Office Market Report January 2013 Presented by Adrian Harrington Head of Funds Management - Folkestone

Office Market Report January 2013 Presented by Adrian Harrington Head of Funds Management - Folkestone

Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Source: Property Council of Australia Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 CBD vacancy rate is up, Non CBD vacancy rate remains steady Australian CBD v Non-CBD Vacancy: 1995-2013 25% 20% 15% Australian CBD 9.1% 9.1% 10% 5% 0% 7.3% 8.1%

Source: Property Council of Australia Non CBD market demand was stronger than the CBD markets Australian CBD and Non CBD Vacancy Attribution Six months to January 2013 11% 1.1% 0.3% 0.8% 10% 9.1% 1.8% 0.8% 9.1% 9% 0.2% 8.1% 8% 7.3% 7% 6% 5% 4% 3% 2% 1% 0% Vacancy July 2012 Additional Office Supply Withdrawals Tenant Demand Vacancy Jan 2013

Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Source: Property Council of Australia Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Employment growth picked up slightly, demand still weak Employment Growth v Australian Demand: 1995-2013 6% 5% 4% 3% 2% 1% 0% -1% -2% Australian Office Demand Rate

East West Perth Chermside Perth CBD Adelaide Wollongong Newcastle Melbourne Sydney CBD North Ryde Southbank North Source: Property Council of Australia Upper Mt Darwin CBD Chatswood Brisbane St Kilda Hobart CBD Adelaide Brisbane Parramatta Canberra Crows Sunshine Gold Coast Wide variation in vacancy rates across the markets CBD & Non-CBD Vacancy Rates January 2013 25% 20% Australian Office Vacancy 15% 10% 5% 0%

Chatswood East Melbourne Upper Mt Gravatt Gold Coast Newcastle* Darwin CBD* St Kilda Road Sydney CBD Australian Non-CBD Chermside Wollongong* North Ryde North Sydney Source: Property Council of Australia Sunshine Coast* Australia Adelaide Fringe Southbank Parramatta Australian CBD Brisbane CBD West Perth Brisbane Fringe Crows Nest/St Leonards Melbourne CBD Perth CBD Adelaide CBD Canberra Hobart CBD* 2 out of 3 markets recorded increases in vacancy Change in vacancy from July 2012 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6%

Melbo urne CBD Brisba ne CBD Adelai de CBD Perth CBD Sydne y CBD Darwi n CBD Hobar t CBD Canbe rra Source: Property Council of Australia Perth still has the lowest vacancy rate of the CBD markets CBD Total Vacancy Rates July 2012 and January 2013 Jul-12 Jul-12 Jul-12 Jul-12 Jul-12 Jul-12 Jul-12 Jul-12 July 12 Direct Vacancy Jan 13 Direct Vacancy July 12 Sublease Vacancy Jan 13 Sublease Vacancy 0% 2% 4% 6% 8% 10% 12%

(sqm) Source: Property Council of Australia The majority of CBD markets had demand significantly below their historical average CBD Demand Six months to January 2013 40,000 30,000 Historical average 20,000 10,000 0-10,000-20,000-30,000 Canberra Adelaide CBD Melbourne CBD Sydney CBD Brisbane CBD Perth CBD

(sqm) North Ryde Chatswood Parramatta Crows Nest/St Leonards East Melbourne West Perth St Kilda Road Source: Property Council of Australia Sunshine Coast* Gold Coast Newcastle* Adelaide Fringe Wollongong* North Sydney Southbank Brisbane Fringe The top four Non-CBD markets by net absorption are in NSW Non-CBD Demand 25,000 20,000 15,000 10,000 5,000 0-5,000-10,000-15,000-20,000 Historical average * market tracked annually

(sqm) Brisbane CBD Sydney CBD Melbour ne CBD Source: Property Council of Australia Adelaide Core Canberra Perth CBD Over half a million sqm of space is expect to be supplied to the Sydney CBD market in the short-medium term Future Supply of CBD Markets (2012-2015+) 600,000 500,000 400,000 300,000 200,000 100,000 0 % of current stock 11.50% 10.50% 8.30% 6.10% 6.10% 5.90% Pre-Commitment 39% 39% 63% 47% 62% 46%

(sqm) Newcastle Brisbane Fringe Parramatta Wollongong West Perth Gold Coast North Ryde Source: Property Council of Australia Adelaide Fringe Chatswood North Sydney Crows Nest / St Leonards Sunshine Coast St Kilda Road Southbank East Melbourne Upper Mt Gravatt & Macgregor Chermside New supply remains low across most markets Future Supply of Non CBD Markets (2012-2015+) 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 -

NSW Office Markets

Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Source: Property Council of Australia Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Sydney CBD vacancy rate has fallen in the last 12 months Sydney CBD Direct v Sublease Vacancy (January 1990-January 2013) 25% 20% Direct Vacancy Sublease Vacancy Historical Average 15% 10% 5% 0%

Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Source: Property Council of Australia Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Demand remains weak Sydney CBD Demand v Vacancy (1991-2013) 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Demand Rate (RHS) Total Vacancy Rate (LHS) 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5%

Source: Property Council of Australia Withdrawals were the main driver of the decline in the vacancy rate Sydney CBD Vacancy Attribution Six months to January 2013 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 8.1% 1.0% 1.8% Reduction to Vacancy Addition to vacancy 0.2% 7.2 % Vacancy July 2012 Additional Office Supply Withdrawals Tenant Demand Vacancy Jan 2013

(sqm) Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Source: Property Council of Australia Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Negative net supply was the key driver of Sydney s vacancy decrease over the last 12 months Sydney Historical Net Supply 200,000 Historical average 150,000 100,000 50,000 0-50,000-100,000

(sqm) Source: Property Council of Australia All grades recorded a decline in the vacancy rate Sydney CBD Vacancy by Grade July 2012 and January 2013 140,000 120,000 100,000 7.5% 7.4% 8.4% 8.5% 7.8% 7.2% Historical Average Jul-12 11.8% 80,000 60,000 40,000 20,000 6.6% 7.8% 6.3% 11.6% 8.4% 8.1% 7.7% 6.5% 0 Premium A B C D

(sq m) Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Source: Property Council of Australia Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-14 Jan-15 Jan-16 Supply is an issue for the Sydney CBD market Sydney CBD Supply (1991 2016) 250,000 200,000 Forecast Supply Additions 30% 25% 150,000 100,000 50,000 20% 15% 10% 5% 0 0%

Source: Property Council of Australia Vacancy rates are up in all markets expect Chatswood NSW Non CBD Markets Total Vacancy (July 2012 and January 2013) 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Historical Average Jul 12 Vacancy Jan 13 Vacancy 9.7% 9.0% 8.8% 9.9% 10.0% 7.1% 7.3% 8.8% 7.4% 7.8% 12.0% 10.6% 10.7% Parramatta North Ryde North Sydney Crows Nest / St Leonards 13.7% 11.4% 8.9% Chatswood

Source: Property Council of Australia Demand is strongest in Parramatta, Crows Nest/St Leonards and Chatswood NSW Non CBD Markets Demand Rates (July 2012 and January 2013) 5% 4% 3% 2% 1% 0% -1% Historical Average Jul-12 0.7% 0.3% 1.6% 3.3% 2.3% 1.9% 0.5% 0.5% -0.3% -0.4% 2.4% Parramatta North Ryde North Sydney Crows Nest / St Leonards 1.3% 1.6% 0.3% 4.9% Chatswood

Other Markets

(sq m) Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Source: Property Council of Australia Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-14 Jan-15 Jan-16 There is only 21,000sqm of space forecast to enter the Brisbane CBD market over next two years Brisbane CBD Gross Supply Forecast: 1990 2016 200,000 Forecast Supply Additions 20 Yr Historical Average 150,000 100,000 50,000 0 Major Projects: 2015 Q4-1 William St - 74,852sqm, 2015Q4-180 Brisbane St - 58,000sqm

Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Source: Property Council of Australia Tenant demand in the six months to January 2013 was significantly lower than the historic average Brisbane CBD Historical 6 month Demand Rate: 1991 2013 4% 3% 20 Yr Historical Average 2% 1% 0% -1% -2% -3%

(sq m) Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Source: Property Council of Australia Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-14 Jan-15 Jan-16 Less than 20,000sqm of space is due to come online in Perth CBD for each of the next four survey periods Perth CBD Gross Supply Forecast: 1990 2016 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Forecast Supply Additions 20 Yr Historical Average Major Projects 2015 Q2-28 Barrack St - 30,196sqm

Source: Property Council of Australia Negative net absorption in the prime segment caused Perth vacancy to increase Perth CBD Net Absorption by Grade Six Months to January 2013 20,000 15,000 10,000 5,000 0-5,000-10,000-15,000-20,000-25,000 Historical average Total P A B C D

Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Source: Property Council of Australia Demand in Melbourne CBD was the lowest seen since July 2009 Melbourne CBD Historical 6 month Demand Rate: 1990 2016 6% 20 Yr Historical Average 5% 4% 3% 2% 1% 0% -1% -2% Demand Rate = Change in Occupied Stock / Previous Stock

(sq m) Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Source: Property Council of Australia Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-14 Jan-15 Jan-16 190,000sqm of space is due to enter the Melbourne market in the first six months of 2013 Melbourne CBD Gross Supply Forecast 300,000 250,000 Forecast Supply Additions 20 Yr Historical Average 200,000 150,000 100,000 50,000 0 Major Project 2013 Q2-700 Bourke St - 61,300sqm

Source: Property Council of Australia Property Council Research National Research Team John Nguyen National Research Manager jnguyen@propertyoz.com.au Tom Foster Senior Research Analyst tfoster@propertyoz.com.au Emma Scarf Research Analyst escarf@propertyoz.com.au Akina Lay Information Analyst alay@propertyoz.com.au Lindsay Haertsch Information Analyst lhaertsch@propertyoz.com.au Ryan Farrow Information Analyst rfarrow@propertyoz.com.au Disclaimer While the material contained in this publication is based on information which the Property Council of Australia (including its Directors, officers, employees and agents, hereafter referred to as PCA) understands to be reliable, its accuracy and completeness cannot be guaranteed. This publication is general and does not take into account the particular circumstances or needs of any person who may read it. You should obtain independent advice from suitably qualified consultants and professionals before making any decisions in relation to the contents of this publication. The PCA is not liable and accepts no responsibility for any claim, loss or damage of whatever nature suffered by any person or corporation who relies or seeks to rely on any information, advice or opinion contained in this publication, or otherwise given by the PCA. Copyright This publication is copyright. The PCA is the copyright owner. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic or otherwise, without the permission of the copyright owner. Linda Yi Information Analyst lyi@propertyoz.com.au

Panel Slides

AUDmn, 6mma Source: ANZ, ASX, Bloomberg Index, 6mma Financial markets turnover has been weakening since the GFC Financial markets turnover 12000 10000 8000 6000 4000 2000 0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 ASX All Ords Turnover ASX All Ords Index (RHS) 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000

Source: Knight Frank Research Comment Sydney CBD Office Yield v Australian Nominal 10 Year Bond (1990-2013)

Source: ANZ, FIRB Foreign Investment Review Board approvals for real estate continue to increase Foreign Investment Review Board Approvals (AUD bn, financial year) 80 80 60 60 40 40 20 20 0 2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 0 Real estate Finance, insurance and services