CapitaLand Integrated Commercial Trust - Annual Report 2021

SYDNEY CBD OFFICE RENTS SYDNEY CBD OFFICE CAPITAL VALUES AND YIELD Investment Market Transaction activity improved significantly in 2021 from 2020. As at December 2021, the total office sales volumes increased by 2.5 times to A$3.8 billion comprising 18 transactions. The transactions were underpinned by a healthy investor appetite for quality office assets, taking advantage of the current low-interest-rate environment and a flight- to-quality trend. In contrast to a pre-pandemic level where foreign investment represented an average of 37% of total transaction volumes between 2015 and 2019, activity in 2021 was driven largely by local institutional investors across the listed wholesale and private investor markets. Following the trend of falling bond yields, prime office yields in Sydney have been compressing since 2010, driven by the substantial increase in demand for Sydney offices since 2012. There has been significant rental growth in Sydney over the last five years, making it even more attractive. The relative value for money that offshore investors get compared to other global markets has driven prices up and yields down. As at December 2021, prime and secondary capital values average at A$28,259 psm and A$19,233 psm, representing a y-o-y increase of 1.3% and 4.1% respectively. The stronger investment market saw prime and secondary office yields compress to an average of 4.5% and 4.8% respectively as of 4Q 2021. 1,000 900 800 700 600 500 400 300 200 100 0 30 25 20 15 10 5 0 6 5 4 3 2 1 0 Net Effective Rent (A$/sq m/annum) Capital Value (A$ psm) (‘000) Yield (%) 1Q 2017 2Q 2017 3Q 2017 4Q 2017 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 2Q 2019 3Q 2019 4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 3Q 2021 4Q 2021 2022F 2023F 2024F 1Q 2017 2Q 2017 3Q 2017 4Q 2017 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 2Q 2019 3Q 2019 4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 3Q 2021 4Q 2021 Prime Net Effective Rents Secondary Net Effective Rents Prime Capital Value Secondary Capital Value Prime Yield Secondary Yield Source: CBRE Australia Research, 4Q 2021 Source: CBRE Australia Research, 4Q 2021 Annual Report 2021 119 Independent Market Review