Melbourne cbd office research forecast report second half 2012


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Melbourne cbd office research forecast report second half 2012

  1. 1. SECOND HALF 2012 | office Research & Forecast Report melbourne cbd office Domestic & Offshore Investment Demand Remains Strong Investment demand from both domestic and offshore institutions remained strong over the first half of 2012. The main focus from buyers has been on quality Premium and A grade assets with low vacancies and secure, long term lease covenants. Despite this demand there has been a limited number of this asset type on the market for sale and this has consequently limited transaction volumes and seen yields and capital values remain stable over the period. Six major office sale transactions totalling $629.5 million were recorded during the first half of the 2012, an increase of 10.5% when compared with the first half of 2011. The largest, non-related party sale to occur during the period was that of 150 Collins Street which was purchased by GPT Wholesale Office Fund for $181 Million on a yield of 6.77%. The latest Property Council of Australia (PCA) Office Market Report showed that increasing supply levels are starting to affect vacancy levels across the Melbourne CBD office market. The report showed that the total vacancy rate increased slightly from 5.2% in January 2012 to 5.6% in July 171 Collins Street, Melbourne 2012. The key driver behind this rise was the fact that supply outstripped tenant demand during the period. Despite this increase, the vacancy rate still remains significantly lower than the long term average (6.7%) and is the second tightest CBD office market nationally. Market Indicators Forecast - 6 months The rising vacancy rate has had limited impact on pre-commitment activity with two deals Overall Performance announced during the first half of 2012. The largest of these was Medibank who committed to a 12 year lease covering 30,000m² at 720 Bourke Street, Docklands. The second was Victoria Police NEW SUPPLY who committed to 28,500m² at City West Police Complex, 313 Spencer Street. The first half of 2012 saw a total of 55,868m² of supply added to the market. The largest of these Tenant Demand was the completion of 735 Collins Street, Docklands which added 42,000m² of A Grade space into the market and is now 100% occupied by the Australian Tax Office. There is approximately Vacancy 277,000m² of new space set to enter the market over the next two years, the majority (74%) of Incentives which is pre-committed. However, there is concern regarding the amount of back fill and sub-lease space which will result from the movement of pre-commitment tenants and the contraction of Face Rents business due to the current economic environment and conditions moving forward. Effective Rents MELBOURNE CBD OFFICE MARKET INDICATORS Average Net Average Capital Values Average Average Capital Average Market Grade Face Rents Outgoings Incentives Values ($/m2 pa) Yield* ($/m2 pa) ($/m2 pa) Yields LOW HIGH LOW HIGH LOW HIGH LOW HIGH Key Highlights Premium $480 $665 18% 25% $131 $6,000 $7,000 6.50% 7.00% • he overall vacancy rate within the Melbourne T CBD office market increased from 5.2% to 5.6% A Grade $392 $457 20% 25% $107 $4,500 $5,750 7.00% 7.75% • ields and capital values remained stable Y B Grade $317 $349 21% 25% $93 $3,000 $4,250 8.00% 9.00% • ix major office sales transactions totalling S $629.5 million were recorded YTD 2012 * Equivalent Reversionary Yield Data correct as at Q2 2012 Source: Colliers International Research
  2. 2. research forecast report | SECOND HALF 2012 | office | MELBOURNE CBD Economic Update Strong Q1 2012 GDP Result The March Quarter 2012 Australian Bureau of Statistics (ABS) Gross Domestic Product (GDP) data showed strong growth for the Australian economy during the quarter. In seasonally adjusted terms, GDP increased 1.3% during Q1 2012, up from 0.6% in Q4 2011, taking through-the-year GDP growth to a strong 4.3%, the largest annual result since September 2007. The main contributors to expenditure on GDP, during the quarter, were household final consumption (0.9 percentage points) and private gross fixed capital formation (0.8 percentage points) while Net exports detracted 0.5 percentage points. The main industry contributors to GDP were Mining (up 2.3%), Financial and insurance services (up 1.7%) and Professional, scientific and technical services (up 2.8%). Employment Remains Tight The July 2012 monthly ABS Labour Force data shows that the Australia employment market continues to remain tight. The latest results showed that the unemployment rate declined by 0.1 percentage point from a revised, 5.3% in June to 5.2% in July 2012. This saw total employment increase by 14,000 persons with both full-time employment increasing by 9,200 persons and part‑time employment growing by 4,800 persons, during the month. Inflation Rate Remains Low The latest inflation data from the ABS shows that annual headline inflation rose just 1.2% during the 12 months to June 2012, down compared with a rise of 1.6% through the year to March 2012. This saw the Consumer Price Index (CPI) grow by 0.5% during the quarter and ensures that the inflation rate remains well below the RBA’s target range of 2% to 3%. Cash Rate Remains Stable Following a reduction of 50 and 25 basis points in May and June 2012 respectively, the Reserve Bank of Australia (RBA) decided to keep the official cash rate stable at 3.50%, during both their July and August monthly board meetings. According to RBA, we can expect inflation to be consistent with target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate”. Australian Dollar Softens Ongoing uncertainty over European sovereign debt issues has continued to fuel concerns regarding the global economic outlook. Combined with the slow pace of economic recovery in the United States, this uncertainty saw the Australian Dollar reach a record high in late July 2011, trading at $US110.62 cents, before slipping below parity in December 2011. After regaining value during Q1 2012, trading as high as $US1.08, the Australian Dollar fell below parity in May 2102 due to a flight by investors to safe haven assets as election results in Greece and France further clouded the outlook for the European economy. This strong AUD is one factor affecting lower GSP (Gross State Product) growth in Victoria due to its impact on state’s manufacturing sector. MELBOURNE CBD NET ABSORPTION V WHITE COLLAR EMPLOYMENT GROWTH 200,000 5.0% White Collar Employment (6 mth % Change) 4.0% 150,000 Forecast 3.0% 2.0% 100,000 1.0% Net Absorption - m2 50,000 -0% -1.0% 0 -2.0% -3.0% - 50,000 -4.0% Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 6 Mth Net Absorption Melbourne CBD White Collar Employment Source: Deloitte Access Economics / Colliers International Research Colliers International | p. 2
  3. 3. research forecast report | SECOND HALF 2012 | OFFICE | MELBOURNE cbdEmployment Trend and Leasing DemandWhite Collar Employment melbourne cbd forecast white collar employment growthSoftens• Total white collar employment in the Professional, Scientific and Technical Services Melbourne CBD increased by 904 people Overall Public Administration and Safety (0.3%) in the first half of 2012; significantly Accommodation and Food Services lower than the 10 year average of 1.61% Electricity, Gas, Water and Waste Services Manufacturing growth per six months. Retail Trade Rental, Hiring and Real Estate Services• TheProfessional, Scientific and Technical Education and Training Services sector which accounts for 20% of Wholesale Trade Administrative and Support Services Melbourne CBD’s work force increased by Construction 3,716 people (7.3%). Over the next three year Health Care and Social Assistance Other Services this sector is expected to add 10,529 jobs, Agriculture and Mining more than half of total job additions (17,561) Transport, Postal and Warehousing Information Media and Telecommunications in the CBD. Arts and Recreation Services Financial and Insurance Services• TheFinance and Insurance sector saw -3,000 -2,000 -1,000 0 1,000 2,000 3,000 4,000 negative white collar employment growth in the CBD with 1,918 jobs cuts (-3.6%). Source: Deloitte Access Economics / Colliers International Research While Information, Media and Telecommunications employment also declined by 259 jobs (-1.1%).• Looking forward, Deloitte Access Economics forecasts white collar employment will increase by 3,160 people growing by 1.2% for the remainder of the year. Equating to an additional 47,000m² of office space requirements over the next six months.Total Leased Area Rises melbourne cbd OFFICE LEASE TRANSACTIONS• Despitesubdued lease transaction volumes 120,000 100 and enquiry levels the total area of leases 90 signed increased by 51% during the first half 100,000 of 2012 as compared with the second half 80 of 2011. 70 Number of Leases Signed 80,000 Office Area (sq m)• This saw approximately 45 leases signed 60 during the period representing circa 60,000 50 60,000m². This saw the average lease size 40 also increase from 650m² in the second half 40,000 30 of 2011 to 693m² over the first half of 2012. 20• Althoughdemand has softened in the 20,000 mid-market but deals are still happening in 10 well positioned and well-presented assets. 0 1H 2008 2H 2008 1H 2009 2H 2009 1H 2010 2H 2010 1H 2011 2H 2011 1H 2011 0 While options that provide quality fit-outs requiring minimal adjustment also Total Area of Leases Signed Number of Leases leased well. Source: Colliers International Research Colliers International | p. 3
  4. 4. research forecast report | SECOND HALF 2012 | office | MELBOURNE CBD Supply • Atotal of 55,868m² of new supply entered - 735 Collins Street with Mercer and the Melbourne CBD market during the first Commonwealth Bank of Australia having half of 2012, accounting for 16% of new pre‑committed, leaving approximately supply additions across all Australian CBD 4,600m² remaining available from a total office markets during this period. of 42,000m². The completed buildings were: • During 2013, Colliers International has - 35 Collins Street, Docklands: A Grade 7 identified approximately 43,000m² ofLantern, 707 Collins Street, Docklands building of 42,000m² which is now 100% backfill  / sublease space to enter the market. occupied by the Australian Taxation Office; • In 2014, two new buildings totalling - 90 LaTrobe Street: A Grade building of 9 67,000m² are expected to be completed, with 13,000m² which is 100% occupied by approximately 66% (44,000m²) currently Melbourne Water. pre-committed leaving 23,000m² remaining. • Thesecond half of 2012 is set to see The buildings to be completed in this time are: 80,481m² of new supply added to the market - 150 Collins Street with Westpac with approximately 56% (45,319m²) pre‑committed for 14,000m², leaving pre‑committed. The buildings to be 6,000m² remaining available; and completed in this time are: - 720 Bourke Street with Medibank having - 57 Collins Street: A Grade building of 3 pre-committed for 30,000m², leaving 30,364m² with 70% of the building 17,000m² available from a total already leased; of 47,000m². - oods Shed South with Pearson Publishing G • During 2014, approximately 101,500m² having pre-committed, leaving of backfill space is expected to enter the approximately 1,800m² remaining available Melbourne CBD market. from a total of 9,200m² building; • The current low levels of business - 55 Bourke Street refurbishment with 5 confidence are expected to lead to additional Holding Redlich having pre-committed sublease space entering the market the over 6,000m², leaving 14,172m² remaining the next 2 to 3 years. Current identified available from a total of 20,172m² building; major sublease space online includes ANZ’s - 50 Collins Street with 62% pre- 8 space of 27,000m² at 55 Collins Street, committed by Aurecon, leaving 6,570m² NAB’s 7,000m² at 180 Lonsdale Street and remaining available of a total of 17,245m² 6,000m² at 330 Collins Street of which building; and 3,000m2 is already committed. • There are approximately 11 mooted buildings - Lantern building (707 Collins Street) offering 3,500m² of office space. for development representing approximately 450,000m²; however they would require • In addition to new / refurbished supply significant pre‑commitments for any project additions Colliers International has identified to enter the market. approximately 48,000m² of backfill space to enter the market during the second half of 2012. Approximately 36,000m² of this backfill space will be added in the Eastern Core precinct. • In2013, three new buildings totalling 134,000m² are expected to be completed, with approximately 80% (106,943m²) currently pre-committed leaving 27,057m² remaining. The buildings to be completed in this time are: - 00 Bourke Street: A Grade building of 7 63,000m² is 100% pre-committed by NAB; - 71 Collins Street: first new Premium 1 Grade office building in 20 years with approximately 29,000m² is currently 47% pre-committed by BHP Billiton and Evans Partners. Colliers International | p. 4
  5. 5. Net Lettable Area (sq m) 0 Supply 5,000 15,000 10,000 35,000 55,000 65,000 45,000 25,000 30,000 50,000 60,000 40,000 20,000 222 Exhibition Street 469 LaTrobe Street 505 Lt Collins Street Source: Colliers International Research 300 LaTrobe Street 90 Collins Street Remaining Area 440 Collins Street 333 Queen Street 459 Collins Street 360 Collins Street 735 Collins Street (ATO) 357 Collins Street Pre-Committed 350 Queen Street 390 La Trobe Street 414 La Trobe Street 367 Collins Street 2012 530 Collins Street 35 Collins Street 628 Bourke Street Backfill / Sublease 360 Collins Street MELBOURNE CBD CURRENT MOOTED COMMERCIAL DEVELOPMENT 120 Collins Street 990 La Trobe Street (Melbourne Water) 555 Bourke Street 440 Collins Street 55 Collins Street Goods Shed South 850 Collins Street (Aurecon) 707 Collins Street (Lantern) 628 Bourke Street 2012 2 Elizabeth Street Available Total Area Committed 120 Collins Street 655 Collins Street 80 Collins Street 96,869m2 266,176m2 169,307m2 735 Collins Street (Mercer) 700 Bourke Street 2013 research forecast report | SECOND HALF 2012 | OFFICE | MELBOURNE cbd 2013 171 Collins Street Available Total Area Committed 555 Lonsdale Street 180 Lonsdale Street 58,159m2 118,693m2 176,852m2 150 Collins Street (Westpac) 360 Collins Street 720 Bourke Street 2014 Available 385 Bourke Street 2014 Total Area Committed 120 Spencer Street 555 Collins Street 44,000m2 700 Collins Street 168,500m2 124,500m2Colliers International |p. 5
  6. 6. research forecast report | SECOND HALF 2012 | office | MELBOURNE CBDNew Supply Pipeline RECENTLY COMPLETED AND PROJECTS UNDER CONSTRUCTION Office NLA Estimated Current Oppucancy Address Status Major Tenants (m2) Completion Commitment 735 Collins Street, Docklands 42,000 Completed 2012 Australian Taxation Office 100% 990 LaTrobe Street, Docklands 13,000 Completed 2012 Melbourne Water 100% 357 Collins Street, Melbourne 30,364 Under Construction 2012 CBA, Service Stream 66% 555 Bourke Street, Melbourne 20,443 Under Construction 2012 Holding Redlich 29% Goods Shed South, Docklands 9,200 Under Construction 2012 Pearson 80% 850 Collins Street, Docklands 17,245 Under Construction 2012 Aurecon 62% Lantern, 707 Collins Street, Docklands 3,500 Under Construction 2012 Lantern 0% 735 Collins Street, Docklands 42,000 Under Construction 2013 Mercer / CBA 90% 171 Collins Street, Melbourne 29,000 Under Construction 2013 BHP Billiton, Evans Partners 47% 700 Bourke Street, Docklands 63,000 Under Construction 2013 NAB 100% 150 Collins Street, Melbourne 20,000 Under Construction 2014 Westpac 77% 720 Bourke Street, Docklands 47,000 Under Construction 2014 Medibank 64%Source: PCA / Colliers International Research MOOTED COMMERCIAL DEVELOPMENTS Address Proposed NLA (m2) Status Owner Collins Square, Docklands 100,000 DA Approved Walker Corporation 405 Bourke Street, Melbourne 70,000 DA Approved Brookfield Office Properties 567 Collins Street, Melbourne 45,000 DA Approved APN / Leightons 664 Collins Street, Melbourne 47,000 DA Approved Mirvac Group Digital Harbour, 1000 La Trobe Street, Docklands 32,844 DA Approved Digital Harbour Holdings Pty Ltd 385 Bourke Street South Tower, Melbourne 25,500 DA Approved Colonial First State GAM Melbourne Central, 300 Lonsdale Street, Melbourne 24,000 DA Approved GPT 82 Collins Street, Melbourne 38,000 DA Approved QIC 360 Collins Street, Melbourne 25,000 DA Applied Dexus Property Group 180 Flinders Street, Melbourne 20,000 DA Approved Dexus Property Group 685 LaTrobe Street, Melbourne 37,200 DA Approved Charter Hall / Premier 395 Docklands Drive, Docklands 22,000 DA Approved MABSource: PCA / Colliers International Research Colliers International | p. 6
  7. 7. research forecast report | SECOND HALF 2012 | OFFICE | MELBOURNE cbdVacancy MELBOURNE CBD - STOCK VACANCY BY PRECINCT GRADE EASTERN CORE / SPENCER / PRECINCT / GRADE TOTAL MARKET WESTERN CORE CIVIC DOCKLANDS NORTH EAST FLAGSTAFF Vacancy Rate Vacancy Rate Vacancy Rate Vacancy Rate Vacancy Rate Vacancy Rate Stock (m2) Stock (m2) Stock (m2) Stock (m2) Stock (m2) Stock (m2) (%) (%) (%) (%) (%) (%) Total - All Grades 4,149,993 5.6% 1,579,783 7.3% 1,016,270 4.6% 432,448 4.9% 568,053 1.9% 553,439 6.9% Premium 623,692 6.6% 300,363 9.1% 239,278 5.9% N/A N/A 84,051 0.0% N/A N/A A Grade 1,900,760 3.9% 564,909 4.9% 560,034 3.1% 180,259 5.2% 405,515 1.1% 190,043 8.3% B Grade 927,918 5.9% 376,593 6.8% 108,635 7.8% 106,394 1.3% 78,487 8.2% 257,809 5.1% C Grade 576,471 10.0% 296,665 11.1% 74,882 7.9% 108,498 9.4% N/A N/A 96,426 8.9%Source: PCA OMR July 2012 / Colliers International Research• TheMelbourne CBD vacancy rate increased melbourne cbd total office market vacancy rate from 5.2% in January 2012 to 5.6% in July 30% 2012. This increase was due to new supply additions not being offset by a corresponding increase in demand. 25%• Atotal of 55,868m² of new supply was introduced over the six months to July 2012, 20% slightly less than the 10 year six monthly Forecast average of 69,006m². Vacancy Rate 15%• The vacancy rate for Melbourne CBD remained the second lowest amongst all capital cities, with Perth CBD having the 10% lowest vacancy rate at 4.2%. 6.7% 5.6%• Thenet absorption level remained below the 5% long term average for a second consecutive six month period, recording 34,085m². This 0% is an increase from the second half of 2011 1 1 1 1 1 1 90 90 -9 -9 92 92 93 93 94 94 95 95 96 96 97 97 98 98 99 99 00 00 -0 -0 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09 -10 -10 -1 l-1 -12 -12 -13 -13 -14 -14 -14 n- ul- an ul n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- an ul nl- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- n- ul- an ul an Ju Jul an Jul an Jul an Jul when 15,007m² was recorded. Ja J J J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J J J Ja J Ja J Ja J Ja J Ja J Ja J Ja J Ja J J J J J J J• The Total Vacancy Factor 10 Year Historical Average A grade vacancy rate increased slightly from 3.5% in January 2012 to 3.9% in Source: PCA OMR July 2012 / Colliers International Research July 2012.• The Premium grade vacancy rate increased melbourne cbd vacancy by grade by 0.7% to 6.6% with negative net absorption of -4,540m² recorded over the 12% past six months. 10% 9.8% 9.9% 10.0%• Thevacancy rate in Docklands continued to remain the lowest amongst all precincts, 7.6% 8% increasing by 1.2% to 1.9% in July 2012. Vacancy Rate 6.6% 5.9% 5.7% 5.9%• The Eastern and North Eastern core was the 6% 4.7% second best performing precinct during the 4.3% 3.9% 4% 3.5% first half of 2012, recording positive six month net absorption of 6,004m². Vacancy 2% declined from 5.0% in January 2012 to 4.6% in July 2012. 0% Premium A Grade B Grade C Grade• Colliers International forecasts the vacancy rate to continue to increase and peak at 7.5% Jul-11 Jan-12 Jul-12 in July 2013. This is due to the significant amount of backfill space entering the market, Source: PCA OMR July 2012 / Colliers International Research combined with the softening of the employment market across the CBD during this period. Colliers International | p. 7
  8. 8. research forecast report | SECOND HALF 2012 | office | MELBOURNE CBD Leasing Market Activity Incentives Continue to Increase • Uncertain economic conditions, low business Average incentives increased from 15-20% confidence levels and increasing vacancy in January 2012 to now ranging from forecasts, has resulted in face rents 20-25% resulting in average net effective remaining stable and an increase in rents falling by 7.4% over the last six months incentives over the past six months. to $331/m² pa in July 2012. • Incentives increased over the past six • AverageB Grade net face rents decreased months across all grades within Melbourne’s from $336/m² pa in January 2012 to CBD. The largest increase being in the $331/ m² pa in July 2012. Average incentives Premium Grade which increased from 12-15% have increased from 15-25% in January in January 2012 to 18-25% in July 2012. 2012 to 20-25% in July 2012, causing • Despite the increase in incentives Premium average net effective rents to decline by Grade net face rents increased marginally to 4.4%, from $263/m² pa in January 2012 to $572/m² pa as at July 2012. This stability in $251/m² pa in July 2012. face rents led to a 5% decline in Premium • This trend is likely to continue over the grade net effective rents over the first half remainder of 2012 and into 2013 with face of 2012. rents remaining generally stable and • Average A Grade net face rents declined by incentives continuing to increase due to the357 Collins Street, Melbourne 0.9% over the first half of 2012 and are increase in sub-lease and backfill space currently at $423/m² pa in July 2012. which is forecast to enter the market during the period. AVERAGE INCENTIVE RANGE Grade Q2 2011 Q4 2011 Q2 2012 6-month Forecast Premium 10-15% 12-15% 18% - 25%  A Grade 15-20% 15-20% 20% - 25%  B Grade 15-25% 15-25% 20% - 25%  Source: Colliers International Research melbourne cbd office net effective rents $600 Forecast $500 $444 $447 $446 $429 $438 $400 $400 $353 $326 $320 $314 Vacancy Rate $300 $307 $300 $257 $251 $241 $246 $237 $219 $200 $100 $0 2010 2011 2012 2013 2014 2015 Premium A Grade B Grade Source: Colliers International Research Colliers International | p. 8
  9. 9. research forecast report | SECOND HALF 2012 | OFFICE | MELBOURNE cbd Investment Market Activity Melbourne CBD Investment Demand RemainS Strong • Despitea rising vacancy rate and softening • Offshore buyers purchased two properties effective rents, office assets within Melbourne’s - 77 Collins Street was purchased by Pioneer 4 CBD remain highly sought after with Premium Olderfleet Property (AVIVA Investors) for and A Grade stock experiencing particularly $67 million; and strong demand. - 25 Flinders Street was purchased by 5 • Thekey driver behind investment transaction AFIAA (Switzerland) for $50.86 million. activity has been the lack of Core assets on the • Private Investors purchased two properties market for sale, as opposed to a lack of interest from investors. - 65 Bourke Street purchased for $53 million; and 5 • Offshoreinvestors remain particularly active, - 501 Swanston Street purchased for $60 million. attracted by economic stability, comparatively • Off market sales remain the dominant form of high yields and market transparency. transaction with only three assets sold via • Accordingto Colliers International, year‑to‑date on-market processes this year. Two of these150 Collins Street, Melbourne single asset sale volumes for transactions were the result of 2011 sale campaigns.Purchased by GPT Wholesale Office Fund for above $20 million show Melbourne CBD leading • Secondary assets are attracting interest,$181 million in July 2012. the national tally with $629.5 million of however buyers need to be shown the potential sales recorded. in these assets in order to offer strong prices. • Whilst the Melbourne CBD has had the highest • Yields for prime grade remain strong, reflected sales volume for 2012 YTD, the figures were by recent sale of 150 Collins Street achieving a skewed by two major deals and current yield of 6.77%. on-market stock levels are very limited, hence • Premium yields have remained stable in six the end of year sales volume is expected to be months to July 2012, sitting between 6.50% well below the levels seen in the previous few – .00%. A Grade yields have also remained 7 years. This subdued short-term transactional stable during this period, recording between outlook for Melbourne is more a function of a 7.00%-7.75%, as did B Grade yields which lack of investment supply than weak demand. range from 8.00%-9.00% in July 2012. • There have been six property sales during the first half of 2012 with the largest being 242 Exhibition Street (50% share). This was purchased by Investa Office Fund from the Investa Property Group for $217.5 million. AVERAGE YIELD RANGES Change in Yields since Grade Q4 2010 Q2 2011 Q4 2011 Q2 2012 Q4 2011 Premium 6.50-7.00% 6.50-7.00% 6.50-7.00% 6.50-7.00%  A Grade 6.75-7.75% 7.00-7.75% 7.00-7.75% 7.00-7.75%  B Grade 8.00-9.25% 8.00-9.00% 8.00-9.00% 8.00-9.00%  Source: Colliers International Research MELBOURNE CBD A GRADE AVERAGE YIELDS 9.0 8.5 8.0 Equivalent Rev Yields (%) 7.5 7.0 6.5 6.0 5.5 5.0 2005 2006 2007 2008 2009 2010 2011 2012 Source: Colliers International Research Colliers International | p. 9
  10. 10. research forecast report | SECOND HALF 2012 | office | MELBOURNE CBDInvestment AnalyticsCapital Returns Continue to Grow melbourne cbd prime grade office returns• According to IPD Australia’s Property 15 Investment Digest, Melbourne’s CBD office market experienced positive capital growth 10 during March 2012.• Capital returns increased by 3.8% per annum 5 in March 2012 while income returns Rolling Annual % pa increased by 7.4% per annum, taking total 0 returns to 11.2% per annum.• Annualcapital returns for Prime Grade -5 properties decreased from 3.9% as at December 2011 quarter to 3.8% in the March -10 2012 quarter, while annual income return decreased from 7.5% in the December 2011 -15 quarter to 7.4% in the March 2012 quarter. Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Capital Return Income Return Source: IPD Australia / Colliers International ResearchOffshore Investor Demand MELBOURNE CBD INVESTMENT SALES BY BUYER TYPEIncreases 6% 28% 6%• Wholesale Funds REIT’s were the most 6% 18% active buyer type during the first half of 25% Other 13% Private 2012, making up 63% of the total value of Direct Super Funds office sales within Melbourne CBD during the REITs 56% 25% 35% Wholesale Funds period. This was mainly due to the purchase Offshore 36% of 242 Exhibition Street (50% share) by Investa Office Fund and 150 Collins Street by GPT Wholesale Office Fund. 35%• Thenumber and value of acquisitions by 28% private investors within the Melbourne CBD 4% office market increased, making up 18% of 37% 36% sales during the first half of 2012. 21% 19%• TheMelbourne CBD remains an attractive investment destination globally. Offshore 2009 2010 2011 2012 (YTD) investor demand remained strong accounting Source: Colliers International Research for 19% of total sales volume.• The largest purchase by a foreign entity during first half of 2012 was the acquisition of 477 Collins Street by Pioneer Olderfleet Property (AVIVA Investors) from Australian Unity Office Property Trust for $67 million. Colliers International | p. 10
  11. 11. research forecast report | SECOND HALF 2012 | OFFICE | MELBOURNE cbdRecent Market Transaction Activity Leasing Activity Address Start Date Area (m2) Tenant 389-399 Collins Street, Melbourne Feb 2012 600 Global Corporate Services 459 Little Collins Street, Melbourne Feb 2012 830 WHK 530 Collins Street, Melbourne Mar 2012 2,245 Tertiary Education Quality and Standards Authority 601 Bourke Street, Melbourne Mar 2012 1,560 CGU Insurance 575 Bourke Street, Melbourne Apr 2012 1,078 Spendvision 101 Collins Street, Melbourne Apr 2012 1,733 Gilbert Tobin 520 Bourke Street, Melbourne May 2012 1,122 Draft FCB Melbourne 101 Collins Street, Melbourne May 2012 500 Sumitomo Australia 405 - 407 Collins Street, Melbourne May 2012 750 Bluebag 96 Flinders Street, Melbourne May 2012 1,708 Aconex 31 Queen Street, Melbourne Jun 2012 964 CareSuper 50 Queen Street, Melbourne Jun 2012 626 Praemium 452 Flinders Street, Melbourne Jun 2012 1,110 Oceaneering Services Australia 601 Bourke Street, Melbourne Jul 2012 580 Daly International 222 Exhibition Street, Melbourne Jul 2012 950 Frontier Investments 360 Collins Street, Melbourne Jul 2012 1,260 LaTrobe University 120 Collins Street, Melbourne Dec 2012 631 Gresham Partners 357 Collins Street, Melbourne Jan 2013 5,070 CBA 171 Collins Street, Mellbourne Aug 2013 944 Egon Zehnder International 11 Exhibition Street, Melbourne Jan 2014 11,747 BUPA 720 Bourke Street, Melbourne Aug 2014 30,000 Medibank City West Police Complex, 313 Spencer Street, Melbourne Jul 2015 28,050 Victorian PoliceSource: Colliers International Research INVESTMENT SALES ACTIVITY Sale Price Capital Value Yield Address Sale Date Vendor Purchaser ($mil) ($/m2) (%)* Pinoeer Olderfleet Property 477 Collins Street Feb-12 $67 $5,640 7.74% Australian Unity Office Property Trust (AVIVA Investors) 565 Bourke Street Mar-12 $53 $3,320 8.59% OCBC Shakespeare Property Group 242 Exhibition Street May-12 $217.5 $6,600 7% Investa Property Group Investa Office Fund 501 Swanston Street May-12 $60 $3,529 - PDG Corporation Salvo Property Group Vince Giulano AFIAA Foundation for International 525 Flinders Street Jun-12 $50.86 $4,986 7.3% Uniting Church (NSW) Trust Association Ltd Real Estate Investments 150 Collins Street Jul-12 $181 $8,816 6.77% APN / Grocon GPT Wholesale Office Fund* Equivalent Reversionary YieldSource: Colliers International Research Colliers International | p. 11
  12. 12. research forecast report | SECOND HALF 2012 | office | MELBOURNE CBDOutlook 522 offices inDespite a large number of buyers chasing better quality assets across Melbourne’s CBD office market, 62 countries onthe short term outlook for transaction volumes remains subdued. This is a function of the lack ofinvestment grade stock on the market for sale, as opposed to low levels of demand. Active capital 6 continentschasing these assets will continue to be driven by offshore investors however many local wholesale United States: 147 officesfunds and REITs have large allocations for the right asset. Institutional investors will continue to be Canada: 37 officesdrawn to assets within the Melbourne’s CBD due to its industry diversity, deep tenant market, stability Latin America: 19 officesand relatively high yields compared to other cities globally. The ongoing record low returns in bond Asia Pacific: 201 officesmarkets see’s the implied risk premium for Prime Grade property at its highest on record, supporting EMEA: 118 officesthe potential for yield compression in the medium term. • $1.5 billion in annual revenueDeloitte Access Economics forecasts White Collar Employment growth to continue across the billion square feet under • $1.2Melbourne CBD, at an average of 0.9% per six months, over the next two years. This would mean an managementaddition of 12,180 more CBD workers by June 2014, resulting in demand for an additional 182,000m² • Over 12,300 professionalsover the period. Despite Colliers International forecasts showing that net absorption will remainpositive over the next two years, at an average of 30,000m² per six months, above average supplylevels will lead to increased vacancy during the period. COLLIERS INTERNATIONALNew supply is expected to add 234,000m² to the market over the next two years, of which 75% is Level 32,currently pre-committed. Additional backfill supply of 120,000m², relating to these pre-commitments, 367 Collins Street,is likely to be the major culprit behind the forecast rise in vacancy which Colliers International Melbourne VIC 3000Research expect will peak at 7.5% by July 2013, before trending down. The majority of this rise in tel 03 9629 8888vacancy will be higher amongst Secondary Grade buildings due to the majority of backfill being in FAX 03 9629 4945this grade.As a result we expect face rents to remain stable while incentives will experience further increase,as landlords look to offer more to attract and secure tenants. This will in turn lead to further declines researcherin effective rents across all grades over the next 12 months. Amita Mehrotra Manager / Research tel 03 9940 7213 FAX 03 9092 1413 Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. COPYRIGHT - Colliers International 2012. Accelerating success. Colliers International | | p. 12 Colliers