Taipei Grade A office vacancy at a record low of 2.1% in Q1

Market supply is expected to further tighten until 2023.

The Taipei Grade A office leasing market remained resilient in 1Q21 according to JLL, although only a few deals were concluded in the quarter. Net absorption was recorded at 25 ping, while gross take-up was recorded at nearly 900 ping. New leasing demand mainly came from software tech businesses.

Underlying demand is still robust. JLL notes occupiers are actively looking for leasing opportunities for office expansion and upgrade. Several domestic tech companies have diverted their demand to suburban offices in Neihu or Xinzhuang submarkets in order to relieve their urgent office requirements, and also for the cheaper rental costs.

Here’s more from JLL:

Limited supply continues to hinder market momentum

Overall market supply remained limited in Taipei’s CBD submarkets and space available for leasing is scarce. The vacancy rate remained at a record-low 2.1%, while most of the upcoming new projects are either owner-used spaces or already pre-leased. Market supply will continue to tighten until 2023.

A few more office plans are still under construction. Nearly 57,000 ping and 86,500 ping of new office space will be released in 2023 and 2025, respectively. It is likely that the market will become active afterwards. Leasing momentum has therefore shifted to the pre-committed market, while only a few projects are ready to undergo leasing.

Rents remain stable while capital values continue climbing

Rental growth is still hindered due to the lack of new supply. Although some existing office landlords have upward-adjusted asking rents in their portfolio due to limited existing office supply, the effect merely prolongs the negotiation time between tenant and landlord. Most tenants would rather pay higher rents for newly released projects.

Insurance companies were still actively acquiring offices in Taipei’s main submarkets. For example, Shin Kong Life has purchased an en-bloc office − CDIBH Headquarters, a Grade B building in the Non-core submarket, for nearly NTD 9.3 billion in 1Q21, which demonstrated strong investor confidence. Booming office demand from institutional investors continued to push up capital values rapidly.

Outlook: Thriving economic environment stabilises office demand

As domestic private consumption, investment and exports continue to expand, Taiwan’s economy is likely to witness steady growth in the future. The official business climate monitor from the National Development Council also turned to red in February 2021 for the first time in ten years, indicating an economic boom. The office market is likely to benefit from the healthy and steady economy.

The saturated CBD submarkets will force most existing tenants to renew their leases until new supply is released to the market. However, there is no substantial amount of contiguous space scheduled to be released until 2025. Tenants who are urgently looking for office space might divert their attention to suburban areas, such as Neihu and Nankang due to the lack of availability.

Note: Taipei Office refers to Taipei's overall Grade A office market.