PROPERTY INSIGHTS. Market Overview. Central s rental drop slows. Hong Kong Quarter 2, 2012

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PROPERTY INSIGHTS Hong Kong Quarter 2, 212 Market Overview Central s rental drop slows While office rents in Sheung Wan/Central/ Admiralty dropped 3.

1 PROPERTY INSIGHTS Hong Kong Quarter 2, 212 Market Overview Central s rental drop slows While office rents in Sheung Wan/Central/ Admiralty dropped 3.3% quarter-on-quarter (q-o-q) to reach HK$17 (US$13.7) per sq ft in Q2 212, this was less than the 7.8% q-o-q fall in (Figure 1). However, the citywide overall net absorption dropped from -168,45 in to -226,64 in Q2, with the availability ratio increasing from 4.78% in to 5.7%. Average retail rent in all districts remained robust in Q2, despite a slight slow-down in retail sales growth and visitor arrival growth in the quarter. New Territories witnessed the highest rental growth this quarter at 2.7% q-o-q, thanks to strong mainland tourist consumption. Figure 1 DTZ office index (25 (25-216F) - 216F) DTZ Index ( 26 = 1) F 215F 214F 213F 212F Central/ Admiralty Wanchai/ Causeway Bay Island East Tsimshatsui The residential market remained stable this quarter after the sharp rebound in. Supported by solid enduser demand, the DTZ mass residential price index showed a higher q-o-q growth of 5.3%, compared to 1.7% growth on the DTZ luxury residential price index.

2 Trends & Updates Economic Overview Due to the uncertain outlook in the external economy, the real GDP annual growth rate was.4% in 212, which was lower than the 3.% growth in Q4 211 (Table 1). In May 212, although total exports of goods recorded a 5.2% y-o-y increase, the growth rate was slower than that of February 212. The lower growth rate of total exports reflects a greater decline in the external economy s performance (Table 1). The domestic sector remained relatively strong despite the economic downturn in Europe. In 212, private consumption expenditure grew by 5.6% in real terms y-o-y, slightly moderated from 6.4% growth in Q4 211 (Table 1). The unemployment rate dropped further to 3.2% in May from 3.4% in March, reaching the lowest level in the past few years, which reflected the growing optimism of employers towards recruitment (Table 1). Table 1 Economic indicators Indicator Period Unit Value GDP at constant prices* y-o-y 212 HK$bn Total exports May 212 HK$bn Private consumption expenditure Unemployment rate (seasonally adjusted) 212 HK$bn May 212 % pts Visitor arrivals May 212 Million Composite CPI May Total retail sales value May 212 HK$bn *In chained (29) dollars Source: Census and Statistics Department HKSAR, Hong Kong Tourism Board Inflationary pressure has been further relaxed. Growth in the composite CPI fell to 4.3% in May from 4.7% in February 212, a.4 percentage point decrease (Table 1). Residential Residential transaction volume increased slightly in Q2 with the total number of S&P agreements surging 21.7% q-o-q to reach 3,124 (Figure 6). The greater transaction volume in Q2 compared to is due to the rather low transaction volume in uary and February, which can be partly attributed to seasonal effects. In fact, the transaction volume in June decreased by 26.7% to 8,597 compared with May. Vendors remained aggressive in pricing, since there are fewer flats available after the Figure 6 Transaction volume of of S&P Agreements ( 25 - Q2 212) Number of S&P Agreements 5, 45, 4, 35, 3, 25, 2, 15, 1, 5, Source: Land Registry, HKSAR purchase rush in February and March. Buyers also became more cautious amid the uncertain global economic outlook. Moreover, the steep rise in residential prices deterred some cash-

3 tight buyers. As a result, the transaction volume in June dropped fairly notably. Despite weakening market sentiment, demand from end-users remained solid, particularly for flats with a small lump-sum price. As a result, the DTZ mass residential price index rose to 184.2, a 5.3% q-o-q jump (Figure 7 and Table 4). However, institutional investors and wealthy individuals are still concerned about the external economy, which hindered the growth of luxury residential prices. This quarter, the DTZ luxury residential price index reached 216.4, a 1.7% q-o-q increase (Figure 7 and Table 4). Looking forward to, transaction volume for residential units is expected to remain low due to the uncertain economic outlook. However, prices are expected to remain stable, supported by solid end user demand and limited supply. Figure 7 Residential price index ( 25 - Q2 212) DTZ Index ( 2 = 1) Table 4 Private residential market statistics Mass market Luxury market Overall market Mass residential Luxury residential Overall Total stock (no. of units) Price index ( 2 = 1) q-o-q y-o-y 1,13, , ,95, Offices In Q2, the overall market sentiment of the office leasing market remained stagnant due to external economic uncertainties. The overall net absorption dropped from -168,45 in to -226,64 in Q2. The overall availability ratio slightly increased from 4.78% in to 5.7% in Q2. Meanwhile, the overall average rent fell 2.6% q-o-q to HK$62 (US$7.9) per sq ft per month (Table 2). In the central financial districts (CFD) of Sheung Wan/Central/Admiralty, although the availability ratio increased to 6.28% from 6.17% in Q2, the availability ratio in Central/Admiralty dropped slightly, thanks to the positive take-up of smaller office space in Central, as companies requiring less office space took advantage of the recent lower rental level to establish offices in the CFD. Table 2 Grade A office market statistics District Sheung wan/ Central/ Admiralty Wanchai/ Causeway Bay Meanwhile, the drop in average prime rent slowed to 3.3% q-o-q, reaching HK$17 (US$13.7) per sq ft per month (Table 2). Nevertheless, companies remain cautious about taking up larger floor plates in Central. Total stock (million sq ft) Availability Ratio Monthly rent (HKD per sq ft) q-o-q Island East Tsimshatsui Kowloon East Overall

4 Other sub-markets on the Hong Kong Island are relatively resilient towards the external uncertainties, with only a mild drop in rent. In Wanchai/Causeway Bay the average monthly rent dropped 1.4% q-o-q to reach HK$45 (US$5.8), while the availability ratio grew slightly from 3.29% in to 3.37% this quarter (Table 2). In Island East, the average monthly rent dropped 1.4% q-o-q to reach HK$37 (US$4.7), while the availability ratio rose slightly from 3.86% in to 4.1% this quarter (Table 2). Supported by a more diverse trade mix of tenants that are less sensitive to global economic woes, rental remains at the same level as in in Tsimshatsui and Kowloon East, at HK$33 (US$4.2) and HK$31 (US$4.) respectively (Table 2). However, the availability ratio in Tsimshatsui increased from 3.29% in to 4.21% this quarter, while the availability ratio in Kowloon East increased from 5.37% in to 6.4% (Table 2). Figure 2 DTZ office index (25-216F) DTZ office index (25 216F) DTZ Index ( 26 = 1) GFA sq ft million Figure 3 Grade A office supply, net absorption and availability ratio (25-213F)) F 213F New supply Net absorption Availability ratio 216F 215F 214F 213F 212F Central/ Admiralty Wanchai/ Causeway Bay Island East Tsimshatsui % Looking forward, we expect occupier demand in the Hong Kong office market to remain cautious but stable. Occupier demand, especially from multinational companies, is expected to become active again only if there is a clear turnaround in the current economic situation. Therefore, we expect overall Central office rents to decrease further, but at a slower pace by approximately 3% by the end of 212.

Map 1 Office availability by location Retail Despite positive retail sales growth in Q2, growth slowed compared to last quarter. In May, total retail sales reached HK$36.2bn (US$4.

5 Map 1 Office availability by location Retail Despite positive retail sales growth in Q2, growth slowed compared to last quarter. In May, total retail sales reached HK$36.2bn (US$4.62bn), a y-o-y growth rate of 8.8%, lower than the 15.6% y-o-y growth rate in February (Figure 4). On the other hand, the y-o-y retail volume growth also slowed, to 5.8% in May from 1.1% in February (Figure 4). Although the y-o-y growth in total visitor arrivals decreased slightly from 15.3% in February to 12.7% in May, the growth remained strong and the growth rate remained in double digits. Mainland visitors continue to be the largest portion of total visitor arrivals, accounting for 69% of the total. The DTZ retail rental index for Hong Kong Island showed modest growth of 3.3% q-o-q to reach (Table 3 and Figure 5). With the launch of Hyson Place Figure Total retail sales ( 27 - May 212) Value (HK$bn) Yearly growth in, retailers are keen on paying higher rent to capture market share in adjacent areas. For instance, Bonjour leased a 3,6 sq ft. street shop in Kai Chiu Road, Causeway Bay at HK$5mn (US$.64mn) per month Retail Sales Value Source: Census and Statistics Department HKSAR Retail Volume

6 In New Territories, supported by strong mainland tourist consumption, the DTZ rental index increased sharply by 2.7% y-o-y to reach (Table 3 and Figure 5). The strong tourist consumption growth is especially evident in regional shopping malls close to the Shenzhen border. For instance, Prince Jewellery & Watch leased 6, sq ft. in Landmark North at HK$1mn (US$.13) per month. Looking forward to 212, we expect overall Table 3 Retail market statistics Hong Kong Island retail rents to continue to rise steadily on the back of Figure 5 rising mainland visitors and growing tourist spending. Retail rental index ( ( Q2 Q2 212) 212) DTZ Index ( 2 = 1) Rental index ( 2 = 1) q-o-q Source: Rating and Valuation Department HKSAR, DTZ Research y-o-y Kowloon New Territories Hong Kong Island Kowloon New Territories

GENERAL DISCLOSURE Disclaimer - DTZ Research This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice.

7 GENERAL DISCLOSURE Disclaimer - DTZ Research This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. DTZ y 212 Disclaimer - Citibank The market data and information herein contained ( Information ) is the product or service of a third party not affiliated to Citibank NA, Citigroup Inc or Its Affiliates. None of the Information represent the opinion of, counsel from, recommendation or endorsement by Citibank NA, Citigroup Inc or Its Affiliates, Officers, Employees or Agents. You may not use the Information for any unlawful purpose or any purpose not expressly permitted hereby. Reproduction of the Information in any form is prohibited. NO WARRANTY The Information is provided as is, without warranty of any kind, it has not been independently verified by Citibank NA, Citigroup Inc or Its Affiliates, Officers, Employees or Agents and use of the Information is at your sole risk. Citibank NA, Citigroup Inc or Its Affiliates, Officers, Employees or Agents shall not be liable and expressly disclaim liability for any error or omission in the content of the Information, or for any actions taken by you or any third party, in reliance thereon. The Information is not guaranteed to be error-free, or to be relied upon for investment purposes, and Citibank NA, Citigroup Inc or Its Affiliates, Officers, Employees or Agents make no representation or warranty as to the accuracy, truth, adequacy, timeliness or completeness, fitness for purpose, title, non infringement of third party rights or continued availability of the Information. LIMITATION OF LIABILITY IN NO EVENT SHALL CITIBANK NA, CITIGROUP INC OR ITS AFFILIATES, OFFICERS, EMPLOYEES OR AGENTS, BE LIABLE FOR ANY LOSS OR DAMAGE OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES, OR DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, AND ANY AND ALL FORMS OF LOSS OR DAMAGE, REGARDLESS OF THE FORM OF ACTION OR THE BASIS OF THE CLAIM, WHETHER OR NOT FORESEEABLE ) ARISING OUT OF THE USE OF THE INFORMATION (PROVIDED IN ANY MEDIUM), EVEN IF ANY OF CITIBANK NA, CITIGROUP INC OR ITS AFFILIATES, OFFICERS, EMPLOYEES OR AGENTS, HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE. COUNTRY SPECIFIC SINGAPORE 212 CITIBANK CITIBANK IS A REGISTERED SERVICE MARK OF CITIGROUP INC. OR CITIBANK, N.A. CITIBANK SINGAPORE LIMITED. CO REG. NO K

PROPERTY INSIGHTS. Market Overview. Office take-up rebounded. Hong Kong Quarter 3, 2012

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