DTZ Research. Property Times Shanghai Q Office occupancy remains stable hh. 15 January Contents. Authors. Contacts

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1 F 2017F Property Times Shanghai Q Office occupancy remains stable hh 15 January 2013 Contents Economic Overview 2 Office 3 Retail 4 Industrial & logistics 5 Residential 6 Investment 7 Authors Steven Cheng Assistant Manager, Research steven.x.cheng@dtz.com Ray Zhang Assistant Manager, Research ray.r.zhang@dtz.com The average grade A office rent in Shanghai reached RMB 8.78 (US$1.40) per sq m per day as of end of Q The citywide availability ratio remained at 7.35%. Rent in the five selected retail hubs showed an increase of 2.81% quarter-onquarter (q-o-q) to reach RMB (US$9.51) per sq m per day. The occupancy rate in the five selected retail hubs increased from 91.26% in Q3 to 92.05% in Q4, up 0.79% q-o-q but down 3.59% year-on-year (y-o-y). The overall industrial rental growth moderated across the board, reaching RMB (US$9.22) per sq m per month. Meanwhile, the total availability ratio in the market remained stable at 8.32%. Transaction volume for high-end residential property amounted to 174,181 sq m, a decrease of 14.1% q-o-q but an increase of 51.1% y-o-y. The average price of non-serviced apartments saw a slight rebound from RMB 58,172 (US$9,308) per sq m to RMB 58,678 (US$9,388) per sq m, a gain of 0.87% q-o-q and a loss of 1.30% y-o-y. The average price of high-end villas decreased 2.16% q-o-q and 5.46% y-o-y to RMB 50,081 (US$8,013) per sq m. Figure 1 DTZ grade A office index (Q1 2005=100) Contacts 190 Shaun Brodie Head of East China Research Head of China Strategy Research shaun.brodie@dtz.com David Ji Head of Greater China Research david.yx.ji@dtz.com Hans Vrensen Global Head of Research hans.vrensen@dtz.com F=Forecast Grade A office rental Grade A office price DTZ Research

2 Economic Overview Shanghai s Q3 GDP grew by 7.4% to reach RMB 14,374 billion (US$2300bn). Disposal income per capita hit RMB 30,205 (US$4,833) in Q3 2012, an increase of 11.5% y-o-y (Table 1). From January to November 2012, total industrial output (above a designated size) accumulated to reach RMB 2,870 billion (US$459bn), a 1.0% y-o-y decrease (Table 1). From January to November 2012, real estate investment increased 7.7% y-o-y to reach RMB 215 billion (US$34bn). Meanwhile, investment in the residential sector grew by just 0.1%, and the growth rate in the office sector was about 9.6%. The retail sector gained 34.3% y-o-y (Table 1). Shanghai s consumer price index (CPI) in November reached 102. CPI decreased by 2.0% y-o-y (Table 1). In November utilised foreign direct investment (FDI) increased by 19.7% y-o-y to reach US$144 million (Table 1). Table 1 Economic indicators Indicator Period Unit Value Change y-o-y (%) GDP Q RMB 100 million Total industrial output (above a designated size) Disposable income per capita Jan Nov 2012 FDI utilised Nov 2012 Real estate investment Consumer price index RMB 100 million 14, , Q RMB 30, Jan Nov 2012 US$100 million RMB 100 million , Nov Source: Shanghai Statistics Bureau Property Times 2

3 F 2017F Shanghai Q Office This quarter, the Shanghai grade A office market witnessed no new supply, thus the overall grade A office stock remained at 5,766,469 sq m (Table 2). Net absorption stayed low at 86,000 sq m compared to the same time last year, implying a rather sluggish leasing market amid a consensus that economic recovery is underway. The citywide availability ratio dropped to 7.35%, mainly due to an improvement in net absorption in Lujiazui and Zhuyuan. However, our view is the overall availability ratio will fluctuate at the current level in the short term, with new supply expected to enter the market gradually. As for the medium term, citywide availability will increase, given the large amount of future supply (Figure 3). Shanghai s overall rent remained steady, with 0.26% q-o-q growth in Q4. However, y-o-y growth continued to slow, down from 4.92% to 3.14% in Q4 (Figure 2), implying downside risks in the global economy, putting pressure on corporations budgets and finances. Going forward, a moderate rent correction is anticipated in the short term, accompanied by a cautious growth outlook in the medium term. The global economy, especially in Europe and the United States continues to face many challenges. As such, investors could become more cautious and risk-averse in the office market. In fact, prime office yield has gone up slightly from 2011, indicating a short-term downside risk in the commercial property sector. Quantitative easing programmes appear to have increased the risk in various investment tools. Table 2 Grade A office market statistics District Total stock Availability ratio (%) Average Rental (RMB/sq m/ day) Change q-o-q (%) Pudong 2,106, Hongkou 146, Huangpu 1,054, Zhabei 181, Jing an 708, Changning 821, Xuhui 622, Putuo 66, Minhang 58, Overall 5,766, Note: Rental equals Gross Transacted Face Rental Figure 2 DTZ grade A office index (Q1 2005=100) Grade A office rental Grade A office price F=Forecast Figure 3 Souce: DTZ Research Availability ratio, supply and net absorption, sq m (000s) 2,500 2,000 1,500 1, F=Forecast F 2015F 2017F New supply Net absorption Availability ratio Souce: DTZ Research 35% 30% 25% 20% 15% 10% 5% 0% Property Times 3

4 Retail This quarter, Agile International Plaza, Park Place Reel and IFC (Phase II) were completed, pushing total high-end stock to 1,985,552 sq m (Table 3). Rents in five selected retail hubs increased 2.81 percentage points to RMB 59.5 (US$9.51) per sq m per day (Table 3). This marks the fourteenth consecutive q-o-q increase for high-end retail rental in our five selected downtown retail hubs. On Nanjing West Road in particular, several sites are now under construction and will be completed in the near future, including 688 Nanjing West Road, the Jing an Temple Transportation Center, Jing an Kerry Center and Eco City. Park Place Reel was recently opened and features major retailers Gucci and Ralph Lauren. In Plaza 66, several major international retailers are renovating their stores. The occupancy rate in our five selected retail hubs increased from 91.26% in Q3 to 92.05% in Q4, up 0.79% q-o-q but down 3.59% y-o-y. Considering the opening of several new shopping centres, the improved occupancy rate and the rent increase indicate a better operating environment for high-end retailers. The recently held 18th National Congress of the Communist Party set for the first time resident per capita income as an economic growth target, which is a good indicator that the government is looking to push domestic consumption as an economic growth driver of the future. We can also observe from National Bureau of Statistics data that in the first three quarters of this year, China's retail sales surpassed investment for the first time in driving the growth of the economy. This all bodes well for the retail market, and in particular the Shanghai retail market, in the future. Table 3 High-end retail market statistics Retail hubs Total stock New supply Average rental (RMB/sq m /day) q-o-q change (%) Lujiazui 617,378 10, Nanjing East Rd Huaihai Middle Rd Nanjing West Rd 417,628 22, ,292-10, ,895 34, Xujiahui 265, Overall 1,985,552 56, Figure 4 DTZ high-end retail index (Q1 2006=100) Table 4 Selected high-end retail future supply Retail hubs Selected projects Estimated launch date Nanjing West Rd Jing an Kerry Center 2013 Huaihai Middle Rd ICC Property Times 4

5 Industrial & Logistics Data released by the Shanghai Statistics Bureau showed the city s industrial production reaching RMB billion (US$42.4 bn) in November, growth of 1.8% month-on-month. Meanwhile, the city s producer price index remained negative, down 1.9% y-o-y. However, the fall was slower, indicating pressure from inflation on the production side was largely under control. Manufacturers continued to benefit from the low price of raw material. Overall, the economic data suggests that Shanghai s industrial activity stabilised in Q4. According to the Shanghai Land and Resource Bureau (as of 12 December 2012), a total of 61 industrial land parcels were transacted with an average transacted price of RMB (US$ 148.0) per sq m recorded, up significantly q-o-q. In addition, the total land sale value for these 61 plots amounted to around RMB 1.72 billion (US$275.2 million), with total transacted area reaching 1.86 million sq m. Overall, the average industrial rent rose slightly, reaching RMB (US$9.22) per sq m per month, up 1.16% q-o-q (Figure 5). R&D office rents climbed 2.1% q-o-q to reach RMB (US$16.55), while manufactory and warehouse rents remained stable at RMB (US$5.11) and RMB (US$6.03) per sq m per month respectively (Table 5 and Figure 5). In terms of y-o-y growth, rent for manufactory regained its momentum, up 4% compared with 2% in the first half of 2012, while warehouse rents slowed to 0.8%. R&D office rents continued to benefit from industrial restructuring and the emergence of service manufacturing, thus rental growth remained strong at 11.5% y-o-y. Finally, vacancy for manufactory in Q4 remained high at 5.45%, down 0.10% q-o-q, while vacancy rate for warehouse increased 0.51% to 9.48%. Vacancy for R&D office dropped slightly to 13.71%, a similar level to that seen one year ago. Table 5 Industrial market statistics Total stock Availability ratio (%) Rental (RMB/sq m/month) R&D office 4,367, % Warehouse 3,497, % Manufactory 9,626, % Overall 17,492, % Figure 5 DTZ industrial index (Q1 2006=100) Figure 6 Industrial rent as of Q R&D Office Warehouse Manufactory Source: DTZ Industrial Property Times 5

6 Residential According to China Index Academy, the average home price in 100 Chinese cities rose for the sixth straight month in November. With improved sales and access to bank credit, major developers became active again and this pushed land prices to increase more than 10% y-o-y in October. However, according to a statement issued in mid-december after the central economic work conference, China will continue its property market control policies next year. The country will continue increasing the supply of low-income housing, as well as the renovation of run-down areas. Official announcement of the future nationwide property tax also came in December. In Shanghai, total transaction volume of high-end residential property amounted to 174,181 sq m, down 14.1% q-o-q but up 51.1% y-o-y. The Q4 transaction volume of high-end nonserviced apartment properties declined by 23.5% q-o-q, from 157,096 sq m to 127,179 sq m (Table 6). However, the transaction volume of high-end villa properties saw a 3% q-o-q increase, from 45,654 sq m to 47,002 sq m. The average price of non-serviced apartment saw a slight rebound from RMB 58,172 (US$9,308) per sq m to RMB 58,678 (US$9,388) per sq m, a gain of 0.87% q-o-q and a loss of 1.32% y-o-y. The average price for high-end villas decreased 2.16% q- o-q to RMB 50,081 (US$8,013) per sq m. Compared with the average price one year ago, the average villa price is still 5.77% lower than in Q In the leasing market, high-end residential rent saw a slight decrease when compared to Q3. The average rental of nonserviced apartments fell 1.93% q-o-q to RMB (US$18.3) per sq m, while the average rent of villas fell 3.02% to RMB 89.8 (US$14.4) per sq m. Finally, the average rental of serviced apartments fell 1.23% to RMB (US$39.7) per sq m. Going forward, the transaction volume and the slight rebound of the average high-end residential property price in Shanghai reflect strong market demand. However, due to the government s firm stance on price control, we expect the Shanghai high-end residential market to experience little fluctuation in price. Table 6 High-end residential market statistics Non-serviced apt New supply Transaction volume Price (RMB/sq m) Rental (RMB/sq m) - 127,179 58, Serviced apt Villa 33,156 47,002 50, Note: Data as of 17 December 2012 Figure 7 DTZ high-end residential index (Q1 2006=100) Note: Data as of 17 December 2012 Souce: DTZ Research Figure 8 High-end non-serviced apartment price by district as of Q4 2012, RMB/sq m 100, ,000 60,000 40,000 20,000 High-end residential rental High-end residential price 0 Huangpu Jing'an Xuhui Changning Hongkou Pudong Note: Data as of 17 December 2012 Souce: DTZ Research Property Times 6

7 Investment As of 12 December 2012, the total number of land and en-bloc transactions in Shanghai (with a unit value of more than US$10m) had reached 53, a surge from last quarter and a 24% rise when compared to the same time last year (Table 7). The residential sector regained its momentum due to more residential land being released by the government. The industrial sector softened in Q4, with a total of five investment transactions recorded so far. The number of transactions, however, was still down from a year ago. Mixed use land picked up moderately from last quarter, totalling 8 transactions. The retail sector continued to see stable growth, with a total of three deals transacted, while in Q one transaction was recorded. The overall investment picture was more or less optimistic, confirming improved market sentiment on the back of a gradual economic recovery. Total consideration picked up dramatically to RMB billion (US$4.89bn) in Q4 as compared with the last quarter and a y-oy growth of 7% (Table 8). Accompanied by a surge in the total number of residential transactions, total investment value in residential jumped. The recovery seen in the office sector suggests renewed interest from investors after market sentiment dropped in Q3. Mixed use deals recorded a significant turnaround q-o-q with a major deal of a 10ha plot near Shanghai South Railway Station jointly purchased by Vanke, Greenland and associates for a total consideration of RMB 5.43 billion (US$868.96mil). Overall, we saw investment sentiment bottom out in Q3 and momentum regained in Q4, with more foreign purchasers entering the market. Table 7 Total number of major deals Q Q Q Residential Office Industrial Retail 1-3 Mixed use Others Total Table 8 Total consideration of major deals (RMB million) Q Q Q Residential 7,811 3,222 12,550 Office 7,681 3,213 7,774 Retail 644 1,885 2,700 Industrial 201 1, Mixed 12,243 1,135 1,320 Others Total 28,579 9,455 30,575 Table 9 Significant deals Property type Submarket Sector CITIC Shipyard Project (One block) Pudong Lujiazui Office 1,750 Plot 03B-12, 03B-13 Jiading District Residential 1,025 Jiading Nanxiang Township Plot Jiading District Mixed use Price (RMB million) Property Times 7

8 Definitions Availability: Availability Ratio: Development Pipeline: Net Absorption: New Supply: Prelet: Prime Rent: Rent: Prime Yield: Market Yield: Stock: Take-up: Vacancy: Total floor space in properties marketed as available to let, whether physically vacant or occupied, and ready for occupation immediately. Total space currently available as a percentage of the total stock of floor space. Comprises two elements: Floor space in course of development, defined as buildings being constructed or comprehensively refurbished to grade A standard. Schemes with the potential to be built in the future, through having secured planning permission/development certification. The change in the total of occupied floor space over a specified period of time, either positive or negative. Total marketed grade A floor space which is ready for occupation now. Ready for occupation means practical completion, where either the building has been issued with an occupancy permit, where required, or where only fit-out is lacking. A development leased or sold prior to completion. The highest rent that could be achieved for a typical building/unit of the highest quality and specification in the best location to a tenant with a good (i.e. secure) covenant. (NB. This is a net rent, excluding service charge or tax, and is based on a standard lease, excluding exceptional deals for that particular market.) Gross transacted rents (unless otherwise specified), which excludes management fees and other outgoings. The best (i.e. lowest) yield which could be expected for a typical building/unit of the highest quality and specification in the best location leased to a tenant with a good (i.e. secure) covenant. (NB. This is a net yield, which uses net income, after deducting all non-recoverable expenditure, divided by the purchase cost, excluding transaction costs and taxes.) Annual transacted rent as a percentage of the capital value of the property. Total accommodation in the commercial and public sectors both occupied and vacant. Floor space acquired for occupation, including the following: (i) offices let/sold to an eventual occupier; (ii) developments pre-let/sold to an occupier; (iii) owner occupier purchase of a freehold or long leasehold. (NB. This includes subleases but excludes lease renewals.) Floor space that is empty, i.e. not occupied. It may be being marketed, or it may not (whether because a lessee is not occupying, it is being refurbished or it is deliberately being left empty by the landlord). Property Times 8

9 Other DTZ Research Reports Other research reports can be downloaded from These include: Occupier Perspective Updates on occupational markets from an occupier perspective, with commentary, analysis, charts and data. Global Occupancy Costs Offices 2012 Obligations of Occupation Americas 2012 Obligations of Occupation Asia Pacific 2012 Obligations of Occupation EMEA 2012 Property Times Regular updates on occupational markets from a landlord perspective, with commentary, charts, data and forecasts. Coverage includes Asia Pacific, Bangkok, Beijing, Berlin, Brisbane, Bristol, Brussels, Budapest, Central London, Chengdu, Chongqing, Dalian, Edinburgh, Europe, Frankfurt, Glasgow, Guangzhou, Hangzhou, Ho Chi Minh City, Hong Kong, India, Jakarta, Japan, Kuala Lumpur, Luxembourg, Madrid, Manchester, Melbourne, Milan, Nanjing, Newcastle, Paris, Poland, Prague, Qingdao, Rome, Seoul, Shanghai, Shenyang, Shenzhen, Singapore, Stockholm, Sydney, Taipei, Tianjin, Ukraine, Warsaw, Wuhan, Xian. Insight Thematic, ad hoc, topical and thought leading reports on areas and issues of specific interest and relevance to real estate markets. Great Wall of Money October 2012 Property Market Correlations October 2012 J-Reit October 2012 Rise of City Clusters September 2012 Singapore Luxury Condominiums September 2012 China Hongqiao Transportation Exchange June 2012 Global Debt Funding Gap May 2012 DTZ Research Data Services For more detailed data and information, the following are available for subscription. Please contact graham.bruty@dtz.com for more information. Investment Market Update Regular updates on investment market activity, with commentary, significant deals, charts, data and forecasts. Coverage includes Asia Pacific, Australia, Belgium, Czech Republic, Europe, France, Germany, Italy, Japan, Mainland China, South East Asia, Spain, Sweden, UK. Money into Property For more than 35 years, this has been DTZ's flagship research report, analysing invested stock and capital flows into real estate markets across the world. It measures the development and structure of the global investment market. Available for Global, Asia Pacific, Europe and UK. Foresight Quarterly commentary, analysis and insight into our inhouse data forecasts, including the DTZ Fair Value Index. Available for Global, Asia Pacific, Europe and UK. In addition we publish an annual outlook report. Property Market Indicators Timely series of commercial and industrial market data in Asia Pacific and Europe. Real Estate Forecasts, including the DTZ Fair Value Index Five-year rolling forecasts of commercial and industrial markets in Asia Pacific, Europe and the USA. Investment Transaction Database Aggregated overview of investment activity in Asia Pacific and Europe. Money into Property DTZ s flagship research product for over 35 years providing capital markets data covering capital flows, size, structure, ownership, developments and trends, and findings of annual investor and lender intention surveys. Property Times 9

10 DTZ Research Contacts Consultancy Michael Ma Phone: Property Management Chris Cheung Phone: Industrial Tony Su Phone: Investment Jim Yip Phone: Office Leon Fu Phone: Building Consultancy Anthony Ng Phone: Residential Jenny Wu Phone: Retail Raymond Wei Phone: Valuation Hans Gu Phone: DISCLAIMER 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 Property Times 10