Riverbank Precinct - 4,m² Walker Corp / SA Government North Terrace - 26,m² [Le Cordon Bleu] Commercial & General - H N/A Echelon, 322 King William Street^ - 12,482m² Karidis - 22 Gawler Chambers, North Terrace - 5,5m² Adelaide Development Company Riverbank Precinct Wakefield Street - 16,5m² Kyren Group Franklin Street - 21,m² Kyren Group Pirie Street - 6,m² Palumbo Wyatt Street - 4,18m² Private Worldpark (Stage B & C) - Richmond Road, Keswick - 22,6m² Axiom Source of Map: Property Council Worldpark, Keswick 14 Under Construction / Complete DA Approved / Confirmed Mooted / Early Feasibility NB. Dates are Knight Frank Research estimates Major tenant pre-commitment in [brackets] next to NLA # Refurbishment * Mixed use development comprising retirement living, respite accommodation, retail and office ^ Mixed use development comprising residential, hotel, retail and office 3

4 Jan-8 Jan-8 Six month net absorption the highest since January 29 The Adelaide CBD recorded positive net absorption of 9,696m² in the six months to January 218. Furthermore, net absorption over the past 12 months was 14,32m², the strongest result since 29. Improvements in net absorption have mainly been driven by the secondary market. Significant leasing deals in the secondary market include 1,67m² at 44 Pirie Street. In the past few years, the flight to quality has had an effect on the secondary market, with tenants enticed to upgrade their office space by the high incentives offered on prime space. This trend now seems to be slowing. However, it has the potential to increase again once the GPO Exchange development is complete, in order to secure tenants for backfill space. The South Australian unemployment rate stands at 6. % as at January 218. Although there have been various company closures and consolidation, this has improved from 7.3% in April. Furthermore, the Adelaide CBD has seen significant development in the northwestern corner totalling circa $3 billion including the new Royal Adelaide Hospital, SAHMRI Building, University of Adelaide Health and Medical Sciences Building, and the University of South Australia Health Innovation Building. Additionally, the $5 billion Federal Government submarine contract has provided a positive outcome for the state. The contract should have a positive impact on the office market as the tenants associated with the defence industry are becoming more active within the Adelaide leasing market. Tenant relocation main driver for leasing activity Leasing transactions are predominantly being driven by existing tenants relocating or renewing, rather than expansions or new tenants entering the market. This is affecting secondary grade buildings, with existing tenants being incentivised to upgrade. Higher incentives have resulted in a reduction of the spread between A and B grade space in effective rental terms, and this, coupled with efficiency gains in A grade space means that rates on a cost per employee basis are not significantly higher for better quality space. The strongest activity over the past 12 months has come from the defence, engineering and non profit sectors. This is mostly driven by the $5 billion Federal Government submarine contract. One of the most significant leases to note is the SA Attorney General s Department s. A pre-commitment to the GPO Exchange Development. They also extended their current lease for 5 years at Adelaide CBD Net Absorption ( m² LHS) vs Total Vacancy Rate (% RHS) NET ABSORPTION 6 MTHS TO ('m²) LHS CBD TOTAL VACANCY - RHS (%) 45 Pirie Street. This will result in a lease tail of just over three years at 45 Pirie Street after the relocation to the GPO development in late 219. White collar employment growth in the Adelaide CBD has improved over the last financial year, recording an increase of 1.6% as compared to -.% in the 216/ financial year. Growth is forecast to accelerate further over the next financial year to 2.3% in 218/ Adelaide CBD Vacancy Rates Prime vs. Secondary Grade (%) Adelaide CBD Vacancy Rates (%) Adelaide Fringe Vacancy Rates (%) 2.% 18.% Grade Jan Jul Jan 218 Grade Jan Jul Jan % 14.% 12.% Premium A Grade Premium A Grade % 8.% 6.% 4.% Prime B Grade C Grade Prime B Grade C Grade %.% D Grade Secondary D Grade Secondary PRIME PRIME YR AVERAGE SECONDARY SECONDARY YR AVERAGE Total Total

5 Jan-8 Jan-8 ADELAIDE OFFICE MARKET MARCH 218 RESEARCH Lowest vacancy rate since January 216 at 15.4% The total vacancy rate in the Adelaide CBD has decreased from 16.1% to 15.4% in the six months to January 218. This remains above the year average of.3%. Over the same time period, prime vacancy has increased from 13.8% to 14.3%, driven mainly by the A Grade market. The vacancy rate in secondary space decreased from 17.8% to 16.2%. The Adelaide CBD contains a notable amount of ageing C and D grade office space, accounting for 3.5% of total stock. It is likely that this space will remain vacant for some time unless refurbished, as tenants are moving to better quality space due to the high availability and attractive incentives on offer. In the six months to January 218, the Fringe vacancy rate increased from.1% to 11.4% (see Table 3). This increase was primarily driven by changes in A and B grade space. A grade vacancy in the Fringe increased from 7.8% to.9% and B grade vacancy increased from 12.8% to 14.8% (see Table 3). The Fringe represents a comparatively small market when compared to the CBD, and large fluctuations in the vacancy rate can result from small changes to vacant space. Flight to quality has impacted face rents and incentives in secondary market In the secondary market, the impact of the continued flight to quality has seen average gross face rents decrease from $371/m² to $367/m² and incentives increase from 34.1% to 35.2% over the previous six months. As a result, gross effective rents decreased from $245/m² to $238/m². The reduction in face rents in the secondary market is a result of both strong competition among landlords and building ownership being largely private. The prevalence of private ownership results in a reduced capacity to pay upfront capital incentives, instead landlords prefer to decrease face rents to enhance leasing appeal. Adelaide CBD Gross Effective Rent Growth Prime vs. Secondary Grade (%) p.a. 2.% 15.%.% 5.%.% -5.% Average prime CBD gross face rents have increased from $53/m² to $511/m² in the six months to January 218, while incentives increased from 34.9% to 35.8%. Notably, incentives in the Core now average 36.7% and typically range between 32.5% to 4%, compared with 3% to 35% a year ago. In the six months to January 218, fringe prime gross face rents were unchanged at $442/m² whilst secondary space rates decreased from $345/m² to $34/m². Incentives increased from 2% to 22.5% for both prime and secondary. Adelaide CBD Prime Incentives vs. Gross Effective Rents ($/m² LHS, % RHS) % PRIME SECONDARY PRIME EFFECTIVE RENT - LHS ($/m²) PRIME INCENTIVE - RHS (%) Recent Leasing Activity Adelaide CBD and Fringe Address Precinct NLA (m²) Face Rent ($/m²) Term (Yrs) Incentive (%)* Tenant Start Date 8 Flinders Street Core 1,72 532g 7 # Inabox 91 King William Street Core 1,118 55sg # Attorney General s Department 44 Pirie Street Core 1,67 295g 8 # Game Plus Dec Grenfell Street Core 2,21 43g 5 # Gallagher Bassett Nov-17 1 Richmond Road Fringe 2,237 45sg 8 # SAPN Nov Pirie Street^ Core 15,71 534sg 5 # Attorney General s Department Sep Frome Street Frame 37 33n 1 # Fincantieri Sep-17 5

6 Jan-7 Jan-8 Total of $414.7 million transacted in CY Transaction activity during reflected the high level of investor interest in Adelaide. Transactions for ($mil+) recorded a total of $414.7 million, lower than the standout 216 calendar year ($ million), but still a historically strong result. The most recent sale, 11 Waymouth Street, an A grade multi-storey office building with ground floor retail, sold with a WALE of 6.4 years. The building was purchased for $22.5 million by Mapletree Investment, a Singaporean group. Adelaide CBD Sales $ million+ By Purchaser Type ($m) $1,4 $1,2 $1, $8 $6 $4 $2 $ AREIT OFFSHORE PRIVATE INVESTOR DEVELOPER OWNER OCCUPIER UNLISTED/SYNDICATE The trend towards significant transactions in began early in the year with the purchase of 25 Grenfell Street by Credit Suisse for $125.1 million. The sale reflected a core market yield of 7.48% and had a WALE of approx. 5. years. In August, 45 Pirie Street was sold by CorVal to Singapore based, AEP Investment Management. The building transacted for $5 million with a WALE of approx. 4. years (by income) and a core market yield of 7.8%. The yield was influenced by the major tenant, the SA Attorney General s Department (76% of NLA), relocating to the GPO Development when it is complete. The Adelaide CBD vs East Coast Yields Prime Core Market Yields 9.% 8.5% 8.% 7.5% 7.% 6.5% 6.% 5.5% 5.% 4.5% 4.% SYDNEY MELBOURNE BRISBANE ADELAIDE sale price included an additional 952m² site fronting Gawler Place, currently used for car parking but offering future redevelopment potential. Another significant transaction was the SA Govt Motor Accident Commission s national portfolio, which comprised a mixture of office and industrial assets, purchased for $565.5 million by US based Blackstone. The portfolio included 121 King William Street and 99 Gawler Place in Adelaide which transacted for $58.4 million and $34.6 million respectively. However, these individual sales allocations did not fully reflect market values as the prices were affected by the portfolio weighting. A further sale of note was the leasehold interest at 141 Rundle Mall (Citi Centre) for circa $41.5 million. The 8 storey office tower component was fully leased to SA Health and the ground floor included retail shops fronting Rundle Mall. The sale reflected a core market yield of.% and a WALE of 4. years (income weighted). The past 12 months has shown a high level of interest from overseas investors. This trend is likely to continue, and the sales activity is expected to increase in the second half of 218, enhanced by the final reduction in Stamp Duty on 1 July 218. Some sales campaigns are likely to be delayed to take advantage of the potential stamp duty savings on offer. Recent Sales Activity Adelaide Address Price ($ mil) Core Mkt Yield (%) NLA (M²) NLA ($/m²) WALE (yrs) Vendor Purchaser Sale Date 11 Waymouth Street 22.5 c6.3 31,2 6, Dexus & (CPPIB) Mapletree Mar Pirie Street ,854 5, CorVal^ AEP Aug King William Street ± 58.4 # 12,558 4,65 c3.5 SA Government (MAC) Blackstone Aug Gawler Place ± 34.6 # 11,158 3,1 c4. SA Government (MAC) Blackstone Aug-17 Citi Centre, 141 Rundle Mall < c41.5 c. 16,375 2,534 c3.9 Private Private Aug Fullarton Road* ,326 4, Private Private 25 Grenfell Street ,381 4, GDI Funds Management Credit Suisse ^ as responsible entity for the Value Active Fund ± Part of a national portfolio # Undisclosed c Circa MAC refers Motor Accident Commission < leasehold interest * Fringe CPPIB refers Canadian Pension Plan Investment Board u/c Under Contract 6

7 Jan-8 Jan-8 ADELAIDE OFFICE MARKET MARCH 218 RESEARCH Continued yield compression, firmest since January 29 Adelaide CBD Core Market Yields Yields and Averages by Grade Adelaide CBD Yields & Spreads Core Market Yields vs Yr Govt Bond Rate Yields for prime assets across the CBD markets have continued to show firming. In the six months to January 218, CBD prime yields firmed by 12 basis points from an average of 7.13% to 7.1% (see Figure 8). In the CBD secondary market, average yields only firmed 1 basis point from an average of 8.5% to 8.49% in the same time period. In the Fringe market, the average prime and secondary yields have also continued to firm, especially in the secondary market. In the six months to January 218, Fringe prime yields firmed by 7 basis points from an average of 7.6% to 7.53%. 11% % 9% 8% 7% 6% 5% PRIME YIELD (LHS) SECONDARY YR AVG SECONDARY YIELD PRIME YR AVG.% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.% SPREAD (RHS) PRIME YIELD (LHS) YR GOVT BOND RATE (LHS) SPREAD YR AVG (RHS) Yields in the secondary Fringe market have firmed 25 basis points from 8.4% to 8.15%, which was significant, in the six months to January 218. This has been driven by the growth in land values following rezoning to support more intensive development. Increased interest in the Adelaide market from overseas and institutional investors suggests that the bias of yield tightening will continue in the short term, particularly for core assets and prime space. Compared to the east coast, Adelaide is still presenting -2 basis points softer, on average. Although Adelaide is showing a higher vacancy rate compared to east coast, investors are still willing to take the risk for a higher return at lower sale prices. Furthermore, Adelaide yields are expecting to continue firm buyer interest remains buoyant for Adelaide assets. Outlook The next significant supply in the Adelaide CBD will be in Q3 219, following completion of Charter Hall s GPO Exchange development (25,m²). Other projects such as 2 North Terrace (26,m²) may progress depending on further tenant pre-commitment. Secondary building owners face greater requirements to reposition their assets through refurbishment and upgrades in order to retain appeal to tenants. In the short term, it is likely face rents will continue to show only modest growth in prime markets and decline in the secondary market. The lack of new quality supply over the short term provides the opportunity for the market to absorb existing stock and stabilise the vacancy rate. Tenant demand is likely to remain inconsistent in the short term, with movements led by existing tenants relocating rather than new demand. Tenants are taking advantage of efficiency gains in prime grade buildings and enticing incentives on offer to upgrade. Offshore purchasers will continue to expand their activity within the Adelaide market as investors follow suit to the likes of Blackstone and Credit Suisse while interest grows in the value proposition on offer. The firming bias of yields within the prime market is expected to persevere in the short term, however will be driven by capital market trends rather than improvements in office market fundamentals. Anecdotal evidence indicates that the level of enquiry in the leasing market will continue to be high over the next 12 months, however tenants are still slow to make relocation decisions. 7

RESEARCH Ben Burston Group Director +61 2 936 6756 Ben.Burston@au.knightfrank.com Yee Ng Research Analyst - SA +61 8 8233 5217 Yee.Ng@sa.knightfrankval.com.au SOUTH AUSTRALIA Guy Bennett Joint Managing Director - SA +61 8 8233 524 Guy.

knightfrank.com Tony Ricketts Director +61 8 8233 5259 Tony.Ricketts@au.knightfrank.com OFFICE LEASING Martin Potter Senior Director +61 8 8233 528 Martin.Potter@au.knightfrank.com Andrew Ingleton Associate Director +61 8 8233 5229 Andrew.

com Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate

VALUATIONS & ADVISORY James Pledge Managing Director, Valuations - SA +61 8 8233 5212 James.Pledge@sa.knightfrankval.com.au Nick Bell Director, Valuations - SA +61 8 8233 5242 Nick.Bell@sa.

8 RESEARCH Ben Burston Group Director Ben.Burston@au.knightfrank.com Yee Ng Research Analyst - SA Yee.Ng@sa.knightfrankval.com.au SOUTH AUSTRALIA Guy Bennett Joint Managing Director - SA Guy.Bennett@au.knightfrank.com Bobbette Scott Joint Managing Director - SA Bobbette.Scott@au.knightfrank.com CAPITAL MARKETS Lukas Weeks Director Lukas.Weeks@au.knightfrank.com Tony Ricketts Director Tony.Ricketts@au.knightfrank.com OFFICE LEASING Martin Potter Senior Director Martin.Potter@au.knightfrank.com Andrew Ingleton Associate Director Andrew.Ingleton@au.knightfrank.com Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. VALUATIONS & ADVISORY James Pledge Managing Director, Valuations - SA James.Pledge@sa.knightfrankval.com.au Nick Bell Director, Valuations - SA Nick.Bell@sa.knightfrankval.com.au Australian Residential Review Q1 218 Australian Office Top Sales Transaction Adelaide Industrial Market Brief November Adelaide Office Market Overview August Knight Frank Research Reports are available at KnightFrank.com.au/Research Important Notice Knight Frank 218 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not permitted without prior consent of, and proper reference to Knight Frank Research.

ADELAIDE RESEARCH OFFICE MARKET OVERVIEW AUGUST 2017 HIGHLIGHTS

ADELAIDE RESEARCH OFFICE MARKET OVERVIEW AUGUST 2017 HIGHLIGHTS ADELAIDE OFFICE MARKET OVERVIEW AUGUST HIGHLIGHTS Average Prime incentives in the CBD Core now average 36.3% and typically range between 35% to 4%, compared with 3% to 35% in the second half of 216. Offshore