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News Release

Jones Lang LaSalle's report on the Grade A Office Market for Q1 2009

Jones Lang LaSalle’s survey of the Taipei Grade A Office market over the first quarter 2009 revealed the following highlights: The overall vacancy rate leapt 2.8 percentage points to 9.9%. The rise is the largest quarterly increase in the figure since the second quarter of 2005, when 3 new Grade A building release to the market.

Jones Lang LaSalle’s survey of the Taipei Grade A Office market over the first quarter 2009 revealed the following highlights:

§       The overall vacancy rate leapt 2.8 percentage points to 9.9%.  The rise is the largest quarterly increase in the figure since the second quarter of 2005, when 3 new Grade A building release to the market.

§       Net absorption for the quarter was -12,700 ping (-42,000 sqm) as Taipei’s Grade A occupiers returned more office space to landlords than they leased over the three-month period.

§       Average rental rates slid 4.78% to NTD 2,459 per ping per month.  The precipitous drop marks the largest quarterly fall in rental rates since the second quarter of 2003, a year marked by the SARS contagion.  Furthermore, we are aware that at least one landlord in the city was willing to slash 20% from a large occupier’s rental rate to retain them as a tenant.  This occurred despite the fact that the said occupier’s contract was not near completion, which is clearly a sign that the market has become tenant-favourable.

§       The retrenchment in occupancy costs was dispersed relatively evenly amongst all four Grade A sub-markets, which is cause for concern as it suggests it is not a one-off event, or confined to a few landlords in one area.

§       The same is true with regard to the overall vacancy rate, with the exception of Dunhua North, which registered only a marginal rise in the figure.  As confirmation of the widespread pain felt by landlords, the buildings in our basket that are not 100% owner-occupied, 19 saw their vacancy rate increase over 1Q09.

§       Assuming no discernible improvement in the demand for office space, the vacancy rate will approach 18% before year-end, on the back of 22,000 ping (72,700 sqm) of vacant space slated to enter the market over 2009.

§       Rental rates will lag the soaring vacancy rate, but we anticipate the adjustment will be equally severe with a 15% to 20% correction for full-year 2009.


Summary of 2009 Q1 rent and vacancy values for the Grade A office market:



Gross Achievable Rent (Grade A) (NTD/ping/month)

Change from last Quarter

Vacancy Rate

(Grade A)

Change from last Quarter





+ 2.3 ppt

Dunhua North




+ 0.3 ppt

Dunhua South




+ 3.8 ppt

Non-core CBD




+ 5.1 ppt

Average for Taipei




+ 2.8 ppt












Outlook for the Taipei office market:

§       Taiwan’s February exports plunged 28% from a year ago, marking the sixth consecutive monthly decline and a larger drop than most analysts predicted. For the first two months of the year which economists often use as a useful gauge to negate the differing months that the Lunar New Year falls in – total exports fell an astounding 37% when compared to the same period last year.  Given that exports often account for 60%–70% of Taiwan’s GDP, the year ahead looks challenging for commercial property, to say the least.

§       Private-sector economists are predicting that Taiwan’s economy will shrink between 3% and 11% over 2009, with the government forecasting an optimistic -2.97%.  Regardless of where the actual figure falls, all those concerned are in agreement that the current unemployment rate of 5.3% will rise considerably over the year, with the Economist Intelligence Unit calling for it to reach 10%.  This will undoubtedly dampen demand for office space from corporate occupiers, as many of the jobs being slashed are white-collar, or office jobs.

§       Assuming US economic recovery is unlikely to happen until 2010, with EU a slight laggard, we estimate the most likely scenario for Taiwan’s economy to resume growth is mid-2010.  Furthermore, following a recession, unemployment figures and office leasing activity trails economic expansion as corporate occupiers exercise a greater degree of caution.

§       We see few catalysts for strong demand over 2009 with the consequence seeing the vacancy rate rise from 7% to 18% over the said period.  Roughly 4 percentage points of this will come on the back of the 22,000 ping (72,700 sqm) of unreserved new Grade A office supply.

§       Owing to recent downsizings enacted by corporate occupiers, we have observed an increasing rate of negative take-up in some of Taipei’s best Grade A office properties.

§       Some occupiers are investigating the possibility of sub-leasing a portion of their existing space to realize immediate savings on rentals costs.  This also allows them more flexibility to expand once the market turns around. 

§       Landlords are proving to be very accommodating in granting unusual requests from tenants in light of the extraordinary circumstances, and of course, to retain them.  Such examples include lease extensions of six months when it is common knowledge that the company is likely to be sold in the near-term.  We expect a continuation of this trend as landlords and tenants both fight for survival.

§       There appears to be further ‘rightsizing’ of companies and their space requirements to come as mergers and acquisitions (M&A) continue, more companies become nationalized.  This will not be confined to the sectors we perceive as traditional office occupiers, as we are seeing a number of similar scenarios played out in the pharmaceutical sector.

§       Movement to the city-fringe areas – Nangang, Neihu, Jhonghe and Xindian – will gather momentum from cost-sensitive occupiers who do not need to be located in the CBD.

§       In the current environment most landlords are more concerned with maintaining occupancy rates than preserving headline rental rates – and for good reason.  This will underpin the 15% to 20% downward rental adjustment we anticipate, with most of it coming through renewal negotiations as landlords soften their stance on previous rental terms. 

§       Those buildings which came to market just before 2006 – or near the last trough – and only succeeded in attracting tenants by offering below-market rental packages, will find it impossible to lift their rent rolls to where they had projected for 2009.   In other words, there are some landlords that bet average rental rates would be much higher in 2009 – and they should have been – so they were willing to sign tenants at very low rates with the aim of enacting a 30%–40% rental hike when the lease came up for negotiation.  Although they may be able to realize something in the range of a 15% increase, they will not able to cover the losses they have sustained over the last three years. 

§       As we have stated in the past, the Xinyi sub-market poses the greatest risk of declining rental rates and rising vacancy.  We anticipate conditions will deteriorate the most in Xinyi because of the rapid rental expansion seen immediately preceding the current crisis, as well as the large concentration of financial services companies that currently reside in the area.


Sherry Wu made the following comments:

“Although we are cognizant that 2009 will be a very difficult year, the Taipei Grade A office market is a little better-positioned to weather the storm than some of our regional peers, due to supply constraints.  Over the past three or four years most developers have focused on the luxury residential market because they could realize much higher returns and pre-sell the units before construction began.  This came at the expense of new office supply, as well as contributing to the conversion of Grade B office into residential apartments.  So we are somewhat fortunate because this relatively small amount of supply in the pipeline is turning out to be a good thing during a downturn.  For Taipei, the new supply coming on-stream over 2009 will represent just 4% of the existing stock, which compares favourably to the additional 13% slated for Shanghai or the 22% in Beijing, where vacancy levels could touch 40% by the end of the year.  So, although our vacancy forecast of 18% may sound severe, it is much better than what is likely to transpire elsewhere in the region.”

“Unfortunately, this lack of Grade A supply does not extend to the city-fringe office market, where we will see a massive influx of supply over the next two years.  According to our records about 142,000 ping of new office supply will enter the city-fringe areas over 2009 and 2010.  This includes places like Neihu, Nangang, Jhonghe and Xindian.  About half of this is earmarked for Neihu where rental rates are have already dropped by about 15% to NTD 1,000 per ping per month – in the best areas.  Nangang Software Park third phase is also showing greater flexibility in contract terms, where they still have plenty of space unoccupied.  Going forward, it seems difficult to imagine landlords in these micro-markets will not have to revise their rental expectations down