Taipei office vacancy rate drops to 2.3% as leasing demand picks up

Vacancies almost hit the historic low of 2.1% in Q4 2019.

Leasing demand returned robust as the COVID-19 pandemic gradually eased in Taiwan, says JLL. Quarterly net absorption was recorded at 2,500 ping (8,200 sqm). Demand was mainly from Finance, Pharmaceuticals, IT and Gaming sectors. Leasing transactions were mainly for small-to-medium spaces due to insufficient large office space in the Grade A market.

Strong demand saw the vacancy rate drop by 0.14 ppts to 2.3%, almost reaching the historic low of 2.1% in 4Q19. However, the rental market remained level at 2,809 per ping per month, as there was no rental growth in the quarter due to the hazy market situation. With the easing of the pandemic, ongoing limited supply and robust demand, rents are likely to soar in the near future.

Here's more from JLL:

Continual limited supply constrains market momentum

Huang Hsiang Chungshan MRT Joint Development released nearly 1,500 ping in 2Q20, which was lower than expected because the owner decided to sell a part of their holdings.

In 2021, Fubon Liaoning Bldg and Taipei Hope Square are expected to release 20,600 ping leasing additions into the Grade A leasing pipeline. However, both plans are nearly fully pre-committed. Only 1,500 ping/5,000 sqm will be released in the next year. Grade A supply remains limited in the next three years.

Limited investment opportunities to curtail sales momentum

Investment market sentiment calmed down in 2Q20 due to the limited investment opportunities in the market. Global economic uncertainty also lessened investor appetite; several investors have shifted to wait-and-see attitude. Quarterly investment volume decreased by 47% y-o-y, amounted to NTD 15.3 billion.

Limited available office supply in Grade A market caused investors to shift their attention to Grade B offices in CBD or the industrial offices located in fringe area of Taipei. The biggest office transaction in 2Q20 was made by Wanhai shipping corporate who purchased an en-bloc industrial office in Neihu by NTD 2.23 billion as their new headquarters in Taipei.

Outlook: Limited space and robust demand to push up rents

Despite the fact the COVID-19 is still raging globally, the situation in Taiwan has gradually settled. Several official economic rescue plans have also been implemented. For instance, the central bank’s policy rate was cut to 1.125% in March, an economic relief package of NTD 1 trillion was announced in April, and a looser monetary policy was signalled. The economy is likely to be steady in 2020.

Demand will continue to increase, while leasing activity is expected to slow until new leasing additions are released in 2023. Rents are likely increase. Tenants will probably shift their demand from the CBD areas to city fringe areas that have Grade-A like buildings, such as Nankang, Neihu, Banqiao and Xinzhuang. An increase in office suburbinisation is expected.

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