May Report 2012 Title - 6 August 2010 Taipei Property Market Snapshot 1Q12 Given the increases in oil and electricity costs, Taiwan s CPI is expected to rise and grew at a moderate 1.21% y-o-y in March MNCs that earned a profit last year were looking to take advantage of the current low rents by considering a move to better locations in the CBD The weak outlook for rents and a pricing mismatch between buyers and sellers caused investors to look to either strata-titled or en-bloc quality property in the CBD.
2 On Point May 2012 Property Market Economy Following the increase in oil prices in early 1Q12, the Ministry of Economic Affairs announced that electricity rates are also to go up from 15 May by an average of 17.0% for households, 30.0% for commercial establishments and 35.0% for manufacturing industrial users. Given the increases in various costs, Taiwan s CPI is expected to rise and grew at a moderate 1.21% y-o-y in March, while the wholesale price index (WPI) edged down by 0.11%. According to the Directorate General of Budget, Accounting & Statistics (DGBAS), the CPI s growth in the quarter was lower than the 1.4% predicted and is likely to be higher at around 1.8% than the original forecast of 1.46% for the full year. Taiwan s retail trade increased by 6.4% in 2011 compared to the previous year and the opening of Taiwan to individual tourists from Mainland China boosted demand for luxury products. Given the maturity of the market, many international brands decided to set up their own branches in Taiwan instead of working through agents. The Xinyi sub-market, which is Taipei s densest retail area, is undoubtedly becoming the preferred location for the offices of international brands, although some may also be found in the North sub-market. Grade A Office Market The current economic downturn was expected to have bottomed out in 1Q12 but the unemployment rate for February hit a threemonth high of 4.25%, and the vacancy rate rose to 12.5%, a marginal increase of 0.1 of a percentage point. It is worth noting that MNCs that earned a profit last year were looking to take advantage of the current low rents by considering a move to better locations in the CBD. Key Economic Indicators Real GDP Growth (1Q12 y-o-y) Unemployment rate (March 2012) Rediscount rate (April 2012) Mortgage rate* (April 2012) Consumer Price Index (April 2012 y-o-y) Exports (April 2012 y-o-y) Cumulative visitor arrivals (Jan to March 2012) Cumulative visitor arrivals (Jan to March 2012, y-o-y) 3.8% 4.17% 1.875% 1.894% 1.44% 2.6% 1,678,489 22.31% Source: DGBAS, Global Insight, Tourism Bureau *an average mortgage rate of the five major banks: Bank of Republic of China, Taiwan, Taiwan Cooperative Bank, First Commercial Bank, Hua Nan Bank and Land Bank of Taiwan, April 2012 Property Clock Grade A Office The vacancy rate in Taipei remains high, ensuring a tenantfavourable leasing market. Thus, landlords are willing to offer favourable rents to tenants occupying large areas of space, causing rents to drop 0.6% q-o-q in 1Q12 to NTD 2,383 per ping per month (USD 24.3 per sqm per month). Our Leasing Volume Survey (covering new leases of more than 300 ping) indicated that the total newly-leased area in 1Q12 amounted to 9,950 ping. In terms of type of occupant, IT firms accounted for the largest amount of space, at 33.3%, followed by financial organisations at 25.0%. We are confident that demand for office space will remain stable. Source: REIS 1Q12, Jones Lang LaSalle
On Point May 2012 3 Performance by Sub-market Financial Indices Rental Rate 3,500 3,000 2,500 2,000 1,500 1,000 (NTD/Per Ping PM) 500 0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Xinyi North South Non-Core CBD Xinyi The vacancy rate in the Xinyi sub-market registered its first increase in 1Q12, up 0.2 of a percentage point q-o-q to 17.3%. It had been falling for four consecutive quarters due to returned space and the relocation to owner-occupied space by financial organisations. Given that some of the vacant property has been empty for more than 18 months, landlords are likely to offer incentives, and rents have dropped by 1.6% q-o-q to NTD 2,689 per ping per month. North In 1Q12, the North sub-market was in the same position as the Xinyi sub-market, suffering from the return of space by financial organisations. Consequently, the vacancy rate increased by 0.8 of a percentage point q-o-q to 11.0%. However, the small amount of returned space had little impact on rents, which remained at NTD 2,218 per ping per month. Vacancy Rate 30% 25% 20% 15% 10% 5% 0% 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 1Q08 4Q07 3Q07 2Q07 1Q07 12-month Outlook Xinyi North South Non-Core CBD 3Q11 South Following the trend seen in 4Q11, the South sub-market continued to enjoy the lowest vacancy rate of all sub-markets. The rate edged down further to 6.9% as landlords were able to rent out some space and this gave them the opportunity to raise rents by 2.2% q-o-q to NTD 2,410 per ping per month Non-Core CBD Expansion by some domestic SMEs and Japanese firms drove the vacancy rate in the Non-Core CBD sub-market down by 0.6 of a percentage point q-o-q to 10.2%. Nevertheless, the quality of properties in the Non-Core CBD sub-market lags behind other sub-markets, resulting in a slow growth in rents, up by just 1.1% q-o-q to NTD 1,875 per ping per month. Despite substantial amounts of office space leasing, supply continues to outpace demand, causing rents to fall. We believe that the correction in rents seen thus far is likely to ease and that vacancy rates in the Taipei Grade A office sector, which have seen five consecutive quarters of decreases, should underpin rental recovery in 2H12. On the other hand, demand for real estate investment remains high because Taiwan s insurance companies and corporations continue to seek stable long-term property investments. However, the short-term return on investment in commercial property remains low due to a pricing mismatch between buyers and sellers, and the limited availability of assets on the market. Grade A Office Vacancy Rate Overall Xinyi North South Non-Core CBD 1Q12 12.5% 17.3% 11.0% 6.9% 10.2% 4Q11 12.5% 17.1% 10.2% 7.0% 10.8% Grade A Office Rent (NTD per Ping per Month) Overall Xinyi North South Non-core CBD 1Q12 2,383 2,689 2,218 2,410 1,875 4Q11 2,396 2,731 2,218 2,360 1,897
4 On Point May 2012 Investment Market High capital values and decreasing rents cause investors to stand on the sidelines and volumes to shrink Investment Market In 1Q12, investment volume in the commercial property market shrank by 87.44% q-o-q to NT 4.5 billion. This significant drop was due to the 4Q11 liquidation of the Kee Tai Star and Trident REITs, and corporations year-end disposal of property. In 1Q12, in contrast, high capital values and decreasing rents caused investors to stand on the sidelines and volume to shrink. The weak outlook for rents and a pricing mismatch between buyers and sellers caused investors to look to either strata-titled or en-bloc quality property in the CBD. Therefore, investment in the NHTP has been replaced by owner-occupiers. For example, in 1Q12, TransAsia Airways purchased the 1,197 ping Neihu Jiuzhon Building for NTD 0.7 billion and made it the company s new headquarters in Taiwan. The influx of domestic insurers funds into the Taiwan investment market pushed the capitalisation rate for income-generating property down and decreasing rents compressed the rate even further. Institutional and MNC investors sought opportunities in the retail sector, while domestic developers preferred to purchase nonperforming assets and redevelop them into residential projects Transaction Amounts - 2011 and 2012 NTD Billion 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1Q 2Q 3Q 4Q 2011 2012 Investment Amount by Type (NTD billion) Total 4.50 Retail 0.85 Office 2.57 Industrial Office 1.08 Hotel Mixed-use Major Sales in 1Q12 Project Name Precinct Area (Ping) Sale Price (NTD million) Vendor Purchaser MeKeLong Corp Building New Taipei City 1,516 260 MeKeLong Corp Rei Yin Investment Ching Shing Poai Building Taipei City 150 126.88 Foreclosure Taipei Morgan (Retail space) Taipei City 523 825 Highwealth (construction company) Chia Hsin Asset management Shinkong Life Neihu Jiuzhon Building Taipei City 1,197 703.95 Reifung Construction TransAsia Airways Ye Cai Ji Building (B1 and 17F) Taipei City 1,243 750 JP Morgan Bank Taiwan Life
On Point May 2012 5 For subscription details and enquiries, please contact: Dr Jane Murray Head of Research Asia Pacific +852 2846 5274 jane.murray@ap.jll.com Roddy Allan REIS Asia Pacific +852 2846 5790 roddy.allan@ap.jll.com Michael Klibaner REIS China +86 21 6133 5707 michael.klibaner@ap.jll.com Ashutosh Limaye REIS India +91 22 2482 8400 Ashutosh.limaye@ap.jll.com Joanne Henderson REIS Australia +61 2 9220 8528 joanne.henderson@ap.jll.com Chris Dibble REIS New Zealand +64 9 366 1666 chris.dibble@ap.jll.com
Author Howie Wang Research Associate Head of Research +886 2 8758 9886 howie.wang@ap.jll.com Jones Lang LaSalle Offices Taipei Jones Lang LaSalle 20F-1, TAIPEI 101 Tower, No.7, Xinyi Rd, Sec.5, Taipei 11049, Taiwan +886 2 8758 9898 Tony Chao Managing Director +886 2 8758 9808 tony.chao@ap.jll.com Sherry Wu National Director Head of Investments and Markets +886 2 8758 9828 sherry.wu@ap.jll.com May 2012 OnPoint reports from Jones Lang LaSalle include quarterly and annual highlights of real estate activity, performance and specialised surveys and forecasts that uncover emerging trends. www.joneslanglasalle.com.tw COPYRIGHT JONES LANG LASALLE IP, INC. 2011. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them. Printing information: paper, inks, printing process, recycle directive.