Office Snapshot Q4 2017

MARKETBEAT Office Snapshot Q4 2017

Taipei

Economy TAIPEI OFFICE Taiwan’s GDP increased 3.1% y-o-y to NT$4.4 trillion Economic Indicators (US$147,098 million) in Q3, with service sector growth of 2.6% y- Past 12-Month Q2 17 Q3 17 o-y on rising freight transport demand and wholesale trade Growth volume. CPI showed slight growth at 0.8% y-o-y. GDP is forecast GDP Growth 2.3% 3.1% to increase 2.6% for the full year. Service Sector GDP 1.5% 2.6% Growth Market Overview CPI Growth 0.6% 0.8% Source: Ministry of the Interior Taipei’s Grade A office rent held firm, averaging NT$2,480 per Note: Growth figure is y-o-y growth ping per month (US$82.5) at the end of Q4. Rental levels were stable across all office submarkets. Amid strong demand for Grade A Indicators office space and declining vacancy, rental flexibility and 12-Month Q3 17 Q4 17 Forecast concessions on offer are increasingly hard to come by in Xinyi Average Rent 2,480 2,480 District. (NT$/ping/mo) Vacancy Rate 9.7% 9.5% The citywide vacancy rate decreased 0.2 percentage points q-o- Source: Cushman & Wakefield Research q to 9.5%. Among submarkets, space tightened the most in Grade A Rent & Vacancy Rate Nanjing/Songjiang District at 8.9 percentage points q-o-q thanks 2,600 16 to take-up at a MRT joint development building. 2,550 14 2,500 12 Cumulative net absorption through the end of the year amounted 2,450 10 to 30,000 pings. Owner-occupied space at the Taiwan 2,400 8 Cooperative Bank Headquarters Bldg contributed 24,100 pings of 2,350 6 net absorption. Excluding owner-occupied space, Xinyi and Nanjing/Songjiang District recorded net absorption of 3,440 and

2,300 4 (%) Rate Vacancy Rent (NTD/ping/mo)Rent 3,240 pings, respectively, owing to robust absorption at new 2,250 2 office buildings. 2,200 0

A number of retailers opened supporting offices in Xinyi District, Rent Vacancy Rate which has traditionally been the city’s strongest submarket for Source: Cushman & Wakefield Research luxury boutique brands. On the heels of Hermes, LVMH (Watch and Jewellery)’s openings in months ago, in Q4 Porsche, Supply Pipeline BVLGARI, Louis Vuitton, Christian Dior Couture and Fendi all opened new offices in Xinyi. 60,000

50,000 Outlook Forecasted new office supply of 52,300 pings in 2018 will likely 40,000 fuel relocations. Renovations at some buildings in Dunbei/Minsheng may cause tenants there to move into newer 30,000 buildings like Cathy Minsheng Jianguo Building in 20,000 10-year Historical Average = 13,000 ping Dunbei/Minsheng District. The available land for commercial development increasingly Lettable Office Area (Ping) Office Area Lettable 10,000 becomes scarce in Xinyi Planned District. Despite the expected

0 launch of Nan Shan Plaza in the first quarter of 2018, the next 2017 2018 2019 2020 major new office project scheduled for completion is Fubon A25 in 2021. With a limited supply pipeline, the market’s average rent is forecast to be on the rise in the future. Source: Cushman & Wakefield Research cushmanwakefield.com MARKETBEAT Office Snapshot Q4 2017

Taipei

NEW COMPLETIONS UNDER GRADE A RENT INVENTORY SUBMARKET VACANCY RATE YEAR-TO-DATE CONSTRUCTION (Ping) (Ping) (Ping) NTD/Ping/MO USD/SF/MO EUR/SF/MO

Western 40,200 3.0% 0 0 2,100 US$1.97 € 1.67 Nanjing/Songjiang 36,600 17.8% 0 8,000 2,030 US$1.90 € 1.61 Dunbei/Minsheng 195,600 14.9% 29,600 28,500 2,270 US$2.12 € 1.81 Dunnan 103,700 5.0% 0 0 2,410 US$2.26 € 1.92 Xinyi 301,500 7.4% 0 51,700 2,950 US$2.76 € 2.35 Taipei City 677,600 9.5% 29,600 88,200 2,480 US$2.32 € 1.97

1USD= 30.02 TWD, 1EUR= 35.33 TWD as of 12th Dec 2017. Key Leasing Transactions Q4 2017

PROPERTY SUBMARKET TENANT PING LEASE TYPE

Cathay Landmark Xinyi Porsche 440 Relocation

Cathay Landmark Xinyi BVLGARI 180 Relocation

Cathay Landmark Xinyi Louis Vuitton 160 Relocation

Cathay Landmark Xinyi Christian Dior Couture 160 Relocation

Cathay Landmark Xinyi Fendi 90 Relocation

Farglory Financial Center Xinyi Kaiying online 160 Relocation

Farglory Financial Center Xinyi K.S.Terminals 150 New Lease

Farglory Financial Center Xinyi UNICO Business Centre 130 New Lease

Farglory Finanical Center Xinyi Jingqun online 130 New Lease

Union Jiajia Building Nanjing/Songjiang Versum Materials 560 Relocation

Union Jiajia Building Nanjing/Songjiang Taishin International Bank 560 Relocation

Union Jiajia Building Nanjing/Songjiang Chung-Lu Construction 560 Relocation

Union Jiajia Building Nanjing/Songjiang ITOCHU Taiwan 560 Relocation

Union Jiajia Building Nanjing/Songjiang Maxim Integrated 560 Relocation

Fubon Nanjing Bldg. Nanjing/Songjiang Common Wealth 470 Relocation

Wango Bldg. Dunbei/Minsheng Dow AgroSciences 180 Relocation

Wango Bldg. Dunbei/Minsheng Fonterra Brands (Far East) 160 Relocation

Significant Projects Under Construction

PROPERTY SUBMARKET MAJOR TENANT PING COMPLETION DATE Deloitte & Touche, Executive Nan Shan Plaza Xinyi 29,400 2018 Centre Cathy Minsheng Jianguo Building Dunbei/Minsheng - 11,900 2018

UDN Zhongxiao Building Xinyi - 11,000 2018

Taipei Dome Xinyi - 11,400 2019

Yuanta Life New Headquarters Nanjing/Songjiang Yuanta Group 8,000 2020 China Life, China Development China Life Headquarters Dunbei/Minsheng 16,600 2020 Financial Source: Cushman & Wakefield Research Note: All figures are approximate. MARKETBEAT Office Snapshot Q4 2017

Taipei

Contact

Billy Yen James Shepherd Mei Chiang Managing Director Managing Director Associate Director Head of Taiwan Research, Greater China Head of Tenant Representation, Corporate Client, Taiwan Tel: +886 2 8788 3288 Tel: +86 21 2208 0769 Tel: +886 2 8788 3288 [email protected] [email protected] [email protected] Wendy Hsueh Charlie Yang Director Director Head of Consulting and Research Taiwan Head of Valuation & Advisory Services Taiwan Tel: +886 2 8788 3288 Tel: +886 2 8788 3288 [email protected] [email protected]

About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. In Greater China, the firm has a co-branded presence under the name of Cushman & Wakefield and operates 20 offices in the region. Cushman & Wakefield is among the largest commercial real estate services firms with revenues of $5 billion across core services of agency leasing, asset services, capital markets, facility services, global occupier services, investment & asset management, project management, tenant representation and valuation & advisory. To learn more, please visit www.cushmanwakefield.com

Disclaimer This report has been produced by Cushman & Wakefield for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which Cushman & Wakefield believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman & Wakefield shall not be liable to any reader of this report or any third party in any way whatsoever. Cushman & Wakefield shall not be held responsible for and shall be released and held harmless from any decision made together with any risks associated with such decision in reliance upon any expression of opinion in the report. Our prior written consent is required before this report can be reproduced in whole or in part.

Taipei

Economy Taiwan’s GDP increased 3.1% y-o-y to NT$4.4 trillion TAIPEI INDUSTRIAL/OFFICE (US$147,098 million) in Q3, supported by industrial growth in the Economic Indicators production of mobile devices. The Secondary Sector posted Past 12-Month 4.1% y-o-y growth in Q3, while CPI heated up to 0.8%. GDP is Q2 17 Q3 17 Growth forecast to increase 2.6% for the full year. GDP Growth 2.3% 3.1% Secondary Sector Growth 2.9% 4.1% Market Overview No new supply of industrial/office buildings was added in Neihu CPI Growth 0.6% 0.8% Technology Park (NHTP) in Q4. Thanks to strong tenant demand, Source: Ministry of the Interior Note: Growth figure is y-o-y growth Chong Hong New Century Building in Xihu Section achieved an occupancy rate above 90%. This helped the section’s vacancy NHTP Industrial Market Statistics (Xihu Section) rate recover to Q1 levels at 1.8%. 12-Month Q3 17 Q4 17 Forecast In Wende Section, stable take-up stemmed from wine companies Rent (NT$/ping/mo) 1,280 1,280 and retailers. This helped to slightly drive down the vacancy rate Vacancy Rate 3.7% 1.8% in the section to 11.1% at quarter’s end.

Source: Cushman & Wakefield Research Jiuzong Section recorded mostly small-scale leasing transactions. NHTP Industrial/Office Rent & Vacancy Rate (Xihu Section) After 900-ping of space was released by Co-Operative AMC at

1,300 16 Wei Mon Industry Building, Jiuzong Section finished Q4 with a vacancy rate of 25.0%, which is a one-year high. The vacancy 1,250 rate is highest in Jiuzhong among all three I/O sections. 12

1,200 In Q4, rent in NHTP stayed firm on the whole. Wende Section’s 8 average rent fell 1% q-o-q to NT$980, while Xihu and Jiuzong 1,150 Sections remained at NT$1,280 and NT$930 per ping per month, 4 1,100 respectively. Capital values in each section also were stable in Q4: Xihu at NT$520,000–620,000, Wende at NT$380,000– 1,050 0 450,000 and Jiuzong at NT$350,000–430,000 per ping.

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 NHTP recoded three major investment deals in Q4. The most Rent (NTD/ping/mo) Vacancy Rate (%) significant transaction was Chunghwa Post’s NT$6.42 billion en Source: Cushman & Wakefield Research bloc acquisition of Chong Hong New Century Building in Xihu Section. This marked the largest investment in 2017. Wende Section witnessed Jean Group’s NT$298 million sale of about 700 ping of space on the 6/F and 7/F at Sanpu 21 Building to Gaofu Investment. Also in Wende, Sintronic Technology purchased a 570-ping space on the 3/F at Thames Building for NT$258 million.

Outlook In 2018, merely 2,400 ping of new supply is scheduled to be added in NHTP. Among this, the most notable project is a new building at Ln. 10, Jihu Rd., Xihu Section. Given solid demand, little availability and an historically low vacancy rate, Xihu Section is expected to record slight rental growth. Wende Section also boasts steady take-up demand to support rent levels. Jiuzong Section, on the other hand, with relatively high take-up pressure, is likely to record flat rent.

cushmanwakefield.com MARKETBEAT Industrial-Office Snapshot Q4 2017

Taipei

Contact

Billy Yen James Shepherd Managing Director Managing Director Head of Taiwan Research, Greater China Tel: +886 2 8788 3288 Tel: +86 21 2208 0769 [email protected] [email protected] Wendy Hsueh Charlie Yang Jessie Lee Director Director Associate Director Head of Consulting and Research Taiwan Head of Valuation & Advisory Services Taiwan Head of Agency Department Taiwan Tel: +886 2 8788 3288 Tel: +886 2 8788 3288 Tel: +886 2 8788 3288 [email protected] [email protected] [email protected]

Economy TAIWAN RETAIL Taiwan’s retail sales increased 1.5% y-o-y to NT$1,010.1 billion Economic Indicators Past 12- (US$33,641 million) over the first 10 months of 2017. For the most Q2 17 Q3 17 Month recent month of data, retail sales increased 6.5% y-o-y to NT$116.6 Growth GDP Growth 2.3% 3.1% billion in October. CPI Growth 0.6% 0.8% Due to rising footfall traffic stimulated by holiday shopping, Source: Directorate-General of Budget, Accounting and Statistics hypermarket sales increased 12.3% y-o-y and supermarket sales Sales of General Merchandise increased 9.7% y-o-y in October. Department store sales increased Jan–Oct 2016 Jan–Oct 2017 6.5% with the introduction of a number of new brands that drew in Cumulative Sales of General 995.2 1,010.1 Merchandise (NT$bn) customers. Oct 2016 Oct 2017 Sales of General Merchandise to 109.5 116.6 Market Overview October (NT$bn) The vacancy rate in Taipei City’s main retail hubs remained stable in Source: Department of Statistics, Ministry of Economic Affairs Q4. Ximen Retail Hub continued to perform well, despite recording a Prime Average Retail Rents – Q4 2017 0.1 percentage point dip in vacancy on the quarter to 1.8% due to lease expirations. In Zhongxiao Retail Hub, some landlords started Vacancy Rental Range Rental Range 12-Month to adjust rent, which stimulated take-up and in turn caused the Rate (NT$/ping/mo) (US$/sq ft/mo) Outlook vacancy rate to decline 0.5 percentage points q-o-q to 3.7%. If considering pop-up stores as vacant stores, the vacancy rate Zhongxiao 3.7 13,000-20,000 12.2~18.7 finished the quarter at 7.9% in Zhongxiao Retail Hub. Taipei Railway 6.2 9,000-13,000 8.4~12.2 Station Zhongshan/ 7.5 8,000-13,000 7.5~12.2 A rise in tourism traffic helped drive rental growth in Ximen Retail Nanjing Hub. With traditional retailers tending to be unable to afford the high Ximen 1.8 17,000-20,000 15.9~18.7 rent, retail shops are filling up with souvenir, cosmetics, fast fashion

Note: Only street front shops are taken into account. All data are based on gross and sports retailers. The development has impacted the retail floor area unless otherwise specified. Rentals are exclusive of management fees diversity of Ximen. and other outgoings. 1 ping = 35.58 sq ft = 3.3 sq m Note: NT$/US$ 30.02 as at 12 December 2017 In Ximen and Taipei Railway Station Retail hub, retail shops with Significant Q4 2017 Store Openings arcade claw machines expanded rapidly in Q4. The popular stores Area feature creative products for sale, F&B options, and from an Retail Hub Location Tenant (ping) operational standpoint enjoy low labor costs.

Ximen Xining S. Rd. Cosmed 180 New supply for the quarter included City Link Songshan ll in the Taipei Railway Nanyang St. 1828herbal tea 18 north of Songshan l. Among tenants, the mall features a popular Station Tsutaya bookstore and Wired Tokyo café. Sec 4, Zhongxiao Zhongxiao Niko and … 220 E. Rd. Outlook Ahead to 2018, Ximen Retail Hub will likely witness increasing rent Significant Projects Under Construction on the whole due to its ongoing role as a tourist destination. GFA Project Name District Opening Date Elsewhere, an upcoming project in Taipei Railway Station Retail Hub (ping) is Osaka Merchant Marine Corporation Taipei Branch. Due to be Neihu Dist., completed at the end of 2018, the property is planned to feature a City Link Neihu Q1 2018 2,400 Taipei City bookstore, retail shops, exhibition space and a film-themed Zhongshan Dist., ATT 4 Life Q2 2018 15,000 restaurant. It is expected to boost the commercial atmosphere in Taipei City Zhongxiao W. Rd., and attract tourists to the retail hub. Breeze Nan Xinyi Dist., Q4 2018 12,000 Shan Taipei City cushmanwakefield.com MARKETBEAT Retail Snapshot Q4 2017 Taiwan

Contact

Billy Yen James Shepherd Jessie Lee Managing Director Managing Director Associate Director Head of Taiwan Research, Greater China Head of Agency Department Taiwan Tel: +886 2 8788 3288 Tel: +86 21 2208 0769 Tel: +886 2 8788 3288 [email protected] [email protected] [email protected]

Wendy Hsueh Charlie Yang Director Director Head of Consulting and Research Taiwan Head of Valuation & Advisory Services Taiwan Tel: +886 2 8788 3288 Tel: +886 2 8788 3288 [email protected] [email protected]

cushmanwakefield.com

MARKETBEAT Investment Snapshot Q4 2017 Taipei

Market Highlights • The market closed 2017 with NT$67.1 billion (US$ 2,234.3 million) worth of property investment excluding land trades, up 6.9% over the previous year and ending a 5-year skid. • Investment volume in Q4, excluding land transactions, totaled NT$NT$16.7 billion (US$555.6 million), accounting for 25% of annual consideration. • The market was active in well-developed industrial-office parks, where these deals made up almost 90% of quarterly volume. • Traditional industries are tapping into income property investment, adding fresh momentum to the market. • The land market has surged 40% by consideration since 2016, totaling NT$123.8 billion (US$ 4,123.2 million) in 2017 and breaking through the NT$100 billion milestone. • Low yields for domestic property remain below investors’ expectations for return. Momentum may still be slow going into 2018. • The market is expected to remain driven by demand from traditional industries’ pivoting to property investment and local corporate expansion.

Figure 1 Total Major Investment Volume (NT$ bn)

140

120

Author 100

Wendy Hsueh 80 Director Consulting and Research, Taiwan 60 Tel: +886 2 8788 3288 [email protected] 40

Contacts 20 James Shepherd 0 Managing Director 2010 2011 2012 2013 2014 2015 2016 2017 Research, Greater China Tel: +86 21 2208 0769 Source: Cushman & Wakefield research [email protected] Note: Data for 2017 is as of 29th Dec.

cushmanwakefield.com INVESTMENT MARKET SNAPSHOT 1

Taipei Q4 2017

Economic Overview Table 1 Taiwan’s GDP increased 3.1% y-o-y to NT$4.4 trillion STATS ON THE GO (US$147,098 million) in Q3, with the services sector Economic Indicators expanding 2.6% y-o-y on rising freight transport demand Previous 12 and wholesale trade volume. CPI showed slight growth Q2 17 Q3 17 at 0.8% y-o-y. GDP is forecast to increase 2.6% for the Months full year. GDP Growth 2.3% 3.1% Prime Leading 2.63% 2.63% Market Overview Loan Rate The market closed 2017 with NT$67.1 billion (US$ 2,234.3 million) worth of property investment excluding CPI Growth 0.6% 0. 8 % land trades – a result of slow momentum and lack of Source: Ministry of the Interior large deals of a value over NT$10 billion each. The market was mainly driven by corporate owner-occupier demand. Volume edged up 6.9% in 2017 over the Table 2 previous year, ending a 5-year skid, yet remained south of the 5-year average of NT$77.3 billion (US$ 2,575.2 Investment Volume million). Change Deals NT$bn Investment volume in Q4, excluding land transactions, q-o-q (%) totaled NT$NT$16.7 billion (US$555.6 million), accounting for 25% of annual consideration. The most Office 3 1.04 -74% significant deal was made by Chunghwa Post, which acquired Changhong New Century Corporate Retail 2 0.88 -61% Headquarters for NT$6.4 billion (US$42.8 million), contributing 10% to the year’s sales volume. I/O 12 12.62 328% The market was active in well-developed industrial-office parks, where these deals made up almost 90% of Industrial 3 2.14 -47% quarterly volume. Notable deals included Hotai Leasing’s purchase of a factory in Wugu Dist. for NT$1.4 billion Hospitality 0 - -100% (US$9.2 million), and Taiwan Asset Management’s acquisition of an industrial-office building in Sijhih Dist. Mixed/Others 0 - 100% New Taipei City during the pre-construction period for NT$1.2 billion (US$8.1 million). Overall 20 16.68 -31% Traditional industries are tapping into income property Source: Cushman & Wakefield research investment. YiJin invested NT$0.6 billion (US$4.1 *Note: includes land and en-bloc transactions million) and NT$0.5 billion (US$3.3 million), respectively, in a 1,140-ping industrial-office space in Nankang Software Park and 536 ping of Pacific Business Building Figure 2 in Taipei. Both properties were sold with leases to Investment Volume by Sector (NT$ bn) generate ready income. Also in Nankang, YiJin bought a 1,640-ping industrial site for its headquarters project as 50 well as rental income potential. 45 Demand for logistics property was solid and well backed 40 by a blooming e-commerce industry. One of the major 35 players, Cathay Life Insurance, acquired a logistics 30 facility in Yangmei, Taoyuan for NT$0.5 billion. The property was located in proximity to Logistic Republic 25 Yangmei, a new and growing business in Cathay’s 20 portfolio. 15 In contrast to a slow market for commercial properties, 10 the land market has surged 40% by consideration since 5 2016, totaling NT$123.8 billion (US$ 4,123.2 million) in 0 2017 and breaking through the NT$100 billion milestone. Q1 2017 Q2 2017 Q3 2017 Q4 2017 Investment was driven by developers, corporate Hospitality Industrial I/O Office Retail Mixed/Others expansions and urban regeneration participants. On the other hand, the tender market for land development Source: Cushman & Wakefield research rights remained muted, contributing less than 3% to the year’s annual total in land sales.

cushmanwakefield.com INVESTMENT MARKET SNAPSHOT 2

Outlook city-level direct elections in 2018 are likely to add uncertainty to the market, and low yields for domestic Taiwan’s government recently lowered the “announced property remain below investors’ expectations for return. land values” used for taxation purposes in six major The market is expected to remain driven by demand cities. This will benefit insurers and land development from traditional industries’ pivoting to property rights investors whose property holding costs would investment and local corporate expansions. Momentum significantly decrease as a result. But the county-and- may still be slow going into 2018.

Table 3 Significant Investment Transactions, Q4 2017 PROPERTY PURCHASER LOCATION SECTOR PRICE (NT$ BN) Changhong New Century Chunghwa Post Neihu Dist., Taipei City I/O 6.4 Corporate Headquarters

Factory in Wugu Hotai Leasing Wugu Dist., New Taipei City I/O 1.4

Industrial Office Building Taiwan Asset Management Sijhih Dist., New Taipei City I/O 1.2 (pre-construction) in Sijhih

Nankang Software Park YiJin Nankang Dist., Taipei City I/O 0.6 Phase I

Pacific Business Building YiJin Daan Dist. Taipei City Office 0.5

Logistics facilities in Cathay Life Insurance Yangmei Dist. Taoyuan City Industrial 0.5 Yangmei

Billy Yen James Shepherd Eagle Lai Managing Director Managing Director Senior Associate Director Head of Taiwan Research, Greater China Head of Investment & Advisory Services Tel: +886 2 8788 3288 Tel: +86 21 2208 0769 Taiwan [email protected] [email protected] Tel: +886 2 8788 3288 [email protected]

Wendy Hsueh Charlie Yang Director Director Head of Consulting and Research Head of Valuation & Advisory Services Taiwan Taiwan Tel: +886 2 8788 3288 Tel: +886 2 8788 3288 [email protected] [email protected]