DTZ Research. Property Times Taipei Q Large-scale project in Neihu kicked off. 15 July 2014

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1 Property Times Large-scale project in Neihu kicked off 15 July 214 Contents Economic overview 2 Office 3 Retail 4 Industrial 5 Investment 6 This quarter, grade A office rents were stable in most districts. The citywide average rent remained at NT$2,44 (US$82) per ping per month. The citywide vacancy rate decreased.25 percentage points to 8.4%. Although demand for owner occupation remained strong this quarter, the overall vacancy rate increased due to new supply in the Jiuzhong Section. Meanwhile, the first phase of the "Cloud-computing-industrial and parking lot BOT" project initiated by the government has now kicked off in Xihu Section of the Neihu Technology Park. The project is expected to bring new synergy since there have been no new large-scale projects in Neihu for a long time. The investment volume (excluding land transactions) totalled NT$21.44 billion (US$ mn) in Q2 214, soaring % from the previous quarter. Author Wendy Hsueh Head of Taipei Research wendy.hj.hsueh@dtz.com Figure 1 DTZ office index (25 216F) Contacts Andrew Ness Head of North Asia Research andrew.ness@dtz.com Fergus Hicks Global Head of Forecasting +44 () fergus.hicks@dtz.com Office Rent Index F Office Price Index 215F 216F Hans Vrensen Global Head of Research +44 () hans.vrensen@dtz.com F=Forecast DTZ Research

2 Economic overview Taiwan's GDP in Q1 214 increased by 3.14% year-on-year (y-o-y), reaching NT$3,749.9 billion (US$125.79bn) (Table 1). It is estimated that the GDP growth rate in 214 will reach 2.98%. Aggregate export figures in April 214 decreased by 4.2% month-on-month (m-o-m) yet increased 6.2% y-o-y, reaching NT$86.36 billion (US$27.5bn). Rubber goods, plastics, electronics and chemical products accounted for most of the increase, while decline in minerals, optical and telecommunication products offset the growth. The aggregate import value also rose by 5.8% y-o-y (Table 1). The unemployment rate in April 214 declined.16 percentage points y-o-y to 3.91%. The number of unemployed decreased by 14, people m-o-m, thanks to fewer business closures and mass layoffs (Table 1). In April 214, the CPI reached 13.73, rising by.66% m-o-m and 1.65% y-o-y. Price for apparel showed the most significant increase as a consequence of the arrival of many new ready-to-wear products for spring and summer (Table 1). Table 1 Economic indicators Indicator Period Unit Value y-o-y change (%) GDP Q1 214 NT$ million 3,749, Total import value Total export value Unemployment rate Consumer price index Visitor arrivals Transacted buildings units Source: DGBAS of Executive Yuan April 214 April 214 April 214 April 214 March 214 March 214 NT$ million 729, NT$ million 86, % pts thousand units 26, In March 214 total visitor arrivals reached 881,3, a y-o-y rise of 16.4%. Visitors from China made a strong contribution to the increase, accounting for 4.99% of total arrivals and reaching a total of 361,15, a y-o-y increase of 34.3% (Table 1). The Council for Economic Planning Development s overall economic outlook for April 214 flashed a green signal for a third consecutive month. Positive indicators in financial markets, manufacturing, trading and consumer spending and an improved performance in the labour market were seen as signs of economic recovery. This improvement was also reflected in the four-point increase in the total indicator score. Total building transaction volume in Taiwan reached 26,613 units in March 214, a m-o-m surge of 37.49%, but still down by 1.2% y-o-y. The jump from a month earlier resulted from the lower transaction volume in February when there were fewer working days due to the Chinese New Year holidays. The y-o-y fall, on the other hand, was the result of the government s policies, aiming at curbing soaring housing prices. Transaction volume in Taipei City, New Taipei City, Taichung and Taoyuan grew 22.16%, 32.53%, 45.27% and 54.96% m-o-m respectively. Property Times 2

3 Office This quarter, grade A office rents were stable in most districts. The citywide average rent remained at NT$2,44 (US$82) per ping per month (Table 2). The citywide vacancy rate decreased.25 percentage points to 8.4% and the overall take-up of grade A office space in the past six months amounted to 4,4 ping. Most of the absorbed space came from multinational companies engaged in hi-tech, pharmaceutical and biotech, banking, securities, customer service and consulting businesses. The highest take-up was recorded in Xinyi District, with more than 2, ping leased within this quarter (Table 2, Figure 3). A large number of lease renewals are due to come up in Xinyi, especially for buildings three to five years old. Many of the tenants have chosen to renew their leases. The President Starbucks Coffee Corp moved from the Uni-President Building on Dingxing Road to Farglory International Center in Xinyi Planned District and expanded its office area under occupancy to 35 ping. Most of the tenants in Farglory International Center came from the other Grade A office districts, other notable new tenants including Audi Taiwan and Hewlett-Packard Company. Table 2 Grade A office market statistics District Vacancy rate (%) Rent (NT$/ping/month) change q-o-q (%) Western 3.1 2,12. Nanjing / Songjiang 1. 1,98. Dunbei / Minsheng 6.1 2,24.76 Dunnan 7.1 2,31.26 Xinyi ,9.1 Overall 8.4 2,44.33 Figure 2 DTZ office index (25 216F) Looking ahead, new supply of Grade A office space in the second-half of 214 will amount to 63, ping. This includes Hua Nan Financial Holding Headquarters Building, which is owner-occupied except for floors six to eleven. This is the first public bank headquarters building in Xinyi Planned District. Another bank headquarters building, Taiwan Cooperative Bank, is under development on Bade Road in Songshan District and also has space for lease. In sum, the total leasable area could reach 24,7 ping. The completion of these two properties is therefore likely to put pressure on take-up in some areas (Figure 3) F=Forecast Figure Office Rent Index F Office Price Index 215F 216F Grade A office supply (ping), net absorption (ping) and vacancy 坪 (%) (25-216F) 7, 6, 5, 4, 3, 2, 1, % (1,) F=Forecast F 215F 216F 新供給吸納量空置率 2 Property Times 3

4 Retail Retail sales from January to April 214 reached NT$ 35 billion (US$11.74bn), a y-o-y increase of 4.3%. Among all categories, sales from department store showed the highest growth at 5.9%, followed by 5.4% from supermarkets and 4.8% from convenience stores (Figure 4). Among retail hubs in Taipei, rent for street front shops in Zhongxiao retail hub remained stable as price increase was already reflected in the previous quarter. For other retail hubs, including Taipei Railway Station, Zhongshan-Nanjing and Ximen, rent rose at a q-o-q rate of around 5%. This was mainly caused by the continued influx of global brand names, particularly Korean cosmetics. The Korean cosmetics brand Innisfree opened its first two stores in prime locations in the Zhongxiao and Taipei Railway Station retail hubs, taking 86 ping and 27 ping of retail space respectively, and the rent for the latter store on Guanqian Road broke the record at NT$8, (US$26,8) per ping per month. Meanwhile, Samsung Group s cosmetic brand, Holika Holika, also chose Zhongxiao as its first shop location in Taiwan and leased a shop with 25 ping. In addition, tourism in Ximen continues to flourish, resulting in new opportunities in the hotel and retail sectors. Vacancy ratio decreased by 1.4 percentage points to reach 1.4%. Rental growth was also the strongest among all retail hubs. Retail activities in Zhongshan-Nanjing have expanded to Chengde Road due to the increasing number of foreign tourists and the completion of Songshan MRT line at the end of this year. Korean cosmetics brand Too Cool for School and Japanese skin care product brand Obis were attracted to locate premises for new shops in the area near the future exit of the MRT station at the junction of Chifeng Street and Nanjing West Road. Japanese brand Samantha Thavasa also leased space on Nanjing West Road. This relatively high level of retail leasing activity drove up the overall rent in the Zhongshan-Nanjing retail hub. Sporting goods and brand names are benefiting from the increased popularity of jogging. Since 213, brand names such as Adidas and Reebok have opened flagship stores on Zhongxiao East Road and Dunhua South Road in the Zhongxiao retail hub. Under Armour, an American brand, also entered the area earlier in the year. The Nike flagship store at NEO 19 in Xinyi District has completed its refurbishment based on a new jogging experience concept, taking a floor area totalling 2 ping on the first and the second floors. From these activities, with brand names opening flagship stores in major retail hubs, it can be concluded that major sporting brands have strong confidence in the outlook for Taipei consumer spending. Figure 4 Sales of general merchandise (NT$bn) (25 April 214) N 12, 1, 8, 6, 4, 2, * Data as of April 214 Source: Department of Statistics, Ministry of Economic Affairs Table 3 Retail market statistics District Vacancy rate (%) Rental range (NT$/ping/month) Zhongxiao ,-26, Taipei Railway Station Zhongshan/ Nanjing 6.2 1,-16, 5.3 1,-14, Ximen ,-2, Note: Only street front shops are taken into account. All data is based on gross floor area unless otherwise specified. Rent exclusive of management fees and other outgoings. 1 ping = sq ft = 3.3 sq m Table 4 Major new supply this quarter District Project Name GFA (ping) Opening Date Banqiao Xinyi Nangang Xindian Mega City 2nd phase Breeze Songgao Mall in China Trust Bank Headquarters Q Square Meiheshih 4, Q , Q ,8 Q , Q Property Times 4

5 Q Q2 Industrial There was no new supply in Neihu Technology Park (NHTP) this quarter. The overall vacancy rate rose to 13.87% and 21.84% in Wende and Jiuzong sections due to corporate relocation. Also, large areas of vacant space remained unabsorbed in the Jiuzong section as a result of the new supply last quarter. Xihu Section, on the other hand, saw its vacancy rate decline to 3.7%, with take-up stimulated by its advantages of easy access and good public facilities (Table 5). Rents in Xihu, Wende and Jiuzhong sections remained stable this quarter at NT$1,2 (US$39.6) per ping, NT$99 (US$32.7) per ping and NT$92 (US$3.3) per ping respectively (Figure 5). Potential purchasers of properties in the Neihu Technology Park were owner-occupiers rather than investors. Transacted prices in Xihu, Wende and Jiuzhong sections were from NT$5,-6, (US$17,-2,) per ping, NT$38,-45, (US$13,-15,) per ping and NT$33,-42, (US$11,-14,) per ping respectively (Figure 6). Potential demand for facilities in this quarter was similarly mainly for owner occupation. Major transactions were made by KYE, WAYSIA and GOYOURLIFE. KYE acquired 1,777 ping at Wende Technology Building for NT$895 million; WAYSIA took up 337 ping at Empire Trade Building for NT$2 million; and GOYOURLIFE took up 246 ping at Song Han Dazhi Headquarters for NT$128 million. Due to the general slowdown in the economy and recent curbs on the real estate market, investment activity saw a downturn. But this was counterbalanced by a pick up in owner-occupation acquisitions. At the same time, the first phase for the "Cloud-computing-industrial and parking lot BOT" project in Xihu section has kicked off. The total area of this sub-district covers 4.3 hectares and it is estimated that construction will be complete by 217. This project is expected to add synergy to Neihu Technology Park since there have been no large-scale projects completed within the park for a long time. Table 5 NHTP industrial market statistics Section vacancy rate (%) Rent (NT$/ping/ month) Rent q-o-q change (%) Xihu 3.7 1,2. Wende Jiuzong Figure 5 NHTP industrial office rental (NT$/ping/month) (24 Q2 Monthly Rent 214) (NT$/ping/month) 1,6 1,4 1,2 1, Figure 6 Xihu Section Wende Section Price NHTP ( NT$/ping industrial ) office price (NT$/ping) (24 Q2 214) 6, 5, 4, 3, 2, 1, Xihu Section Wende Section Property Times 5

6 Investment Investment volume (excluding land transactions) totalled NT$21.44 billion (US$719.15mn) in Q2 214, soaring % from the previous quarter and 14.35% y-o-y. Transactions were mostly related to hotels and I/O buildings, which accounted for 28.92% and 23.63% of the total volume respectively. Foreign investors and insurance companies were the major investors (Tables 6, 7, 8). The most significant deal of the quarter took place in Taipei City, with He-Fu-Yuan-Dong Ltd (related to Singapore based Alpha Investment Partners Ltd) acquiring Taipei Chingcheng Howard Hotel for NT$6. billion (US$21.27mn). This was also the largest investment deal since the beginning of the year. The second-largest deal of the quarter involved Mercuries Life Insurance. It acquired 2, ping of retail space on levels 1-5 of Taipei TIT Tower Square for NT$3.95 billion (US$132.51mn). These two major deals reflected the strong dynamics of growth inbound tourism. Hotels and retail space proximate to tourist attractions represent promising investment opportunities. As driven by the continued growth in tourism, some office buildings outside Taipei City offer potential for hotel conversion. In the most recent example of this trend, San Hao International Hotel purchased Guang Feng Building in Taichung City for NT$.58 billion (US$19.42mn) with the objective of converting it into a hotel. In the development land segment, the largest land transaction was by Da Cin Construction and JSL Group, which secured 5,143.1 ping of Type B industrial land in Tucheng District, New Taipei City for NT$2.9 billion (US$97.28mn). Other notable land deals came from the rising demand for logistics, thanks to the fast growing e-commerce industry. Fubon Multimedia Technology acquired 7, ping of land in Dayuan Township, Taoyuan County for NT$1.71 billion (US$57.31mn) for a logistics centre development. The most significant deal in the superficies rights 1 segment involved the acquisition of lot A25 in Xinyi District, Taipei City. The 5-year lease of the 5, ping of land was secured by Fubon Life Insurance for NT$17.29 billion (US$579.94), aimed for office, retail or hotel mixed development. Investors showed enthusiasm in the superficies rights market in southern Taiwan this quarter. Shen Yang Construction, a subsidiary of Kuo Yang Construction, won the bid for a 7-year lease of 3, ping of residential land in Qianzhen District, Kaohsiung City for NT$.88 billion (US$29.45mn). The deal set a record high price in the superficies rights market in Kaohsiung. Residential properties located in prime areas are expected to see increasing activity in the superficies rights segment. Table 6 Total number of major deals 213 Q2 214 Q1 214 Q2 Office Retail 3 3 I/O Industrial Hotel Other Total Table 7 Total consideration of major deals (NT$ million) 213 Q2 214 Q1 214 Q2 Office 564 3,394 3,98 Retail 1,764 4,338 I/O 4,54 2,798 5,66 Industrial 2,459 1,84 2,736 Hotel 1,2 29 6,2 Others. Total 1,491 7,485 21,438 Table 8 Significant Deals Property Sector Purchaser Location Price (NT$ billion) Taipei Chingcheng Howard Hotel Hotel He-Fu-Yuan-Dong Ltd Songshan District, Taipei City 6. Taipei TIT Tower Square Retail Mercuries Life Insurance Wanhua District, Taipei City 3.95 I-O Building in Ankang Section I-O building CTBC Bank Neihu District, Taipei City 1.29 Guang Feng Building Office San Hao International Hotel Nantun District, Taichung City.58 1 superficies rights is the rights to use the land of another party together with anything which attached and place upon the piece of land. Property Times 6

7 Definitions Availability: Vacancy rate: Development Pipeline: Net Absorption: New Supply: Prelet: Prime Rent: Rent: Prime Yield: Market Yield: Stock: Take-up: Vacancy: Total floor space 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 floor space. Comprises two elements: 1. Floor space 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. The change in the total of occupied floor space over a specified period of time, either positive or negative. Total marketed grade A floor space 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.) Gross transacted rents (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. Floor space 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.) Floor space 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). Property Times 7

8 Other DTZ Research Reports Other research reports can be downloaded from These include: Occupier Perspective Updates on occupational markets from an occupier perspective, with commentary, analysis, charts and data. Global Occupancy Costs Offices Global Occupancy Costs Logistics Occupier Perspective User Guide to The Americas Occupier Perspective User Guide to Asia Pacific Occupier Perspective User Guide to EMEA Occupier Perspective Global User Guide Global Office Review India Office Demand and Trends Survey Sweden Computer Games Developers November 213 Property Times Regular updates on occupational markets from a landlord perspective, with commentary, charts, data and forecasts. Coverage includes Asia Pacific, Baltics, Bangkok, Barcelona, Bengaluru, Berlin, Brisbane, Brussels, Budapest, Central London, Chennai, Chicago, Delhi, East China, Europe, Frankfurt, Geneva, Guangzhou & Central China, Hamburg, Helsinki, Ho Chi Minh City, Hong Kong, Hyderabad, Jakarta, Japan, Kolkata, Kuala Lumpur, Los Angeles, Luxembourg, Lyon, Madrid, Manhattan, Melbourne, Milan, Mumbai, North China, Paris, Poland, Prague, Pune, Rome, San Francisco, Seoul, Singapore, South & West China, Stockholm, Sydney, Taipei, Toronto, Ukraine, UK, Warsaw, Washington. Investment Market Update Regular updates on investment market activity, with commentary, significant deals, charts, data and forecasts. Coverage includes Asia Pacific, Australia, Belgium, Czech Republic, Europe, France, Germany, Italy, Japan, Mainland China, South East Asia, Spain, Sweden, UK. Money into Property For more than 35 years, this has been DTZ's flagship research report, analysing invested stock and capital flows into real estate markets across the world. It measures the development and structure of the global investment market. Available for Global, Asia Pacific, Europe, North America and UK. Foresight Quarterly commentary, analysis and insight into our in-house data forecasts, including the DTZ Fair Value Index. Available for Global, Asia Pacific, Europe, UK and China. In addition we publish an annual outlook report. Insight Thematic, ad hoc, topical and thought leading reports on areas and issues of specific interest and relevance to real estate markets. Insight Beijing TMT Office Occupier Survey- June 214 Insight European Transaction Based Index Q1 214 Net Debt Funding Gap - May 214 China Insight Office Pipeline and Dynamics May 214 Deflation and Commercial Property - March 214 Tokyo Retail Market 214 Great Wall of Money March 214 German Open Ended Funds March 214 China Investment Market Sentiment Survey - January 214 China The Technology Sector - January 214 Czech Republic Green buildings - December 213 UK secondary market pricing - October 213 Quantitative Easing - UK Regions September 213 DTZ Research Data Services For more detailed data and information, the following are available for subscription. Please contact graham.bruty@dtz.com for more information. Property Market Indicators Timely series of commercial and industrial market data in Asia Pacific and Europe. Real Estate Forecasts, including the DTZ Fair Value Index Five-year rolling forecasts of commercial and industrial markets in Asia Pacific, Europe and the USA. Investment Transaction Database Aggregated overview of investment activity in Asia Pacific and Europe. Money into Property DTZ s flagship research product for over 35 years providing capital markets data covering capital flows, size, structure, ownership, developments and trends, and findings of annual investor and lender intention surveys. Property Times 8

9 DTZ Research Contacts Chief Executive, North Asia Edward Cheung Phone: Agency Billy Yen Phone: billy.pl.yen@dtz.com Occupier Services Group Billy Yen Phone: billy.pl.yen@dtz.com Consulting and Research Wendy Hsueh Phone: wendy.hj.hsueh@dtz.com Valuation & Advisory Services Charlie Yang Phone: 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 July Property Times 9