May 11, 2012
Property Times Taipei Q1 2012 Office rents stabilise
23 April 2012 Contents
Executive summary Economic overview Offices Retail Industrial Investment Definitions Contacts 1 2 3 4 5 6 7 8
This quarter, some landlords in Xinyi District attracted tenants with flexible rent incentives, which resulted in efficient absorption and a sharp decrease in availability. In contrast, the rental markets in other districts were quiet and saw no strong occupier demand. Vacancy rate in major retail districts was steady, except in the Taipei Railway Station area, where it climbed 1.76 percentage points. The rate in the Zhongshan/Nanjing area dropped by 1.55 percentage points, while the rate in the Ximen area rose by 1.40 percentage points. Since the results of the presidential election in Taiwan, most investors have adopted an optimistic attitude to overall economic trends for the near future. For this reason, the absorption rate is expected to continue accelerating in NHTP. Based on a superior transportation condition and low vacancy rate, the rent in Xihu Section is expected to increase, whilst the rents for Wende Section and Jiuzong Section are expected to remain at the same level.
Figure 1
Author
Wendy Hsueh Head of Taipei Research +886 (0)2 8788 3288 wendy.hj.hsueh@dtz.com
DTZ office index (2005 - 2016F)
DTZ Index (Q1 1996 = 100)
200
150
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
100
50
0
2011
2016F 2015F 2014F 2013F 2012F 2012
Source: DTZ Research
2005
2006
Office Rent Index
2007
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2010
Office Price Index
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1
Economic overview
In Q4 2011, Taiwan's GDP increased by 1.89% yearon-year (y-o-y), reaching NT$3,517 billion (US$116.2bn) (Table 1). The DGBAS of Executive Yuan adjusted the GDP growth rate forecast down to 3.85% for 2012 because of the European debt crisis and the continuing decline in enterprise investment. Attributed to the growth in electronic and mining products, aggregate export value in February 2012 increased 10.3% y-o-y to reach NT$693,030 million (US$23,410mn), an increase of 11% compared to last month. On the other hand, aggregate import value declined 1.3% y-o-y (Table 1). The unemployment rate dropped by 0.44 points y-o-y at 4.25% as of February 2012 (Table 1). In March 2012, as global commodity prices were stable, CPI only increased mildly by 1.21 y-o-y to reach 106.99 (Table 1). Since the Luxury Tax was launched in June 2011, the total transaction volume in Taipei City and New Taipei City has continued to decline. The house transaction volume in Taipei City and New Taipei City declined 46.73% and 51.96% in February, compared to June 2011. Moreover, there were 2,690 transactions with a tax amount of NT$1.69 billion subject to the Luxury Tax since June 2011, which was much lower than the expected amount of NT$5 billion. Due to its high domestic excess saving, stable CPI and its relatively high real interest rates compared to major Asian countries, the Board of the Central Bank of Taiwan decided to keep the discount rate at the same level, the rate on accommodations with collateral, and the rate on accommodations without collateral at 1.875%, 2.25%, and 4.125% respectively. Generally, the main purpose of low interest rate policy is to attract greater overseas capital inflow. Europe's debt crisis is expected to cause a global economic recession. This led to an increase in investment risk and weakened investor confidence. According to the Council for Economic Planning Development, Taiwan's Business Indicators show that the economy has significant downside risks. The overall monitoring indicator has flashed the "blue" signal for three consecutive months. Generally, the overall economic growth rate is expected to drop and the investment environment to become more risky in the future.
Table 1
Economic indicators
Indicator Period Unit NT$ million NT$ million NT$ million NT$ million % -Value y-o-y change (%) 1.89
GDP Gross fixed capital formation Total import value Total export value
Q4 2011
3,517,265
Q4 2011 February 2012 February 2012
626,705
-12.41
611,300
-1.3
693,030 4.25 106.99
10.3 -0.44 pts 1.21
Unemployment February rate 2012 Consumer price index March 2012
Source: DGBAS of Executive Yuan
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2
Offices
This quarter, the citywide Grade A office rent in Taipei City remained at the same level as last quarter at NT$2,310 (US$78.0), a 0.4% decrease from a year earlier (Table 2). The availability ratio in Xinyi District in Q1 fell 1.7 percentage points q-o-q, the greatest change in all districts. In contrast, those in other districts changed slightly and rose 0.1~0.4 percentage points q-o-q. The overall citywide availability ratio decreased by 0.7 percentage points to 9.9% (Table 2). Total net absorption this quarter reached 4,200 pings, an obvious increase compared to the previous quarter (Figure 3). Taiwan Life Insurance Company's headquarters on Zhongshan North Road, mostly owner occupied, with 9,000 pings of new office supply, is expected to come on stream in 2012 (Figure 3). This quarter, some landlords in Xinyi District attracted tenants with flexible rent incentives, which resulted in efficient absorption and a sharp decrease in availability ratio. In contrast, the leasing markets in other districts were quiet and saw no strong occupier demand. Some major anchor tenants in Dunnan District started to evaluate their relocation plans for the second half of this year, which is expected to cause an increase in the availability ratio and a decline in the rent in the district. Recent transactions Michael Page International leased 150 pings in Shin Kong Xinyi Financial Centre. Kraton Polymers leased 300 pings in Shin Kong Xinyi Financial Centre. Invisalign leased 190 pings in Exchange Square No. 2. Bates leased 260 pings in Exchange Square No. 2. Morningstar Asia leased 110 pings in Taipei 101. Taiwan Metal Mining leased 160 pings in Taipei 101. Entie Bank leased 3,000 pings in Taipei 101.
Table 2
Grade A office market statistics
District Western Nanjing / Songjiang Dunbei / Minsheng Dunnan Xinyi Overall
Source: DTZ Research
Availability Rent change ratio (%) (NT$/ping/month) q-o-q (%) 2.6 3.6 10.7 7.2 12.3 9.9 2,150 1,910 2,290 2,360 2,810 2,310 0.0 0.0 0.0 0.0 -0.7 0.0
Figure 2
DTZ office index (2005 2016F)
DTZ Index (Q1 1996 = 100)
200
150
100
50
0
2011
2016F 2015F 2014F 2013F 2012F 2012
Source: DTZ Research
Figure 3
Grade A office supply, net absorption and availability ratio (2005 2013F)
Pings
40,000
30,000 12 20,000 10 8 10,000 6 4 0 2005 (10,000) 2006 2007 2008 2009 2010 2011 2012F 2013F 2 0
Source: DTZ Research
2005
New supply
2006
Office Rent Index
2007
2008
Net absorption
2009
2010
Office Price Index
%
16 14
Availability ratio
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3
Retail
Retail sales in 2011 reached NT$978.65 billion (US$33.06bn), a y-o-y increase of 6.73% (Figure 4). Sales in department stores showed the biggest increase at 7.60% y-o-y, followed by supermarkets at 7.31%, and convenience stores at 6.74%, indicating continuous growth in annual consumption expenditure. Retail sales from January to February reached NT$174.33 billion (US$5.89bn), a y-o-y increase of 4.59% (Figure 4). Sales in convenience stores showed the biggest increase at 13.45% y-o-y, followed by supermarkets at 4.44% y-o-y and department stores at 2.24% y-o-y, indicating a continued trend of growth. The vacancy rate in major retail districts was steady, except in the Taipei Railway Station area, where it climbed 1.76 percentage points. The rate in the Zhongshan/Nanjing area dropped by 1.55 percentage points, while the rate in the Ximen area rose by 1.40 percentage points (Table 3). Taipei MRT's Tamsui Line and Zhonghe Line will run separately from September, which will lead to the establishment of four new interchange stations: Dongmen Station, Zhongxiao Xinsheng Station, Guting Station and Chiang Kai-shek Memorial Hall Station, which are expected to become new retail areas. Benefiting from the increasing number of Chinese and international visitors, more global brands are planning to open large flagship stores in Xinyi District. Recent transactions Chanel opened its largest shop in Shin Kong Mitsukoshi Xinyi Place Department Store A4 Branch, with an operational area of 210 pings across two storeys on 1 March. Salvatore Ferragamo opened its largest shop in Shin Kong Mishukoshi Xinyi Place Department Store A4 Branch, with an operational area of 150 pings across two storeys on 22 March. Dior opened its largest shop in the world in Taipei 101, with an operational area of 400 pings on 23 March. The rent of the Studio A shop in Apollo Building in Section 4, East Zhongxiao Road reached NT$1.45 million per month, with a floor area of 64.5 pings, which translates to NT$22,500 per ping per month, a record high for the district. The rent of the Lion Travel shop at the intersection of South Fuxing Road and Section 4, East Zhongxiao Road, about 39 pings, increased from NT$870,000 to NT$1.00 million per month, or NT$25,600 per ping per month.
Figure 4
Sales of general merchandise (2001 2012*)
NT$ million
978,645 916,977 783,045 738,433 760,511 628,134 659,977 689,761 856,025 817,648 836,838
174,263
* Data as of February 2012 Source: Department of Statistics, Ministry of Economic Affairs.
Table 3
Retail market statistics
District Zhongxiao Taipei Railway Station Zhongshan/ Nanjing Ximen Tienmu Availability Rental range ratio (%) (NT$/ping/month) 3.74 6.61 0.76 3.19 7.77 18,000~27,000 10,000~16,000 7,000~9,500 9,000~16,000 2,800~4,600
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 the future
District Hsinchu City Project Name Big City Shopping Mall GFA (pings) 54,000 Expected Completion Date Q2 2012
Source: DTZ Research
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4
Industrial
The average rent per ping in Xihu Section increased to NT$1,180 (US$39.9) and NT$1,000 (US$33.8) in Wende Section, whilst the rent in Jiuzong Section remained at NT$900 (US$30.4). Meanwhile, availability ratios steadily declined this quarter, and the availability ratios in Xihu Section, Wende Section and Jiuzong Section reached 4.1%, 15.0% and 16.0% respectively (Table 5 and Figure 5). The transacted price of I/O properties in NHTP saw no significant change since there were not many transactions. The average price in Xihu Section was NT$460,000-$520,000 (US$16,000-18,000) per ping; in Wende Section, NT$360,000-$410,000 (US$12,000-14,000) per ping; in Jiuzong Section, NT$320,000-360,000 (US$11,000-$12,000) per ping (Figure 6). The major transaction was by TransAsia Airways, who purchased Refong Green Technology Building for their headquarters (total area is about 1,568 pings) for NT$ 704 million. The SIT Building, with a total floor area of 4,060 pings, entered the NHTP market this quarter. Since the results of the presidential election in Taiwan, most investors have adopted an optimistic attitude to overall economic trends for the near future. For this reason, the absorption rate is expected to continue accelerating in NHTP. Based on a superior transportation condition and low vacancy rate, the rent in Xihu Section is expected to increase, while the rents in Wende Section and Jiuzong Section are expected to remain at the same levels. Recent transactions E-TEN Information Systems Co., Ltd leased 630 pings in Yangmin Office Building. Quinetech International Corporation leased 110 pings in Triumph Technology Building. MOMO Internet Shop leased 150 pings in Millennium Technology Building.
Table 5
Industrial market statistics
District Availability Rent change ratio (%) (NT$/ping/month) q-o-q (%) 1,180 1,000 900 1.4 0.3 0.0
Xihu Section 4.1 Wende Section Jiuzong Section
Source: DTZ Research
15.0 16.0
Figure 5
NHTP industrial office rent (2001 Q1 2012)
Monthly Rent (NT$/ping/month) 1,600 1,400
1,200
1,000 800 600 400
200
0
Xihu Section
Wende Section
Source: DTZ Research
Figure 6
NHTP industrial office price (2001 Q1 2012)
Price
( NT$ten thousands/ping )
60
50
40
30
20
10
0
Xihu Section
Wende Section
Source: DTZ Research
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Investment
Due to the seasonal effects of Lunar New Year, both the total number and the total consideration amount sharply dropped in Q1. In total, only 12 major deals were recorded and the amount shrank to NT$6,381mn (US$216mn). Significant transactions were mainly industrial offices, accounting for 42% of the total. They were all acquired for self-occupation. (Table 6 and Table7). After acquiring Lifu Commercial Building in Ximen for NT$232mn (US$7.84mn), Xinhua Development publicly purchased Yongyu Building in the Taipei Railway Station retail area for NT$223mn (US$7.53mn) and planned to remodel it into a budget hotel, demonstrating the potential for tourism in West district. With the strategy on the commercial properties around the Songshan Line, Shinkong Life Insurance purchased the retail shop at Taipei Morgan, a community integrated with Nanjing Sanmin Station, for NT$825mn (US$27.87mn), equivalent to a ground floor unit rate of NT$2.26mn (US$76.4thou) per ping. The leasehold development of the 1,261-ping municipality-owned lot in Shilin district was publicly tendered and acquired by Huang Hsiang Construction Corporation for a royalty of NT$2,507mn (US$84,70mn). It showed that the leasehold development of public sectors had become one way for developers to acquire land resources under the situation where acquiring large-scale land is difficult in Taipei City.
Table 6
Total number of major deals
Q1 2011 Office Retail I/O Industrial Hotel Others Total
Source: DTZ Research
Q4 2011 12 4 4 7 2 0 29
Q1 2012 1 3 5 3 0 0 12
8 4 2 12 0 0 26
Table 7
Total consideration of major deals (NT$mn)
Q1 2011 Office Retail I/O Industrial Hotel Others Total
Source: DTZ Research
Q4 2011 11,137 9,060 4,441 12,706 285 0 40,194
Q1 2012 223 1,935 2,690 1,533 0 0 6,381
7,618 266 757 6,965 0 0 18,000
Table 8
Significant deals
Property Yongyu Bldg. Taipei Morgan Taiyuen Hi-tech Industrial Park. Lingxiu Dunnan Bldg.
Source: DTZ Research
Sector Office Retail I/O Retail
Purchaser Xinhua Development Shinkong Life Insurance Ralink Tech. Individual
Location Zhongzheng District, Taipei City Songshan District, Taipei City Zhubei City, Hsinchu County Daan District, Taipei City
Price (NT$mn) 223 825 911 400
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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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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. ©DTZ 2012
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