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Offshore buyers lead the way with strong H1 2017

Market Conditions Asia Pacific transaction volumes in H1 rose 14 per cent y-o-y to US$60.8 billion. Q2 volumes rose 11 per cent y-o-y and were 7 per cent higher than Q1. China led performance in H1, but transaction activity remained higher in South Korea and Japan, and largely stable in Australia, Hong Kong and Singapore. Cross-border investors accounted for 30 per cent of total volumes in H1, and were most active in China, Australia and India. Yields on core assets trended down marginally in Q2.

Highlights From Stuart Crow, Head of Capital Markets, Asia Pacific •  Investment activity looks on track to reach our annual forecast of US$130 billion after a

stronger-than-expected H1. •  Funds were eager to deploy capital after successful fundraising and bidding aggressively for

assets. •  Inter-regional purchasers were active and accounted for nearly half of all cross-border

purchaser activity in H1. • Core real estate yields can continue to stay low and yields in some markets even have the

potential to compress further when compared to their long-term ranges.

Fast facts

Asia Pacific commercial real

estate investment volumes

60.8 H1 2017

Total transactions (US$ billion)

+14% H1 2017 vs H1 2016 change

Market Fundamentals Office | Broad-based leasing demand; Singapore rents bottomed out in Q2. Retail | Sales improved in China but Singapore and Australia faced challenges. Industrial | 3PLs and e-commerce firms drove demand. Residential | Singapore improved while tightening measures remained in the spotlight in Greater China. Hotel | Australia, New Zealand, Japan and Singapore are on the investor radar for their long-term positive tourism fundamentals.

Macro Environment Consensus Economics predicts regional economic growth to be slightly below 5 per cent p.a. in 2017-18. A better global trade environment helped to buoy the growth outlook across Asia. Growth forecasts were upgraded for Hong Kong and Singapore, but revised downwards slightly for Australia and New Zealand. The US Federal Reserve signalled that it will continue normalising interest rates and its balance sheet. Market consensus is for the Fed funds rate to reach 1.5 per cent by end-2017.

Capital Markets in Focus Q2 2017

Contacts Asia Pacific | Stuart Crow | +65 6494 3888 AP Research | Megan Walters | +65 6494 3649 Tokyo | Akihiko Mizuno | +81 3 5501 9947 Sydney | Simon Storry | +61 2 9220 8439 Melbourne | Langton McHarg | +61 3 9672 6468 Beijing | Kevin Qin | +86 10 5922 1191

Shanghai | Johnny Shao | +86 21 6133 5807 Hong Kong | Joseph Tsang | +852 2846 5231 Singapore | Greg Hyland | +65 6494 3876 Seoul | Steven Craig | +822 3704 8806 Delhi & Mumbai | Shobhit Agarwal | +91 22 2482 8488 ACM Research | Myles Huang | +852 2846 5017

ASIA PACIFIC

No.1 Shouson Hill Road East

Concurred Yokohama

Signature Tower

SYDNEY MELBOURNE

SINGAPORE

MUMBAI

SEOUL

HONG KONG GUANGZHOU

SHANGHAI

Seller Local Private Investor Buyer Sea Group HKD 1.53bn (USD 201m)

Seller Ascendas-Singbridge Buyer IGIS Asset Management KRW 726bn (USD 635m)

Seller CLSA Buyer Everbright Ashmore RMB 1.9bn (USD 277m)

MLC Centre

DELHI

Seller Yokohama TMK Buyer SPC of Daiwa Office Investment Corporation / Daiwa PI Partners JPY 38.1bn (USD 343m)

Seller Gaw Capital Partners Buyer LINK REIT RMB 4.0bn (USD 592m)

Jurong Point Shopping Centre

Seller Guthrie GTS / Lee Kim Tah Holdings Buyer Mercatus Cooperative SGD 2.2bn (USD 1.58bn)

Asia Pacific Capital Markets in Focus | Q2 2017

Seller QIC Buyer DEXUS Property Group / DEXUS Wholesale Property Fund AUD 723m (USD 543m)

Metropolitan Plaza

Investment Deal Highlights Q2 2017

H88 Tower

TOKYO

ASIA PACIFIC

Seller IndoSpace Buyer CPPIB USD 500m

CPPIB invested in industrial JV


Outlook Market Conditions

Market Fundamentals

Macro Environment •  2017 transaction volumes (in Yen terms) will likely be

similar to last year’s level. •  Funds with the ability to source assets will continue

raising capital but are likely to limit their fund sizes. •  Large office buildings in non-core submarkets that

enter the market will find ready buyers. •  Some J-REITs are also looking to reshuffle their

logistics portfolios, and new development products will also find their way into the market.

•  Continuing investor interest in retail assets, e.g. Blackstone is in the process of buying Singapore-listed Croesus Retail Trust that operates malls in various Japanese cities.

•  Stable core yields but perhaps minor compression in residential and some alternative sectors.

•  Japan’s transaction volumes in H1 were up 15 per cent y-o-y and accounted for one-third of the regional total. Q2 was quieter than Q1 because of fewer portfolio deals.

•  Domestic buyers dominated the market but some offshore investors became more active in non-core locations.

•  J-REITs and their sponsored companies were still very active with strong purchasing power, accounting for close to 30 per cent of total transactional activity in H1.

•  Some large office buildings transacted in non-core areas such as Yokohama and Shinagawa.

•  Debts are available with favourable conditions.

Office | Broad-based demand with expansions but generally stable rents in Tokyo. Retail | Demand from international retailers slowed in Tokyo’s prime areas. Industrial | Ongoing demand from 3PLs, manufacturers and retailers. Residential | Strong institutional demand for multifamily units. Hotel | Airbnb and other alternative accommodation operators are impacting larger cities. However, the legislative bill passed in June 2017 will outlaw illegal operators from 2018.

•  Oxford Economics forecasts GDP to grow by 1.4 per cent this year and 1.3 per cent in 2018, as improving global demand and a weak Yen supports growth in exports and business investment.

•  There is improvement in consumer confidence and solid growth in employment, but weak wage growth will dampen consumer recovery.

•  Annual inflation will miss the 2 per cent target. Core inflation in May was negative for a fourth consecutive month.

•  The Bank of Japan signalled its commitment to the yield curve control policy, saying in July that it would buy an unlimited amount of bonds to keep government bond yields to close to zero per cent.

Notable Transactions

“There remains limited opportunities particularly for new entrants, but gradually more owners are willing to sell their assets instead of refinancing.” – Akihiko Mizuno, Head of Capital Markets, Japan

Fast Facts

2.6-3.0 2.6-3.5 3.8-5.0 Transactional Yield Ranges (%) Japan Commercial Real Estate Investment Volumes

Grade A Office Retail Industrial

Japan Market Statistics 6-12 Month Outlook

10-yr JGB bond yield (% p.a.), 2Q17 Deal availability No. of foreign buyers Cap rate trend

Tokyo Office (CBD) | Source: JLL (REIS)

Concurred Yokohama Office | USD 343m | Net Yield 4.6% Seller Yokohama TMK Buyer SPC of Daiwa Office Investment Corporation and Daiwa PI Partners Shinagawa Seaside TS Tower Office | USD 270m Seller Takeda Pharmaceutical Real Estate Buyer SPC of Korean investor and EGW Asset Management

Sources: JLL, Japan Government

Office rent and capital value (y-o-y growth)

Up / down / side arrows show expectation of market conditions.

All-in bank lending rate (% p.a.), 2Q17

H1 2017 Total Transactions (USD bn)

H1 2017 vs. H1 2016 Change

19.5 +15%

0.6 0.1

0

5

10

15

20

25

4Q13 4Q14 4Q15 4Q16 2Q17%Net Eff Rent Growth (y-o-y)Capital Value Growth (y-o-y)



Market Fundamentals

Macro Environment •  We expect high transaction volumes over 2017.

Competition for prime grade investment product will remain strong, with a significant proportion of demand coming from offshore capital sources.

•  Some investors may sell secondary grade malls, given strong pricing conditions and challenges in the retail sector.

•  Many established industrial investors are creating their own products in order to increase their assets under management. We expect fewer industrial portfolio sales in 2017, as most net sellers have already delivered on their reweighting strategies.

•  Private investors may seek to divest assets to capitalise on the current strong pricing cycle.

•  Australia’s investment volumes in H1 were down slightly by 4 per cent y-o-y, with a significant proportion of demand from offshore capital sources.

•  Cross-border buyer activity accounted for one-third of total deal volume in H1. Cross-border buyers outpaced cross-border sellers by almost two-to-one.

•  A number of recent CBD-located transactions have been strategic investments by adjoining owners. Proposed changes to Town Planning has been a key driver of activity.

•  Two portfolios of non-core industrial assets transacted in Q2, including the Blackstone to Charter Hall portfolio, and Simonson Portfolio sale to Leda Holdings.

Office | Rents rose in Q2 as vacancy trended down in the Sydney CBD. Retail | A number of risks are rising in the retail sector, with growing headwinds for tenants. Industrial | We expect a continued strong run in rental growth and land values in markets around new and future infrastructure projects. Residential | Greater Sydney apartment prices grew 2.9% y-y to 1Q17. Despite strong rental growth, yields remained very low at 3.9% as at 1Q17. Hotel | The InterContinental Sydney Double Bay was sold for AUD $140 million, the highest value recorded for a suburban hotel in Sydney.

•  Subdued domestic demand weighed on growth in Australia, with moderation in residential construction and ongoing declines in mining investment.

•  Retail sales growth remained subdued and a number of retailers have entered into voluntary administration.

•  The Reserve Bank held the policy rate at 1.5 per cent at its July meeting , but signalled no more rate hike anytime soon.

•  The Australian dollar dropped to US$0.76 in July after the central bank said that an appreciating exchange rate would complicate the country's economic adjustment to lower levels of mining investment.


“Well-located office assets are still in high demand. Current campaigns will provide more insight into pricing levels over the second half of 2017.” – Simon Storry, Head of International Investments, Australia

Fast Facts

4.75-6.0 4.5-6.25 5.25-7.25 Transactional Yield Ranges (%) Australia Commercial Real Estate Investment Volumes

Office Retail Industrial

Australia Market Statistics 6-12 Month Outlook

All-in bank lending rate (% p.a.), 2Q17 Deal availability No. of foreign buyers Cap rate trend

SydneyOffice(CBD)|Source:JLL(REIS)

MLC Centre Office | USD 543m Seller QIC Buyer DEXUS Property Group / DEXUS Wholesale Property Fund Home Hub Castle Hill Retail | USD 252m | Yield 5.5% Seller LaSalle Investment Management Buyer Aventus Property Group

Sources: JLL, Reserve Bank of Australia



Cash rate (% p.a.), 2Q17

1.5 3.9


H1 2017 vs. H1 2016 Change

7.5 -4%

-10

0

10

20

30

40




Market Fundamentals

Macro Environment •  Strong investor demand is expected to continue

for Melbourne CBD office buildings. •  Suburban shopping centre assets have received

increased attention due to their value-added proposition and higher yield offer.

•  Investors may be looking to buy industrial assets with rezoning potential. Population growth will see land value increase strongly when land is rezoned.

•  As we are approaching the bottom of the compression cycle, minimal tightening to the prime yield range is forecast for the rest of 2017.

•  The most significant office transaction in Q2 was the sale of a 50 per cent stake in the Victoria Police HQ to Singaporean-based Keppel REIT for AUD 345 million, with a long lease for a government entity.

•  Investors continued to seek assets that provide stable income and focus on retail and industrial assets with long leases.

•  Cap rates compressed further during Q2 in Melbourne office market, but retail and industrial yields remained stable.

Office | Strong growth of net effective rents in Melbourne’s CBD office market is forecast for the remainder of 2017. Retail | Rents were largely stable across the board. Industrial | Industrial assets will be sought-after due to their underlying land value and rental growth prospects. Residential | Unit prices across Greater Melbourne increased by 1.0% y-y to Q1, below its average five-year annual growth rate of 2.5%. Hotel | The majority of deals in Australia during H1 took place in Melbourne.

•  Retail turnover sales rose by 5.2 per cent y-o-y in Victoria, largely supported by strong population growth.

•  Supply is slowing the Melbourne apartment market, but conditions remain positive.

•  Rental vacancy in Inner Melbourne fell from 3.8% to 2.2% in the year to May 2017. There is still a significant supply pipeline of units in Inner Melbourne. Absorbing this supply is likely to slow capital value and rental growth further, particularly in some areas where this supply is concentrated.


“Investors continued to seek assets that provide stable income and focus on retail and industrial assets with long leases. With pricing at a historically high level, more local owners/developers are willing to divest and to re-cycle capital.” – Robert Anderson, Regional Director, Sales & Investments, Victoria

Fast Facts

4.75-6.5 4.25-7.0 6.0-7.5 Transactional Yield Ranges (%) Australia Commercial Real Estate Investment Volumes


Australia Market Statistics 6-12 Month Outlook

10-yr AGS bond yield (% p.a.), 2Q17 Deal availability No. of foreign buyers Cap rate trend

Melbourne Office (CBD) | Source: JLL (REIS)

Victoria Police HQ Office | USD 261m Seller Australia Postal Corporation Buyer Keppel REIT

Sources: JLL, Australia Government



3-month bank bill yield (% p.a.), 2Q17

1.7 2.7


H1 2017 vs. H1 2016 Change

7.5 -4%

-20

-10

0

10

20

30

4Q13 4Q14 4Q15 4Q16 2Q17%

Net Eff Rent Growth (y-o-y)Capital Value Growth (y-o-y)



Market Fundamentals

Macro Environment •  We expect a stable investment market this

year, although there is less demand coming from PRC investors, and investors are anticipating rising interest rates.

•  Several Grade B and C en-bloc office buildings are under negotiation, with yields estimated at 2 per cent or below.

•  We expect capital values of Grade A offices to go up 15-20 per cent for the full year, after a series of strong results in government land sales reset pricing benchmarks in the office investment market.

•  There is potential for Central office yields to compress slightly as capital value growth may slightly outpace expected rental growth.

•  Investment volumes in H1 2017 were stable y-o-y. Local investors chased all types of assets including retail, industrial and serviced apartments.

•  There were fewer PRC investors, who accounted for just 8 per cent of office investment in H1, down significantly from the 31% recorded in 2016.

•  Capital values of Grade A offices surged 10 per cent in H1 after the sale of the Murray Road Car Park for a record accommodative value of US$6,450 per square foot.

•  Outside of retail, property yields tightened further across office and industrial sectors in H1.

Office | PRC companies remain the most active tenants in Central’s Grade A office market and will be the key driver of growth. Retail | Rents are set to bottom out this year, but capital values of high street shops continued to fall. Industrial | Most 3PLs are still adopting a wait-and-see attitude towards leasing. Residential | New mass residential launches continued to be well-received despite the latest property cooling measures. Hotel | Eight deals in H1 amounted to almost 2,000 rooms that sold for a combined total of HKD 8.6bn.

•  Solid momentum with strength in property and stock markets underpinning resilient domestic demand, while a cyclical recovery in global trade helped support a positive export performance.

•  In May, the Hong Kong Monetary Authority lowered borrowing limits for borrowers with multiple mortgage loans, but cooling measures have failed to curb residential price growth.

•  Major Hong Kong banks raised their Hibor-linked mortgage rate in May but lenders still have little room to increase mortgage rates because of intense competition in the industry.


“We expect housing prices to grow 15% in the coming 30 months given strong demand from owner-occupiers. If the government's cooling measures remain in place, home seekers will focus on the primary market and further lift up prices.” – Joseph Tsang, Managing Director and Head of Capital Markets, Hong Kong

Fast Facts

2.0-2.5 2.0-2.8 2.8-3.3 Transactional Yield Ranges (%) Hong Kong Commercial Real Estate Investment Volumes


Hong Kong Market Statistics 6-12 Month Outlook

HIBOR rate, 3-month (% p.a.), 2Q17 Deal availability No. of foreign buyers Cap rate trend

Hong Kong Office (Central) | Source: JLL (REIS)

The Wellington Office | USD 385m | Net Yield 2.1% Seller Nan Fung Group Buyer Local Investor No.1 Shouson Hill Road East Residential | USD 196m Seller Local Private Investor Buyer Sea Group

Sources: JLL, Monetary Authority of Hong Kong




2.4 0.8


H1 2017 vs. H1 2016 Change

5.2 +1%

-505

10152025




Market Fundamentals

Macro Environment •  Looking ahead, the investment market

should remain stable as domestic investors will aim to invest locally following the capital outflow restrictions. In particular, domestic developers will become a new pool of buyers for existing assets as they seek to deploy excess capital.

•  Foreign groups will be competitive pursuing deals with offshore structures, as some local landlords are more willing to sell to offshore groups.

•  Some investors are starting to look at Tier 2 cities for good retail assets, given limited opportunities in Shanghai and Beijing.

•  China closed nearly US$13 billion worth of transactions in H1 and were up 42 per cent y-o-y.

•  Foreign buyers have had a strong start to 2017 compared to 2016, as funds were eager to deploy capital after successful fundraising and bidding aggressively for assets.

•  Foreign buyers accounted for one-third of total volumes in Q2, with major purchases by investors from Hong Kong (Link REIT), Singapore (Keppel Land, CapitaLand) and outside of Asia Pacific (AEW, CPPIB).

•  More offices were transacted in the fringe-CBD and decentralised areas of Shanghai.

•  The biggest retail transaction involved the sale of Metropolitan Plaza in Guangzhou to Hong Kong’s Link REIT for US$592 million.

Office | Domestic financial institutions, professional services, retail and TMT companies drove activity in Shanghai and Beijing. Retail | Co-working space and conference centres took some space in prime malls that was given up by traditional retailers. Industrial | 3PLs and e-commerce firms continued to drive leasing activity. Residential | We expect more subdued high-end sales but developers to remain firm with pricing. Hotels | Strong corporate demand continues to buoy the hotel sector.

•  The IMF July forecast predicted China's 2017 economic growth will likely reach 6.7 per cent, its third increase this year, citing "policy support, especially expansionary credit and public investment".

•  China's economy grew by a faster-than-expected 6.9 per cent in Q2 2017, well above the government's target of around 6.5 per cent for the full year.

•  Shanghai and Beijing governments banned the sale of property zoned for commercial purposes for residential use in May.


“Investors are starting to look at Tier 2 cities for good retail assets. They are showing keen interest in logistics as well as conversion plays, for example, retail properties with the potential to convert to office space, or hotels to convert to serviced apartments.” – Johnny Shao, Head of Capital Markets, Shanghai and East China

Fast Facts

3.5-4.9 3.0-5.2 5.0-6.0 Transactional Yield Ranges (%) China Commercial Real Estate Investment Volumes


China Market Statistics 6-12 Month Outlook

10-yr CNY bond yield

(% p.a.), 2Q17 Deal availability No. of foreign buyers Cap rate trend

Shanghai Office (CBD) | Source: JLL (REIS)

Guangzhou Metropolitan Plaza Retail USD 592m | Gross Yield 4.7% Seller Gaw Capital Partners Buyer LINK REIT Shanghai H88 Tower Office USD 277m Seller CLSA Buyer Everbright Ashmore

Sources: JLL, PBOC



All-in bank lending rate

(% p.a.), 2Q17

4.6 3.6 Lending rate:

1-year (% p.a.), 2Q17

4.35


H1 2017 vs. H1 2016 Change

12.4 +36%

-5

0

5

10

15




Market Fundamentals

Macro Environment •  Looking ahead, buyers will continue to

bargain-hunt but we expect stable transaction volumes this year because of the high base of comparison in 2016.

•  Assets on the market will provide products for core funds and likely reset pricing benchmarks.

•  There is potential for marginal compression in core yields as capital value growth may slightly outpace expected rental growth.

•  Deal volumes in Singapore rose by 6 per cent y-o-y in H1, as investor sentiment turned decidedly positive after CBD office rents bottomed earlier than expected.

•  Major Q2 sales such as Jurong Point shopping centre ranked among the biggest commercial property transactions regionally.

•  Offshore investors were active. For example, Hong Kong’s FWD Group bought a 50 per cent stake in One George Street, and Hongkong Land invested in a 33 per cent stake in Central Boulevard site.

•  Office yields compressed with the latest transactions.

Office | Rents bottomed out in Q2 on the back of higher occupancy rates. Retail | Rents continued to correct. Retailers and F&B operators remained cautious about local expansion. Industrial | A couple of REITS disposed of their properties for capital recycling purposes. Residential | Sentiment improved with five collective sales conducted in Q2 and successful tenders of government land. Hotel | Growth in the number of Chinese and Indonesian visitors helped to offset the decline in visitor arrivals in other key markets.

•  Oxford Economics forecasts Singapore GDP to grow 2.7 per cent this year and 3.4 per cent next year. The cyclical recovery in global trade should underpin growth in exports, although domestic demand may remain subdued given soft labour market conditions.

•  Retail sales got off a weak start in Q1, indicating that consumer spending remained weak.

•  Market consensus is that Singapore will maintain a policy of zero appreciation in the SGD-effective exchange rate this year, given patchy growth.


“Investor sentiment has turned decidedly positive after CBD office rents bottomed earlier than expected. There is better sentiment in the residential market with more collective sales and interest in government land sales.” – Greg Hyland, Head of Capital Markets, Singapore

Fast Facts

3.0-3.8 4.2-4.5 5.9-6.4 Transactional Yield Ranges (%) Singapore Commercial Real Estate Investment Volumes


Singapore Market Statistics 6-12 Month Outlook

SIBOR rate, 3-month (% p.a.),2Q17 Deal availability No. of foreign buyers Cap rate trend

SingaporeOffice(CBD)|Source:JLL(REIS)

Jurong Point Shopping Centre Retail | USD 1.58bn | Est. Yield: 4.2% Seller Guthrie GTS /Lee Kim Tah Holdings Buyer Mercatus Cooperative One George Street Office | USD 425m | Est. Yield: 3.2% Seller Capitaland Commercial Trust Buyer FWD Group

Sources: JLL, Singapore Government




2.9 1.0


H1 2017 vs. H1 2016 Change

5.0 -3%

-15-10

-505

101520




Market Fundamentals

Macro Environment •  There is sustained investor interest and some

deals are under negotiation. However, lower deal volume is projected this year after several high-profile transactions in 2016.

•  The quality of some assets on the market has not met buyers’ expectations, but more products will enter the market in H2.

•  Investors will focus on brand new logistics assets and pass over older facilities, as tenants increasingly migrate from old to new facilities.

•  Yields have likely bottomed out. Changes in borrowing costs will be a key determinant of trend in yields.

•  Deal volumes in South Korea in H1 soared 43 per cent y-o-y, with transactional activity in Q2 boosted by a mega deal.

•  Singapore’s Ascendas-Singbridge sold the Signature Tower in Seoul to local asset manager IGIS for US$635 million. IGIS bought the property on behalf of Korea’s National Pension Service.

•  Domestic investors continued to focus on core and core plus assets with long WALE.

•  Korean corporates sold non-core buildings in order to focus on their core business.

Office | Tenant exits from some CBD office buildings have increased vacancy risks and pressured rents. Retail | The retail market is swinging towards a tenant-favourable market with more choices available for tenants. The F&B sector is performing well. Industrial | Performance in manufacturing and exports remained mixed in Q2. Residential | Weakening economic growth and concerns of oversupply slowed housing market. Hotel | The significant fall in Chinese tourists underscores the negative impact on South Korea’s tourism sector arising from political tension between the two countries.

•  Political risks are dissipating after the impeachment of President Park and the election of Moon Jae-in as President in May 2017.

•  Oxford Economics forecasts South Korean’s real GDP to grow by 2.6 per cent p.a. in 2017-18.

•  The policy environment remains supportive of growth. The Bank of Korea is expected to keep its policy rate at its current record low of 1.25 per cent this year and next.


“Investor and business sentiment has improved with political risks dissipating. We are optimistic about fewer vacancy risks in the office leasing market going forward.” – Steven Craig, Managing Director, South Korea

Fast Facts

4.0-4.75 3.75-4.75 6.0-8.0 Transactional Yield Ranges (%) South Korea Commercial Real Estate Investment Volumes


Korea Market Statistics 6-12 Month Outlook

BOK base rate (% p.a.), 2Q17 Deal availability No. of foreign buyers Cap rate trend

SeoulOffice(CBD)|Source:JLL(REIS)

Signature Tower Office | USD 635m Seller Ascendas-Singbridge Buyer IGIS Asset Management Yuanta Securities Building Office | USD 192m | Yield: 4.1% Seller Hana Asset Management Buyer NH-Amundi

Sources: JLL, Bank of Korea




3.5 1.25


H1 2017 vs. H1 2016 Change

8.3 +43%

-8-6-4-202468

10




Market Fundamentals

Macro Environment •  Higher transaction volumes are expected this

year, with REITs ready to be launched by H2 2017. Global investors are looking to buy core asset portfolios in the country in view of future public exit via REITs.

•  Fund managers with international experience have set up equity platforms with Grade A developers with good corporate governance.

•  There is a likelihood for yields to further compress, given the level of investor interest.

•  A major logistics deal closed in Q2. CPPIB invested US$500 million in a joint venture with India's IndoSpace to acquire nine completed modern industrial/logistics assets in India.

•  Xander Group acquired the technology special economic zone of Shriram Group in Chennai for US$350 million.

•  More deals are in the pipeline. For example, Singapore’s GIC is reportedly buying 40 per cent of DLF Cyber City, which owns large commercial spaces in Gurgaon.

Office | IT/ITeS companies continued to drive leasing demand across Tier 1 India markets. Retail | Leasing activity was hindered by a shortage of available space in top prime malls. Industrial | Consolidated large scale warehouses with modern facilities are in demand with the passing of the Goods and Services Tax (GST) bill. Residential | The new GST regime will likely lower the tax burden for consumers, which will help boost the sales of apartments. Hotel | Continued growth in demand is driven by growing MICE and corporate demand.

•  Oxford Economics revised their 2017 and 2018 growth forecasts for India downward to 6.9 per cent and 7.4 per cent respectively.

•  The lagged impact of demonetisation affected Q1 GDP outcome but there are signs that the economy is now on the mend.

•  The central bank kept the repo rate unchanged at the June meeting, but substantially revised its inflation projections downwards, reflecting the sharp deceleration in CPI inflation seen in recent months.


“Investors are focusing on retail assets in Tier 2 and 3 Indian cities. Modern warehouses along national highways and close to major cities are in demand.” – Shobhit Agarwal, Managing Director Capital Markets, India

Fast Facts

8.5-10.5 9.0-11.0 10.0-11.0 Transactional Yield Ranges (%) India Commercial Real Estate Investment Volumes


India Market Statistics 6-12 Month Outlook

Repo rate (% p.a.), 2Q17 Deal availability No. of foreign buyers Cap rate trend

DelhiOffice(SBD)|Source:JLL(REIS)

CPPIB invested in joint venture with IndoSpace Industrial | USD 500m Seller IndoSpace Buyer CPPIB

Sources: JLL, Reserve bank of India



Lease rental discounting rate (% p.a.), 2Q17

8.5-9.0 6.25


H1 2017 vs. H1 2016 Change

0.4 -44%

-6

-4

-2

0

2

4

4Q13 4Q14 4Q15 2Q16 2Q17%

Net Eff Rent Growth (y-o-y)Capital Value Growth (y-o-y)

9 Raffles Place #39-00 Republic Plaza Singapore 048619 tel +65 6220 3888 fax +65 6438 3361 www.ap.jll.com

Crow

Head of Capital Markets Asia Pacific +65 6494 3888 [email protected]

Huang

Director Asia Pacific Capital Markets Research +852 2846 5017 [email protected]

Authors

JLL Asia Pacific

www.ap.jll.com Copyright © Jones Lang LaSalle 2017 This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation ismade, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

Walters (PhD)

Head of Research Asia Pacific +65 6949 3649 [email protected]

Stuart Megan Myles

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