April 2013 China Retail Property Market

Macro-Economics 1

CBRE | Page 3 Source: IHS Global Insight Is Chinas Economy in Decline?

CBRE | Page 4 Source: China Statistics Bureau, China Twelfth Five-year Plan Significant Growth in Disposable Income

CBRE | Page 5 Source: China Statistics Bureau, EIU Fuelling Domestic Consumption

CBRE | Page 6 Consumption / GDP

Retail Market Development 2

CBRE | Page 8 Significant Brand Penetration China has only been a truly open market for a decade, and yet a significant retailer presence exists already. CBREs 2012 How Global is the Business of Retail? report highlights that China ranks 5th out of all international markets in terms of the presence of international brands, with Beijing and Shanghai both figuring close to the top ten most attractive global cities for retailers Rank CountryRegion% International Retailers Present 1United KingdomEurope56.7% 2UAEMiddle East53.1% 3United StatesAmericas50.3% 4SpainEurope47.5% 5ChinaAsia47.2% 6=FranceEurope46.9% 6=GermanyEurope46.9% 8RussiaEurope44.5% 9ItalyEurope42.9% 10Saudi ArabiaMiddle East41.1% 11Hong KongAsia40.8% 12KuwaitMiddle East40.2% 13SingaporeAsia39.9% 14TurkeyEurope39.0% 15BelgiumEurope37.4% 2012 Rank City% International Retailers Present in City 1London55.5% 2Dubai53.8% 3New York43.9% 4=Moscow43.2% 4=Paris43.2% 6Hong Kong40.5% 7Madrid39.9% 8Kuwait City39.5% 9Barcelona39.2% 10Singapore38.9% 11=Los Angeles38.5% 11=Shanghai38.5% 13Beijing38.2% 14Istanbul37.2% 15Milan36.9% Source: CBRE Research

CBRE | Page 9 Significant Brand Penetration Source: CBRE Research

CBRE | Page 10 Increasing Pace of Development Metro, Shanghai Carrefour, Beijing 1989 Shenzhen 1999 Grand Gateway, First Shopping Center Shanghai 1987 Beijing 1992 Beijing 1996 Shenzhen 2000 Oriental Plaza, First Shopping Mall Beijing 2010 Beijing & Shanghai 2008 Beijing 2007 Shanghai 2005 Shanghai 2004 Full Opening of China Market For Foreign Investors 1992 The Entry of Foreign Invested Department Stores & Burgeoning Luxury Sector 2012 Shanghai Beijing

CBRE | Page 11 The Chinese Shopper

CBRE | Page 12 The Chinese Shopper Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

CBRE | Page 13 The Chinese Shopper Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family.

CBRE | Page 14 The Chinese Shopper Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. Interested in brands that have a strong international reputation and have adapted to local tastes and sizing

CBRE | Page 15 The Chinese Shopper Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. Interested in brands that have a strong international reputation and have adapted to local tastes and sizing Pays attention to value for money and quality of merchandise – real or perceived

CBRE | Page 16 The Chinese Shopper Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. Interested in brands that have a strong international reputation and have adapted to local tastes and sizing Pays attention to value for money and quality of merchandise – real or perceived Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations

CBRE | Page 17 The Chinese Shopper Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. Interested in brands that have a strong international reputation and have adapted to local tastes and sizing Pays attention to value for money and quality of merchandise – real or perceived Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations Is increasingly influenced by multi-channel brand marketing

CBRE | Page 18 The Chinese Shopper Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. Interested in brands that have a strong international reputation and have adapted to local tastes and sizing Pays attention to value for money and quality of merchandise – real or perceived Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations Is increasingly influenced by multi-channel brand marketing Is as comfortable on High Streets as they are in Department stores and Shopping Centres

CBRE | Page 19 How Retailers Are Responding

CBRE | Page 20 How Retailers Are Responding Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords.

CBRE | Page 21 How Retailers Are Responding Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords. Developing product ranges, merchandising, supply chain and marketing in line with European standards.

CBRE | Page 22 How Retailers Are Responding Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords. Developing product ranges, merchandising, supply chain and marketing in line with European standards. Increasing emphasis on Brand experience in terms of shop-fit, retail environment and product sophistication.

CBRE | Page 23 How Retailers Are Responding Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords. Developing product ranges, merchandising, supply chain and marketing in line with European standards. Increasing emphasis on Brand experience in terms of shop-fit, retail environment and product sophistication. Further adapting to the Chinese market. More than just a fundamental difference in sizing and generic consumption demands compared with Europe.

CBRE | Page 24 How Retailers Are Responding Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords. Developing product ranges, merchandising, supply chain and marketing in line with European standards. Increasing emphasis on Brand experience in terms of shop-fit, retail environment and product sophistication. Further adapting to the Chinese market. More than just a fundamental difference in sizing and generic consumption demands compared with Europe. Adapting to regional differences in climate, spending power, and taste throughout China

Understanding Retail Destinations 3

CBRE | Page 26 Retailer Presence in Chinese Cities % of global retailers present in each city

CBRE | Page 27 Beijing – CBD Home of the international business community Retail offer dominated by luxury shopping malls The Place enjoyed early success. But has struggled to sustain early footfall numbers and will face stiff competition

CBRE | Page 28 Beijings most traditional retailing area. Pedestrianised street anchored by Beijing APM and Oriental Plaza. Footfall levels surpass 600,000 people per day and more than 1,200,000 during public holidays. Mixture of domestic and foreign tourists and white collar office workers. Beijing – Wangfujing

CBRE | Page 29 Beijing – Sanlitun Only recently emerged as a mainstream retail destination. Traditionally renowned for bars, restaurants and night time activity. Flagship stores and innovative design has led to a significant draw from throughout Beijing.

CBRE | Page 30 Shanghai – West Nanjing Road The most established business district in Puxi The focus of luxury retailing in Shanghai with brands accommodated within Plaza 66, CITIC Square andr Westgate Mall. However, Gap, Uniqlo, H&M, Sephora and American Eagle Outfitters have all opened stores recently

CBRE | Page 31 Shanghai – East Nanjing Road Fully pedestrianised shopping street with high footfall levels. State-owned department stores and local retailers dominate although international brands have started to gain a foothold. Foreign retailers with the most notable presence include Apple, Zara, Mango, Uniqlo, Forever 21 and WE.

CBRE | Page 32 Shanghai – Huai Hai Road A tree lined boulevard split into two sections. The eastern section is characterised by shopping malls and retail podiums attached to office towers. The western section of Huai-Hai Road is characterised by mass market retailers and resembles more of a European High Street.

CBRE | Page 33 Data as of Q Global Prime Retail Rents

CBRE | Page 34 The Growth of Second Tier Cities 2 nd TIER CITIES

CBRE | Page 35 Population Migration

CBRE | Page 36 The Emergence of Mega Cities Urban Population as a % of Total Population of Province 30% - 49% 50% - 74% 75% and over Under 29% Heilongjia ng Inner Mongolia Tibet Qinghai Jilin Liaoning Beijing Tianjin Xinjiang Gansu Ningxia Shanxi Sichuan Yunnan Guizhou Guangxi Shaanxi Hubei Chongqing Hunan Shandon g Hebei Guangdong Jiangxi Henan Anhui Jiangsu Zhejiang Fujian Taiwan - Shanghai Macau SAR HKSAR Hainan Forecast Chongqing Shanghai Beijing Chengdu Tianjin Shenzhen Guangzhou Qingdao Xian Nanjing Wuhan Hangzhou Dalian China Major Cities (Population in million) Source: National Statistics Bureau of China, forecast figures for 2020 Noted: the figures listed above are permanent population (live in the city for more than 6 months)

CBRE | Page 37 Disposable Income in Major Chinese Cities 2012 Disposable Income and Growth Rate Annual Disposable Income (RMB per capita) Y-o-Y Growth Rate (%) Source: China Statistics Bureau Note: Figures for Dalian and Shenyang are on estimation.

CBRE | Page 38 Retail Sales in Major Chinese Cities 2012 Retail Sales and Growth Rate Source: China Statistics Bureau Note: Figures for Dalian and Shenyang are on estimation. Annual Retail Sales (RMB 100 million) Y-o-Y Growth Rate (%)

CBRE | Page 39 New airports/airport extension Major revamp of port facilities Metro systems/light rail Inner city urban regeneration/ Satellite cities Major Infrastructure Development

CBRE | Page 40 Retail Rental Trends Rental Index Index: Q = 100 Source: CBRE Research

CBRE | Page 41 Good Quality Retail Accommodation

CBRE | Page 42 sm The Focus of Future Supply Source: CBRE Research

Doing Business in China 4

CBRE | Page 44 Doing Business in China Lessons to be learnt from retailers that are successful in the market today:

CBRE | Page 45 Doing Business in China Lessons to be learnt from retailers that are successful in the market today: Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

CBRE | Page 46 Doing Business in China Lessons to be learnt from retailers that are successful in the market today: Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

CBRE | Page 47 Doing Business in China Lessons to be learnt from retailers that are successful in the market today: Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities.

CBRE | Page 48 Doing Business in China Lessons to be learnt from retailers that are successful in the market today: Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities. The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers

CBRE | Page 49 Doing Business in China Lessons to be learnt from retailers that are successful in the market today: Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities. The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers Agree the real estate strategy – the reporting and decision making process.

CBRE | Page 50 Doing Business in China Lessons to be learnt from retailers that are successful in the market today: Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities. The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers Agree the real estate strategy – the reporting and decision making process. Pricing is a driver of success, and now not only in the mass market sector. Pricing the product correctly and balancing margin with volume can dictate success.

CBRE | Page 51 Doing Business in China Lessons to be learnt from retailers that are successful in the market today: Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities. The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers Agree the real estate strategy – the reporting and decision making process. Pricing is a driver of success, and now not only in the mass market sector. Pricing the product correctly and balancing margin with volume can dictate success. Invest in on-going multi-channel marketing

CBRE | Page 52 Doing Business in China Lessons to be learnt from retailers that are successful in the market today: Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities. The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers Agree the real estate strategy – the reporting and decision making process. Pricing is a driver of success, and now not only in the mass market sector. Pricing the product correctly and balancing margin with volume can dictate success. Invest in on-going multi-channel marketing Rents are comparable with some large European cities, and sales densities are still increasing so financial return may not be short term.

CBRE in China 5

CBRE | Page 54 CBRE in China CBRE first established a corporate office in China in Since then we have developed full service offices in 13 different cities and a representative presence in a further 9. With retail consultants and agents in each of our 15 offices we have the local knowledge and national coverage required to advise international retailers on their market entry into China and subsequent expansion throughout the country. Amongst those brands that have retained CBREs services are: W S E C Beijing Tianjin Shenyang Dalian Qingdao Taipei Shenzhen Guangzhou N Wuhan Chengdu Chongqing Hong Kong (Hong Kong & Kowloon) Hangzhou Shanghai Retail Real Estate Research Location Outlet Strategy and Market Mapping Store Acquisition Retail Portfolio Review and Disposition Franchise Partner Sourcing Changsha