GLOBAL PROPERTY TRENDS. Leonard Michau Director and Head of Africa Operations Broll Property Group

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1 GLOBAL PROPERTY TRENDS Leonard Michau Director and Head of Africa Operations Broll Property Group

2 GLOBAL OFFICE MARKET Global Outlook

3 INTERNATIONAL OFFICE TRENDS US - Demand side, office leasing activity to decline 7% (low levels of unemployment, net addition of office space down by 1/3) - Office completion for 2017: 4.8 mill sqm (highest total post 2009) Europe - Demand side, overall leasing activity increased 1% 2016, similar expected for 2017 (weaker growth in office based employment) - Office completion for 2017: 6.3 mill sqm (still 25% lower than previous high in 2008) Asia Pacific region - Downward pressure on net absorption of space in 2017 by 10% (occupiers to improve on operational efficiency and cautious approach towards corporate expansion) - Office completion for 2017: 5.5 mil sqm (fairly consistent with prior years)

4 DEMAND TRENDS OFFICE OFFICE DEVELOPMENT COMPLETIONS 7 6 Sqm (million) Europe USA Asia Pacific

5 OCCUPIER TRENDS OFFICE International occupiers are increasingly taking a more activist approach to portfolio optimisation and are focussed on amenity-rich locations and buildings to retain talent. Preference towards higher quality buildings with IT infrastructure and efficient floor plates Reasons include: - Retention of human resources, especially skilled staff - Cater for growth of the millennial workforce (19-35 age group) - Increased adoption of the work anywhere lifestyle (agile and flexible work patters, hotdesking) - A focus on health and well-being in the workplace - Reduction of occupation costs (space planning, outsourcing to consultants, consolidation of space, higher occupational densities) Similarly adopted by SA corporates e.g. Sasol, Discovery, Old Mutual Sandton developments

6 DEMAND/SUPPLY TRENDS OFFICES Nigeria - Office market remains under pressure (vacancies, slow take up of space) - Lower rentals, rent free periods and TI allowances to attract new tenants and retain existing tenants - Relocation of corporates from standalone and B/C-grade to A-grade space - Cautious approach adopted by developers with slow down in development pipeline - Excess supply of between months, depending on rate of economic recovery Kenya - Concerns of over supply of office space in certain nodes e.g. Upperhill, - Election uncertainty, cautious approach by occupiers - Vacancies of newly completed buildings remains high, to increase as development pipeline comes to market - Lower rentals and favourable lease terms offered by Landlords in certain nodes

7 DEMAND/SUPPLY TRENDS OFFICES Mauritius - Ebene CyberCity node dominates corporate office market (<5% vacancy), facing traffic congestion, parking issues, outdated public transport system - Steady supply of office space resulting in rental levels remaining stable for a number of years - Port Louis node comprises old stock (vacancies greater than 20%) - New legislation 2018 to allow Landlords to charge higher rentals which will present new redevelopment opportunities in Port Louis South Africa - Pressure on asking rental levels and vacancies in certain nodes (national Q2/2017 : 11.8%, Sandton: 20%, Negative absorption of space in past 3 quarters sqm) - Cautious approach by Corporates (Economic growth drives lacking, political uncertainty, employment stagnant), - Backfill risk driven by corporate consolidation (corporate identity, consolidation of multiple tenancies, improved utilisation of space, long term view, inclusion of amenities (gym, restaurant, ATM facilities, pause areas etc. (e.g. Old Mutual, Sasol, Discovery) - Rental growth negative (retention of tenants)

8 GLOBAL RETAIL MARKET Global Outlook

9 GLOBAL RETAIL TRENDS Globally mill sqm of space added in 2016, most in Asia - End 2016, 33 mill sqm globally under construction - Pace of development continues to slow with Malls under development down 22% - Caution among investors and occupiers (market saturation in many markets) - Strong competition among landlords & impact of e-commerce led to delayed opening or Malls opening without full occupancy - Most brands sticking to tried and tested markets (costs and change in consumer behaviour) - Technology continues to be a significant disruptor in the sector (large stores in prime locations act as showrooms while overall space requirements scaled back in response to online sales) - Retailers investing more on in-store experiences for strategic sites, secondary sites to focus more on efficiency of sales - Food and beverage becoming more innovative and flourishing. Set to occupy more GLA (>25%). - Movement from traditional department stores to non-traditional tenants e.g. food courts - Grocers moving into restaurant space due to high margins

10 RETAIL TRENDS Nigeria - Significant slow down in sector putting pressure on retailers and landlords alike (slow take up) - Focus on more established shopping centres in core markets as opposed to second tier towns/cities. - Depreciation of local currency and US$ shortages - Lower rentals, favourable lease terms and short term concessions, the order of the day - Existing tenant pool fragile and shallow - Pipeline of developments reduced ( sqm on hold or cancelled or reduced) - Focus on smaller malls with second phase, to progress once market turns Kenya - Significant growth over past 5 years, set to continue - Slow down in take up of space in newly established Malls (vacancies under pressure) - Fears of over supply of retail space (tenant growth struggling to match development growth) - International retailers continue to show interest (LC Waikiki, Carrefour, Decathlon, Terranova) - Nakumatt (growth strategy)

11 RETAIL TRENDS Mauritius - Development activity and pipeline of new Malls limited - Cycle of every 3-5 years a large Mall is developed (conceptual sqm development planned along M1 axis) - Pool of tenants remains shallow (small market) South Africa - Increased pressure on retail market (saturation, less to go around, consumer spend under pressure) - Pipeline of developments (1.7 million sqm) to add further stress to the market (cannibalization) - Retail vacancies low but above long term average of 2.5% (Super regional 1.6%) - Annual landlord escalations under pressure - Growth of annualized trading densities has slowed - Store closures/reducing number for big box retailers and stand alone brands - Shoppertainment, holistic experience, family orientated offerings, advanced technological platforms, all increasingly important - Retailers investing more in the in-store experience for key locations (omni channel approach click and collect, experimental stores) - Influx of international retailers in recent years (Zara, Starbucks, Paul, Cotton On, Mango, Nine West, Jamie Oliver)

12 RETAIL TRENDS FOOD SERVICES MONTHLY TRADING DENSITIES

13 GLOBAL INDUSTRIAL MARKET Global Outlook

14 INDUSTRIAL TRENDS Sector well position to benefit from structural changes (online retailing, transformed global supply chains, US$ 1 billion online sales = sqm) Projected on-line sales to translate into 4 million sqm s additional space per annum Online retailers require 3 x more space than traditional warehouse users As tenants in Europe require larger warehouses in core hubs, the demand will remain strong. America outlook is mixed as the expectation of increase supply chains to support online retail users. Automated technologies will allow for structured multilayered warehousing and high bays E-commerce to place more pressure on return strategy ($26 billion) Slow development activity has resulted in completions trailing demand (USA - 5 consecutive years with highest delivery in 2016)

15 INDUSTRIAL TRENDS GLOBAL ONLINE RETAIL SALES % Growth 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Transactions (USD, bn)

16 INDUSTRIAL TRENDS Nigeria - Little noteworthy activity (underdeveloped industrial and manufacturing base have had adverse effects on this sector) - Likely increase in demand for space (recent import challenges and Government industrialization programme) - Completion of new developments face challenges (land, local currency vs US$, current rental levels low) Kenya - Market consists predominantly of B/C-grade space, while A-grade warehousing remains in its infancy stages. - Tatu City has Kenya s first A-grade industrial development under construction

17 INDUSTRIAL TRENDS Mauritius - Unattractive asset class (low yields, ageing stock and limited rental growth) - Mostly owner occupier held - Limited development (potential South Africa - Sector under some pressure (vacancy level 5.8%, highest since 2003) - Standard Industrial units, warehousing and light manufacturing experienced most pressure, High Tech Industrial being the standout segment. - Nodal performance (Market conditions/poor performance of manufacturing sector to affect demand for space in older, heavier industrial nodes while newer nodes with modern space will continue to attract interest - Online shopping (demand for decentralized warehouse facilities within closer proximity to ports)

18 THANK YOU Leonard Michau Director and Head of Africa Operations Broll Property Group