Financial Tsunami Batters Taiwan's Commercial-Property Market

With the economy in the throes of recession, the streets of Taipei's prime commercial areas are dotted with growing numbers of empty stores fronted by fluttering "for rent" banners that bear testimony to the hard times of the local commercial-property market.

The vacancy rate for stores in such prime commercial areas of Taipei city as the front of the Taipei Railway Station, Ximending district, and even Gongguan--the areas coveted most by businesses--has topped 10%. Tianmu, with its concentration of foreign residents, is suffering the most; the store vacancy rate there has climbed to 20%, due largely to the reluctance of landlords (many of whom are rich locals with inherited property) to cut rents despite the faltering economy.

Ni Tzu-jen, publisher of My Housing magazine, points out that under the impact of the financial tsunami the ratio of store closures is frightening, and that many stores on the main streets of eastern Taipei have been reduced to short-term outlets for low-priced products. The situation for large outlets is especially serious, Ni says.

Many business establishments, notably prominent retail chains, are deserting prime sites and shifting to second-tier sites when they fail to persuade landlords to cut rental costs.

Six months ago, for instance, Starbucks closed its outlet at the intersection of Xinyi Road and Keelung Road, facing the Taipei World Trade Center and Taipei 101. The site has been vacant ever since, except for a short period when it was used as an outlet for knockoff clothes.

In response to last year's shrinking business, 7-Eleven has been carrying out a rare extensive transfer of its outlets, shifting many of them from prime sites at major intersections to mid-block locations or even to the small streets of residential areas when it fails to win rental concessions.

Office tenants are doing the same thing. IBM Taiwan recently decided not to move out of the Cathay Financial Center in the Xinyi district in downtown Taipei only because the landlord, Cathay Life Insurance, agreed to cut rents by 10%, to NT$3,600 per ping (one ping equals 36 square feet) a month, enabling IBM to save NT$19 million a year.

Lin Hung-min, chairman of Taipei 101, has also expressed a willingness to cut rents there by up to 10%--the first reduction since the inauguration of the building five years ago.

Sherry Wu, vice president of the commercial-property department of Jones Lang LaSalle Taiwan, believes that the Xinyi district will be hit hardest by the financial tsunami, due to the concentration of financial companies in the area. Office rents there, Wu says, have dropped 3% so far this year; this is not surprising, since the vacancy rate of A-grade offices in Taipei has climbed to 9.9%.

Jones Lang LaSalle Taiwan also points out that corporate tenants canceled office rental contracts for a total space of 13,000 pings in the Xinyi area in the first quarter, triple the amount of cancellations for all of 2008. Companies that have withdrawn from the area include the Taiwan High Speed Rail Corp. and AMD Semiconductor.