The latest Taiwan Tourism Bureau data show that visitor arrivals to Taiwan decreased by 5.7% y-o-y to 5.12 million in H1 2017, due mainly to a 40.1% y-o-y decline in Chinese visitor arrivals. Visitor arrivals from mainland China have declined for 14 consecutive months as a result of cooling cross-strait ties.

While Taiwan’s retail sector has traditionally relied on domestic consumers, the decline in Chinese visitors has negatively impacted the retail market, as Chinese tourists spend around 50% of their holiday budget on shopping. Total retail sales in Taiwan slipped 0.4% y-o-y in H1 2017, while luxury watch and jewellery sales dropped 8.0% y-o-y.

The decline in Chinese visitor arrivals has also hit the hotel sector. Tourism Bureau data show that tourist hotels across Taiwan recorded an average occupancy rate of 63% in the first five months of 2017, a decline of 3.7 pps, while the average daily rate (ADR) decreased slightly by 0.9% y-o-y.

What does it mean for real estate?

Although CBRE Research data show that luxury brands remain relatively confident, accounting for 14% of new retailer entrants in Taipei in H1 2017, most luxury retailers are expected to slow their rate of expansion, preferring only to lease space in shopping malls in prime locations. Shopping mall landlords will likely focus on introducing more bridge brands and lifestyle retailers to cater to local shoppers. On the investment side, transaction volume is expected to be low in the short- to medium-term as shopping mall owners remain unwilling to sell their properties.

With the decline in Chinese tourists likely to persist, CBRE Research expects that there will be an increase in medium sized hotels put up for sale, mostly located in central and south part of Taiwan. Some local developers may show interest in such assets as part of their land banking strategy. Business hotels located in municipal cities are more likely to attract a few domestic hotel chains still in expansion mode. On the other hand, international hotel groups may adopt a more conservative attitude towards expansion in light of the uncertain outlook. Nevertheless, selected Japanese hotel brands will remain keen on investment opportunities in Taipei to capitalise on stable demand from Japanese visitors.

Source: Tourism Bureau, Ministry of Economic Affairs, July 2017