COLLIERS RADAR COMMERCIAL PROPERTY | RESEARCH | TAIPEI | 8 APRIL 2020 Eilleen Liang Director | Research | Taiwan +886 2 8722 8601 [email protected] OPPORTUNITIES ACROSS TAIWAN A review of 2019’s investment trends sheds light on Taiwan’s six metros. COLLIERS RADAR COMMERCIAL PROPERTY | RESEARCH | TAIPEI | 8 APRIL 2020 Insights & Recommendations Annual land Commercial Although Taiwan’s economy has been sales hit NTD276.5 property affected by the US-China trade war in 2019, it also pushed manufacturing and billion in 2019, transactions totaled technology sectors to relocated partial increasing NTD138.6 billion operations back to Taiwan, increasing the demand for office, industrial office and 49.6% YOY up 70.0% YOY factories. Coupled with the low interest rates, the investment amount hit a record high in 2019. Looking forward in 2020, we Top destination for Most stable city for think uncertainties such as outbreak of COVID-19, US-China tensions, and the land investment- commercial cross-strait relations will likely impact the Taichung City property income: investment momentum especially in H1 2020. > Office: We still think the office sector is Taipei City the best opportunity for investors. Though leasing demand will likely > In 2019, land and commercial property investments grew significantly. The total sales value reached slowdown in H1 2020, with latent NTD415.1 billion (USD13.4 billion), a 56% increase compared to 2018. This is also the record high demand and a lack of supply we expect since Colliers survey started in 2007. rents and vacancy to remain stable. > Taiwan’s six metros are destinations both for investors and developers, with a total commercial > Industrial: We recommend owner- property sales value of NTD129.6 billion (USD4.2 billion), 94% of Taiwan’s total. Land sales amounted to NTD258.4 billion (USD8.4 billion ), also 94% to Taiwan’s total. occupiers look at existing industrial clusters in the five metros ex-Taipei > The industrial sector was the most active for transactions, with a total sales value of NTD56.9 billion City. Manufacturers will likely continue (USD1.8 billion). Driven by the operation, expansion and demand for logistics, Taoyuan City, a relocating to Taiwan considering manufacturing hub, had a transaction value of NTD14.3 billion (USD460 million), ranking first in COVID-19. Taiwan. For other sectors including office, retail and hotel, Taipei City contributed the largest transaction volume in Taiwan thanks to the city’s mature and stable business development. > Land: Supported by the expansion of > Government land sales in Taichung City and New Taipei City pushed up the number of residential manufacturing operations and land transactions, and commercial land transactions were most active in Taipei City. New Taipei City infrastructure, we recommend and Taoyuan City are important manufacturing bases in northern Taiwan, and manufacturers have commercial and residential lands in stronger demand for industrial sites, further boosting the industrial land transaction in the two cities. Taoyuan and Taichung City. Note: USD1 to NTD30.9 as of the end of Q4 2019. 1 ping= 3.3 sq m=3.6 sq ft. 2 COLLIERS RADAR COMMERCIAL PROPERTY | RESEARCH | TAIPEI | 8 APRIL 2020 OPPORTUNITES AND CHALLENGES IN THE INVESTMENT MARKET OPPORTUNITY Three plans for investing in Taiwan and repatriation of offshore capital have been implemented, likely to inject more capital in the market > NTD85.2 billion (USD2.8 billion) has been approved by the government and is scheduled to be invested for factory expansion in the next two years, creating additional 70,445 jobs in the island. > Taiwan government permits repatriation of offshore capital to purchase owner-occupied properties. We expect this will drive the demand in the next two or three years. Investors should look beyond office assets and adopt a flexible strategy to diversify investment risks > Continuing expansion of the e-commerce market is driving the demand for logistics properties. > Cloud computing and 5G make should drive growth in the data center market over the next five years. Demand for offices, industrial properties and land is likely stable > Demand and rents are stable in Taipei City and Taichung City, making the office sector a sable investment choice. > Owner-occupiers have been looking for industrial properties in New Taipei City and Taoyuan City, due to increased demand for manufacturing operation and warehousing. > Reshoring investment can increase job opportunities and commercial potentiality, pushing up land investment in Taoyuan City, Taichung City, Tainan City and Kaohsiung City. CHALLEANGE Five major uncertainties in 2020 > A slowing global economy, the US-China trade war, regional political instability , the cross-strait relationship, and interest rates. Competition from ASEAN countries > ASEAN countries, with generally lower labor and land costs, and improvement of foreign investment regulations are major manufacturing destinations for manufacturers relocating out of China. > Taiwan lacks standing in multilateral trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP). This will likely impact GDP growth and demand for industrial land. In 2019, transaction values hit a record high in Taiwan’s six metros, which will likely be difficult to top in 2020 > Both owner-occupiers and investors were active buyers in 2019 and the capital value has rebounded since 2018. We expect transaction momentums will slow in the absence of an improving economy or additional government polices. Source: Colliers International 3 COLLIERS RADAR COMMERCIAL PROPERTY | RESEARCH | TAIPEI | 8 APRIL 2020 DIFFERENT CHARACTERISTICS IN SIX METROS Taiwan has solid and diversified industrial clusters, with a well-developed supply chain from north to south. Taipei City is the financial, political, and business center. New Taipei City and Taoyuan City are two important manufacturing hubs in northern Taiwan. Taichung City is a center of finance and commerce and the base of precision machinery in central Taiwan. Thanks to the Southern Science Park, Tainan City and Kaohsiung City have become the economic center in southern Taiwan, and both have also actively developed their marine and seaside recreation industries. Reports from the World Economic Forum1 and International Institute for Management Development2 indicate an improvement in Taiwan’s investment environment, and we expect this will attract more investment to Taiwan. (Key figures in Taipei City New Taipei Taoyuan City Taichung City Tainan City Kaohsiung blue) City City Taipei Keelung City Population 2,645,041 4,018,696 2,249,037 2,815,261 1,880,906 2,773,198 Taoyuan New City Taipei Population -0.6% 0.3% 1.7% 0.6% -0.1% -0.1% City Growth Rate Hsinchu Yilan Age Youth 13% Youth 12% Youth 15% Youth 14% Youth 12% Youth 12% Miaoli Composition Adult 69% Adult 74% Adult 73% Adult 73% Adult 72% Adult 72% Aging 18% Aging 14% Aging 12% Aging 13% Aging 16% Aging 16% Taichung City Aging Index 134.4 118.9 81.4 90.4 130.1 134.5 (Aging/Youth) Chunghwa Nantou Hualien Industry Service 81% Service 65% Service 54% Service 57% Service 60% Service 51% Yulin Structure Industrial 34% Industrial 45% Industrial 40% Industrial 36% Industrial 42% Disposable 1,389,305 1,069,349 1,129,990 1,065,509 898,912 1,003,178 Chiayi Income (NTD) Expenditure 1,012,450 820,520 901,666 865,525 717,367 793,253 Tainan City (NTD) Kaohsiung City Taitong Number of 179,653 133,847 61,029 101,419 38,290 81752 registered Pintong company 2019 Business 13.5 trillion 5.0 trillion 3.9 trillion 4.3 trillion 2.4 trillion 4.7 trillion sales (NTD) Budget 167.0 billion 156.5 billion 104.3 billion 131.2 billion 80.1 billion 124.2 billion expenditure (NTD) Source: Google Maps. Source: Executive Yuan. 1Wold Economic Forum, Global Competitiveness Report 2019. 2International Institute for Management Development, IMD World Competitiveness ranking 2019. 4 COLLIERS RADAR COMMERCIAL PROPERTY | RESEARCH | TAIPEI | 8 APRIL 2020 STRONG COMMERCIAL PROPERTY AND TAIPEI CITY: POLITICAL AND LAND INVESTMENT ECONOMIC CENTER Transactions in Taipei exceed NTD100 billion Financial and professional service, retail, and technology are main economic drivers In 2019 three factors supported an active investment market: abundant capital inflows, low interest rates and occupiers’ desire to purchase rather than lease. Most investments Taipei’s economy is mainly denominated by the services sector, were still located in the six metro areas. Taipei City, the capital and financial center of and over 80% of financial headquarters are in the city. Taipei is Taiwan, had the most active transaction market with a total value of NTD132.9 billion also traditionally the first step for foreign enterprises entering (USD9.0 billion). The office, commercial-zoned land, retail and hotel sectors were most Taiwan and Taipei has the most mature business districts and popular. Taichung City ranked second with total investments of land and commercial retail catchment areas. In addition to financial services, Neihu property at NTD75.1 billion (USD2.4 billion), with NTD65.3 billion (USD2.1 billion) Technology Park (NTP) and Nanagang Business Park (NBP) are contributed by land sales. Among the land sale, residential-zone land was the most two important technology clusters. popular target with total transacted value at NTD39.6 billion (USD1.2 billion), the highest residential land sales in Taiwan. Taipei hosts: Commercial property and land transactions, 2019, by city and property type (NTD billion) 6,305 companies registered with Other use land Industrial land Commercial land Residential land Other commercial Industrial property Office >NTD5 trillion annual production value New Taipei City 196,000 employees Taipei City Taoyuan City Xinyi District: Business and entertainment hub Taipei’s development originated from the west, including Datong Taichung City and Wanhua districts. With saturation in that area, an aging built environment, and the expanding MRT network, development has Tainan City since extended east to Songshan, Daan, Jhongshan, and Xinyi districts.