Within Asia, which markets do you believe offer the greatest potential on a ten year view?

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2 Andrew Haskins Executive Director Research Asia Michael Bowens Executive Director Regional Tenant Representation Asia Four terms describe an appropriate strategy for technology occupiers in Asia: talent, Chindia, CBD, artificial intelligence (AI). Acquiring talent is the greatest challenge facing the sector. Talent is concentrated near specific cities in key markets, notably China and India. These markets offer the highest growth potential, but more importantly exposure to China is vital to appreciating new developments in e-commerce, mobile internet and AI. To retain talent, technology groups need to move toward the CBD or CBD fringe; campus sites are unlikely to attract skilled staff for key future roles. AI threatens demand for space, but will support high-value human roles and fuel productivity. This will drive future growth and returns for technology companies. Executive Summary Talent Based on interviews held by Colliers with technology companies in Asia, acquisition of talent is their greatest challenge, ranking far ahead of other constraints. The occupiers in our study have particular respect for Beijing/ North China as a source of talent, together with Shanghai/East China and India (notably Bangalore). Talent is getting younger, with millennials the top or joint top employee age group for two-thirds of the companies. Chindia China and India offer the highest growth potential over ten years. We think it vital for technology groups to have exposure to China to understand the developments in a dynamic market leading Asia in e-commerce, mobile internet and AI. We advise technology groups to consider location in Shanghai or Beijing (or, on a medium-term view, Chengdu) in addition to currently dominant South China. In India, Hyderabad is emerging as a strong alternative to Bangalore with lower rents. CBD We think technology groups need to move towards the CBD or CBD fringe to find and retain talent in R&D and sales & marketing. Business parks on city edges are an option for smaller or start-up groups. Different economic criteria apply to manufacturing units, for which location outside cities makes sense. However, technology occupiers attempting to concentrate all their operations in out-of-town campus sites look unlikely to attract all the high-skilled staff needed for the key roles of the future. Artificial intelligence Technology companies should harness AI to drive growth and boost returns. The convergence of AI, the Internet of Things and alternative workplace solutions (with agile working the best design for many technology groups) looks set to transform the office, making it more collaborative, greener and healthier. This will help in acquiring and retaining human talent. Within Asia, which markets do you believe offer the greatest potential on a ten year view? Options All Asia China India Japan Hong Kong/ Singapore Which regions or cities do you see as the biggest sources of talent within Asia? (summarised) Options Beijing/ N. China Shanghai/ E. China China (other or general) India (Bangalore) India (other or general) Other Total preferences Preferences Proportion of sample citing option positively 18.2% 12.1% 15.2% 12.1% 21.2% 21.2% 100.0%, based on detailed interviews with technology sector occupiers in Asia Other Total preferences Preferences * 25.0 Proportion of sample citing option positively 4.0% 24.0% 32.0% 20.0% 4.0% 16.0% 100.0%

3 Contents Executive Summary... 2 Introduction... 5 Talent, Chindia, CBD, Artificial Intelligence 5 No unified tech sector; fastest growth in social media, app-based services, specialised chips... 5 Key findings from interviews... 7 Country and growth strategy... 8 Economic prospects in Asia firm... 8 India and China offer greatest long-run growth potential Relative US dollar weakness good news for Asia and a vote of confidence in China Essential to have a strategy for China as an increasing technology leader Location strategy Sales and marketing, R&D functions best located in CBD or CBD fringe Business parks remain attractive for smaller technology companies China: South China not the only location for technology companies India: Hyderabad an emerging alternative to Bangalore Poor infrastructure holds India back Workplace strategy Impact of AI Activity-based versus agile working Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

4 Changing demographic profile of the workforce Considerations of staff health and wellbeing Technology Occupiers survey...24 Survey responses: methodology Analysis of responses Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

5 Introduction Over the summer of 2017 staff in Colliers' Occupier Services and Research teams held detailed interviews with the Asian operations of twelve large technology companies domiciled in the US and Europe, China and India. These companies span the gamut of technology sub-sectors from hardware manufacturing to social media. Our interviews covered present and future real estate strategy, but paid particular attention to the question of how the need to acquire and retain talent shapes real estate location decisions. We explain the methodology behind our study and discuss the findings from our interviews in detail in the second half of this report, in the chapter entitled "Technology Occupiers Survey". In the first half of the report, we combine the key findings from the study with the conclusions from our own research into the future direction of property markets to outline an ideal real estate strategy for technology sector occupiers in Asia. Talent, Chindia, CBD, Artificial Intelligence We have written the first half of the report under three headings: country and growth strategy, location strategy and workplace strategy. However, our recommended strategy may also be neatly summarised by the four terms included in the title of this report. This is because: > Acquisition and retention of Talent is, and will remain, the single greatest challenge for technology sector occupiers in Asia. > China and India - Chindia for short - are the markets with the greatest growth potential on a ten-year view, and are also key sources of talent. In addition, in our view, it is important for technology groups to have exposure to China in particular in order to understand developments in a dynamic market that now leads Asia in e-commerce, mobile internet and emerging fields such as artificial intelligence. > The CBD and the CBD fringe are already important locations for sales and R&D functions because they offer ready access to talent; and we expect the attractions of the CBD and CBD fringe to strengthen further over time. Business parks on city outskirts retain their attractions, especially for smaller companies and start-up operations. However, we expect out-of-town campus facilities to be increasingly limited to manufacturing units. > Artificial intelligence threatens long-run demand for space by technology occupiers, notably outsourcing groups. However, AI will also aid high-value human roles and drive productivity. The convergence of AI, the Internet of Things and alternative workplace solutions is set to cut costs, boost growth and returns, and enhance the well-being of staff across many sectors, but perhaps especially technology. No unified tech sector; fastest growth in social media, app-based services, specialised chips We should make clear at this point that there is, of course, no such thing as a unified technology sector. The technology occupiers in our study operate in quite different markets and consequently show widely differing rates of revenue growth. We would group the companies into the following technology market sub-sectors: Hardware manufacturing Three companies fall into this category: a manufacturer of PCs and smartphones, a producer of smartphones, and an international manufacturer of telecommunications network equipment. In simple terms, the PC industry has been under pressure from the shift to mobile internet and the popularity of smartphones. The smartphone business is dominated by Apple of the US and Samsung of South Korea at the high end, but hard at their heels are several Chinese smartphone producers which have seen market share trends shift dramatically. The telecommunications infrastructure market has stagnated globally due to the completion of investment in 4G mobile networks and a general delay before the transition to 5G. One of the three companies hopes to achieve compound annual revenue growth of over 50% over the next few years, while another is currently shrinking. Integrated circuit design and production Two companies fall into this category: a large supplier of integrated circuits, and a designer of specialised chips for mobile and entertainment markets. Again in very simple terms, the IC business has been shifting for many years from dependence on the PC industry for growth to dependence on mobile communications and other new applications. One of these two companies is growing moderately, while the other is more likely to see revenues grow at a 20-25% rate over the next few years. Software and IT services We interviewed two companies in the traditional software and IT services sector. This is another market which has seen growth moderate since the PC industry reached maturity over the 2000s, although the global giant of the 5 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

6 sector has begun to recover since it started moving into the Cloud and is one of the small number of technology groups with a stock market value of over USD500 billion. The two companies in this sector are both achieving moderate growth in Asia at present. IT and business process outsourcing Two of the companies in our study fall into the IT and business process outsourcing (BPO) sector which is so important in India and the Philippines. This sector has achieved substantial growth in recent years, and one of the companies told us that it still hopes for average annual growth in the 5-20% range over the next five years. However, artificial intelligence (AI) is a clear longrun risk to this market, and warnings have increased recently about the threat to BPO jobs in the Philippines in particular from increasing automation. Our own work on this subject suggests that AI should complement high-value roles and drive productivity, and so should not necessarily replace human roles on a large-scale. However, we accept that there is the potential for substantial near-term disruption, notably among lowervalue roles. 1 Social media and app-based services We interviewed two well-known companies providing social media and app-based services. Internet-related businesses of this type have been growing rapidly in Asia, above all in China, and this trend looks set to continue. One of the two companies in this group hopes to achieve 10-20% average annual revenue growth over the next five years, while the other aspires to a rate closer to 50%. Other The final company in our study is a global manufacturer of automated machinery, with an increasingly technologically advanced business profile. Its operations ought to benefit from the current economic acceleration globally and in Asia. 1 See "Impact of Artificial Intelligence on Indian Real Estate - Transformation Ahead", 5 October 2017, by Colliers International 6 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

7 Key findings from interviews Colliers' staff held 12 detailed interviews focusing on future strategy with the Asian operations of multinational technology occupiers domiciled in the US, other western countries, China and India over the late summer of These companies span the gamut of technology subsectors from hardware manufacturing to social media. Some of our key findings are below: > Acquisition of talent is the single greatest challenge facing technology occupiers, ranking far ahead of other constraints. This answer represented 40% of responses to our question on the subject, ranking well ahead of competition, regulation or any other issue the workplace is vital to collaboration and R&D, and so are happy for the proportion to be low. > The top three technology requirements of technology occupiers are high-speed internet, followed by secure servers and remote server access. > By far the most common form of travel to the workplace is public transport. However, travel by car is still surprisingly important overall, accounting for 25% of preferences about mode of transport for staff. > Technology occupiers regard public transport as the most important surrounding amenity for their workplaces, with restaurants, bars and shops in close second place. Car parking is also quite highly ranked, confirming that, in Asia, the age of the automobile is not yet over. > India and China offer the greatest potential in Asia on a ten year view, representing 56% of all positive responses about particular markets. More surprisingly, mature Japan ranks third. > The technology companies that we interviewed consider Beijing/North China to be the single region representing greatest source of talent within Asia, followed by Shanghai/East China and India (Bangalore). > Leasing of additional office space and use of flexible working space account for 92% of preferences about future options for expansion. However, one successful Chinese company has a clear preference for self-building and owner occupation. > Opinion is widely split about the best location for office and manufacturing facilities over the next five to ten years. The CBD fringe remains in the lead, but many occupiers prefer the CBD, business parks and campus facilities. > Generation Y/millennial staff are the largest or joint largest age group for two-thirds of the occupiers in our study. > Floor space per person is the most common measure of workplace efficiency, although technology companies use many others too. > The proportion of staff working outside company facilities varies all the way from almost zero to 90%, although the most common category is 10-30%. Certain companies believe that physical presence in 7 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

8 Country and growth strategy Economic prospects in Asia firm Global economies are mostly firm, and 2017 will see the highest global growth since In Asia, China, Hong Kong, Singapore and Japan should all achieve higher real GDP growth in 2017 than most observers predicted six to nine months ago (see Figure 1 below). However, momentum in India has slowed. We comment below on economic prospects in China, Hong Kong, Singapore and India, which are the markets of greatest significance in this study. China Announced in July, YOY real GDP growth for China in Q exceeded most forecasts, reaching 6.9% or the same as in Q1. The high figure partly reflected strength in housing sales growth and housing starts, notably in smaller cities. However, resilience in residential property was not the only factor. Notably, goods exports growth rose from 9.6% YOY in Q1 to 10.2% in Q2, driven by firm global demand. Moreover, growth in industrial value added rose to 7.6% YOY in June, while household consumption growth and retail sales were also robust. After the announcement, Oxford Economics raised its forecast for Chinese real GDP growth for 2017 as a whole from 6.3% to 6.8%, compared to 6.7% in Certain parts of China, notably the north-east, still face economic pressures. Moreover, following the Q2 GDP data there were signs of moderation in trade activity which suggested that H2 would be cooler than H1. As announced in October, real GDP growth for Q3 duly eased slightly to 6.8% as exports and investment lost pace, although consumption growth remained stable. Nevertheless, on a year-on-year basis, China is currently accelerating modestly rather than slowing down. Moreover, the near-term outlook remains firm: Oxford Economics forecasts real GDP growth of 6.4% for 2018, and points out that China only needs to grow by 6.3% per annum over in order to meet its ambitious goal of doubling 2010 GDP by As shown in Colliers' city reports for Q2 2017, firm economic expansion drove stronger office net absorption and rental growth in H1 in large Chinese cities than we had expected. This was true for Shanghai, Beijing and Shenzhen, while in Chengdu robust demand for leased space meant that the city-wide vacancy rate fell by 4.1 percentage points from Q1 to Q2, even though the rate remains high at 30.5%. All these cities face heavy increases in supply of office space over the next few years. However, after the strong H1 outcome on the whole we raised our forecasts for take-up of new space and reduced our assumptions about pressure on rents. The outcome in Q3 was not quite as strong as in Q2. In Shanghai, following Q2 s high net absorption (the highest level in the past decade), demand for quality office space declined moderately in Q3. Beijing saw stable leasing demand but new availability at belowaverage rent which pulled down the occupancy rate. Shenzhen and Chengdu saw solid leasing demand from a range of sectors including technology. Looking forward, Oxford Economics expects average real GDP growth in China to slow from 6.1% over the period to 4.9% over the period In order to avoid the risk of a financial crisis, the economy needs to wean itself off the traditional credit-fuelled and investment-led growth model. Moreover, with returns to investment now more modest, capital stock is likely to make a significantly lower contribution to growth in the future. The contribution from the labour supply will also be negligible given a declining working age population from On the other hand, China should move up the economic and technological value chain as it loses its competitive edge in labour-intensive sectors. Figure 1: Major Asian economies: estimated real GDP growth China 6.7% 6.8% 6.4% 6.0% 5.7% Japan 1.0% 1.7% 1.6% 0.9% 0.0% Hong Kong 2.0% 3.6% 2.5% 2.5% 2.4% Singapore 2.0% 3.0% 2.8% 2.8% 2.8% India 7.9% 6.5% 7.5% 7.1% 6.9% Source: Oxford Economics 2 Please see Country Economic Forecast, China, 24 October 2017, by Oxford Economics. See also the report of 18 September. 8 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

9 Hong Kong In Hong Kong, real GDP grew by 0.5% QOQ in Q3 2017, or by 3.6% YOY, driven in particular by very firm private consumption. Export growth was also robust, supported by vibrant regional trade and a recovery in inbound tourism. Hong Kong is now growing at the fastest rate since Following the strong Q3 outcome, Oxford Economics has raised its forecast for real GDP growth for 2017 from 3.5% to 3.6%. This represents a remarkable acceleration from 2.0% in For 2018, Oxford Economics expects real GDP growth to slow to 2.5%, partly because it thinks rising interest rates will exert pressure on the property market. 3. Improved business sentiment in Hong Kong has been reflected in results of Colliers' Hong Kong Occupiers Survey (published on 5 September 2017). The survey of 174 major occupiers showed that many are becoming more optimistic about their business prospects. In fact, a majority of respondents expect their businesses either to expand (44%) or remain the same (40%) over the next three years, with only 3% expecting a contraction. We believe that the Hong Kong office market will benefit from this expansionary cycle, especially for locations popular among mainland Chinese companies, notably the core CBD district in Central and Admiralty. In view of current low vacancy rates, we expect rent in the CBD and CBD fringe areas to rise further in coming years. Hong Kong interest rates are effectively tied to US interest rates by the territory's currency peg, and so will rise in tandem with US rates over the next few years. However, we now think Hong Kong will enjoy negative real interest rates until early The combination of very low interest rates, higher economic growth and the strength of the Hong Kong stock market - now at close to a ten-year high, and up by 63% from its recent low point in February should boost confidence among financial sector occupiers, including companies in new sectors like fintech, and commercial tenants in general. Singapore In economic terms, Singapore has been on a roll since it started to accelerate in late 2016 after a couple of years of stagnation. Real GDP rose by 5.2% YOY in Q3 (and by a remarkable 8.8% QOQ on a seasonally adjusted annualised basis), as strong exports growth, notably in electronics, led to a surge in manufacturing. The strength of Q3 followed an already firm Q2, in which growth was underpinned not only by a solid contribution from net exports, but also by a pick-up in domestic demand outside of the household sector. Indeed, private residential investment rose for the first time in nearly two years in Q2. Against this firm background, Oxford Economics now expects GDP to grow by % this year, followed by a small drop to 2.8% in While the property investment market in Singapore has been very strong for most of the past year, until recently there were few signs in occupier markets that investors' evident optimism about Singapore was justified. However, Colliers' reports for Singapore for Q point to clear signs of recovery in many segments of the property market. We would highlight: > Office In Q3 2017, CBD Premium and Grade A office rents rose for the first time in nine quarters, up 0.4% QOQ, signalling a turnaround > Office Occupancy fell only slightly in Q3 under the weight of the final batch of new supply coming to market this year, reflecting healthy net demand > Retail Rental corrections seem to be tapering off in the prime Orchard belt, although overall retail market recovery is more gradual. We expect the retail property market to stabilise in the next months > Industrial Industrial property has been more mixed, with new demand improving but rents mixed and occupancy slipping under the weight of heavy supply India The economic performance of India has been slightly disappointing compared to the rest of Asia: Oxford Economics recently cut its forecast for real GDP growth in 2017 from 6.9% to 6.5%, marking a significant slowdown from 7.5% in While on this basis India will remain one of the fastest-growing countries in the world, it will grow more slowly than China this year, although growth should rebound in So-called demonetisation in late 2016 (involving the withdrawal of high-value bank notes from the economy) and the introduction of a uniform Goods & Services Tax across India had only a limited adverse impact on growth, so the reasons for the slowdown are hard to pinpoint. Some observers have blamed slowing trade flows and other external factors, but such putative causes look inconsistent with generally firm global and Asian economic conditions. We suspect that many economists were simply too optimistic about India. 3 Please see Data Insight, Hong Kong, 10 November 2017, by Oxford Economics 4 Please see "Data Insight, Singapore", 23 November 2017 and Country Economic Forecast, Singapore, 20 October 2017, by Oxford Economics 9 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

10 However, modest disappointment about economic growth has not held back the Indian property market. Gross office take-up in India totalled 28.9 million sq ft (2.7 million sq metres) over the first nine months of Take-up in Q3 amounted to 10.0 million sq ft (0.9 sq metres), representing a 4% increase q-o-q. The technology sector continued to dominate the demand for office space across most cities, representing 39% of total absorption in Q3. Banking, Financial Services and Insurance (BFSI), healthcare and manufacturing also played a prominent role in overall leasing, accounting for 17% of absorption. In addition, coworking operators have started to make their presence felt in the market, representing 7% of total leasing volume in Q3. Representing 31% of total leasing volume in Q3, Bengaluru (Bangalore) continued to account for the greatest share of absorption. Bengaluru was followed by the National Capital Region on 25% Hyderabad and Chennai on 12% each, Mumbai on 10%, Pune on 8% and Kolkata on 2%. Looking forward, Oxford Economics expects average real GDP growth in India to slow from 6.9% over the period to 6.3% over the period This growth outlook reflects the following factors: > Leading position in service sectors: the middle class is set to expand, with the number of households with an income greater than US$30,000 likely at least to double over the next decade. > Competitiveness: India is competitive in international markets, with unit labour costs among the lowest of the BRIC economies. > Slow improvement in infrastructure: inadequate infrastructure has prevented supply from increasing in line with demand. > Demographics: India s working age population is likely to grow strongly over the next two decades, although low labour force participation rates and poor access to education limit the contribution of labour supply to growth. India and China offer greatest longrun growth potential While economic prospects for Asia in general are robust, there seems little doubt that China and India, the two largest markets in the region, offer the greatest long-run potential for GDP growth. This suggests these are the markets which offer the greatest business opportunities. The technology occupiers in our study agree with this assessment. As shown in Figure 2 below, out of 25 opinions about which markets offer the greatest long-run potential, India represented 32% of responses and so ranked first, with China second on 24%. Together, therefore, India and China represented 56% of responses. We explain the methodology underlying our study in the final chapter of this report. Relative US dollar weakness good news for Asia and a vote of confidence in China In addition to general improvement in economic conditions, Asian property markets have been supported so far in 2017 by the reduction of an important potential threat rapid increases in interest rates. This change is closely connected to the direction of US interest rates and the relative weakness of the US dollar so far in This reflects the fact that economic news from the US has been mixed, with inflation in particular persistently low. Consequently, most observers expect the US Federal Reserve to raise interest rates only gradually over the next twelve months or so. Figure 2: Q1 of Colliers' survey of technology occupiers. Within Asia, which markets do you believe offer the greatest potential on a ten year view? Options All Asia China India Japan Hong Kong/ Singapore Preferences * 25.0 Proportion of sample citing option positively * Australia, Indonesia, Taiwan, Malaysia Other Total preferences 4.0% 24.0% 32.0% 20.0% 4.0% 16.0% 100.0% 5 Please see Country Economic Forecast, India, 13 October 2017 and 7 September 2017, by Oxford Economics 10 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

11 01/11/ /02/ /05/ /08/ /11/ /02/ /05/ /08/ /11/ /02/ /05/ /08/ /11/ /02/ /05/ /08/ /11/2017 If US interest rates only rise slowly, there is less chance that Asian interest rates will be forced upwards too. This fact applies particularly to Hong Kong interest rates, which are effectively tied to US rates by the territory's US dollar peg. Indirectly, however, the direction of US interest rates influences the direction of interest rates across much of Asia through exchange rates. If US interest rates are rising rapidly, they will push up the US dollar. However, contrary to the expectations of many observers at the start of this year, the US dollar has weakened so far in 2017 after several years of relative strength, falling by 4-5% against the Japanese yen and the Chinese renminbi. This is a marked change of fortune for the renminbi, which depreciated steadily against the US dollar over the period The recovery in the renminbi may be seen as a vote of confidence in China, where debt problems are increasingly perceived to be manageable and the chance of financial crisis seems to have declined. Figure 3: USD/RMB exchange rate (past five years) Source: Bloomberg US dollar weakness has reduced pressure on Asian emerging markets in particular to support their currencies by keeping interest rates high. This change in circumstances permitted unexpected interest rate reductions over the summer by the central banks of India and Indonesia. The central banks of other Asian emerging countries may decide that they can maintain an expansionary monetary policy for longer than might otherwise have been possible (as in Thailand). Essential to have a strategy for China as an increasing technology leader In Asia, we believe that it is essential for technology sector occupiers to have an effective long-run strategy for China in particular. China is not only the largest market in Asia, with long-run growth prospects second only to India among the large countries of the region (and not by a huge margin). It is also increasingly the leading market in many areas of technology. These include e-commerce, mobile internet and fintech, most of which have grown faster than in China than in almost any other emerging or developed market in the region. We could cite any number of statistics to demonstrate the remarkable recent progress of China in technology. One of the simplest is to point to the remarkable growth in e-commerce. Over the last ten years, online retail sales have grown at an average annual rate of 67%, to reaching RMB4.88 trillion (USD736 billion) over the first nine months of As a result, online retail sales have risen to represent 14-15% of aggregate retail sales, compared to just 1% in Fig. 4: China: national total online retail sales, percentage of total retail sales and YOY change RMB billion 6,000 5,000 4,000 3,000 2,000 1, Source: irsearch Online Retail Sales Change YOY % 120% 100% 80% 60% 40% 20% The surging growth of online business in China is one of many factors which have contributed to the huge increase in the value of China's internet companies over the last few years. Since the end of 2014, the combined stock market capitalisation of China's big three internet groups, Baidu, Alibaba and Tencent, has risen by over 130% from USD475 billion to USD1,107 billion (see Figure 5 below) Q3 0% % of Total Retail Sales 11 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

12 Figure 5: Market capitalisation of Baidu, Tencent and Alibaba (USD mn): progression over time /11/2017 Alibaba Baidu Tencent Source: Bloomberg This progress has left Alibaba and Tencent as two of the world's ten most valuable public companies. The other eight are all US groups, and include five more technology stocks: Apple, Alphabet (the parent company of Google), Microsoft, Facebook and Amazon.com. Figure 6: Ten most valuable public companies in the world Rank Company Domicile Market value (USD bn) 1 Apple US Alphabet US Microsoft US Amazon.com US Tencent China Facebook US Alibaba China Berkshire Hathaway US Johnson & Johnson US JP Morgan Chase US 343 Source: Wikipedia, Bloomberg. Values as of 21 November, Especially significant in China, in our view, has been progress in mobile internet, and consequently in mobile commerce. Indeed, in China, the internet essentially is mobile, and so the chart of growth in online retail sales (Figure 4 above) refers chiefly to mobile retail sales. According to PricewaterhouseCoopers' report "Total Retail 2017: ecommerce in China - the future is already here", 52% of Chinese consumers shop using their mobile or smartphone on a weekly or daily basis, compared to 14% of consumers globally. Alibaba's mobile penetration of gross merchandise value has grown from 6% in 2013 to 80% in December 2016, making desktop computers almost irrelevant as devices for accessing the online market. Furthermore, as PricewaterhouseCoopers points out, if the internet in China means mobile, then Tencent's WeChat is the de facto mobile platform. With over 800 million monthly active users, WeChat is almost a proxy for mobile internet penetration in China. Many retailers and brands have come to realise that capturing Chinese consumers' attention requires operating over WeChat. From the perspective of regional technology companies, we believe that lack of exposure to China is a significant risk. This is not only, or even primarily, because they will consequently miss out on growth opportunities afforded by Asia's largest market. As we hope we have made clear, it is rather because lack of presence in China is likely to reduce technology companies' understanding of the changes taking place in a dynamic market that is increasingly a technological leader rather than a follower. To give a specific example, according to KPMG approximately one-half of all the world's investment in artificial intelligence (AI) is taking place in China; and the country is expecting to build an AI industry worth USD150 billion by The technology sector will be hugely affected by AI, in terms of both new business opportunities and disruption to existing business models (notably in the BPO market, but in many other areas too). Only by appreciating developments in AI in China are technology companies likely to formulate a successful plan for AI for the future. 12 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

13 Location strategy Sales and marketing, R&D functions best located in CBD or CBD fringe For those technology groups with large manufacturing operations, it makes sense for production facilities to continue to be located outside major cities. Production facilities typically require large space, ample supply of electricity and water, as well as proximity to airports or ports for supply of necessary parts and shipment of finished products. Production facilities also require a well-educated workforce and ready access to investment capital, both of which are easier to find in the more developed markets in the region. For these reasons we suspect that South China will remain one of Asia's prime locations for hardware manufacturing (mobile phones, PCs, integrated circuits, etc.), together with Taiwan and South Korea. However, requirements are quite different for social media companies, software and services companies and BPO enterprises. For such organisations, the prime requirements are access to talent and proximity to customers, as well as the benefits in terms of new product development and speedy product delivery that arise from bringing people together in a collaborative environment. Similar arguments apply to technology hardware manufacturers' head office functions, sales and marketing operations and R&D operations. The responses of the technology occupiers in our study to the question "What is the greatest challenge to your business?" are shown in Figure 7 below. The response "acquisition of talent" represented 40% of responses, ahead of competition and regulatory constraints. The responses of the occupiers to a request to rank the importance of the location of their head office on various criteria are shown in Figure 8 below. The criterion "accessibility for staff" represented 41% of responses, with proximity to clients the second most important on 32%. We explain the methodology underlying our study in the final chapter of this report. In our opinion, the need to acquire talent and the need to be close to customers are best met by location in the CBD or CBD fringe of major cities. Location in these zones also helps retain talent, since workforces are increasingly dominated by millennial employees (the largest or joint largest age group for two-thirds of the occupiers in our study) who desire easy access to bars, restaurants and similar amenities, as well as public transport. As noted in Figure 9 below, out of total preferences in our survey for location of major office or production facilities, the CBD fringe ranked first on 27%. The CBD only ranked in fourth place on 18%. Together, however, this means that the CBD and CBD fringe represented 46% of total preferences. Figure 7: Q7 of Colliers' survey of technology occupiers. What would you say is the greatest challenge to your business? Options Acquisition of talent Acquisition of space Regulation/g overnment constraints Competition Other Total opinions Opinions Proportion of sample expressing this opinion 40.0% 6.0% 18.0% 30.0% 6.0% 100.0% Figure 8: Q19 of Colliers' survey of technology occupiers. From 1-4, rank how important your head office s location is on the following criteria: accessibility for staff, proximity to clients, proximity to competitors, profile Options Preferences for this option Proportion of sample citing option positively Accessibility for staff Proximity to clients Proximity to competitors Profile Total preferences % 32.0% 4.1% 22.7% 100.0% 13 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

14 Figure 9: Q6 of Colliers' survey of technology occupiers. Within Asia, which do you expect to be your preferred location for major office or manufacturing facilities on a five to ten year view? Options CBD CBD fringe Business parks Campus facilities Other Total preferences Preferences Proportion of sample citing option positively 18.2% 27.3% 24.2% 24.2% 6.1% 100.0% In our opinion, it no longer makes sense for technology companies to try to locate all their operations in campus facilities out of town. Campus sites are still the best location for manufacturing operations, but not for other functions. This is because such sites seem unlikely to attract all the high-skilled staff needed for the key roles of the future. We note that only one technology occupier in our study cited a preference for campus facilities only on a pan- Asian basis. Several occupiers, including an IT services company and BPO groups, a preference for both campus facilities and business parks, suggesting that they are aware that the heyday of the out-of-town campus may have passed. Examples of attractions of CBD and CBD fringe It is not difficult to point to recent examples of the increasing attractions of the CBD and CBD fringe in major cities for technology occupiers. According to Bloomberg News on 10 November, Facebook is engaged in as yet unconfirmed talks to lease at least 400,000 square feet (37,000 square metres) of space at the King's Cross Central development in London, where Google parent's Alphabet Inc will also develop its new UK headquarters. If confirmed, this would be a second central London office for Facebook, which has already signed an agreement to lease a large office near Oxford Street that is currently under construction. The technology sector has become significant as a source of demand for leased office space in London in recent years, and this significance is increasing. The same Bloomberg report mentions that Apple plans to move staff into a new London headquarters at the Battersea Power Station project, and Amazon has recently begun moving staff into a new UK base in the Shoreditch district on the edge of the City of London. Facebook appears to be expanding in major Asian cities too. For instance, according to a report by Mingtiandi on 30 October 6, Facebook has pre-leased around 100, square feet (9,300 square metres) in the 1.0 million square foot (92,900 square metre) One Taikoo Place office tower under construction by Swire Properties in Hong Kong's Quarry Bay district. Business parks remain attractive for smaller technology companies We understand why business parks accounted for 24% of the location preferences by the technology occupiers in our study (see Figure 9 above). In our view, business parks should remain attractive for smaller or start-up technology companies which cannot afford the rents in the CBD or CBD fringe. As an illustration of the attractions of business parks, Colliers has recently carried out a detailed study of business parks in Shanghai which found that domestic enterprises are the main new tenants and investors. Please see our report "How Can Shanghai Build China's Best Science and Innovation Centre? A New Strategy for Business Parks in Shanghai" (July 2017) for details. Internet and IT enterprises account for the majority of the leases in Shanghai's business parks, and the Zhangjiang and Jinqiao sub-markets are the most active for leasing and investment. In the coming five years, new supply should slow. We expect the vacancy rate will remain low and decrease gradually in coming years. Concurrently, rent for business parks in Shanghai should rise by 4.9% per annum on average over due to robust demand for office space in the parks. We expect technology enterprises, particularly internet and IT companies, should be some of the key sources of this robust demand for office space. Manufacturers should also be active, establishing or expanding R&D centres, while finance companies should continue to move back office functions out of CBD properties and into business parks. In the investment market, we expect domestic buyers to continue to dominate the market, although certain foreign investors should also be attracted by the sector s positive outlook. As noted in our report on Shanghai, business parks are a key foundation for advances in technology and 14 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

15 innovation. Cambridge Science Park in the UK is one of the best examples globally of how business parks can drive economic growth through innovation, and we included a case study in our report. China: South China not the only location for technology companies For technology companies, the question of where to locate within China is problematic. Technology manufacturing groups have shown a strong preference up to now for the Pearl River Delta region of South China, with large enterprises such as Huawei and ZTE headquartered in Shenzhen. The region is also wellknown as the chief industrial base in China of Foxconn (Hon Hai), the Taiwanese company which is the world's largest contract electronics producer and China's largest private employer. As a result, the Pearl River Delta, now increasingly termed the Greater Bay Area, has become one of the world's leading industrial regions and its biggest overall manufacturing hub. Altogether, the GBA comprises 11 cities: Hong Kong, Macau and nine cities in Guangdong Province adjacent to the Pearl River Delta. The total land area of the GBA is about 57,000 sq km with a population of 68 million and a total GDP of USD1.3 trillion in Although the GBA accounts for 5% of the entire population, it contributes 12% of China's GDP. Measured on a stand-alone basis, the GBA has the fifth largest economy in Asia by GDP and the highest total container throughputs globally. Figure 10: GBA Vs Other Leading Bay Areas ( figures) East and North China are attractive too However, the GBA in the south is, of course, not the only important region of China economically. The Yangtze River Delta centred on Shanghai is also highly important, and measured by total GDP Shanghai is still mainland China's wealthiest city by a substantial margin. This is likely to remain the case for the foreseeable future. Figure 11: Chinese cities by GDP at current prices (RMB bn, est.) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Source: Oxford Economics With total CBD Grade A office market stock of 6.95 million sq metres (74.8 million sq ft) and a vacancy rate of 13.9% as of end-q3 2017, Shanghai has plenty of space to accommodate larger technology groups. We have already mentioned that we see business parks on the city's outskirts, for example in the Zhangjiang and Jinqiao sub-markets, as attractive locations for smaller technology companies. Meanwhile the Bohai Bay region including Beijing and Tianjin is not only China's political centre, but also very significant economically, especially in terms of services. Indeed, Beijing generates a higher proportion of GDP from services than any other leading mainland Chinese city, at around 80% in This proportion is likely to continue rising steadily. Source: Statistical Yearbooks and Databases 15 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

16 Figure 12: Chinese cities: services as a proportion of total GDP ( est.) Tianjin Shanghai Shenzhen G/zhou Chongqing Chengdu Beijing 40% 50% 60% 70% 80% 90% Source: Oxford Economics Slightly to our surprise, the technology occupiers in our study considered Beijing/North China to be the single greatest source of talent within Asia. For details, please see the discussion of the responses to Question 3 of our survey on pages below. Three places came in joint second place: Shanghai/East China, India (general) and India (Bangalore). There is room for dispute about whether Beijing really is the most valuable source of technology talent in Asia. However, with several highly reputed universities (especially Peking University and Tsinghua University) and a well-known technology hub in the Zhongguancun area, there is no doubt that Beijing it is a major centre of technical and academic excellence. Moreover, we note that the technology occupiers in our study extolling the virtues of Beijing/North China include western and Indian companies as well as Chinese enterprises. The technology sector already accounts for significant occupation of office space in Beijing, and demand from the sector has helped support rent and occupancy levels in Beijing despite heavy new supply. Indeed, rents in Zhongguancun reached record levels in Q3 2017, rising by 0.5% QOQ to RMB280.4 (USD42.5) per square per month. However, rents in Zhonguancun are about 38% below the average level in the Finance Street district (RMB451.2 or USD68.5 per square per month), which remains dominated by financial sector occupiers. West China's attractions should increase in the medium to long term The leading cities in western China are Chengdu and Chongqing. Chengdu in particular is already starting to emerge as a hub for the technology sector. Chengdu s real GDP grew by 8.2% YOY in H1 2017, with services growing by 9.0% YOY, according to the Chengdu Statistics Bureau; these figures are well above the national average. Finance, technology and coworking are the three occupier sectors which have underpinning stronger than expected office net absorption in the city so far this year. Technology companies in Chengdu are predominantly located in the Financial Town and Dayuan sub-markets of the High-tech Zone on the south side of Chengdu. Although the market scene is dominated by start-up companies, these have been expanding in line with the city's strong economy. We expect some of these companies to move to Chengdu's CBD as they grow and become able to afford the higher rents there. Over , China's South-West and North-West provinces grew significantly faster than the national average, although they remain less prosperous than the Eastern provinces overall. According to a detailed study by Oxford Economics 7, growth by region is likely to be more even over China's South-West and North-West provinces look set to continue expanding at about 6% per annum on average over as they continue catching up with the East from a lower base. However, growth rates in the East Coast provinces should pick up due to recovering global trade and as they reap the benefits of continued high investment in R&D and specialised manufacturing. With high dependence on commodities and a declining population, the North-East will probably remain China s slowest growing region. Looking ahead beyond 2021, we would argue that growth rates in the South-West and North-West provinces ought to remain healthy. In part, this is because we expect the Belt & Road project both to revitalise Central Asian economies and to raise output and prosperity in Western China. This should further reduce the gap between China's East and West, even though the project will probably be insufficient by itself to soak up excess industrial capacity. Tech occupiers should move to the CBD or CBD fringe in most Chinese cities except perhaps Beijing To sum up our discussion of ideal location for technology companies within China, the Greater Bay Area in the south, the Shanghai region in the east and Beijing in the north all have attractions, as do emerging centres like Chengdu. However, we consider the greatest attraction of South China to be its strength as a manufacturing base. For the purposes of long-run R&D, and of 7 Oxford Economics: Growth in China West-side is the best side (8 May 2017) 16 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

17 attracting fresh talent in the future, Shanghai and Beijing may well be more important. One important consideration for a non-chinese technology company looking to establish a base in the country will be rent levels. The chart below compares Grade A office rents in some of the leading Chinese cities. Based on Colliers' data, in Q average rent in Beijing stood at RMB332 per month (USD49.8). This was only about 10% higher than in Shanghai, but 3.5x as in Chengdu. Fig. 13: Average Grade A rents and CBD rents in China's major cities (RMB per sq m per month) Beijing was also the city in which CBD rents show the greatest premium to the city average: 36%, compared to 23% in Shanghai or just 12% in Guangzhou. This fact suggests that, in Beijing, technology sector occupiers should continue to concentrate on Zhonguancun, where, as noted earlier, average rent is 38% lower at RMB280.4 (USD42.5). In the other Chinese cities, it makes sense to move to the CBD for the reasons we have discussed. India: Hyderabad an emerging alternative to Bangalore 111 Beijing Shanghai Shenzhen Guangzhou Chengdu Average rent CBD rent India is the second largest Asian market after China and offers the greatest long-run economic growth potential. We see India as less of a technological leader overall than China. Nevertheless, India remains a centre of expertise in many areas of technology, notably software and services. Among the opinions by the technology occupiers in our study regarding the top sources of talent in Asia, Bangalore was the third-ranked individual city or region with 12% of responses, while India in general also garnered 12%. Please again see the discussion of the responses to Question 3 of our survey on pages below for full details. 94 There is little doubt that Bangalore continues to dominate the Indian technology market. In recent years, the information technology sector has accounted for 60-70% of gross absorption of space in India (although this proportion dropped to 39% in Q due to increased demand from sectors such as banking and finance, pharmaceuticals, engineering and coworking). Because Bangalore is IT companies' location of choice, Bangalore has typically accounts for about 20% of gross office absorption across the whole country. By our estimate this proportion rose to 31% in Q3. Bangalore's biggest advantage is probably its broad and deep talent pool. Disadvantages of the city include increasing congestion, resulting from the fact that investment in infrastructure has not kept pace with overall development. For example, while the Outer Ring Road in Bangalore remains one of Asia's leading technology hubs, Colliers India Research has identified seven bottlenecks or "pain points" along the route (see Figure 16 below). We are surprised that the respondents to our study did not specifically mention either Hyderabad, Bangalore's rival in southern India, or Pune, an emerging IT centre which is close to India's financial centre of Mumbai. Hyderabad is more important overall, and has been earmarked as a major IT centre by the government. Development in Hyderabad has accelerated since political agreement was reached in 2014 on the division of the old province of Andhra Pradesh into new Andhra Pradesh and Telengana: Hyderabad will serve as capital city of both provinces for no more than ten years. By Colliers' estimate, Bangalore has 132 million square feet (12.3 million square metres) of office space. With million square feet ( million square metres) of office space, Hyderabad is only about 40% of Bangalore's size. However, development is proceeding apace, with total stock set to increase by about 45% by 2020 by our estimate. Whereas Bangalore is divided into multiple micromarkets, technology development in Hyderabad is concentrated in one district, HITEC City. Apple and Google both intend to develop large campus sites in Hyderabad. We expect that many other technology groups will follow the lead of these large players, and either establish a presence in Hyderabad or expand existing activities. This suggests that annual office gross absorption should stay close to, or higher than, the 2016 total of 5.1 million square feet (0.47 million square metres), which was the highest level since Again, this is around 40% of the corresponding figure for Bangalore of million square feet ( million square metres). 17 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

18 Figure 14: Gross office absorption in Hyderabad (million sq ft) Q1 Q2 Q3 Q4 the city in Q Rents have been rising in Hyderabad, as in all India's ITfocused cities. However, rents remain below the levels of Bangalore, Chennai and Pune, and far below the levels of Mumbai and the NCR region (see Figure 15 below). With demand healthy, Colliers expects SBD rents to rise by 3-4% annually between now and Rents are likely to remain stable in other micromarkets. In fact, the significant new supply that we anticipate in Hyderabad over the next several years should help alleviate the problem of limited supply of quality office space today. This new supply is concentrated in the Secondary Business District (SBD). The healthy state of underlying demand is illustrated by the fact that vacancy levels were as low as 4% in Grade A office buildings in the city in Q In fact, the significant new supply that we anticipate in Hyderabad over the next several years should help alleviate the problem of limited supply of quality office space today. This new supply is concentrated in the Secondary Business District (SBD). The healthy state of underlying demand is illustrated by the fact that vacancy levels were as low as 4% in Grade A office buildings in Figure 15: Rental trends in leading Indian cities (INR per sq ft per month) International India 18 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

19 Poor infrastructure holds India back Inadequate infrastructure remains a familiar problem in India. While India's aggregate annual infrastructure investment amounts to 35% of GDP, the government estimates that it requires USD1.5 trillion in infrastructure investment over the next decade. Even this huge amount will probably only help bridge the infrastructure deficit rather than create room for future growth. across the country and additional economic losses from relatively slow internet connectivity and high electricity costs due to frequent power cuts. In particular, it is worth highlighting that workers in India typically face a daily commuting time to the office of one to two hours each way in most large cities. In the long term, AI will allow driverless cars and excellent real-time communication with the office, so that time need not be wasted. However, at least for the next few years, that long commuting time represents a major loss of productive time for the Indian economy. We can point to the implications of lengthy commuting times at a very local level. For example, Colliers India Research has identified seven bottlenecks or "pain points" along the Outer Ring Road (ORR) which is one of the preferred locations for IT companies in Bengaluru (Bangalore); please see Figure 16 for details. We estimate the aggregate economic loss per annum from hold-ups or accidents at these bottlenecks at INR31.2 crore (INR312 million, or about USD5 million). This is not a huge amount, but enough to be significant when combined with the loses on other such stretches Figure 16: Case Study - Economic loss due to infrastructure problems on ORR Bengaluru International India. NB INR 1.0 crore = INR10 million = USD155, Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

20 Workplace strategy We think that workplace strategy for technology occupiers will be principally determined by the following factors: > Low visibility over future headcount needs, driven by increasing automation and the spread of artificial intelligence (AI) > Activity-based versus agile working > Changing demographic profile of the workforce > Considerations of staff health and well-being We consider these issues in turn. Impact of AI Colliers has carried out substantial work on AI, notably in our report "Impact of Artificial Intelligence on Indian Real Estate: Transformation Ahead" (5 October 2017). This report was prepared by our Asia head of research together with our India research team, and is relevant to Asia as a whole. In this report we argued that technology was one of the sectors most likely to be impacted by AI in coming years. Increasing automation certainly has the potential to replace human roles. It is natural for speculation about the scope for such replacement to be rife in India, where the technology sector accounts for about 60% of gross office absorption, due in large part to steady growth in the number of IT/BPM (information technology/business process management) staff. We have examined some of the sectors and roles most vulnerable to replacement by automated processes. The sectors include manufacturing, retailing, real estate, technology, commercial banks and insurance. The roles most vulnerable to replacement are those involving routine, replicable tasks. We highlight telemarketers, secretaries, basic accounting functions, real estate agents and paralegals. However, many human functions are less vulnerable to automation. These include high value-added and decision-making roles, creative roles, and roles requiring high customer interaction. Moreover, even in sectors likely to be heavily affected by AI, the roles of robots and humans may well be complementary. Real estate is a good example: see Figure 17. Overall we see AI as a productivity enhancement tool that should enable businesses to grow at a faster rate. According to a recent and widely quoted study by the McKinsey Global Institute, A Future That Works (January 2017), only 5% of occupations are candidates for full automation. However, almost every occupation has the potential to be up to about 30% automated. Figure 17: AI to complement human roles, not replace them International 20 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

21 Furthermore, GDP growth over past 50 years reflects population growth and increasing productivity; however, with population growth slowing, the focus must now be on productivity gains. AI is a powerful tool for achieving this productivity growth. Many of the industry experts at our recent seminars on AI in India seminars agreed with this assessment; see, for example, the opinion of Hexaware Technologies below. without compromising on human values and sustainability. AI is real and now democratization of skills, investment by organizations in managing data as a strategic asset and easy availability of high performance computing power is driving increased adoption across sectors. Tushar Walwadikar, Principal, Accenture Management Consulting "I believe that AI will be a game changer in the Real Estate Industry by bringing in massive improvements in productivity by taking the humdrum activities out of the daily routine of an agent. It will do all the basic groundwork, collect, collate, tabulate as per preferences, taking into consideration culture, location, historical weather data, trending traffic, workforce mobility, etc. to arrive at solutions customised to individual preferences. It will change from delivering more information to delivering the right information to the customer." Sujeet Oommen, Senior Vice President & Global Head, Corporate Affairs, Hexaware Technologies We should also refer to our own report Nots and Bots: Unboxing the Truth About Robotics Impact by Colliers International (Philippines), published on 27 October This report cited studies by and surveys of Business Process Outsourcing (BPO) operators which suggested that they expected robots to improve processing efficiency by 30-35%, but that only a limited number expected widespread adoption of automated processes to result in loss of full-time employees. This conclusion is, of course, open to debate, with warnings increasing recently about the threat to BPO jobs in the Philippines from AI. We accept that there is the potential for significant near-term disruption, notably among lowervalue roles. Through increasing productivity, AI and automation should help to drive value creation for enterprises, both by accelerating revenue growth and by reducing costs. This was a point made most clearly by a speaker from the management consultancy Accenture at one of our seminars in India (see the opinion below). However, it was echoed by a speaker from a financial consultancy who emphasised how AI facilitates large-scale processing of data. Ownership of large volumes of data about customers in particular is a very important tool for businesses in driving value creation, but it is not yet shown on a company's balance sheet as an asset. Technology companies ought to be more aware of the potential for AI to drive value creation than enterprises in almost any other sector. We believe that technology occupiers should embrace AI early, and use it to transform both their working practices and their workplaces. We should note here that AI may be thought of as one of the foundations of the Internet of Things (IoT), i.e. the network of sensors and integrated circuits which is starting to transform buildings and building management. We expect building designs to become increasingly intelligent, and technology occupiers should take a lead in demanding such designs from developers. Activity-based versus agile working Colliers International believes that the way forward for office design lies in alternative workplace solutions. These are workplace strategies defined to optimise space usage and people's performance. They move far beyond simple open-plan layouts. One approach is activity-based working (ABW; see Figure 19 below), which has the aim of facilitating the various activities in which employees engage during the day, and of maximising the output from those activities. Activitybased working has a strong emphasis on promotion of collaborative space where staff can mingle and work together, as well as leisure space and quiet zones where staff can concentrate by themselves when necessary. In our opinion, adoption of the ABW approach can drive significant cost reductions. In addition, by promoting collaboration and staff engagement, it drives productivity. Finally, through providing a workplace which looks and feels enjoyable and practical, it facilitates attraction and retention of human talent. Figure 18 summarises the requirements of the modern workplace which ABW seeks to address. "Artificial Intelligence has the potential to create significant enterprise value by driving top line growth, increasing operational efficiencies and optimizing costs 21 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

22 Fig. 18: Factors impacting current office needs report, The Future of Workplace and Occupancy by the Occupier Services team of Colliers Asia (September 2017), agile working requires less workspace variety and limits flexible workplace usage. This is because an agile team spends most of its time during a specific project in one block of workspaces dedicated to that project. In most cases, unoccupied positions in these dedicated blocks are not used by other teams. This situation raises the challenge that space efficiency may be lower in agile than in activity-based work environments, where it is more likely that employees use all available desks in the office or in their dedicated areas. However, this disadvantage is mitigated by the fact that agile working increases workplace occupancy. This is because agile organisations must be able to bring people physically together in the workplace in order to boost collaboration between employees with different areas of expertise. International Workplace Solutions teams Activity-based working may not be the ideal space solution for all enterprises. Another approach to workplace design and, indeed, business practice in general, is "agile" working. This concept has its roots in the information technology sector, where many companies employ an iterative approach to software delivery that builds a product incrementally instead of delivering a completed product in one go. Typical of the agile organisation is a structure involving "squads", i.e. multidisciplinary teams of no more than eight or nine people which are intended to be nimble and hence capable of reacting fast to changing client demands. In an agile environment, the central focus of workspace organisation becomes the needs of the team rather than the needs of the individual. As noted in the Insights For technology occupiers, agile working is probably preferable to activity-based working. We commented right at the start of this report that the technology sector is not uniform, with different sub-markets showing widely varying growth rates. However, one thing that these submarkets have in common is that they are subject to rapid change. A workplace design intended to facilitate high flexibility seems the optimum solution. Effective workplace strategies will not be prescriptive. They will be tailored to the needs of different sectors and companies, and may contain elements of both activitybased and agile working. What seems clear is that the workplace has entered a process of evolution which will leave the office quite different from both the oldfashioned grid pattern and the somewhat chaotic openplan pattern of the 1990s and 2000s. Figure 19: Trends in office planning: redefinition of the workplace International Workplace Solutions teams; Colliers International India 22 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

23 Changing demographic profile of the workforce Figure 20: Q8 of Colliers' survey of technology occupiers. What is the percentage of your head office demographic mix? Options Gen Z Gen Y/millennials Occupiers for which this category is the most meaningful Proportion of sample for which this category is the most meaningful Gen X Baby Boomers Total answers provided % 66.7% 16.6% 0.0% 100.0% The demographic breakdown of the companies in our study is clear. As shown in Figure 20, in aggregate, Generation Y/millennial staff (i.e. people born between about 1980 and the late 1990s) are the largest or joint largest age group for two-thirds of the occupiers in our survey, with Generation Y representing over 80% of total employees according to one respondent. In aggregate, Generation X (i.e. people born between about 1965 and 1980) appears to trail some way behind Generation Y. Interestingly, Generation Z, the youngest generation, is starting to appear for the companies. While still small at under about 10% of total employees, Generation Z is likely to grow rapidly as a proportion of the total, especially in developing markets such as India. It is generally assumed that alternative workplace designs will appeal to younger staff. This is because such solutions should provide a workplace which looks and feels enjoyable, practical and reasonably informal, as well as an environment in which collaboration is encouraged and due consideration is given to the wellbeing of staff. Considerations of staff health and well-being This leads to our final point. As shown in Figure 21 below, another key finding from our interviews was that over 80% of the technology occupiers have a strategy to promote the health and well-being of their staff. This finding is important because it indicates that the technology companies are not interested in simply slashing costs an objective which automation could help them to achieve. Rather, they are prepared to invest in systems and processes which benefit the health of the staff, because they perceive that doing so will help drive growth and value creation in the future. The methods by which the technology occupiers promote the well-being of their staff vary. Two multinational companies that we interviewed focus on ergonomics within the office and healthy food options. A Chinese company focuses on gym rooms, dancing classes and provision of three meals per day for staff at its large campus facility in South China. The three Indian companies in our survey told us that they focus on annual health check-ups and counselling, medical camps and sponsored events. Figure 21: Q17 of Colliers' survey of technology occupiers. Do you have a "wellness strategy" for the health of your staff in the workplace? If yes, what does your strategy entail? Options Yes No Not stated Total answers given Occupiers claiming to be in this category Proportion of sample claiming to be in this category % 0.0% 16.7% 100.0% 23 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

24 Technology Occupiers survey Between July and September 2017, staff in Colliers' Occupier Services and Research teams held detailed interviews with the Asian operations of twelve large technology companies domiciled in the US and Europe, China and India. These companies span the following sub-sectors of the technology industry: > Integrated circuits > Telecoms network equipment > IT software and services > Personal computers > Mobile handsets > Social media > App-based transport and logistics > IT and business process outsourcing > Data and analytics > Machinery and automation Survey responses: methodology In questions with several options as possible answers, we assigned a score of 1.0 to each option for which an occupier a clear or equal preference, a score of 0.5 for a secondary preference, and a score of 0.33 for a third preference. We gave no score for a fourth preference. This means that the total scores assigned to the various options under each question sometimes far exceed the 12 companies that we interviewed. More rarely, the scores may fall short of 12 because not all occupiers answered all questions. In the following analysis of results, except where specifically indicated otherwise, percentages refer to proportion of total preferences. These percentages may be the same as proportion of total occupiers in our survey, but are not necessarily so. 24 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

25 Analysis of responses Q1. Within Asia, which markets do you believe offer the greatest potential on a ten year view? Options All Asia China India Japan Hong Kong/ Singapore The occupiers in our survey clearly believe that India and China offer the greatest potential in Asia on a ten year view: together, these two countries represented 56% of positive responses to our first question. The Indian occupiers that we interviewed showed a certain bias towards their domestic market; this was less true for the Chinese companies. Surprisingly in view of its maturity as a market, Japan ranked third in Asia, with 20% of positive responses. Other Total preferences Preferences * 25.0 Proportion of sample citing option positively * Australia, Indonesia, Taiwan, Malaysia 4.0% 24.0% 32.0% 20.0% 4.0% 16.0% 100.0% Q2. Which staff categories are likely to be most important to you over the next ten years? Options All categories Internet/IT software experts IT hardware experts The consensus opinion among our respondents is that internet and IT software experts will be the most important staff category in the future, followed by IT hardware experts. These categories represent nearly 50% of positive responses. These employees tend to have greater space requirements than the marketing and sales staff who sometimes dominate technology companies' head offices. Engineers/ manufacturing staff Marketing and sales staff Other Total preferences Preferences Proportion of sample citing option positively 5.9% 29.4% 17.6% 11.8% 17.6% 17.6% 100.0% Q3. Which regions or cities do you see as the biggest sources of talent within Asia? (first part) Options Preferences Proportion of sample citing option positively Beijing/ North China Shanghai/ East China Shenzhen/ South China China general Tokyo/ Japan Seoul/ South Korea Taipei/ Taiwan % 12.1% 9.1% 6.1% 6.1% 0.0% 3.0% 25 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

26 Q3. Which regions or cities do you see as the biggest sources of talent within Asia? (continued) Options Preferences Proportion of sample citing option positively Hong Kong Singapore Philippines India (Bangalore) India (other) India general Other Total preferences % 6.1% 6.1% 12.1% 9.1% 12.1% 0.0% 100.0% The technology companies that we interviewed consider Beijing/North China to be the single greatest source of talent within Asia, followed by Shanghai/East China and India (Bangalore). Our respondents appear to value Chinese education: one western multinational company cited the importance of being located near good Chinese universities in cities like Beijing, Shanghai and Chengdu. Four occupiers in our sample a general preference for India rather than a specific region within the country, while two a general preference for China rather than a specific Chinese region. Q4. What compound annual revenue growth rate do you project for your business over five years? Options <10% 10-20% 20-50% >50% Occupiers claiming to be in this category Proportion of sample claiming to be in this category Four companies in our survey expect average annual revenue growth of under 10% over the next five years. These include a large software group, a large manufacturer of integrated circuits and a telecoms equipment producer which is shrinking in revenue terms at present. Four more companies anticipate growth in a range of 10-20% per annum. At the other end of the scale, two companies hope to achieve average annual revenue growth of over 50% over the next five years. One of these is an expanding Chinese mobile handset manufacturer and the other is a well-known emerging international group % 33.3% 8.3% 16.7% 26 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

27 Q5. What do you expect to be your principal solution to the problem of acquiring more space for expansion over the next five years? Options Self-built/owned space Additional office leasing Looking ahead to their expansion requirements over the next five years, the majority of the technology companies in our survey a preference for leasing of additional office space, combined in some cases with use of flexible working space. In combination, these two options accounted for 92% of preferences. The chief reason for the preference for leased space is the desire to avoid excessive capital expenditure requirements. Only one company - a Chinese mobile handset manufacturer - stated that its preferred real estate strategy is the purchase or construction of owned office space or manufacturing facilities. In the authors' opinion, this view reflects a generally greater willingness on the part of Asian technology companies to achieve growth through investment in physical assets. Flexible working space Other Total preferences Preferences Proportion of sample citing option positively 7.7% 53.8% 38.5% 0.0% 100.0% Q6. Within your Asian markets, which do you expect to be your preferred location for major office or manufacturing facilities on a five to ten year view? Options CBD CBD fringe Business Campus Other Total preferences parks facilities Preferences Proportion of sample citing option positively At present, the most common location for office facilities for the companies in our survey appears to be the CBD fringe, although some are manufacturing groups with production facilities in business parks or campus facilities outside cities. Opinion is widely split about the best location for office and manufacturing facilities over the next five to ten years. The CBD fringe remains in the lead, with 4.5 preferences, but numerous preferences were also for the CBD, business parks and campus facilities. Several companies two preferences: one location for sales and marketing offices, and another for manufacturing or R&D facilities. However, one large Chinese company is trying to co-locate sales and marketing and R&D functions in the CBD. 18.2% 27.3% 24.2% 24.2% 6.1% 100.0% 27 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

28 There seems to be little relationship between nationality and preference for a particular location. While a western social media company stated that the CBD is the only location that it will consider, a western multinational manufacturer and a Chinese multinational manufacturer made clear that they would almost never consider the CBD. Only the Indian occupiers in our survey appeared to vote as a group, all expressing a preference for either business parks or out-of-town campus facilities. Generation X (i.e. people born between about 1965 and 1980) appears to trail some way behind Generation Y. Willingness to locate in the CBD may relate, rather, to the success of the company in question. A producer of specialised electronic circuits with increasing profits and high revenues per employee is one company that has told us it is more willing to pay the high rents of the CBD than in the past. Q7. What would you say is the greatest challenge to your business? Options Acquisition of talent Acquisition of space According to our survey results, acquisition of talent is the single greatest challenge facing technology companies. Acquisition of talent represents 40% of total opinions, ranking well ahead of competition, regulation or any other factor. It is conceivable that some companies may be forced to move towards the CBD or at least the CBD fringe in order to be closer to the talent pool afforded by large urban centres. Regulation/g overnment constraints Competition Other Total opinions Opinions Proportion of sample expressing this opinion 40.0% 6.0% 18.0% 30.0% 6.0% 100.0% Q8. What is the percentage of your head office demographic mix? Options Gen Z Gen Y/millennials Occupiers for which this category is the most meaningful Proportion of sample for which this category is the most meaningful The demographic breakdown of the companies in our sample is very clear. In aggregate, Generation Y/ millennial staff (i.e. people born between about 1980 and the late 1990s) are the largest or joint largest age group for two-thirds of the occupiers in our survey, with Generation Y accounting for over 80% of total employees according to one respondent. In aggregate, Gen X Baby Boomers Total answers provided % 66.7% 16.6% 0.0% 100.0% 28 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

29 Generation Z, the youngest generation, is starting to appear for the companies, but still seems to be small at under about 10% of total employees. Not all the occupiers were able or willing to provide us with detailed figures, while in other cases there was a wide divergence within the organisation. For example, one company told us that the median age of its Japanese staff is in the high 40s, but that staff in most other markets are much younger. Q9. How do you measure workplace efficiency within your head office? Options Preferences Proportion of sample citing option positively $ per employee per sq. metre Floor space per person Real estate cost as % of sales Total cost over the lease term per desk We do not measure this Total preferences Other Various 29.4% 41.2% 17.6% 11.8% 0.0% 100.0% n/a Nearly 60% of preferences are for floor space per person. The second most popular measure is $ per employee per square metre, with real estate cost as a percentage of revenues in third place. Many companies use more than one of these standard measures to analyse their real estate expenditure, while others use different measures. One western company told us that it assesses workplace efficiency largely by customer satisfaction, with more tangible or objective yardsticks less relevant. Q10. Do you provide space for your clients/service providers? Options Yes No Not stated Total answers provided Occupiers for which this category is the most meaningful Proportion of sample for which this category is the most meaningful The majority of occupiers in our survey provide space either for clients or for vendors and service providers. A manufacturing company provides space to customers for testing, while an Indian data management company offers work stations to vendor employees and meetings and conference rooms provided for discussions with clients. 66.7% 16.7% 16.7% 100.0% 29 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

30 Q11. What percentage of your staff work outside the office/offsite? Options <10% 10-30% 30-50% 50-70% >70% Insufficient information Occupiers claiming to be in this category Proportion of sample claiming to be in this category The proportion of staff working outside company facilities for the occupiers in our survey varies very widely. The most common category is the 10-30% range, where onethird of the companies fall. At the high end of the scale, according to one Indian company nearly 90% of its staff work offsite, while according to one western multinational group the proportion can reach 50-60% in certain offices. At the other end of the scale, for two occupiers the proportion of staff working outside company facilities is under 10%. Both are highly successful companies with well-known design and/or manufacturing operations. These companies' R&D and manufacturing operations require ample space and cooling operations. They also told us that collaboration within the workplace was culturally important, and that this was difficult to achieve if large numbers of staff worked offsite. Another company told us that working from home was still not permitted in its Chinese operations. Total opinions % 33.3% 25.0% 8.3% 8.3% 8.3% 100.0% Q12. What technology do you utilise within the head office? For this question, we asked the occupiers in our survey whether they used a range of modern technological aids, including: automated meeting room bookings, collaborative tools, audiovisual technology, lighting and temperature control, onsite communications room, WiFi. follow-me printing, mobile connectivity and automated desk management Options All Over half Under half Insufficient information Occupiers claiming to be in this category Proportion of sample claiming to be in this category Unsurprisingly, considering that they are technology companies, nearly 60% of the companies in our survey claimed to use all, or nearly all, the technological aids in our list. The most widely used tools were automated meeting room bookings, audiovisual technology, lighting Total answers provided % 16.7% 16.7% 8.3% 100.0% 30 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

31 and temperature control, and WiFi, while the least mentioned was follow-me printing. Only two of the companies in our survey referred to fewer than half of the tools in our list. Q13. What are your top three technology requirements? (first part) Options All High-speed internet Secure servers Remote server access Internet environment controls Meeting room management Preferences Proportion of sample citing option positively 8.3% 29.2% 16.7% 18.8% 6.3% 4.2% Q13. What are your top three technology requirements? (continued) Options Desk Workflow Printing Insufficient Total preferences management technology information Preferences Proportion of sample citing option positively Separately, we asked the occupiers in our survey for their top three technology requirements. By a wide margin, the most popular answer is high-speed internet, followed by secure servers and remote server access. Two Indian companies responded that these various technology requirements are equally important and that all are already in use. According to one company, the reason why its most important technology need is high-speed WiFi. Is that most of the company s data is now sitting in the Cloud. Servers and associated storage space are therefore no longer so important. However, confidential customer data is still stored in generally sizable data centres. 4.2% 4.2% 0.0% 8.3% 100.0% Q14. omitted Q15. How do your staff travel to work? Options Occupiers citing the option positively Proportion of sample citing option positively Public transport Car Bicycle Walking Other (shuttle buses) Total preferences % 24.6% 13.8% 3.0% 9.2% 100.0% 31 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

32 The question of how staff travel to work produced some interesting answers. By far the most common response was public transport, which accounted for 49% of preferences. More specifically, nearly 90% of the companies in our survey stated that this is either the most important mode of travel for their staff, or that it falls within the top three categories. We were more surprised by the continued importance attached to cars, which rank second among the options with about 25% of preferences. Several companies told us that cars or motorcycles are still vital as a mode of transport in India, together with Australia in a couple of cases. Besides cars, two companies stress the importance of shuttle buses. According to one of them (a Chinese company), these are essential for both office and manufacturing sites, and it lays on a bus service as soon as there are more than about 25 people in any site. Q16. What onsite benefits do you offer your staff? (first part) Options Occupiers claiming to be in this category Proportion of sample in this category Gym memberships Flexible working environment Childcare Work from home days Onsite food and beverage Discounts/ benefits Insurance/ health benefits % 10.9% 3.6% 7.3% 10.3% 6.1% 8.5% Q16. What onsite benefits do you offer your staff? (continued) Options Occupiers claiming to be in this category Proportion of sample in this category Prayer/ meditation rooms Play area Fitness facilities Mothers rooms Community rooms Multicultural toilets Pet-friendly environment Total answers provided % 8.5% 4.8% 10.9% 7.3% 4.8% 0.6% 100.0% Our survey showed that the majority of companies offer a broad range of benefits to their employees. The three most common benefits are a flexible working environment, mothers' rooms, and onsite food and beverages. Although these two benefits only represent 10-11% of first preferences, they are offered by threequarters of our respondents in total. Note. For reasons of space, we have grouped provision of prepared food, of a fully stocked kitchen, and of a bar and drinks under the combined heading of "food and beverages". 32 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

33 Also common are insurance and health benefits, provision of a play area and gym memberships. Several occupiers the view that they prefer to offer gym memberships than onsite gym facilities because only a limited number of staff use the latter. At the other end of the scale, only three companies reported that they offer child care facilities, and none offered a pet-friendly environment. However, one Chinese company reported that it does organise special "bring kids to work" and "bring pets to work" days. Q17. Do you have a "wellness strategy" for the health of your staff in the workplace? If yes, what does your strategy entail? Options Yes No Not stated Total answers given Occupiers claiming to be in this category Proportion of sample claiming to be in this category Over 80% of the companies that we interviewed have a strategy to promote the health and well-being of their employees. One western multinational company focuses on ergonomics within the office and healthy food options. Meanwhile a Chinese company focuses on gym rooms, dancing classes and provision of three meals per day for staff at its large campus facility in South China. The three Indian companies in our survey told us that they focus on annual health check-ups and counselling, medical camps and sponsored events. Possibly the most imaginative "wellness" strategy comes from a western multinational technology group. This company precise wellness strategy is drawn up by local Human Resources teams in cooperation with an internal architecture and design team. This team runs a programme which determines how colour, light, window alignment, and arrangement tables and chairs can change people s workplace experience, and aims to optimise that experience. In other words, this company put the concept of ergonomics very much into practice % 0.0% 16.7% 100.0% 33 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

34 Q18. Do you need to apply a global standard to your office layout or will you be given discretion to design your own unique workplace? Options Yes Local only Not stated Total answers given Occupiers claiming to be in this category Proportion of sample claiming to be in this category The clear majority of occupiers in our survey operate a global standard for office layout. Few occupiers have detailed what their global standards require, although one company told us that its guidelines specify openplan office, low walls and space per staff member of 1.8 x 1.8 metres (i.e sq metres, or about 35 sq feet). Beyond those guidelines, that company appears free to pay attention to local cultural norms. One western company told us that global standards only apply to 30% of office design; the remaining 70% is determined locally. This seems like a sensible of guarding against excessive uniformity in the workplace. Only one occupier told us that it has no global guidelines yet, with workplace design decided mainly by local norms and cost efficiency a key consideration. This is a manufacturing company which has been under pressure over the past few years. This background helps explain why the company appears to lag its peers in formulating global workplace standards % 8.3% 8.3% 100.0% Q19. From 1-4, rank how important your head office s location is on the following criteria: accessibility for staff, proximity to clients, proximity to competitors, profile Options Preferences for this option Proportion of sample citing option positively Accessibility for staff Proximity to clients Proximity to competitors Profile Total preferences % 32.0% 4.1% 22.7% 100.0% The responses from the occupiers in our survey on this question were unsurprising. Accessibility for staff is the most important consideration in head office location, representing over 40% of total preferences. The next most popular consideration is proximity to clients, which represents just over 30% of preferences. Profile ranks higher as a consideration than we had expected, and it is intriguing that two of the three Indian companies that we interviewed see this as the top factor behind head office location. Most technology occupiers regard proximity to competitors as unimportant. 34 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

35 Q20. Pick the top four surrounding amenities that are essential for you and your staff. Options Occupiers citing the option positively Proportion of sample citing option positively Public transport Child care Restaurants / bars/shops Car parking End of trip facilities Green space Gym Other Total preferences % 0.0% 30.0% 18.0% 5.3% 15.3% 0.0% 0.0% 100.0% Given the overwhelming importance of public transport as a mode of travel to the technology companies in our survey (see Q15 above), it is no surprise to see public transport cited as the most important surrounding amenity. Restaurants, bars and shops come a close second. Car parking is also quite highly ranked, confirming that, in the larger Asian countries at least, the age of the automobile is not yet over. 35 Tech Trends in Asia 5 December 2017 Property Research Asia Colliers International

36 396 offices in 68 countries $2.6 billion in annual revenue 2 billion square feet under management Primary Authors: Andrew Haskins Executive Director Research Asia andrew.haskins@colliers.com Michael Bowens Executive Director Occupier Services Singapore michael.bowens@colliers.com Contributors: Surabhi Arora Senior Associate Director Research India surabhi.arora@colliers.com 15,000 professionals and staff About Colliers International Group Inc. Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry leading global real estate services company with more than 15,000 skilled professionals operating in 68 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customied research; and thought leadership consulting. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 11 consecutive years, more than any other real estate services firm. For the latest news from Colliers International in Asia, visit or follow us at twitter.com/colliersasia, Copyright 2016 Colliers International. 7 The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.