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

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PROPERTY INSIGHTS Hong Kong Quarter 3, Market Overview Office take-up rebounded Benefited from higher Great A office take-up in decentralised markets, overall net absorption increased significantly

1 PROPERTY INSIGHTS Hong Kong Quarter 3, Market Overview Office take-up rebounded Benefited from higher Great A office take-up in decentralised markets, overall net absorption increased significantly from -226,64 sq ft in Q2 to 558,7 sq ft in. Rental remained stable in most markets except Sheung Wan/Central/Admiralty, which dropped by 1% quarter-on-quarter (q-o-q) to reach HK$16 (US$13.6) per sq ft per month (Figure 1). In the retail market, although total visitor arrivals increased 2.5% year-on-year (y-o-y) in August to reach 4.9 million, total retail sales only increased 4.5% y-o-y to reach HK$35.8 billion (US$4.6bn). Meanwhile, some retailers turned their attention to non-core shopping malls adjacent to major transportation hubs in the New Territories. As a result, the DTZ New Territories rental index increased significantly by 29.3% y-o-y to reach Figure 1 DTZ office index (25 217F) DTZ Index ( 26 = ) F=Forecast lump-sum units continued to see greater price surge when DTZ mass residential index increased 7.7% q-o-q. Meanwhile DTZ luxury residential index increased slightly 2.9% q-o-q F 216F 215F 214F 213F F Central/ Admiralty Wanchai/ Causeway Bay Island East Tsimshatsui Source: DTZ Research Although residential transactions dropped slightly this quarter, price continued to increase. Smaller

2 Trends & Updates Economic Overview Real GDP annual growth rate remained low at 1.2% y-o-y in Q2 amidst a weak global economic outlook, although it increased from the.4% growth in (Table 1). Inflation has further eased this quarter. The growth of composite CPI dropped.6% percentage points from 4.3% in May to 3.7% in August (Table 1). Despite the global economic woes, unemployment rate remained low at 3.2%, reflecting that employers in general were still optimistic in recruitment (Table 1). Growth in total exports however continued to slow down. In August, y-o-y growth in total export value reached.6%, slower than the 5.2% y-o-y growth rate in May (Table 1). In Q2, domestic private consumption expenditure grew 3.5% y-o-y in real terms, which was slower than the 5.6% y-o-y growth in (Table 1). Table 1 Economic indicators Indicator Period Unit Value GDP at constant prices* y-o-y HK$bn Total exports Aug HK$bn Private consumption expenditure Unemployment rate (seasonally adjusted) Q2 HK$bn Aug % pts Visitor arrivals Aug Million Composite CPI Aug Total retail sales value *In chained (21) dollars Source: Census and Statistics Department HKSAR, Hong Kong Tourism Board Aug HK$bn Supported by mainland tourists flow, total visitor arrivals increased 2.5% y-o-y in August to reach 4.9 million (Table 1). Residential Residential transaction decreased slightly in, total number of S&P agreements decreased 4.7% to reach 28,76 (Figure 6). Despite the volume drop, price remained at a high level backed by stable economic fundamentals, low interest rate, and strong enduser demand with limited supply. This quarter, DTZ overall residential index increased 5.5% q-o-q, and 15.1% y-o-y (Figure 7 and Table 4). Supported by end-user demand, prices of smallto-medium sized flats continued to see stronger growth over the period. As a result, DTZ mass residential index saw a greater q-o-q increase of 7.7% (Figure 7 and Table 4). In addition, prices Figure 6 Transaction volume of S&P Agreements ( 25 ) Number of S&P Agreements 5, 45, 4, 35, 3, 25, 2, 15, 1, 5, - Source: Land Registry of residential units in North West New Territories also increased significantly thanks to a new project near Tuen Mun West Railway Station.

3 Constrained by higher down-payment requirements, large lump-sum residential units saw less price increase compared to the mass market. DTZ luxury residential index increased only 2.9% q-o-q, and 5.6% y-o-y (Figure 7 and Table 4), respectively. Due to the substantial price increase, vendors remained aggressive in pricing, especially after the news of QE3 from the US. As such steep rise of asking prices had deterred many potential buyers transaction volume did not see any increase despite the price rise. Looking ahead, since there is no sign of any fundamental change in Hong Kong economy, price is expected to increase continuously, although significant price surge may trigger government to impose further measures on the market. Figure 7 Residential price index ( 25 Q2 ) DTZ Index ( 2 = ) *Data for is as of Table Mass residential Luxury residential Overall Primary residential market statistics Mass market Luxury market Overall market Total stock (no. of units) Price index ( 2 = ) q-o-q y-o-y 1,13, , ,95, Offices The overall net absorption of grade A office space increased significantly from -226,64 sq ft in Q2 to 558,7 sq ft in, although some companies especially those in finance, insurance, and real estate (FIRE) sectors remained cautious expanding their offices. Meanwhile, the average overall rent dropped.8% q-o-q to HK$61 (US$7.9) per sq ft per month (Table 2). In the central financial districts (CFD) of Sheung Wan/Central/Admiralty, where the FIRE sector concentrated, companies remained cautious and sought to further reduce operating costs through decentralisation. Although its availability ratio decreased slightly from 6.28% in Q2 to 6.24% in, it is mainly attributed to the positive takeup in Sheung Wan. In fact, availability ratio for Central and Admiralty increased from 6.43% in Q2 to 6.57% in, the highest since 26. Rent Table 2 Grade A office market statistics District Sheung wan/ Central/ Admiralty Wanchai/ Causeway Bay of Sheung Wan/Central/Admiralty continued to drop, albeit at a much slower pace, by 1% q-o-q to reach HK$16 (US$13.6) per sq ft per month (Table 2). Total stock (million sq ft) Availability Ratio Monthly rent (HKD per sq ft) q-o-q Island East Tsimshatsui Kowloon East Overall Source: DTZ Research

4 Thanks largely to a newly launched project, average rent in Wanchai/ Causeway Bay increased 3.5% q-o-q to HK$47 (US$6.). Net absorption also increased to 168,42 sq ft in. Due to the new supply however, the district s availability ratio increased from 3.37% in Q2 to 3.77% in. Benefited from decentralisation and a relatively more stable outlook of non-fire sectors, decentralised sub-markets, including Island East, Tsimshatsui, and Kowloon East witnessed fairly significant drop in availability. For instance, availability ratio in Island East dropped from 4.1% in Q2 to 2.79% in, while that in Kowloon East decreased from 4.89% in Q2 to 3.19% in. Rents in these markets, on the other hand, remained stable. Only Tsimshatsui saw a slight increase of.27% q-o-q in rent while other sub-markets rent remained unchanged (Table 2). Looking forward, supply of office space is expected to be tight from now to 214. Although Kowloon East account for a large proportion of Hong Kong s development pipeline in the near future, most of which are earmarked for sale. Therefore, we expect the rental development of most districts to be stable. Because companies seeking lower operating costs will continue to decentralise, rents and take-up in non-core districts will continue to benefit from this trend. Figure 2 DTZ office index (25 217F) DTZ Index ( 26 = ) Figure 3 Grade A office supply, net absorption and availability ratio (25 213F) GFA sq ft million 8. However, due to reduced rental gap between Central and the non-core districts and limited supply, we expect rental growth in Central and Admiralty is set to stabilise and becoming positive in F 213F New supply Net absorption Availability ratio 217F 216F 215F 214F 213F F Central/ Admiralty Wanchai/ Causeway Bay Island East Tsimshatsui %

5 Map 1 Office availability by location Source: DTZ Research Retail Total visitor arrivals grew 2.5% y-o-y to reach 4,898,843 in August. Such a strong growth was largely contributed by mainland Chinese visitors, who accounted for 76% of the total monthly visitor arrivals. Despite this strong growth, retail sales growth continued to slow down in. In August, total retail sales reached HK$35.82bn (US$4.59bn) with a y-o-y growth of 3.2%, lower than the 11.5% y-o-y growth rate recorded in il. Meanwhile, retail volume growth plummeted to 1.3% y-o-y, a significant drop compared to 7.6% in il (Figure 4). This trend is a result of reduced average visitors spending, especially in luxury items. In the retail property sector this quarter, leasing transactions are less active compared to Q2 as retailers are less aggressive after rapid expansion in previous quarters. However since front-street shop Figure 4 Total retail sales ( 27 y ) Value (HK$bn) Yearly growth Retail Sales Value Source: Census and Statistics Department HKSAR supply is limited in traditional core shopping districts, landlords remained aggressive and unwilling to lower their asking rents. As a result, there was no leasing transaction in first tier streets in traditional core shopping districts in this quarter. Retail Volume

6 While leasing transactions are not active in the shopping districts in Hong Kong Island and Kowloon, some retailers turned their attention in regional shopping malls adjacent to major transportation hubs in the New Territories. For instance, a developing project near Tuen Mun West Railway station, was well pre-let by many mid-to-high-end retail brands. As a result, the DTZ New Territories rental index increased significantly by 29.3% y-o-y to reach 27.5, while DTZ Hong Kong rental index and DTZ Kowloon rental index only increased 1.% and 6.2% y-o-y respectively. Looking forward into Q4, we expect retail rent to increase at a milder pace since retailers are no longer aggressively expand. Leasing transaction will also see some slowing down. Table 3 Retail market statistics Hong Kong Island Rental index ( 2 = ) q-o-q y-o-y Kowloon New Territories Souce: Rating and Valuation Department HKSAR, DTZ Resarch Figure Retail rental index ( 26 ) DTZ Index ( 2 = ) Hong Kong Island Kowloon New Territories Souce: Rating and Valuation Department HKSAR, DTZ Resarch

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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 ober 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 CITIBANK CITIBANK IS A REGISTERED SERVICE MARK OF CITIGROUP INC. CITIBANK SINGAPORE LIMITED. CO REG. NO K

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

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