Property Times.

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1 Property Times Klang Valley & Environs Q2 29 KDN No: PP11712/5/29 Investors, owners, occupiers and developers A quarterly report on the Malaysia property market

2 Office Market Office sector remained stable with no new supply added to the market The office sector, especially the prime Grade A office space segment, was stable in terms of average monthly gross rents during the quarter. This is attributed mainly to the fact that there was no new completion of office space in the city centre, and most of the prime office buildings were close to full occupancy at the time of review. Rents of prime office space in Q2 29 remained unchanged at an average of RM6.14 per sq ft per month. In terms of office space occupiers, most of the tenants are still coming from multinational companies in the oil- and gas-related and information technology sectors. Meanwhile, there has also been some expansion of serviced / virtual office providers who provide office accommodation in serviced business centres, with modern, innovative and technologically equipped office spaces for companies seeking fast and fuss-free space. Among the popular serviced office providers are Nomad, Regus and CEO Suites. However, the impending supply of some 3.43 mil sq ft in Kuala Lumpur city during the second half of the year is expected to exert downward pressure on occupancy rates and rental rates of new office buildings. Approximately mil sq ft will be prime Grade A office space located within the Golden Triangle Area (GT). Among them, the two most significant projects are GTower and The Icon, each with approximate area of 5, sq ft. Meanwhile, a new office project named 348 Sentral, jointly developed by MRCB (developer of KL Sentral) and Gapurna Group, commenced its ground work in April. Comprising some 567,124 sq ft, it will be completed by 212. As reported, Shell Malaysia will be its anchor tenant, leasing 34, sq ft for 15 years. Landlords of upcoming buildings are facing a challenging time ahead to secure anchor tenants. The on-going financial crisis has put a halt to business expansion, which also affected the demand for new office space. In addition, prime office buildings are facing keen competition from new office buildings outside the city centre, especially in the decentralised areas in Petaling Jaya, along the stretch of Jalan Semangat in Section 14 as well as those fronting Federal Highway. These newly completed buildings command cheaper rents as compared to prime Grade A office in the city centre. In order to secure quality anchor tenants for space in the new office buildings, landlords are offering incentives such as longer rentfree and fit-out periods. The outlook of the office sector is challenging with downward presure on rental and capital values due to weak demand and the new supply that will be completed in the next few years. The downward trend may however be cushioned by the government s recent liberalization on economic policies targeting the services and financial sectors. The relaxation in policies is expected to promote foreign direct investment, with more foreign interests in the commercial property sector specifically. Average Monthly Gross Rents RMpsf Office Market Outlook Q months Outlook Average Monthly Gross Rents of Prime Office Space in Kuala Lumpur Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Major Buildings Under Construction in Kuala Lumpur Building Location NLA (sq ft) Exp, Completion The Icon Jalan Tun Razak 5, Q3 29 GTower Jalan Tun Razak 5, Q4 29 Newly Completed Office Buildings Outside Kuala Lumpur Building Location NLA (sq ft) Asking Rent (RM per sq ft) PJ City Fronting Federal Highway 194,5 4.5 PJ 8 Fronting Federal Highway 323, 5. Quill 9 Jalan Semangat 28, 4.5 PJ Trade Centre (Tower A) Damansara Perdana 2, mil sq ft Potential Supply of Office Space (NLA) Prime: GT Prime: CCA Prime: Decentralized Area Secondary: GT Secondary: Decentralized Area Completed Supply in H1 9 Notes: GT = Golden Triangle CCA = Centralized Commercial Area

3 Retail Cautious consumer spending amidst worsening economic condition The retail market remained weak due to the economic slowdown. Although the Consumer Sentiments Index (CSI) in Q1 29 recovered slightly by 7.5 points QOQ, consumers are still cutting back on spending plans in anticipation of a worsening of the economy. Retail Market Outlook Q months Outlook Average Monthly Gross Rents Household income continued to deteriorate while job and financial prospects remained gloomy. In particular, the manufacturing sector in April saw a 7.7% decline YOY in number of employees (1.1% decline on month on month basis) and a 9.4% decline YOY in wages and salaries. According to the latest Economist Intelligence Unit (EIU) Report, retail sales is expected to decline by 7.2% in 29 compared to the historical average growth of 13.3% per annum in the last 3 years. mil sq ft Outside Kuala Lumpur Kuala Lumpur Existing Supply of Retail Space in Klang Valley There was no significant change in the occupancy of shopping centres as at end Q2 29, which remained at above 9%. There was still demand coming from hypermarkets and retailers in the food business which cater to basic neccessities. Some of them are even looking into expanding their retail outlets in upcoming shopping centres located in established and strong residential neighbourhoods. The most affected retail sub-sectors are the fashion and high-end retailers, who are already experiencing contraction in sales and are skeptical about expanding in new shopping centres. Rents in prime shopping centres remained stable as they are less vulnerable to the economic slowdown. Key centres like Suria KLCC, Mid Valley Megamall and 1 Utama which enjoy high occupancy levels and visitor flows are expected to hold up well in rents. However, new and upcoming centres that are currently under construction are expected to experience downward pressure in targeted rents in their efforts to build up occupancy to a higher level. Meanwhile, most of the retail REITs reported relatively flat revenue for Q1 29, including Starhill (.3% increase). KL Plaza Shopping Centre was closed for major upgrading work, taking off some 23, sq ft from total stock. New construction commencements included Lot G of KL Sentral which comprises a 7, sq ft retail mall, an office tower and a hotel block. The mall is targeted to complete by end 212. Meanwhile, SP Setia and Lendlease announced their venture to jointly develop a new mall in Setia Alam on 3 acres, with a gross built up of over 1 mil sq ft, while the development of I-City mall could be delayed due to the freeze on capital investment by its JV partner, CapitaLand. With the oversupply of retail malls in the market, it will be a real testing time for shopping malls, especially those in the secondary area with poor population catchments. These malls would have to struggle with take up of space. Prospects for the retail sector are expected to be weighed down by the continued contraction in the economy, which is forecasted to recover only in Q4 29. In Q3 29, Malaysia Mega Sale, which could cheer up the retail market with more tourists coming from the Middle East, may be affected by the global H1N1 flu epidemic. This will pose further challenges to the industry, which is facing increasing operating costs and lower revenues Potential Supply of Retail Space in Klang Valley (NLA) mil sq ft Cumulative Supply of Retail Space in Klang Valley (24 - H1 29) 'mil sq ft H1 29 Upcoming Retail Centre in 29 Project NLA (sq ft.) Location Wangsa Walk 273,243 Wangsa Maju BSC West Wing Annex Extension 7, Bangsar Subang Avenue 25, Subang Jaya

4 Residential Market confidence buoyed by the recent stock market rally Buyer interest returned in Q2 29, particularly toward the later part of the quarter. The recently reported rise of the Kuala Lumpur Composite Index (KLCI) has somewhat restored investor s confidence, especially in high-end residential properties. Returning buyer interest was also motivated by low bank lending rates, more realistic asking prices and the difficult-to-resist freebies, incentives and attractive packages offered by some property developers. There was an increase in residential transactions, especially in the sub-sale market, which experienced an increase in sales transaction. Projects which have seen improved sales enquiries and take-up included the preview launch of Eastern & Oriental Bhd s (E&O) St. Mary serviced apartments in the Golden Triangle in June. About 85% of the 169 units were snapped up. Prices continued to undergo corrections and are expected to continue softening in the short term in view of impending new supply and weak economic conditions. Generally, prices of high-end condominiums in the KLCC area have dropped by between 1% to 2% YOY, and 3.7% QOQ. Two projects, namely Hampshire Residences and Pavilion Residences, were completed and issued with certificates of fitness (CFs) in the quarter, whereas four other projects have been completed pending issuance of CFs. They are The Oval, The Avare, One KL and Binjai on the Park. In the meantime, five projects are expected to be completed by the second half of 29, supplying 951 units of high-end condominium units to the market. The overall rental market picked up slightly during the quarter as a result of improved market confidence. Average rents of high-end condominiums in the KLCC area increased by 6.5% QOQ to RM4.8 per sq ft per month. However, the rental market is expected to face a downward pressure as a result of incoming massive supply of condomionium units in and outside the city centre during the second half of 29 and towards the early part of 21. Residential Market Outlook Q months Outlook Average Capital Values Capital Values & Rents of Prime Condominiums in Kuala Lumpur Capital Values (RMpsf) 7 6 Rent (RMpsf pm) Q1 9 Q2 9 Capital Values Rents Upcoming Condominiums in KLCC Area in H2 29 Project Units Idaman Residences 248 The Troika 229 Ampersand 71 Hampshire Place 186 Fraser Residences KL 217 Total 951 Units 3,5 3, Future Supply of Prime Condominium in Kuala Lumpur The residential sector would be challenging over the next six months as any improvement in economic situation is not expected until Q4 29. On a positive note, the recently announced overhaul in economic policies, particularly on the repeal of the foreign investment committee s (FIC) approval for property transactions involving foreigners (where there is no dilution of interest involving Bumiputra or government), would boost interest from foreigners in the local property market, specifically on the high-end residential segment. 2,5 2, 1,5 1, City Center Outside City Center

5 Investment No active sellers and buyers on the market With the world economy still in a limbo and limited good news on the business front, investment activities remained subdued, especially from foreign investors. They are by-passing Malaysia for greener pastures in other countries, which offer better opportunities at this moment. Local sellers are also not motivated enough to place their properties in the market in the current weak market conditions, which is not likely to generate offers that will meet their price expectation levels. There were only two major transactions in the quarter, of which one is between related parties. It was reported in May that Berjaya Times Square Sdn Bhd, a subsidiary of The Berjaya Group, sold their exhibition space of 13,369 sq ft within the Berjaya Times Square Shopping Centre to a Biofield Sdn Bhd, a subsidiary of Cosway Bhd, a related party, for RM1.5 mil or RM785 per sq ft. Investment Sales Outlook Q months Outlook Sales Volume Source: DTZ Research, July 29 Major Investment Sales in Q2 29 Price Price Building Purchaser (RM mil) (RM per sq ft) Exhibition hall Biofield Sdn Bhd at Berjaya (an affiliated Times Square company of Shopping Berjaya Group) Centre Novotel Hotel Nomad Group The other transaction was the sale of 291-room Novotel Hotel to the Nomad Group. It is an up and coming hospitality group which has been on an active buying spree since two years ago, with the acquisition of two serviced apartments and the establishment of several serviced offices. The sale of shares in City Centre Hotels Sdn Bhd (the SPV of Novotel Hotel) was RM47.3 mil, which we understand to reflect an asset value of RM156 mil or about RM536, per room. However, the above transactions do not provide much indication about price benchmarking nor its future direction. RM (mil) 4, 3,5 3, 2,5 2, 1,5 1, Total Investment Sales in Malaysia by Quarter Nevertheless, there are still some investors out in the market looking for commercial properties with investment value. There are market talks that an offer has been made for a portion of the shares of Inverfin Sdn Bhd, the owner of Menara Citibank, of which a sale transaction was aborted previously. It reflects an asset value in the range of between RM8-9 per sq ft. Without more transactions, it is currently getting more difficult to exactly pin point pricing and yield level with any degree of accuracy, despite the acute need for a mark to market valuation of assets in this turbulent time. Over the next 6 months, sentiment is likely to recover with some investment activities by opportunistic funds but this will be selective and driven by value hunting. 5 Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Investment Sales in Malaysia by Sector (Q1 28 to H1 29) Residential 16% Retail 1% Others 6% Office 68%

6 Explanatory Notes Area Taxonomy Study Area Klang Valley & Environs (KVE) is located centrally within the State of Selangor. KV itself accommodates the Kuala Lumpur City (KLC) and the State s District of Petaling, Klang, Gombak and Hulu Langat. Its environs would include surrounding growth areas such as Cyberjaya, Putrajaya City and the Sepang localities. The KVE property market is divided into two distinct geographical areas: KLC and other areas in KVE (OKVE). Business Space (office) The office market in KLC is sub-divided into three sub-markets: Central Commercial Area (CCA), Golden Triangle (GT) and Decentralised Areas (DA). DA will comprise areas fringing the city centre. The office market within OKV is sub-divided into six sub-markets Petaling Jaya (PJ, Subang Jaya (SJ), Shah Alam (SA), Klang, Puchong and Ampang. Retail Retail complexes within the city and main town centres are referred to as urban areas. Those located within commercial areas of residential estates in KV, other than city or town centres, are defined as suburban. Stock Business Space (office) Refers to purpose-built office or mixeduse premises with net lettable areas of 5, sq ft or more. It excludes buildings developed and solely used by Federal and State Government or government-related organisations. The stock is defined into two distinct categories as follows: Prime buildings are those with advanced Building Automation System, high level of computerised M&E and state-of-the-art telecommunication. Secondary buildings are those with average/basic office accommodation. Retail Stock includes purpose-built shopping complexes with net lettable areas of 5, sq ft or more. The stock is defined into two distinct categories as follows: Prime complexes with good layout, design, management, maintenance, image, facilities, internal finishes and tenant mix, and high-level computerised M&E. Secondary complexes that provide average/basic retail space. New Supply Refers to the supply of new properties confirmed, i.e., projects with planning approval and there are definite plans to proceed with the development or under construction at the time of reporting. The year for new supply refers to the year in which the projects/units are expected to receive Certificate of Fitness for occupation. Absorption Refers to the total number of net take up of accommodation or units in new projects being leased or sold. Resale of units is excluded. Rents Average gross rents are computed based on a basket of properties, inclusive of service charges. Office typical net floor size adopted are between 2, sq ft and 5, sq ft. Retail - only rents of prime speciality retail shops, e.g. those with good frontage or pedestrian footage, are included in the publication. Market Prices Market prices are reported on per sq ft (psf) basis on net floor areas. The office and retail market are reflective of en bloc sales evidence (referring to the sale of entire land and building Below is a list of publications produced by DTZ Research which may be accessed at Global Occupancy Costs : Offices Analysis of Transactions of Private Residential Properties, Singapore City Profile - Vietnam Property Times, Bangkok Money into Property City Profile Bangkok Office Market Brief, Bangkok Property Times, Indonesia Obligations of Occupation (Europe, EMEA, Asia Pacific) Asia Pacific Office Market Brief Asia Pacific Property Investment Guide City Profile - Jakarta City Profile - Kuala Lumpur Office Market Brief, Jakarta Office Market Brief, Kuala Lumpur Property Times, Klang Valley & Environs Property Times, Singapore City Profile - Singapore Office Market Brief, Singapore Property Perspective, Singapore

7 Explanatory Notes For more information, please contact: DTZ Nawawi Tie Leung Property Consultants Sdn Bhd Suite 32.3, Level 32, Menara Citibank, 165, Jalan Ampang 545 Kuala Lumpur, Malaysia Tel: Fax: Brian Koh Executive Director, Research and Consulting Contacts Asia Pacific Tel Australia David Green-Morgan Hong Kong/Chinese Mainland David Ji India Priyankar Bhikshu Indonesia Vera Sumarsono Japan Noboru Hirabayashi Malaysia Brian Koh New Zealand Ian Mitchell ian.mitchell@dtz.co.nz Singapore Chua Chor Hoon chorhoon_chua@dtz.com.sg Taiwan Wendy Hsueh wendy.hsueh@dtz.com.tw Thailand Heng Hua Thong huathong_heng@dtz.com.sg DTZ offers a comprehensive range of services and fully integrated property advice. These include: Professional Services Advisory Services Agency Services Valuation Consulting and Research Investment Statutory Valuation Forecasting Residential Asset Management Investment Advisory Business Space (Office/Industrial) Project Management Development and Marketing Retail Facility Management Consultancy Auction Property Management Occupier Services Hospitality Management Property Tax DTZ DTZ has over 12,5 staff operating from 15 cities in 45 countries. Disclaimer and confidentiality clause This report should not be relied upon as a basis for 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 Nawawi Tie Leung Property Consultants Sdn Bhd July 29. No part of this report may be reproduced or transmitted in any form or means by any person(s) without the expressed written permission of DTZ Nawawi Tie Leung Property Consultants Sdn Bhd. ROC Registered No V