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News Release

Jones Lang LaSalle’s 2Q11 Commercial Property Market Survey Highlights


Taipei, 30 June, 2011― In 2Q11, the vacancy rate in Taipei’s Grade A office market continued to edge up from 1Q11, seeing a slight drop of just 0.16% q-o-q to 14.81%. Overall, rents witnessed an increase of 0.23% to NTD 2,412 per ping per month. Net absorption in the quarter was 900 pings (3,000 sqm) compared to 10,000 pings (33,000 sqm) in the previous quarter. Despite this shrinkage, market movements were active in the quarter. In contrast to new demand for office space in 1Q11, the main driver for tenants’ relocation in 2Q11 was the search for a suitable location for business and we anticipate seeing more physical take-up in 2H11.

n In 2Q11, the vacancy rate in Xinyi remained the highest among the four sub-markets, with landlords eager to fill vacant space. Consequently, some international financial institutions consolidated their office space within the sub-market thanks to preferrable rental rates and the promotion of corporate image in this district. This caused vacancy rates to drop by 1.69% q-o-q to 20.18%. Rental growth remained restrained by the high vacancy rate, causing rental rates to increase only marginally by 0.66% q-o-q to NTD 2,732 per ping per month.

 

n The vacancy rate in Dunhua North witnessed a significant increase of 2.52% to 14.84%, making it the sub-market with the fastest growing vacancy rate. Due to cost considerations, firms moved their offices from Dunhua North to the neighbouring Neihu Technology Park. With regard to rents, landlords were optimistic about the future of the sub-market, based on, for example, new direct flights between China and Taiwan and the anticipated completion of the Songshan MRT line. As a result, rental rates in the quarter increased slightly by 0.22% q-o-q to NTD 2,310 per ping per month.

 

n Compared to Xinyi and Dunhua North, landlords in Dunhua South were aggressive in securing clients due to a lack of revitalisation projects. In 2Q11, the vacancy rate followed the trend seen in 1Q11, falling by 0.29% q-o-q to 6.98% to become the lowest rate of all the business areas. Additionally, landlords made efforts to attract new tenants, resulting in a slight q-o-q drop of 0.45% in rental rates to NTD 2,347 per ping per month.

 

n In 2Q11, the vacancy rate in the Non-Core CBD increased slightly by 0.86% to 12.37%, due mainly to the relocation of MNCs and financial institutions to Xinyi and the limited growth of new demand. Consequently, rental rates dropped by 0.27% q-o-q to NTD 1,903 per ping per month in 2Q11.

 

Summary of the 2Q11 Rent and Vacancy Values for the Grade A Office Market:

 

 

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

Change over 2Q11
(%)

Vacancy Rate
(Grade A)
(%)

Change over 2Q11
(ppt)

Xinyi

2,732

0.66

20.18

-1.69

Dunhua North

2,310

0.22

14.84

2.52

Dunhua South

2,347

-0.45

6.98

-0.29

Non-Core CBD

1,903

-0.27

12.37

0.86

Average for Taipei

2,412

0.23

14.81

-0.16

 

 

Trends:

n Xinyi has become Taipei’s international financial district, with many multinational financial firms taking this opportunity to consolidate their office space in this district while reasonable rental rates remain. In the meantime, local financial institutions are expected to relocate their headquarters from the western to the eastern area of Xinyi. Moreover, those office buildings expected to complete over the next two years have started pre-commitment campaigns and are expected to offer customised office space in order to attract prime multinational financial institutions.

 

n Our records indicate the Grade B office rents increased to NTD 1,801 per ping per month in 2Q11, while vacancy rates fell to 9.42%. Moreover, the rebound of the Grade B market was stronger than that of the Grade A market. However, the investment return on the current open tenders for Grade B office space is clearly too low and we expect some landlords to increase rental rates by around 10%-20% to obtain a fair return after renovating the building. Rental rates of Grade B office space are, therefore, likely to pick up over the next quarters.

 

n In the quarter, it was observed that some medium-sized to large tenants (500-1,000 pings) have started to assess relocation with a view to consolidating their office space. Most of them currently have office space located on various floors due to smaller floor plates and seek to consolidate their office space on a single floor with a larger floor area and better specifications. We are of the opinion that we will see a surge in the relocation of firms in 2H11.

 

Investment market:

n In 2Q11, investment in commercial real estate amounted to NTD 11.1 billion, accounting for 58.40% of total investment in property. The main players in this kind of property were insurers and self-occupying companies, implying that the implementation of the Luxury Tax has had an impact on speculative investors, but not on long-term investors and self-occupiers.

 

n The price of current open tenders for Grade B office space in Taipei is the highest of all the areas. In most of the successful auctions with rental contracts, the return on investment was about 3%. On the other hand, due to the strong competition among insurers and investment institutions, the investment return on Grade B office space in prime locations was pushed down to about 2%. We expect the tough competition to have a negative impact on long-term real estate development, so investors should be rational when considering investment.

 

n With the opening of visas to free individual travellers from Mainland China, we expect the retail and hotel sectors to enjoy the most direct benefits. Currently, commercial buildings in Taipei with poor-performing rental rates are being renovated into business hotels, especially in the West and Xinyi districts. With the increase in rental rates estimated conservatively at 5-10%, the growth rate of property prices is better, although investment returns are still considered low.

 

n As the economy starts to recover, many corporations are seeking office buildings for self-occupancy. However, as prices in Neihu and Nangang in Taipei City are currently overheated, buyers are turning to locations with convenient transportation links in New Taipei City. Tucheng industrial area has became one of the most popular locations for buyers and we have at least four buyers interested in this area.