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Property Times: Taipei Q4 2011

Feb 03, 2012
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Property Times Taipei Q4 2011 Investment surged to a record high

18 January 2012 Contents
Executive summary Economic overview Offices Retail Industrial Investment Definitions Contacts 1 2 3 4 5 6 7 8



Taipei's office market remained stable in Q4. However, due to uncertainties about the global economy, demand for office spaces may slow down in early 2012. We expect office rents in Xinyi district will remain stable while other districts might saw a modest drop. Despite the keen competition among department stores, new supply continued to enter to the market. Moreover, five major department stores have already reached an annual turnover of NT$10bn, including Pacific SOGO Department Store, Zhongxiao branch and Fuxing Branch, Shin Kong Mitsukoshi, Xinyi Place branch, Taichung Zhonggang branch, and Tainan Ximen branch. The agglomeration of department stores and the enhancement of their tenant-mix encouraged the development of department stores. Because of the European debt crisis and the Presidential election of Taiwan, investors became cautious and adopted a wait-and-see attitude. Market sentiment became weakened, and it is expected that the prices of industrial properties will move downward in the first half of 2012.





Author
Wendy Hsueh Head of Taipei Research +886 (0)2 8788 3288 wendy.hj.hsueh@dtz.com

Figure 1

DTZ office index (2005 - 2016F)
DTZ Index (1996 Q1 = 100)
200

Contacts
David Ji Head of Greater China Research +852 2507 0779 david.yx.ji@dtz.com Tony McGough Global Head of Forecasting & Strategy Research +44 (0)20 32962314 tony.mcgough@dtz.com Hans Vrensen Global Head of Research +44 (0)20 3296 2159 hans.vrensen@dtz.com

150

100

50

0
2011

2016F 2015F 2014F 2013F 2012F

Source: DTZ Research

2005

2006

Office Rent Index

2007

2008

2009

2010

Office Price Index

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1

Economic overview

In Q3 2011, Taiwan's GDP grew 3.31% year-on-year (y-o-y) to reach NT$3,771bn (US$126.6bn) (Table 1). The DGBAS of Executive Yuan adjusted the GDP growth rate forecast in 2011 from 4.81% to 4.51%. This was due to the debt crisis in Europe and a decline in enterprise investment. The aggregate export value in November increased 1.3% y-o-y to reach NT$735,464mn (US$24,680mn), but fell 8.7% month-on-month (m-o-m), due to the uncertain economic environment around the world. Electronic and telecom products witnessed a significant decline. The aggregate import value also dropped 10.4% y-o-y (Table 1). The unemployment rate fell 0.62 points y-o-y to 4.3% in October as some enterprises established unpaid leaves (Table 1). In November, CPI increased 1.01% y-o-y to reach 107.75, due to the steadily increase in global commodity prices (Table 1). To legalize the tendering sale of national property, Legislative Yuan amended part of articles within the Regulations for the Enforcement of National Property Act. Vacant non-public use houses and land without a planned usage are available for tendering sale by the National Property Administration if the land area is less than 1,650 sq m (500pings). On the other hand, the land will be prohibited from tendering sale if the land area is larger than 1,650 sq m. The new policy is expected to decrease the supply of large-scale land in Taipei City. Europe's debt crisis is expected to cause a global economic recession. This led to an increase in investment risk and a weakened investor confidence. According to the Council for Economic Planning Development, Taiwan's Business Indicators show that the economy has significant downside risks. The overall monitoring indicator has flashed the "yellowblue" signal for the fourth consecutive month. Generally, the overall economic growth rate is expected to drop and the investment environment will become more risky in the future.

Table 1

Economic indicators
Indicator Period Unit Value y-o-y change (%) 3.31

GDP Gross fixed capital formation Total import value Total export value Unemployment rate Consumer price index

Q3 2011

NT$ 3,771,309 million NT$ million 680,743

Q3 2011

-4.49

November NT$ million 2011 November NT$ million 2011 October 2011 November 2011 % --

664,692

-10.4

740,173 4.30 107.75

1.3 -0.62 pts 1.01

Source: DGBAS of Executive Yuan

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2

Offices

This quarter, Grade A office rents in Dunnan and Xinyi districts remained the same level as Q3, while other districts declined 1.3-1.5% q-o-q. The citywide average rents was NT$2,310(US$77.5) per ping per month, down 0.9% from a quarter earlier (Table 2). In Q4, the availability ratio in Dunbei/Minsheng district fell 1.2 percentage points q-o-q. In contrast, other districts saw no significant change. The overall citywide availability ratio decreased 0.1 percentage points to 10.6% (Table 2). Total net absorption in 2011 reached 14,000 pings, similar to 2010. However, net absorption in Q4 was only 600 pings, indicating a slowdown in occupier demand (Figure 3). 9,000 pings of new supply, Taiwan Life Insurance Company's headquarter in Zhongshan North Road, is expected to come on stream in 2012. Demand for temporary small office spaces remained active, a business centre opened new offices in Xinyi and Dunbei/Minsheng districts. This quarter, due to increasing vacancy pressure, some landlords tried to attract tenants with flexible rent incentives. Looking forward to the first half of 2012, rents in Xinyi district will remain stable while other districts might decrease due to decreasing demand for office space under a global economic downturn. Recent transactions Regus leased 680 pings in Walsin Xinyi Bldg. and 300 pings in Hung Tai Centre. Olily Exhibition International Co. Ltd. leased 340 pings in Taipei Century Plaza. British American Tobacco leased 400 pings in Shin Kong Xinyi Financial Centre. Sincere Marine leased 410 pings in Dunnan Tower. Toshiba leased 320 pings in Hung Kuo Building. ICON Clinical Research leased 320 pings in Taiwan Securities Financial Building. Fuji Xerox leased 1,180 pings in Taipei Financial Centre Building.

Table 2

Grade A office market statistics
District Western Nanjing / Songjiang Dunbei / Minsheng Dunnan Xinyi Overall
Source: DTZ Research

Availability Rent Rent ratio change (NT$/ping/month) (%) q-o-q (%) 2.2 3.5 10.6 7.2 14.0 10.6 2,150 1,910 2,290 2,360 2,830 2,310 -1.4 -1.5 -1.3 0.0 0.0 -0.9

Figure 2

DTZ office index (2005 ş 2016F)
DTZ Index (1996 Q1 = 100)
200

150

100

50

0
2011

2016F 2015F 2014F 2013F 2012F

Source: DTZ Research

Figure 3

Grade A office supply, net absorption and availability ratio (2005 ş 2013F)
Pings 40,000 % 16 14 30,000 12 20,000 10 8 10,000 6 4

(10,000) New supply
Source: DTZ Research

2005

2006

Office Rent Index

2007

2008

2009

2010

Office Price Index

0 2005 2006 2007 2008 2009 2010 2011 2012F 2013F
2 0 Net absorption Availability ratio

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3

Retail

Retail sales from January to November reached NT$891.09bn (US$29.90bn), representing a y-o-y increase of 6.1% (Figure 4). Sales in convenience stores showed the biggest increase of 11.81% y-o-y, followed by supermarkets at 9.39%, and hypermarkets at 7.61%, indicating a continuous growth in consumption expenditure. Occupancy rates in major retail districts continued to rise, except the Tienmu and Ximen area. With the expansion of international fashion brands in the Taipei Railway Station retail area, its occupancy rate climbed 4.44 percentage points q-o-q. Despite the keen competition among department stores, new supply continued to enter to the market. Moreover, five major department stores have already reached an annual turnover of NT$10bn, including Pacific SOGO Department Store, Zhongxiao branch and Fuxing Branch, Shin Kong Mitsukoshi, Xinyi Place branch, Taichung Zhonggang branch, and Tainan Ximen branch. The agglomeration of department stores and the enhancement of their tenant-mix encouraged the development of department stores. Recent transactions Far Eastern Department Store opened its new branch in Banqiao City. The department store occupies the first nine floors, with 3D IMAX VIESHOW Cinemas on both the tenth and eleventh floors, while the total floor area is about 16,000 pings. The famous F&B brand, South Beauty, opened its first store with a business area of 300 pings on the six floor of ATT 4 FUN department store. It will run a trial operation from 28 November 2011 and officially open on 18 January 2012. Casual-wear brand Zara opened its first store with an area of 450 pings at the Taipei 101 shopping mall on 5 November 2011, and a second store was launched in the Zhongxiao retail area on the 24th of the same month. This second store is immediately opposite the Uniqlo flagship store. The Zhongxiao retail area can be considered as the busiest shopping district in Taipei. Trident REIT sold its street shops in Champagne building to Mercuries Life Insurance for NT$4.8bn (US$1.61bn), up 52.16% from the reserve price. The transaction price for the first floor was NT$9.88 million per ping, with NT$1.90 million per ping for the second floor, and the NT$1.14 million per ping for the basement.

Figure 4

Sales of general merchandise (2001 ş 2011*)
NT$ million 916,493 783,045 856,025 817,648 836,838 891,098

738,433 628,134 659,977 689,761

760,511

* Data as of November 2011 Source: Department of Statistics, Ministry of Economic Affairs.

Table 3

Retail market statistics
District Zhongxiao Availability Rental range ratio (%) (NT$/ping/month) 3.72 17,000~27,000 10,000~17,000 7,000~10,000 9,000~16,000 3,000~4,700

Taipei Railway Station 4.85 Zhongshan/ Nanjing Ximen Tienmu 2.31 1.79 7.77

Note: Only street front shops are being taken into account. All data is based on gross floor area unless otherwise specified. Rent exclusive of management fees and other outgoings. 1 ping = 35.58 sq ft = 3.3 sq m Source: DTZ Research

Table 4

Major new supply in Q4 2011
District Xinyi Project Name ATT 4 FUN GFA (pings) 10,000

Banqiao
Source: DTZ Research

Mega City - Far Eastern Department Store Banqiao 16,600 Branch

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4

Industrial

The rents of industrial properties saw no significant change in Q4. The average rent per ping in the Xihu Section remained at NT$1,160 (US$39). Besides, Wende Section remained at NT$990 (US$33.2), whilst Jiuzong Section remained at NT$900 (US$30.2). Meanwhile, availability ratios steadily declined, this quarter, the availability ratios in Xihu Section, Wende Section and Jiuzong Section reached 5.2%, 18.2%, and 17.0%, respectively. Due to the European debt crisis, the transaction volume has been dropping since Q2. Many companies have experienced a significant slump in export volume. As many tenants in NHTP are generally exportoriented, the average transacted prices continued to decline this quarter. In Q2, two major transactions were recorded. The S.I.T Wanguo Building in the Xihu Section with a total area of 4,060 pings was sold at NT$2.5bn (US$83.9mn). Also, E-TEN Corp. Headquarters in the Wende Section with a total area of 7,408 pings was transacted at NT$2.53bn (US$84.8mn). The Huaku Rui Guang Building with a total floor area 5,300 pings entered to the NHTP market this quarter. The building was bought by a foreign company in Q1 2010. Because of the European debt crisis and the Presidential election in Taiwan, most investors became cautious and adopted a wait-and-see attitude. We expect the prices of industrial properties might move downward during the first half of 2012 . Recent transactions Delta Electronic INC. rented 260 pings in Bill Gates Building. Chunghwa Telecom rented 110 pings in Triumph Technology Building.

Table 1

Industrial market statistics
District Xihu Section Wende Section Jiuzong Section
Source: DTZ Research

Availability Rent change ratio (%) (NT$/ping/month) q-o-q (%) 5.2 18.2 17.0 1,160 990 900 0.0 0.0 0.0

Figure 2

NHTP industrial office rent (2000 ş Q4 2011)
Monthly Rent (NT$/ping/month) 1,600 1,400 1,200 1,000
800

600 400 200 0

Xihu Section

Wende Section

Source: DTZ Research

Figure 3

NHTP industrial office price (2000 ş Q4 2011)
Price ( NT$ thousand/ping ) 600

500

400

300

200

100

0

Xihu Section

Wende Section

Source: DTZ Research

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5

Investment

In Q4, the total consideration amount sharply dropped 27.0% q-o-q to reach NT$40.19bn (US$1.35bn). In total, 29 major deals were recorded. Significant transactions were mainly industrial properties for owner occupation. Due to settlements of several REITs and REAT, the total consideration amount of 2011 surged to a record high, reaching NT$137.8bn (US$4.62bn), a rise of 41% from the previous year (Table 6 and Table7). Recent years, prices of commercial properties grew faster than its rents. In Q4, the assets of two REITs were tendered for settlement. Kee Tai Star sold Shijiluofu Bldg. and Dahu Hotel Bldg. for NT$1.88bn (US$63mn) and NT$1.45bn (US$49mn) respectively. Meanwhile, Trident sold Champagne Bldg., Eslite Bldg, and Artech 21 for NT$4.8bn (US$161mn), NT$0.84bn(US$28mn), NT$3.417bn(US$115mn) respectively. Besides the acquisition of office buildings in Dunnan this quarter, Fubon Life Insurance alsobought Tatung's industrial property in Beitou at NT$6.95bn (US$233mn). In Q4, due to public tenders of land in redevelopment zones, government became the major land supplier in Taipei. 21 lots in redevelopment zones of Taichung City, with 9,112 pings, were tendered for NT$10.1bn (US$339mn). Meanwhile, 17 lots in redevelopment zones of Bade City, Taoyuan County, with 18,825 pings, were tendered for NT$4.1bn (US$138mn). In 2012, as the presidential election will take place in Q1, investors will become cautious with weakened market sentiment. Meanwhile, commercial properties will remain popular for long-term investment and self occupation.

Table 6

Total number of major deals
Q4 2010 Office Retail I/O Industrial Hotel Others Total
Source: DTZ Research

Q3 2011 9 5 1 12 1 0 28

Q4 2011 12 4 4 7 2 0 29

11 6 5 8 1 0 31

Table 7

Total consideration of major deals (NT$mn)
Q4 2010 Office Retail I/O Industrial Hotel Others Total
Source: DTZ Research

Q3 2011 28,007 16,539 2,900 6,909 710 0 55,065

Q4 2011 11,137 9,060 4,441 12,706 285 0 40,194

11,119 2,965 3,725 6,838 1,036 0 25,683

Table 8

Significant deals
Property Shijiluofu Bldg. Dahu Hotel Bldg. Champagne Bldg. Eslite Bldg. Artech 21 Tatung's industrial property
Source: DTZ Research

Sector Office Hotel Retail I/O office Office Industrial

Purchaser Shinkong Life Insurance Shinkong Life Insurance Mercuries Life Insurance Mercuries Life Insurance Shinkong Life Insurance Fubon Life Insurance

Location Zhongzheng District, Taipei City Neihu District, Taipei City Daan District, Taipei City Luzhu Township, Taoyuan County Songshan District, Taipei City Beitou District, Taipei City

Price (NT$mn) 1,880 1,480 4,800 840 3,417 6,950

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6

Definitions
Availability Total floorspace in properties marketed as available to let, whether physically vacant or occupied, and ready for occupation immediately. Total space currently available as a percentage of the total stock of floorspace.

Availability Ratio

Development Pipeline Comprises two elements: 1. Floorspace in course of development, defined as buildings being constructed or comprehensively refurbished to grade A standard. 2. Schemes with the potential to be built in the future, through having secured planning permission/development certification. Net Absorption New Supply The change in the total of occupied floorspace over a specified period of time, either positive or negative. Total marketed grade A floorspace which is ready for occupation now. Ready for occupation means practical completion, where either the building has been issued with an occupancy permit, where required, or where only fit-out is lacking. A development leased or sold prior to completion. The highest rent that could be achieved for a typical building/unit of the highest quality and specification in the best location to a tenant with a good (i.e. secure) covenant. (NB. This is a net rent, excluding service charge or tax, and is based on a standard lease, excluding exceptional deals for that particular market.). Rent Gross transacted rental (unless otherwise specified), which excludes management fees and other outgoings. The best (i.e. lowest) yield which could be expected for a typical building/unit of the highest quality and specification in the best location leased to a tenant with a good (i.e. secure) covenant. (NB. This is a net yield, which uses net income, after deducting all non-recoverable expenditure, divided by the purchase cost, excluding transaction costs and taxes.) Annual transacted rent as a percentage of the capital value of the property. Total accommodation in the commercial and public sectors both occupied and vacant. Floorspace acquired for occupation, including the following: (i) offices let/sold to an eventual occupier; (ii) developments pre-let/sold to an occupier; (iii) owner occupier purchase of a freehold or long leasehold. (NB. This includes subleases but excludes lease renewals.) Floorspace that is empty, i.e. not occupied. It may be being marketed, or it may not (whether because a lessee is not occupying, it is being refurbished, or it is deliberately being left empty by the landlord).

Prelet Prime Rent

Prime Yield

Market Yield Stock Take-up

Vacancy

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7

Contacts
Agency
Billy Yen +886 (0)2 8788 3288 billy.pl.yen@dtz.com

Consulting and Research
Wendy Hsueh +886 (0)2 8788 3288 wendy.hj.hsueh@dtz.com

Occupier Services Group
Billy Yen +886 (0)2 8788 3288 billy.pl.yen@dtz.com

Valuation & Advisory Services
Charlie Yang +886 (0)2 8788 3288 charlie.ct.yang@dtz.com

Disclaimer
This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. ęDTZ January 2012
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