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News Release


JLL 3Q2015 Taipei Grade A office review

Rental growth moderated as investment market slowed

Quarterly Trend
Global economic prospect became increasingly uncertain as Chinese volatile stock market, geopolitical issues in the Middle East, Grexit issue in the Eurozone and US monetary policy effects came into the picture. Employment outlook for the near future worsen as Manpower’s latest survey indicated most Taiwanese employers intended to either maintain or even lower staffing levels. This would imply that the demands for office spaces would likely moderate down in the near future.
The average third quarter take-up for the past years has been around 3,000 pings (9,915 sqm). However, take-up this quarter reached 10,777 pings implying a stable leasing demand. The majority of the demand came from lessees that signed pre-leases physically moved into a newly completed building. These new leases committed were primarily on mid-to-large sized office units in the Xinyi sub-market. New leases signed this quarter were mostly by corporate tenants in the IT, high-tech and financial service industries. The overall vacancy increased 2.8 pps q-o-q to 10.6% due to two new added buildings.
Robust demand facilitated rental growth. The overall rent increased 1.7% to NTD 2,632 per ping per month with building owners with decreasing vacancies continued to raise rents and new leases signed this quarter lifted the rental level.
The latest Jones Lang LaSalle market survey indicated office market in city fringes showed increasing demand and rental level this quarter. The demand mainly came from financial service entities and hi-tech firms establishing operation offices with large floor areas. Therefore, the overall vacancy decreased 0.2 pps to 5.6%, semi-annually. It is worth noting that this quarter we have further included our survey area to encompass several newly completed buildings in Songshan and Nankong areas. However, these buildings started performing pre-leases several quarters ago, some of them were mostly occupied when completed this quarter. The average rent reached NTD1,313 per ping per month, an increase of 3.4% semi-annually.

Future Trends
As the global economic recovery slowed, the employment outlook survey conducted by Manpower showed increasing numbers of local businesses and corporations reduced their intentions on increasing staffing levels. Thus, office demands may somehow ne affected.
The aforementioned Survey further indicated that businesses in the finance, professional service and transportation & utility industries had the highest hiring intentions. This was reflected on the new lease transactions in 3Q15 as most new corporate lessees were in the investment, banking, IT, hi-tech and tourism businesses.
Additionally, during several global and local financial crises in the past decade, all industries were affected adversely except the retail industry. The overall retail sales in Taiwan continued increasing annually despite the downturns. In addition, prospering tourism has also acted as a catalyst to retails. The tourist arrivals have also increased yearly and it has reached 5.8 million in August this year, an increase of 3% on the annual basis. Chinese tourist has also increased 5% y-o-y, to 2.4 million. Therefore, since retail industry have been prospering we have seen increasing corporate tenants in the retail and F&B businesses expanding current leased spaces or enquiring larger and better office spaces.
New grade A office supplies is anticipated to reach 76,000 ping at this yearend. It has been the highest amount in the next 4 years. However, over 32,000 ping of additional spaces are planned to enter the supply pipeline in 4Q14, and over 85% of which have been planned for owner occupancies. Thus, the overall vacancy for grade A offices is projected to increase moderately in the next three years.

Performance by Sub-market
  • The Xinyi sub-market was still preferred by most corporate tenants; over 80% of the new leases signed in the quarter were committed in this sub-market. Due to cross effect of new building entered the supply and large amount of take-ups, the vacancy rate increased 5.6 pps q-o-q to 12.4% with a net absorption of 9,947 pings in 3Q15. As the landlords with decreasing vacancy rate continued to raise rents and new building boosted the rental level, the area’s average increased 1.6% to NTD 3,088 per ping per month in the eighth quarterly consecutive increase.
  • Dunhua North displayed slightly more energetic leasing activities this quarter. The major demands were from local and foreign financial and high-tech corporations taking up small office units. Net absorption reached 1,678 pings from, 431 pings this quarter. The overall vacancy dropped 1.9 pps to 6.2%. Several buildings with increasing occupancies continued to increase rents pushing the average rent to increase 0.4% q-o-q to NTD 2,326 per ping per month.
  • ​Due to a domestic airliner expanding leased areas and local mobile phone service provider relocated to Dunhua South area pushing the area’s vacancy rate to drop further by 2.0 pps q-o-q to 5.0%, and take-up reached 2,564 pings. In terms of the rental performance, since we have officially included a new building that was seasoned for a year into the rental calculation, the average rent decreased moderately by 0.2% q-o-q to NTD 2,478 per ping per month.
  • Leasing activities were relatively slow in the Non-Core CBD this quarter. Due to new supply entered the s market and several tenants surrendered large units, the vacancy increased 4.7 pps q-o-q to 14.3%. As vacancy increased, landlords tended to be more cautious on rental adjustment, therefore, the average rent remained flat at NTD 2,016 per ping per month in 3Q15.
Brian Liu (Associate Director) made the following comments:
The Jones Lang LaSalle Global Market Perspective 3Q15 indicated that office leasing market performance in Taiwan have been in line with most major cities on the global level. Increasing numbers of corporate tenants started paying more attentions on the amenities and practicalities of the neighbourhood and building characteristics, rather than renowned landmark buildings. We have also seen large MNCs relocating partial operations to city fringes. The global occupier market this year, take-up is likely to increase 0-5% y-o-y. The demands in the AP region is likely to outperform the Eurozone and American Continent, take-up is likely to increase 15-20% this year with the primary demand coming from the finance and high-tech industries. One trend we have noted is that many lessees in the professional consulting and service industries generally lease small units initially and slowly expand in the following years. Large influx of new supplies is expected to enter office markets globally in the next two years, especially in the American and Asia Pacific regions. The global vacancy continued decreasing to 12.8% q-o-q in 3Q15. In the AP region, the cross effect of newl completed buildings and stable demand rendered the vacancy to retain level at 10.8% this quarter. The global rental performance showed a 3% quarterly increase where cities like Hong Kong, Tokyo, and Los Anglos showed 3-7% increases.
The uncertain economic prospect has rendered corporate occupiers to remain cautious and observant in terms of leasing decisions. Rental cost is still the primary concern. Many existing lessees in Taiwan have intended to maintain current lease terms. The periods of lease negotiations and enquiries are likely to be prolonged as prospective tenants may need more time to evaluate various moving costs and rents.​