Sydney Metropolitan Office

CBRE Sydney Metropolitan Office www.cbre.com.au/research Third Quarter 211 Quick Stats Change from last Yr. Qtr. Economic Growth White collar employment New supply Net absorption Total Vacancy Prime rents Yields *The arrows are trend indicators over the specified time period and do not represent a positive or negative value. (e.g., absorption could be negative, but still represent a positive trend over a specified period.) Hot Topics Vacancy falls in Macquarie Park, Parramatta and the North Shore office precincts Positive rental growth overall in the first three quarters of 211 New and refurbished gross supply levels rise in the Sydney CBD Improving investor sentiment and increased sales activity Potential for a number of prime developments to come online from 212 onwards 259 George Street, Sydney purchased by Singapore based Memocorp for $395 million 1 York Street, Sydney purchased by Chinese corporation HNA Group for $117.7 million 4 Mount Street, North Sydney half share purchased by Pramerica for $113.5 million The Sydney Metropolitan office market has largely demonstrated signs of stabilisation during 211 despite the global uncertainty that continues to circle financial markets. This is highlighted through 113,645 sq m of net absorption in the six months to July 211 resulting in the total metropolitan vacancy rate remaining stable at 9.2%. This translated into steady rental growth while sales activity improved across most of the submarkets. Leasing activity has started to pick up in the Sydney CBD over the second and third quarters after a slow start to the year. Net absorption in the first half of the year was low but positive at 5,59 sq m and net additions to stock totalled 61,716 sq m over the six months to July 211, resulting in vacancy rising to 9.3% over the same period. Prime gross face rents in the Sydney CBD rose by 1.6% in the third quarter of 211, after a 3.2% increase in the June quarter. These rises contributed to an increase of 5.8% over the year to September 211. The North Shore witnessed stronger leasing activity and the stabilisation of pricing levels has seen the market emerge as one of the strongest performers in the Sydney suburban market. A number of key developments are in the pipeline and will play an integral role in reinforcing the North Shore s position as the main commercial alternative to the Sydney CBD. Lack of new supply over the twelve months to September 211 has helped vacancy rates to fall in Parramatta and Macquarie Park, which has been a contributing factor in generating steady rental growth in both markets. The Suburban office market recorded 56,5 sq m of net absorption over the six months to July 211. Investment activity improved with some key sales during the year while the total vacancy rate remained steady at 8.3%. The City Fringe continued to command the highest rents, but the Central West witnessed the sharpest net face rental growth over the first three quarters of 211. 211 CBRE Pty Ltd

Sydney Metropolitan Office Market Summary Q3 211 Market NLA (sq m) Vacancy Annual Net Average prime Average prime Average capital Rate (%) Absorption (sq m) rent* ($/sq m) yield (%) values ($/sq m) The Rocks 42,51 7.6-1,49 489 8.5 5,75 City Core 2,118,284 11.6-13,952 8 6.8 11,766 Western Corridor 1,22,453 6. 46,859 548 7.79 7,4 MidTown 1,128,886 1. 23,673 517 7.91 6,534 Southern 335,92 7.2 6,896 377 8.5 4,435 Walsh Bay 58,92 1.2 4,766 496 8.8 6,14 Sydney CBD Total 4,94,928 9.3 66,752 642 7.42 8,652 North Sydney 86,473 9.2 18,539 494 8.16 6,54 Crows Nest/St Leonards 366,461 12.5 8,893 442 6.75 5,51 Chatswood 284,855 17. 7,26 378 9.17 4,122 North Shore Total 1,511,789 11.5 34,458 46 8.49 5,411 Macquarie Park 745,227 7. 37,73 39 8.57 3,66 Parramatta 685,171 9.3 1,562 358 8.75 4,91 North sub-region 91,272 13.6 2,898 286 9.57 2,989 City Fringe sub-region 89,316 8.1 23,13 391 8.5 4,6 Central West sub-region 517,599 3.5 21,23 33 9.59 3,16 South sub-region 427,82 4.7-1,594 272 9.1 2,989 South West sub-region 184,63 6. 5,146 227 1.95 2,73 West sub-region 158,197 6.7 5,64 236 1.54 2,239 Suburban Total 3,79,816 8.3 56,397 311 9.33 3,335 SYDNEY METRO TOTAL 1,926,931 9.2 25,871 483 8.27 5,841 ECONOMIC OVERVIEW Economic growth Real output growth Real output growth (% change) 5. 4.5 4. 3.5 3. 2.5 2. 1.5 1..5 Australia NSW Source: Deloitte Access Economics (July 211) White collar employment growth White collar employment growth White collar employment growth (% change) 3.5 3. 2.5 2. 1.5 1..5 Australia NSW Source: Deloitte Access Economics (July 211) s s Source: CBRE (Sept 211) and PCA (July 211) *Net Face Rents The big drivers of property demand growth in Australia are showing mixed signs of health. Retail demand growth remains in low gear, and the same is true in industrial markets. Much the same is evident in tourism and hotel markets, with the strength of the AUD sending more Australians overseas and fewer visitors here (though business travel demand has picked up domestically). The best demand news remains evident in office markets, though even there recent months have seen white collar job gains ease back from their earlier hectic pace. NSW is expected to see economic growth of 1.9% in 211 and strengthen to 4.% in 212. The NSW economy remains restricted by the $A and interest rates, but its recovery is continuing at a reassuring pace. That has driven gains in white collar employment, particularly in the finance sector. Recent trends in finance have been positive, unwinding the job losses seen during the global financial crisis. The finance sector may see a period of moderate consolidation and events in Europe are a reminder of risks to the global banking system. Property and business sectors have been relatively weak, while growth in public sector employment may be held back by the new State Government. Overall, white collar employment growth is expected to be 2.5% in 211 and 2.3% in 212. Beyond 213, the negative impacts of the two speed economy and the retirement of baby boomers may be more apparent, gradually reducing white collar employment growth across subsequent years. Page 2 211 CBRE Pty Ltd MarketView Sydney Metropolitan Office Third Quarter 211

SYDNEY CBD Sydney CBD Supply New and refurbished gross supply ''s sq m Source: CBRE (September 211) Sydney CBD demand Annual net absorption '' sq m net absorption Source: CBRE (August 211) and Property Council of Australia (July 211) Sydney CBD vacancy and rents Vacancy, prime and secondary rents $/sq m gross face rent Source: CBRE (September 211) and Property Council of Australia (July 211) Sydney CBD sales and prime yields Sales and prime yields $ bn. office sales 2 18 16 14 12 1 8 6 4 2 2 15 1 5 (5) (1) (15) 1, 9 8 7 6 5 4 3 2 1 2.5 2. 1.5 1..5 26 27 28 29 21 211 212 213 214 215 New Construction Refurbishment 26 27 28 29 21 211 212 213 214 215 Net absorption 5 year historic average 5 year forecast average 26 27 28 29 21 211 212 213 214 215 Prime rent (LHS) Secondary rent (LHS) Vacancy rate (RHS) 21 22 23 24 25 26 27 28 29 21 211* Annual office property sales (LHS) December prime yields (RHS) Source: CBRE Sales over $5 mill. Sales up to end September 211, yields at September 211 1. 9. 8. 7. 6. 5. 4. 3. 2. 1. 1.% 8.% 6.% 4.% 2.%.% % total vacancy rate Prime yields (%) Over the first half of 211 there were three large buildings completed. These were the new Commonwealth Bank pre-committed Darling Walk (56, sq m) on completion, stage 1 of Dexus Property Group s 1 Bligh Street (23,435 sq m) and the refurbishment of 2 Bond Street stage 1 (28,611 sq m). The remainder of 211 is likely to see the rest of 1 Bligh Street and 2 Bond Street come on line as well as a large number of small refurbishments of vacated space including 2 Chifley Square, 1 O Connell Street, 35 Clarence Street and 464 Kent Street. After a relatively quiet supply year in 212 with only one completion over 1, sq m (85 Castlereagh Street at 29,534 sq m), supply in 213 is expected to pick up again with 161 Castlereagh Street (53,966 sq m), 8 Chifley Square (19,122 sq m) and three large refurbishments (175 Liverpool Street, 1 O Connell Street, and 383 George Street) due to complete. Central Park and Barangaroo are set to drive supply levels from 214. Out-of-line with other office markets nationally, net absorption reduced significantly over the first half of 211 in Sydney CBD with just 5,59 sq m recorded by the PCA. The second half of the year is expected to be stronger with almost 57, sq m forecast. The five year outlook for net absorption remains positive and higher than the historical average with an annual average forecast of 42,95 sq m forecast, compared to the historical five year average of 38,8 sq m per annum. In terms of gross absorption the year to September 211 witnessed 214,4 sq m of leases reported as signed compared to 277,9 sq m in the year to September 21. The September quarter however was a stronger than average quarter totalling 91,5 sq m compared to the five year quarterly average of 61,96 sq m. Tenants in the business services sector (24.5% of total gross absorption), followed by the finance and insurance (16.9%) and accounting (15.9%) sectors have been the most active over the year to September 211. Vacancy rates in the Sydney CBD were at 9.3% at July 211 according to the PCA. Looking forward the rate is expected to have already peaked in this cycle and is therefore forecast to fall over the second half of 211 to 9.1%, reaching a low of around 7.4% by the end of 213, before rising again to 9.6% by the end of 215. The total prime CBD gross face rent as at September 211 was $789/sq m. This represents an increase of 1.6% over the quarter and 5.8% over the year. This was driven by demand for the Core premium market. Average prime incentives have decreased over the past 12 months from 3.4% to 25.8% at September 211. Prime gross effective rents have therefore increased over the year to September by 14.3% to $6/sq m. Secondary gross face rents increased by 1.3% and gross effective rents increased by 5.7% over the year to $55/sq m and $415/sq m respectively. Total sales in 211 up to the end of September totalled $1.1 billion (in sales over $5 million in value). The largest of these sales was 259 George Street, which sold for $395 million, 1 York Street which sold for $117.7 million and 2 Martin Place, which sold for $95.55 million. With the completion of the sale of 259 George Street on a tight yield, well below the Sydney CBD average the number of prime CBD buildings on the market has increased significantly. Foreign investors have again purchased a large portion of the office buildings for sale in Sydney now accounting for 66.% of all sales, by value, in the City. Yields in the Sydney CBD investment market have largely stabilised over the year to September 211. Sydney CBD prime yields were 7.42%, while secondary yields were 8.4% as at September 211. In the Core precinct prime and secondary yields were also largely static over both the quarter and year to September 211 at 6.8% and 7.47%. Page 3 211 CBRE Pty Ltd MarketView Sydney Metropolitan Office Third Quarter 211

% total vacancy $/sq m net face rent % grade A indicative yield NORTH SHORE Prime development sites available North Shore net additions ''s sq m net additions 1 9 8 7 6 5 4 3 2 1 (1) (2) Source: CBRE & PCA (September 211) Vacancy rates continue to fall North Shore vacancy rates Source: CBRE & PCA (September 211) Positive rental growth as incentives fall North Shore grade A net face rents Source: CBRE (September 211) Sales volume on the rise North Shore grade A indicative yields Source: CBRE (September 211) 26 27 28 29 21 211 212 213 214 215 North Sydney Crows Nest/St Leonards Chatswood 2. 18. 16. 14. 12. 1. 8. 6. 4. 2. 26 27 28 29 21 211 212 213 214 215 6 55 5 45 4 35 3 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% 6.% Sep-6 North Sydney Crows Nest/St Leonards Chatswood 26 27 28 29 21 211 212 213 214 215 North Sydney Crows Nest/St Leonards Chatswood Mar-7 Sep-7 Mar-8 Sep-8 Mar-9 North Sydney Crows Nest/St Leonards Chatswood Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Over the past five years (26-21) annual net additions in North Sydney, Crows Nest/St Leonards and Chatswood have been quite modest. This was due to the uncertain financial climate, both on a global and domestic level, coupled with developer funding constraints and the need to secure significant tenant pre-commitments which had placed many projects on-hold. As a result of predicted falling vacancy rates, improving rental returns and the availability of key development approved sites, it is likely that North Sydney could deliver over 1, sq m of office net additions in or around 215 through some key projects that include 1 Mount Street (35, sq m), the Eastmark Towers site (5, sq m) and Norberry Terraces (3, sq m). The DA approved project at 88 Christie Street (31, sq m) in St Leonards is also possible to complete around 215, with development activity in Chatswood expected to remain limited. Following a substantial rise in vacancy during 29, the North Shore market has since rebounded to record a 2.6 percentage point fall in vacancy and over 3, sq m of net absorption in the 12 months to July 211. As a result of greater leasing activity, combined with a lack of new supply anticipated over the short term, North Sydney is expected to continue to achieve the lowest vacancy rate of the North Shore markets and by the end of 214 reach 5.7%. This is likely to be closely followed by Crows Nest/St Leonards which is expected to record 6.7%. As at July 211, vacancy in North Sydney, Crows Nest/St Leonards and Chatswood were recorded at 9.2%, 12.5% and 17.%, respectively. s indicate that during 211-215, total North Shore vacancy will average around 8.6%, with tenant net demand in North Sydney and Crows Nest/St Leonards likely to average 14,555 sq m and 7,289 sq m per annum over the same five year period. Declining vacancy rates and positive results in net absorption through increased leasing activity has led to strong rental growth in 211. As at September 211, grade A net face rents in North Sydney and Crows Nest/St Leonards were $494/sq m (5.9% growth since Q4 21) and $442/sq m (5.7% growth since Q4 21), respectively. Net face rents are forecast to increase from 211-215 at an average growth rate of 3.5% per annum for North Sydney and 3.4% per annum in Crows Nest/St Leonards. Indicative grade A net face rents in Chatswood grew by 3.9% in the first three quarters of 211 to reach $378/sq m, as at September 211. A spur in leasing activity has also caused incentives to fall, with the September quarter recording falls of between.5% and 3.3%. Average incentives based on a five year lease for North Sydney, Crows Nest/St Leonards and Chatswood were 29.%, 3.% and 33.3% as at September 211, a solid result given the much higher incentive levels of 34.%-4.% offered in Q4 21. Investor interest in acquiring commercial assets has risen rapidly since the global financial crisis. The North Shore investment market has witnessed somewhat of a return in sales activity with a total sales volume of $275 million up to October 211. This has resulted in the highest level of sales volume for the market since 28, further exemplifying the positive sentiment that has re-emerged in investment activity across the North Shore. North Sydney accounted for the largest sale in the North Shore which was for a 5% share of The Ark, 4 Mount Street, in August 211. The second largest sale, also in North Sydney was attributed to NCR House, 8-2 Napier Street in July 211, purchased by the Australian Catholic University for $57.3 million. Yields have remained relatively stable over the past twelve months. As at September 211, grade A buildings in North Sydney, Crows Nest/St Leonards and Chatswood were likely to achieve indicative yields of 8.16%, 8.75% and 9.17%, respectively. Page 4 211 CBRE Pty Ltd MarketView Sydney Metropolitan Office Third Quarter 211

''s sq m net additions ''s sq m net absorption % indicative yield MACQUARIE PARK Development activity to increase Macquarie Park net additions Source: CBRE & PCA (September 211) Tenant demand to grow when supply increases Macquarie Park net absorption and vacancy Source: CBRE & PCA (September 211) Positive signs for net face rental growth Macquarie Park grade A net face rents $/sq m net face rent 8 7 6 5 4 3 2 1 8 7 6 5 4 3 2 1 4 35 3 25 2 15 1 26 27 28 29 21 211 212 213 214 215 Net additions 5 yr historic average 5 yr forecast average Source: CBRE (September 211) Investment activity remains low Macquarie Park indicative yields Source: CBRE (September 211) 26 27 28 29 21 211 212 213 214 215 5 1.% 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% 6.% Sep-6 Net absorption Vacancy 26 27 28 29 21 211 212 213 214 215 Mar-7 Sep-7 Net effective rent Mar-8 Sep-8 Grade A Mar-9 Incentive Sep-9 Grade B Mar-1 Sep-1 Mar-11 16. 14. 12. 1. 8. 6. 4. 2. Sep-11 % total vacancy Macquarie Park has consistently proven to be one of Sydney s largest growing commercial precincts. When reviewing the past five years (26-21), annual net additions have averaged a relatively strong 49,294 sq m which is likely to continue as 48,84 sq m per annum is forecast over the next five years (211-215). These are quite positive numbers given the modest new supply total of 26, sq m between 21 and the end of 211. Macquarie Park has the potential to house approximately 5, sq m of new office space over the next ten years through a variety of developments. Project timelines however, will be heavily influenced by economic factors such as the state of financial markets and business sentiment, along with tenant pre-commitments in order for construction to proceed. Some of these sites include Epicentre at 6-8 Julius Avenue (34, sq m), 84-92 Talavera Road (31, sq m), 4 Talavera Road (3, sq m) and 4 Eden Park Drive (18, sq m). The anticipated development of office accommodation in Macquarie Park may pave the way for higher levels of net absorption from 212. The six months to July 211 saw tenants absorb 18,289 sq m and this is likely to reach just over 3, sq m by year s end, equalling levels witnessed in 21. The signing of tenant pre-commitments will ignite construction and in turn boost net absorption figures, as tenants look to secure better quality office space at affordable pricing levels outside of the CBD and North Shore. Consequently, net absorption is forecast to average 48,115 sq m per annum in 211-215. Grade A vacancy in Macquarie Park fell by 344 basis points over the twelve months to July 211 to 6.3%, allowing the total vacancy rate to fall to 7.% at the same period. Increases in office supply may force vacancy to gradually rise in correlation with these projects coming online, however, forecasts indicate from 211-215 total vacancy will average 7.3%, well below the 26-21 average of 9.7%. An increase in occupied stock has led to steady rental growth and decline of incentives in 211. The first three quarters of the year highlighted a 1.4% increase in average net face rents for grade A properties, with an indicative net face rent of $39/sq m as at September 211. The sharp fall in vacancy for grade A property has allowed incentives to gradually decline as the amount of available office accommodation decreases. This link is exemplified through the 27 basis point fall in incentives since June 21, to achieve an average of 28.% as at September 211. Following trend, grade B net face rents increased by 2.8% and incentives fell to 28.% over the past three quarters as, leaving net face rents at an indicative $278/sq m as at September 211. Over the next five years, prime net face rents in Macquarie Park are forecast to grow at an annual average of 3.1%, with incentives likely to fall to 22.5% by the end of 215. In contrast to the major North Shore office markets, investment activity has been limited in Macquarie Park during 211. There have been some signs of investor interest over the September quarter yet the broader focus has shown the majority of owners have been reluctant to part from their assets. This is no surprise and has been the case since the commencement of the financial crisis. The combination of steady rental growth and falling vacancy levels during 211 have also been a key factor in the lack of sales volumes in Macquarie Park and as a result, yields have remained stable. Grade A properties have demonstrated yield softening of a minor three basis points since March 211 and were at an indicative 8.57% in September 211. The gap between grade A and B indicative yields has usually been widening over recent times, however, since June 211 the gap has remained steady at 93 basis points. Grade B yields were at an indicative 9.5% at the September quarter of 211. Page 5 211 CBRE Pty Ltd MarketView Sydney Metropolitan Office Third Quarter 211

''s sq m net additions ''s sq m net absorption PARRAMATTA New supply to enter the market in 212 Parramatta net additions Source: CBRE & PCA (September 211) Falling vacancy rate and increasing absorption Parramatta net absorption and vacancy Source: CBRE & PCA (September 211) Lack of new stock driving rental growth Parramatta grade A net face rents $/sq m net face rent % indicative yield 5 45 4 35 3 25 2 15 1 5 6 5 4 3 2 1 (1) 45 4 35 3 25 2 15 1 26 27 28 29 21 211 212 213 214 215 Net additions 5 yr historic average 5 yr forecast average Source: CBRE (September 211) Rise in investment activity over the year to Q3 11 Parramatta indicative yields Source: CBRE (September 211) 26 27 28 29 21 211 212 213 214 215 5 1.5% 1.% 9.5% 9.% 8.5% 8.% 7.5% 7.% Sep-6 Net absorption Vacancy 26 27 28 29 21 211 212 213 214 215 Mar-7 Sep-7 Net effective rent Mar-8 Sep-8 Grade A Mar-9 Incentive Sep-9 Grade B Mar-1 Sep-1 Mar-11 16. 14. 12. 1. 8. 6. 4. 2. Sep-11 % total vacancy Annual net additions in Parramatta have been relatively low over the past five years (26-21) averaging 19,255 sq m per annum. This is likely to increase as approximately 75, sq m of new office supply is anticipated to complete from 212 to 215. The first of these developments is the Eclipse, 6 Station Street (25, sq m) which has commenced construction after securing approximately 7% in tenant pre-commitments and is due for completion mid 212. Other development sites include 15 Phillip Street (2,388 sq m) and Stage 1 of Civic Place (25, sq m) and on completion could help ease the pressure on grade A vacancy and entice new tenants to enter the market. Proposals have been put forward to redevelop Riverside car park, allowing for greater ferry access and coupled with key residential developments in the pipeline, could help drive economic growth and expansion for future office development. Longer term projects include 127 Argyle Street (18,5 sq m) and Stage 2 of Civic Place (8, sq m). The Parramatta office market recorded 2,283 sq m of positive net absorption over the six months to July 211 and it is anticipated that a further 14,438 sq m of office space will be absorbed by year s end. This would result in a total of 16,721 sq m in 211, more than tripling the amount of net absorption from 21. Given the strong likelihood of new supply entering the market over the next five years, the outlook for tenant demand seems positive with an annual average of 17,453 sq m forecast between 211 and 215. As at July 211, grade A, B and C property classes recorded vacancy rates of 2.4%, 5.6% and 17.% respectively, which led to the overall vacancy rate in Parramatta falling by 3 basis points to record 9.3%. It is predicted that between 211 and 215, total vacancy in Parramatta will average 7.3% with 214 likely to see vacancy peak at 8.3% and fall again in 215. Limited office accommodation entering the market in 21 and 211 combined with falling vacancy rates across most property grades have played a key role in driving rental growth and decreasing incentive levels in the Parramatta office market. Over the three quarters to September 211 gross face indicative rents for grade A properties increased by 2.8% to reach $45/sq m, within a range of $413/sq m and $543/sq m and are forecast to grow by an average of 3.4% per annum from 211-215. Incentives have still remained relatively higher than pre-gfc levels, however the twelve months to September 211 have seen incentives fall by 2.2 percentage points to average 11.7 months rent free on a five year lease for grade A stock. Following trend, gross face rents for grade B buildings have demonstrated growth over 211. As at September 211, grade B gross face rents increased by 3.5% to reach an indicative $378/sq m with incentives remaining stable over the period. The 12 months to September 211 have seen investment sales in the Parramatta office market total $95 million (in sales over $5 million in value). The first two quarters of 211 accounted for approximately $46 million of this total figure which included the sale of 8 George Street, purchased for $25.7 million in May by Heathley Keystone Property Fund and the off-market sale of 3 Cowper Street which sold for $2.25 million in April. The largest transaction over the twelve months to September 211 was the sale of Enterprise House, 1-3 Fitzwilliam Street, which sold to a private investor for $28.3 million in the fourth quarter of 21. Properties in the grade A market witnessed a slight five basis point softening in yields since March 211 and were likely to achieve an indicative 8.75%, within a range of 7.5% and 9.75% as at September 211. Following trend, yields across grade B properties recorded a four basis point softening over the same period and were likely to achieve an indicative yield of 1.14%, as at September 211. Page 6 211 CBRE Pty Ltd MarketView Sydney Metropolitan Office Third Quarter 211

''s sq m net additions ''s sq m net absorption $/sq m net face rent indicative yield SUBURBAN SYDNEY New supply to enter the market in 212-213 Suburban net additions Source: CBRE (September 211) Vacancy rates set to fall over the short term Suburban net absorption and vacancy 25 2 15 1 5 Source: CBRE (September 211) Mixed results for suburban rental growth in 211 Suburban gross face rents 5 45 4 35 3 25 2 15 1 5 25 2 15 1 5 (5) Source: CBRE (September 211) Increase in sales volume as yields stabilise Suburban indicative yields 11.% 1.5% 1.% 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% Sep-6 26 27 28 29 21 211 212 213 City Fringe South Central West North West South West 26 27 28 29 21 211 212 213 City Fringe Mar-7 Net annual absorption Central West Sep-7 Mar-8 Source: CBRE (September 211) Sep-8 Mar-9 Total vacancy City Fringe Central West North South South West West Sep-9 North South West South West Net face rents Outgoings Mar-1 Sep-1 Mar-11 Sep-11 1 9 8 7 6 5 4 3 2 1 % total vacancy During 21 the suburban market recorded the lowest level of new supply since 22. Development activity has since rebounded and net additions are likely to almost double the amount recorded in 21, with a total of approximately 6, sq m expected by the end of 211. Although this is well below the three year (28-21) historic average of 121,51 sq m, it is likely that net additions will increase over the short term and record 95, sq m in 212. The City Fringe is projected to account for the majority of office space set to enter the market over this period, mainly due to the sheer volume of projects within the sub-region. Across the total suburban market, key developments expected to drive the increase in net additions up to the end of 213 include 5 Murray Rose Avenue, Homebush Bay (13, sq m), 1-5 Sydneygate Road, Waterloo (13, sq m) and 22 Brookhollow Avenue, Norwest (1, sq m). Net absorption in 211 is set to total 1, sq m by the end of the year, the highest level experienced since 28. This is on par with the 28-21 historic average of 111, sq m per annum and the next three years are forecast to witness similar levels of demand by averaging 1, sq m per annum (211-213). The 12 months to July 211 saw the total suburban vacancy rate remain steady at 8.3%, however, on a sub-region basis the South West recorded the largest fall in vacancy of 2.8 percentage points to reach 6.% as at July 211. The City Fringe, Central West and West sub-regions all recorded falls over the twelve months to July 211 and stood at 8.1%, 3.5% and 6.7% respectively. The North sub-region has continued to record the highest vacancy rate and increased by 2.1 percentage points in the year to July 211 to 13.6%, partly due to recent project completions in Norwest. Total suburban vacancy is forecast to fall to 6.2% in 212 and 4.9% in 213, before rising to 6.3% in 214. Movement in face rents across the suburban sub-regions has been relatively diverse in 211. As at September 211, the City Fringe and Central West demonstrated the largest net face rental growth of 1.1% and 2.5% respectively. In contrast, net rents in the South and West sub-regions decreased slightly and were at an indicative net face rent of $272/sq m and $236/sq m as at September 211, with the North and South West remaining stable. Leasing activity for smaller space remains solid (sub 5 sq m) while the larger leasing market remains heavily incentive driven and lessee decisions are taking longer, as they seek out all major options prior to committing to a new lease. As a result, falling incentives experienced in the more established markets such as Macquarie Park have not yet been evident in most of the suburban sub-regions and incentive levels have remained largely unchanged in 211. The short term prospect for rental growth seems positive as growth is forecast at 4.% in 212 and 3.7% in 213. Investment activity has risen during 211 as sales volume in the suburban market totalled $16.5 million up to September 211 (sales over $5 million in value). The majority of these sales transacted in the first half of the year, however, the September quarter has witnessed a pickup in activity and accounted for approximately 3% of the suburban sales total. The largest sales of the year were 8 Australia Avenue, Homebush Bay which sold for $3.2 million, 15 Bourke Road in Mascot purchased for $29 million and 33 Moore Street in Liverpool which sold for $19.1 million. The geographical spread of these sales has been relatively diverse and comes as a positive for the overall suburban office market. While investor sentiment has improved, it is still difficult to obtain financing and resulted in the stabilisation of yields in 211. The City Fringe, South, North, Central West, West and South West sub-regions were likely to achieve indicative yields of 8.5%, 9.1%, 9.57%, 9.59%, 1.54% and 1.95% respectively, as at September 211. Page 7 211 CBRE Pty Ltd MarketView Sydney Metropolitan Office Third Quarter 211

MarketView Sydney Metropolitan Office Market Outlook Net absorption in Metropolitan Sydney is likely to reach 245,778 sq m by the end of the year and remain slightly higher than the five year historic average. This level of demand is predicted to continue over the next three years and cause vacancy to compress down to 6.6% by January 214, until an increase of new supply enters the market in 214 and 215. Demand for space in the Sydney CBD is usually driven by white collar employment growth. NSW white collar employment is forecast to grow in 212 by 2.3% before tapering off over the remainder of the five year outlook. With solid demand forecast over the next three years and supply likely to be weak, vacancy rates are expected to fall over this period to reach 7.4% in 213. With net additions increasing from 214-215 and net absorption reducing in line with lower white collar employment growth forecasts, vacancy is likely to rise over these years to a peak of 9.6%. It is due to the falling vacancy that prime gross face rent growth in 211 and 212 is expected to rise by 5.8% and 6.7% with incentives also likely to decrease over the two year period. Falling vacancy rates and positive rental growth in the North Shore will help spur investor interest and appreciation of pricing levels over the short term. It is anticipated that development activity will be generated to deliver new office stock from 215. Net absorption in North Sydney and Crows Nest/St Leonards is forecast to average 14,555 sq m and 7,289 sq m per annum (211-215) resulting in pressure on space that will only be eased with new development and expansion. Total vacancy in Macquarie Park is forecast to rise from 6.6% in 212 to 8.8% in 214, due to the likely completion of 13, sq m of new stock in 212 and 213. Gross face rental growth is still expected to average a rate of 3.2% over the next five years (211-215) and incentives should remain at levels of around 23.5% during this period. Parramatta is set to welcome the addition of Eclipse, 6 Station Street in 212 and could see the commencement of some other key projects over the mid to long term due to current limits in prime stock. Until this happens, the total vacancy rate is likely to continue on a downward trend to 6.8% by the end of 213. Suburban net face rents are forecast to grow at an average rate of 3.2% per year from 211-213 with total vacancy likely to fall to 4.9% by the end of 213. The next three years will see the City Fringe sub-region drive the bulk of development activity via a number of small to medium size projects. Economic uncertainty and debt financing will continue to play a key role in sales activity, as investors seek higher rates of return unless lease covenants are exceptionally strong. Information in this document may have been provided to CBRE by other people and we do not warrant that it is accurate or correct. Figures quoted are approximate only and financial information is provided without reference to the possible impact of GST. Interested parties should make their own enquiries and seek independent advice before acting. Subject to any statutory limitation on its ability to do so, CB Richard Ellis disclaims liability under any cause of action including negligence for any loss arising from reliance upon this document. This document is not an offer or part of a contract of sale. CBRE respects your privacy and is bound by the National Privacy Principles. If you would prefer to be removed from this mailing list, please contact our Privacy Officer via phone 61 3 8621 3497, facsimile 61 3 8621 333 or email privacy@cbre.com.au. A copy of our Privacy Policy can be viewed at www.cbre.com.au. 211 (CBRE Pty Ltd) This publication is subject to copyright protection. All rights reserved. Subject to the conditions prescribed in the Copyright Act (Cth) 1968, no part of this publication may in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), be reproduced stored in a retrieval system or transmitted to any other person, without the specific permission of the copyright owner. Definitions Local prime office A combination of premium and grade A buildings (as defined by the Property Council of Australia). Total office stock (sq m) Net lettable area (as defined by the Property Council of Australia) of office space available to the market. Net additions (sq m) All additions to supply less withdrawals for redevelopment, refurbishment or change of use. Equivalent to change in total stock over the period. Occupied stock (sq m) Amount of office stock physically tenanted. Vacancy rate (%) The amount of physically vacant space expressed as a percentage of total stock. Net Absorption (sq m) The change in occupied stock over a period. Net face rent Total rent paid expressed in $AU per square metre per annum, excluding outgoings Outgoings Service charges such as utilities, land tax and insurance Gross face rent Net face rents plus outgoings Effective rent Face rent less discount for the effect of incentives. Incentives Inducement offered to tenant, usually expressed as months rent free over the term of the lease. Incentives may take the form of a rent free period, fit out contributions etc. For more information about CBRE s services, operators and office locations, please visit www.cbre.com.au For more information regarding the MarketView, please contact: Alex Bedrossian Research Analyst CBRE Global Research and Consulting 363 George Street Sydney NSW 2 T. 61 2 9333 3562 alex.bedrossian@cbre.com.au CBRE Pty Ltd ABN 57 57 373 574, Licensed Estate Agent Level 26, 363 George Street, Sydney, NSW 2, T 61 2 9333 3333 F 61 2 9333 333