Taiwan – June 2019

MARKET IN MINUTES Sales and Investment Savills Research

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TAIWAN Ricky Huang General Manager Transaction volume continues to grow +886 2 8789 5828 [email protected] Developers held a positive outlook and were keen to expand their land banks both in residential land and industrial land sectors. RESEARCH Erin Ting • Investment sentiment remained high in Q1, with volume attracted developers’ interest. Fringe areas of Taipei City Director rising 78% quarter-on-quarter (QoQ) to NT$21 billion. and new Taipei City are bright spots on the property radar. +886 2 8789 5828 [email protected]

• Factory and hotel transactions dominated the commercial Simon Smith property market, accounting for 31% and 29% of transaction Senior Director volume, respectively. Demand for plant expansions and “Investors have re-entered Asia Pacifi c retail distribution centres drove factory transactions. +852 2842 4573 the market, accounting for [email protected]

• Investors, including insurance companies, REITs and over 50% of transactions in Savills plc Savills is a leading global real professional investment institutions re-entered the market estate service provider listed on to search for income-producing property. the fi rst quarter. I/O in Neihu the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled Technology Park is especially growth. It is a company that leads • The land market continued to record notable growth with rather than follows, and now has over 600 offi ces and associates total transaction volume in Q1/2019 reaching NT$61.7 popular amongst all property throughout the Americas, Europe, Asia Pacifi c, Africa and the Middle billion. Developers accounted for 85% of transactions, East. This report is for general types.” informative purposes only. It may approximately 50% higher than their total land purchased not be published, reproduced or during the previous residential transaction peak in 2013. quoted in part or in whole, nor may ERIN TING, SAVILLS RESEARCH it be used as a basis for any contract, prospectus, agreement or other document without prior • The shortage of offi ce supply in Taipei City, caused by the consent. Whilst every eff ort has been made to ensure its accuracy, redevelopment trend occurring with older offi ce buildings, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. savills.com.tw/research 1 Sales and Investment

COMMERCIAL PROPERTY MARKET to Taiwan if they are invested in specifi c GRAPH 1: Commercial Real Estate Transaction OVERVIEW IN Q1/2019 industries supported by the government. Such Volumes, 2009 to Q1/2019 Commercial investment sentiment remained incentives could lead to a positive impact on Q1 Q2 Q3 Q4 high in Q1/2019, driven mainly by demand the industrial property market. 1,400 for factory reshoring from China as well as Investment sentiment revived in the second investors re-entering the market. Transaction half of 2018. Investors, including insurance 1,200 volume increased by 78% year-on-year (YoY) companies, REITs and professional investment to NT$21 billion, which refl ected strong market institutions, continued to search for income- 1,000 momentum. By comparison, over the last fi ve producing property and accounted for 53% of years transaction volume in the fi rst quarter transaction volume in Q1/2019. The largest deal 800 has usually ranged between NT$8 billion and was HPW Group’s NT$5.4 billion acquisition of a foreclosed four-star hotel and a budget hotel 600 NT$12 billion. Factory and hotel transactions dominated in a strata-titled offi ce building in Kaohsiung NT$ BILLION 400 the market and totaled NT$6.4 billion and City in March. Millerful NO.1 REIT expanded NT$6 billion, respectively, for the quarter. its portfolio by closing two deals in Taipei City: 200 Notable deals included two factories in a strata-titled offi ce for NT$480 million and an Taichung Industrial Park acquired by LARGAN I/O property for NT$2.16 billion. 0 Precision for a total of NT$2.8 billion, which Owing to its relatively higher yields, the I/O is equivalent to a land price ranging between sector in Taipei City has drawn a lot of interest NT$240,000 and NT$280,000 per ping. King from investors since Q4/2018. Four of fi ve en- Source Savills Research & Consultancy Yuan Electronics also purchased a factory bloc I/O buildings in Neihu Technology Park in Miaoli County for NT$850 million. Even owned by Next Digital Limited were recently GRAPH 2: Land And Superfi cies Transaction Volumes, though the US has not fi nalised new tariff s sold for a total of NT$4.15 billion. Investors 2009 to Q1/2019 on Chinese imports—temporarily solving including Taiwan Life Insurance, CLP Group the problem for Taiwanese companies as to and Min En International enjoyed a 3% yield on Freehold Land Superficies Land 2,000 whether they move operations out of China— their purchases, with prices ranging between the uncertainty of the US/China trade confl ict NT$40,0000 and NT$450,000 per ping. 1,800 continued pushing them to look for alternative 1,600 places for manufacturing. LAND MARKET OVERVIEW IN 1,400 On the other hand, Taiwan’s government Q1/2019 1,200 has recently been rolling out a series of policies The land market continued to record and incentives to encourage investment. notable growth with total transaction 1,000 During the fi rst three months of 2019, 24 volume in Q1/2019 reaching NT$61.7 billion. 800 companies committed to investing a total Developers accounted for 85% of transactions, NT$ BILLION 600 of NT$91 billion for land acquisitions, plant approximately 50% higher than their total land purchased during the previous 400 constructions and the development of manufacturing facilities and R&D sectors. residential transaction peak in 2013. This 200 Several well-known companies are considering total—the highest quarterly volume in nine 0 joining this eff ort while more incentives are years—refl ected a strong appetite amongst under discussion. One potential policy being developers, especially for the mass market discussed would off er extra tax reductions on sector. Locations such as New Taipei City Source Savills Research & Consultancy overseas profi ts and other funds returning and Taichung City, with their lower housing

TABLE 1: Major Economic Indicators, 2019

INDICATOR COMMENTS

2019 GDP growth (%) 2.29 2018 GDP growth (%): 2.63

2019 CPI (%) 0.73 2018 CPI (%): 1.35%

2019 GDP per capita (US$) 25,229 2018 GDP per capita (US$): 25,004

US$ exchange rate (March 2019) 30.86 2018 average: 30.16

Export growth (% YoY) (January to March 2019) -4.2 2018 export growth (% YoY): 5.9

Unemployment rate (%) (March 2019) 3.68 2018 (%): 3.71

2,903,411 2018 inbound tourist arrivals: 11,066,707 Inbound tourist arrivals (January to March 2019) (6.09% YoY) (3.05% YoY)

Benchmark interest rate (%) 1.375 December 2015: 1.625%

Rate (%)* = 1.7-2.1 Financial terms LTV (%)* = 60–70

*Rates and loan-to-value (LTV) ratios may vary depending on the credibility of individual borrowers Source Directorate-General of Budget, Accounting and Statistics, the Central Bank and Savills Research & Consultancy savills.com.tw/research 2 Sales and Investment

prices, were particularly favored by developers. Due to the diffi culty of acquiring land in GRAPH 3: Signifi cant Transactions By Property Type, Several land tenders also received good CBD, industrial sites in the fringe areas of Q1/2019 responses from the market. A 6,000-ping plot Taipei City and New Taipei City, such as of residential land in the fringe area of New Neihu, Nankang, Sanchong and Xinzhuang, Taipei City attracted 16 bids and eventually are currently on the radar for developers. In Office , 14% sold for NT$7 billion, closing at a49% of the future, these industrial offi ce developments premium. Additionally, the Taichung City could convince self-occupiers to relocate as they government sold a plot of development land off er a ‘business cluster’ advantage as well as

Factory, 31% by public tender for a total of NT$4.5 billion, convenient transportation, such as the Taoyuan marking a 11% premium on average. Airport MRT and the upcoming Taipei Metro Aside from residential projects, developers circle line of Taipei Metro which will further I/O, 27% moved aggressively into offi ce and industrial enhance accessibility to Taipei CBD. offi ce development with 30% of their land acquisitions falling into these sectors. Several PREFERRED ASSET CLASS AND developers, including Highwealth, Huaku, LOCATION King’s Town and Hong Pu, were keen for Factory, hotel and I/O sectors dominated the commercial land and industrial land in Taipei market in Q1, accounting for 31%, 28% and Hotel, 28% City and New Taipei City. One notable deal 27% of transaction volumes, respectively. In involved Highwealth Construction, which has addition to demand for plant expansions from Source Savills Research & Consultancy plans to launch 30 offi ce building projects in technology and manufacturing companies, the next ten years. The company purchased a retail distribution centres drove factory 456-ping commercial land plot in Taipei City transactions as well. PXMart, a supermarket for NT$5.1 billion, equivalent to NT$11 million chain, spent NT$1.08 billion to purchase a per ping, which amounts to the second highest factory in Taichung in order to improve its land unit price in market history. distribution effi ciency in the middle of Taiwan.

TABLE 2: Signifi cant Commercial Real Estate Transactions, Q1/2019

TRANSACTION AMOUNT AREA PROPERTY LOCATION PROPERTY TYPE BUYER (NT$ BILLION) (PING)

34F, 35F, 37F-85F, Kaohsiung City 5.44 32,100 Hotel HPW Group 85 Sky Tower

7F-10F, Nasa Technology Taipei City 2.16 3,015 Industrial offi ce Milleful No.1 Reits Building

Leadwell Taichung Factory Taichung City 1.82 3,999 Factory LARGAN Precision

Building D of Next Digital Taipei City 1.45 3,689 Industrial offi ce CLP Group Limited

Wellglory Water Shine Taipei City 1.35 2,204 Offi ce Professional Institution Building

Source Savills Research & Consultancy

TABLE 3: Signifi cant Land Transactions, Q1/2019

TRANSACTION AMOUNT AREA UNIT PRICE PROPERTY LOCATION BUYER (NT$ BILLION) (PING) (NT$ MILLION PER PING)

Commercial land in Taichung City 6.65 2,493 2.67 Fong-Yi Group Xitun District

Commercial land in Highwealth Taipei City 5.11 456 11. 2 Zhongshan District Construction

Industrial land in Maw Der Property New Taipei City 4.60 10,465 0.44 Xinzhuang District Development

Commercial land in Taipei City 4.63 2,991 1.55 Konglin Group Beitou District

Residential land in Maw Der Property New Taipei City 3.68 3,166 1.16 Tucheng District Development

Residential land in Maw Der Property New Taipei City 3.39 2,913 1.16 Tucheng District Development

Source Savills Research & Consultancy savills.com.tw/research 3 Sales and Investment

FamilyMart invested a total of NT$3.1 billion while a newly completed offi ce building on a GRAPH 4: Signifi cant Transactions By Investor Type, to set up a distribution center with NT$1.4 superfi cies land lot was sold to a local investor Q1/2019 billion spent on land acquisition and NT$1.7 for NT$1.35 billion. Traditional & billion on logistics establishment. Manufacture, 5% Others, In terms of preferred locations, deals OUTLOOK 5% Hotelier, occurred mainly in metropolitan areas such as We expect transactions in the industrial Retailer, 28% Taipei City, Taichung City and Kaohsiung City, property and offi ce sectors to remain active 5% which accounted for 32%, 24% and 26% of total for the rest of 2019. Looking through the list transactions, respectively. of Taiwanese companies that have applied for incentives to move overseas factories INVESTOR PROFILES back home, several well-known technology REITs, Since the onset of the US/China trade confl ict, companies appear. They have in fact 13% technology companies have become important announced plans to expand their investment property buyers. Even though the possibility of in Taiwan, although their fi rst moves will likely Pro a resolution to the trade war has increased, the be improving the effi ciency of their existing Investment Technology Institution, Industry, Taiwan government recently put a lot of eff ort factories or building new plants on their own 20% 24% toward encouraging Taiwanese companies land. to move their factories back home, which In the offi ce sector, demand continues to could increase future demand for factory or grow as evidenced by the successful sales Source Savills Research & Consultancy industrial land. of several newly completed offi ce buildings One trend worth noting is the rise of on superfi cies land in the past six months. investors re-entering the market, with their Owing to the limited new supply in CBD, we market share showing a strong increase to 53% expect new completions in fringe areas with and local professional investment institutions convenient public transport connections to concluding several deals. For example, attract large corporate tenants and self- CLP Group and Min En International each occupiers. purchased an en-bloc I/O building this quarter,

savills.com.tw/research 4