Boston, MA -- (ReleaseWire) -- 01/09/2014 -- We are forecasting stability in Taiwan's commercial real estate market, with rental rates across all three sectors we cover - office, retail and industrial - forecast to remain stable over 2014 and yields remaining constant over our medium-term forecast period, to 2017. This stability is underpinned by monetary policy, but the economic slowdown in China poses a downside risk.
We believe that fears of a property bubble are exaggerated, particularly in the fairly cautious commercial sector. We think that if a bubble does develop, it is far more likely to be in the residential sector, where prices are indeed rising quickly.
We note the central bank's accommodative monetary policy, and believe that interest rates will remain low over the coming quarters, forecasting only one rise in 2014. This will have a stabilising influence on the real estate sector.
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Downside risks to our stable forecasts stem from Taiwan's economic performance, although the economy is on a good growth trajectory - albeit below expectations - in 2013 and into 2014, we believe that in the medium term GDP growth will plateau at around 4%, as the impact of the Chinese slowdown starts to be felt in Taiwan's trade-dependent economy. Links with the mainland have been increasing in recent years, but do leave Taiwan exposed to moves in the Chinese economy.
In the office sector we note that government efforts to calm the market are reportedly having an impact. Meanwhile, a loosening on regulations governing insurance investment means that insurance companies can now invest in real estate overseas.
Meanwhile, the retail sector is being buoyed by strongly growing consumer spending and an influx of tourists from China, boosting top-end retail. We do highlight risks to the retail sector should hostilities between China and Taiwan increase, which could result in more restrictions on mainland visitors. In the industrial sector, in the longer term we are expecting a divergence in rental rates between low grade and premium properties, with demand increasingly centred on the latter and driving down rates for the former. Again, downside risks stem from China's economic situation.
- In November 2013, the Xinyi Line on Taipei's mass rapid transit system opened. It is expected to boost demand and rents around stations. One new office building, Hong Tai MRT 4, on top of a station, is expected to open in 2014.
- In the office sub-sector, the Farglory Financial Center opened in early 2013. It is the third highest building in Taipei.
- Taiwanese insurance companies, previously only permitted to invest in domestic property, are now able to invest in real estate overseas.
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