SLOWDOWN IN SENTIMENT BELIES UNDERLYING STABLE DEMAND

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1 COLLIERS QUARTERLY BUSINESS PARK SHANGHAI Q NOVEMBER 2018 Yihong Song Manager Research East China Yihong.Song@colliers.com SLOWDOWN IN SENTIMENT BELIES UNDERLYING STABLE DEMAND Summary and Recommendations A slowdown in leasing activity for Shanghai business parks was seen during Q3 2018, after a strong year in 2017 and a steady pickup in H Nevertheless, average rents edged up 0.1% QOQ owing to high occupancy and increasingly mature properties. The outlook is positive for Q considering the market expectation that the China International Import Expo will attract more business to Shanghai and the scheduled operation of Phase III of Metro Line 13, which should provide direct metro access to Zhangjiang Central Zone. Colliers predicts rents will rise slightly towards the end of 2018, and keep growing at a pace of about 4% annually over We recommend tenants who have definite expansion plans to start looking for opportunities now, in order to get a favourable terms from those landlords who have become more flexible facing the slowdown in leasing sentiment. Demand Supply Rent Vacancy > The First China International Import Expo (CIIE) should drive growth in the high-tech, professional services and trading sectors, thereby stimulating demand for business parks for the next 3 to 5 years. > New supply coming should increase over Q4 2018, with a GFA of 119,364 sq m (1.3 million sq ft) scheduled to be completed, expanding the total stock by 1.3%. Supply will probably be adequate over > We expect rents to increase 3% in 2018, and keep growing at a pace of about 4% annually over > The overall vacancy rate should climb to 16.9% by the end of 2018 and keep steady in 2019 amidst the pressure of heavy new supply, then see sequential improvements, reaching 15.3% by the end of Shanghai Research Note: 1 sq m = sq ft. USD1 = RMB6.85 at end Q3. PP = percentage point. Q ,066 sq m 73,117 sq m End Q3/QOQ Full Year ,000 sq m 676,933 sq m End 2018/YOY 0.1% 3. RMB4.28 RMB pp +0.5pp 16.4% 16.9% Annual Average 470,000 sq m 493,000 sq m End 2022/ Annual Average Growth % RMB pp 15.3%

2 thousand sq m 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 thousand sq m COLLIERS QUARTERLY BUSINESS PARK SHANGHAI Q NOVEMBER OCTOBER 2018 LEASING MARKETS AND RENTS New supply declined in Q3 Two new projects were completed in Q One of the projects is Hongmao Centre in Caohejing with an office area of 19,500 sq m (209,820 sq ft); the other is Jinqiao Fintech Park, with an area of 53,617 sq m (576,919 sq ft). This is Jinqiao submarket s first new project since Q The total stock of Shanghai s business park market increased by 0.8% QOQ or 10.7% YOY to 9.58 million sq m (103 million sq ft). Notably, the total GFA of new supply reached its lowest point since Q2 2016, equalling only 26.4% of Q1 s and 39.6% of Q2 s new supply in The lower level of new supply relieved landlords leasing pressure to some extent, helping the rent and the vacancy rate to stay stable. Vacancy rate edged down A slight slowdown in leasing sentiment for Shanghai s business parks was seen during Q Tenants appear to be cautious about expansion due to the central government s deleveraging regulations and the China-US trade tension. Net absorption declined to 88,066 sq m (947,590 sq ft), which was less than one-half the amount of net take up compared to the previous four quarters. Jinqiao, Zhangjiang and Caohejing remained attractive to businesses as these submarkets contributed 7 of the overall net absorption in the quarter. The overall vacancy rate edged down 0.3 percentage points QOQ to 16.4%, flat on the same period last year. Notably, top co-working operators started to step into business parks, as evidenced by WeWork s lease of 7,000 sq m (75,320 sq ft) at Candor Plaza, a project in Zhangjiang Central Zone, beneficiary of the soon-to-be-opened Phase III of Metro Line 13. The slowdown in leasing demand provides tenants with an opportunity to negotiate lease renewals or seek places for expansion, since some landlords may become more flexible and provide attractive terms. We recommend those tenants with definite expansion plans to start seeking opportunities soon, especially those interested in submarkets like Linkong and New Jing an where the volumes of future supply are relatively low and vacancy rates are stable. Figure 1: Shanghai business park quarterly new supply, net absorption and vacancy rate Figure 2: Shanghai business park occupied and vacant area by submarket 3,000 2,500 2,000 1,500 1, New Supply Net Absorption Vacancy Rate 13.9% CHJ 18.9% 18.7% CHJ Pujiang Jinqiao 13. Zhabei 10.6% LJZ Software Park Linkong 6.7% 22. Zhangjiang 8. Waigaoqiao Occupied Area Vacant Area Vacancy Rate 14.9% Zizhu

3 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 COLLIERS QUARTERLY BUSINESS PARK SHANGHAI Q NOVEMBER OCTOBER 2018 Rent growth slowed down Figure 3: Shanghai business park average rent and QOQ change In Q3 2018, the average rent of Shanghai business parks was stable at RMB4.28 (USD0.62) per sq metre per day. With the new supply completed in Q3 2018, the rental growth rate dropped to 0.1% QOQ or 2. YOY. Supported by the above-average rent from new projects, Jinqiao achieved a QOQ rental growth of 0.7% to RMB3.50 (USD0.51) per sq metre per day, outperforming other submarkets on a quarterly basis for the first time since Q Rental growth in Zhangjiang and Caohejing also outpaced the other submarkets, since these districts saw rents increase by 0.3% and 0.2% QOQ to RMB4.55 (USD0.66) and RMB5.12 (USD0.75) per sq metre per day respectively, driven by mature operation and stable leasing demand. Lujiazui Software Park still ranked first for average rent, followed by Caohejing and Zhangjiang RMB psm per day 6% 4% 3% 2% 1% -1% INVESTMENT MARKET Three en bloc sales transaction announced Investment sentiment for business park properties remained strong during Q3 2018, with three en bloc sales transactions closed and the total volume of GFA outperforming Q Foreign funds, domestic institutions as well as end-users actively sought suitable acquisition targets, and several deals currently in the negotiation stage should conclude in the coming quarters. In July, Keppel s subsidiary Alpha Investment Partners acquired Bay Valley C6 for RMB563 million (USD82 million) through a joint venture with Allianz Real Estate. The building has an total above ground GFA of 19,753 sq m (212,542 sq ft). In August, Shanxi Lingshi Coal Industry acquired the office portion of Jing Cai Tian Di, a mixed use complex in Jinqiao with an office GFA of 20,591 sq m (221,559 sq ft), for RMB515 million (USD75 million) from SUNAC. During the same month, Lingang Group sold two office buildings in Caohejing Pujiang Hi-Tech Center to Phoenix Property Investors with a combined above ground GFA of 40,126 sq m (431,756 sq ft) for RMB722 million (USD105 million) RMB psm per day CHJ CHJ Pujiang Jinqiao Average Rent New Jing an LJZ Software Park Average Rent Linkong Change QOQ Figure 4: Shanghai business park average rent by submarket Average Rent: RMB4.28 psm per day Zhangjiang Waigaoqiao Zizhu 3

4 COLLIERS QUARTERLY BUSINESS PARK SHANGHAI Q NOVEMBER OCTOBER 2018 Outlook is positive The first China International Import Expo attracts businesses, exhibitors and professional purchasers all over the world to participate in the importing of goods, services and technology. Major sectors attending the expo will include consumer electronics and appliances, intelligent equipment, automobile, medical equipment and medical care products, emerging technologies and services, all of which are demand drivers for Shanghai business parks. Those sectors will grow rapidly driven by an increasing foreign investment and technology spillovers through import, therefore generating higher demand for Shanghai business parks. In addition, we expect the ongoing buildout of metro connectivity to attract more tenants to business parks. Notably, Phase III of Line 13 is scheduled to be completed by this November, substantially enhancing the accessibility of Zhangjiang Central Zone and boosting the demand for nearby business park properties. We expect approximately 119,364 sq m (1.3 million sq ft) of new supply to be completed in Q4 2018, 62% of which will be in Zhangjiang, expanding the submarket s stock by 2.8%. Colliers expects the average citywide vacancy rate to edge up 0.5 percentage points to 16.9% as end-of 2018 and keep steady at this level in 2019 amidst the pressure of heavy new supply, then see downward momentum and reach 15.3% by the end of Rental growth should remain stable, increasing 3- per annum from 2018 to

5 Primary Author: Yihong Song Manager Research East China Contributor: Timothy Chen Director Research East China For further information, please contact: Tammy Tang Co-Head Managing Director China Head of Industrial China Andrew Haskins Executive Director Research Asia Dave Chiou Senior Director Research China About Colliers International Group Inc. Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is a top tier global real estate services and investment management company operating in 69 countries with a workforce of more than 12,000 professionals. Colliers is the fastest-growing publicly listed global real estate services and investment management company, with 2017 corporate revenues of $2.3 billion ($2.7 billion including affiliates). With an enterprising culture and significant employee ownership and control, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide, and through its investment management services platform, has more than $20 billion of assets under management from the world s most respected institutional real estate investors. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice to accelerate the success of its clients. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 13 consecutive years, more than any other real estate services firm. Colliers is ranked the number one property manager in the world by Commercial Property Executive for two years in a row. Colliers is led by an experienced leadership team with significant equity ownership and a proven record of delivering more than 2 annualized returns for shareholders, over more than 20years. For the latest news from Colliers, visit our website or follow us on