CapitaLand Integrated Commercial Trust - Annual Report 2021

Demand Drivers The tenant profile of North Sydney is dominated by the Professional, Scientific and Technical Services industry. The major transformation of North Sydney has continued to see strong interest from major organisations such as Microsoft, SAP, Nine Entertainment, Ooh!Media and NBN Co. North Sydney has been identified as a preferred location as tenants seek to attract and retain talented staff with the lure of excellent transport connectivity, abundant facilities and amenities, as well as the availability of brand-new office accommodation with up to a 30% parity to CBD rents. This is supported by the high level of new demand recorded over the past 18 months to July 2021, with 2020 recording 42,420 sq m of net tenant movements relocating to North Sydney. The chart shows the breakdown of tenant relocation from other major markets into North Sydney and new office or business setup since 2020. Rental Values The North Sydney office market experienced a period of strong rental growth since 2011, in line with vacancy rates which continued to improve and remain below the 10-year average of 8.3% until COVID-19 hit. Over the year to December 2021, prime and secondary net face rents increased marginally by 0.7% and 1.0% after remaining unchanged throughout the pandemic in 2020. On the other hand, incentives also increased 300 bps to 35% over the same period for prime and secondary. This has resulted in a y-o-y fall of 3.5% and 4.6% for prime and secondary net effective rent. The gap between North Sydney and CBD prime rents has narrowed appreciably since 2008. North Sydney prime grade rents are currently about one-third of Sydney CBD prime office rents. This has supported the increasing attractiveness of secondary CBD locations as an alternative to North Sydney. Looking forward, while net supply additions remain low over the next 12-18 months, we expect North Sydney to perform similarly to the CBD, with falling effective rents to bottom out in 2022 as tenant demand continues to strengthen. Consistent with this, incentives eased to approximately 33% from 35% a year ago. NORTH SYDNEY TENANT MOVEMENTS (NEW DEMAND ONLY) (2020-JULY 2021) (sq m) Note: New demand refers to tenant relocation from outside of North Sydney and new office/business only Source: PCA, CBRE Australia Research, July 2021 Sydney CBD 1,273 City Fringe 550 Macquarie Park/ North Ryde 21,463 St Leonards 1,494 Suburban 23,248 New Office/ Business 1,745 Annual Report 2021 121 Independent Market Review