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News Release

Jones Lang LaSalle’s 4Q10 Taipei Grade A Office Market Survey Highlights


  • The overall vacancy rate in the fourth quarter increased from 16.27% to 17.52% due to the significant increase in vacancy rate in Xinyi district. The overall rental rate showed a very slight increase of 0.43% to NTD 2,396 per ping per month. The Grade A Office market this quarter still hasn’t shown a huge improvement, however the increase of rental rate in Dunhua North has helped maintain the current overall rental rate.

 

  • The rental rate in Xinyi from third quarter to fourth quarter stayed flat at NTD 2,699 per ping per month, while the vacancy rate increased 4.06% to 24.72% due to the completion of Shin Kong A12 and decentralization.

 

  • Over the fourth quarter, there was a decrease in vacancy rate in Dunhua North from 13.93% to 12.66%. A couple key buildings lowered their own vacancy rate, which in large part helped the overall vacancy reduction of the district. The rental rate in Dunhua North increased 4.04% to NTD 2,306 per ping per month in 4Q10. Dunhua North had the largest increase in rental rate with the help of the newly built Taipei Financial Center.

 

  • Dunhua South still holds the lowest vacancy rate out of all the submarkets in the fourth quarter, dropping 0.58% to 10.83%. The basis for the decrease in vacancy was because tenants had a higher demand for some of the prime buildings. The rental rate in Dunhua South stayed flat at NTD 2,364 per ping per month due to landlords wanting to secure their current tenants, afraid they might move away if the rates were increased too much.

 

  • Non-core CBD experienced a minute decrease in rental rate of 0.16% to NTD 1,916 per ping per month in the fourth. Older buildings with unattractive locations played a role in decreasing the rental rate. The vacancy rate in the fourth quarter dropped 1.64% to 14.51% and experienced a positive take-up. However, reason being was because landlords lowered their rental rates to attract new tenants looking for smaller units.

 

 

Summary of the 4Q10 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

(ppt)

Xinyi

2,609

0.07

24.72

4.06

Dunhua North

2,306

4.04

12.66

1.27

Dunhua South

2,364

Flat

10.83

–0.58

Non-Core CBD

1,916

–0.16

15.15

–1.64

Average for Taipei

2,396

0.43

17.52

1.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trends:

 

  • The Grade A office market in the fourth quarter has shown less promise than the third quarter in terms of vacancy rate in 2010. However, the slowly recovering economy will lead to the overall significant improvement of both rental rate and vacancy rate in 2011. Furthermore, we forecast that next year in 2011 will show a decrease in vacancy rate due to the absence of new supply and an increase in rental rate because of the continuing demand for Xinyi district by financial institutions.

 

  • New lease in 2010 consists mostly of financial institutions with 42.01% of total new lease. IT companies had 23.47% and medical companies had a smaller percentage of 2.10% of the total new lease. The rest of the other industries together added up to 32.43% of the total new lease. Among the new lease, 77.83% of the new tenants were international tenants, 17.13% were local tenants, and 5.04% were Chinese tenants. We are confident that the signing of ECFA will bring four times as many Chinese tenants next year.

 

  • Until October 2010, 106 Chinese corporations invested up to NTD 3.1 billion with 116% growth from January. Their preference of office locations are Xinyi (Xinyi), Songshan (Dunhua North) and Zhongshan (Non-core CBD). We are of opinion that the office demand from increasing Chinese investment will gradually stimulate the Xinyi and Dunhua North submarkets.  

 

  •  Our latest research indicated that the rental rate in Taipei, Xinyi ranked eleventh out of twenty-five Asia-Pacific cities while Hong Kong central ranked first. When it comes to rental growth, the year-on-year rental growth of negative 4.3% ranked seventeenth place, which is far behind Hong Kong of 31%, Beijing of 13.9% and Shanghai of 13.3%. Taipei’s rental rate is still under-valued in the Asia pacific market. Therefore, we anticipated to see a least 5 to 10% rental growth with the growing economic environment.

 

 

Investment market:

 

§        Multinational investors are showing greater interests in Taiwanese property due to the newly signed ECFA. However, large-scaled commercial property development opportunities are limited in the market. The Taipei city government has proposed several prime location leaseholder request for proposals, such as two lots in Xinyi in the second quarter 2011. We anticipate that these certain regional developer will join this request for proposal.

 

 

§        Due to the positive outlook of the real estate market, some listed corporations are planning to allocate their partial of their capital in real estate by acquisition of self-use headquarter buildings. Moreover, these types of purchasers have less demand for gross investment yield than insurers because of using self-owned capital rather than investors’ funds.

 

§        Over 2010, the investment gross yield in Taiwan hit a historical low of 4%. As a consequence, some active Japanese vendors are seeking sales opportunities of office, retail and hotel projects in Taiwan. Our records indicate that Japanese commercial property offered an averaged 4-8% gross investment yield which is an attractive factor for cross-boarder investors. Nevertheless, Taiwanese investors are not able to obtain mortgage in Japan, and they have a lack of understanding of the market.

 

§ The 2010 total investment-grade property transaction saw a year-on-year 20% growth to NTD 79.40 billion surpassing the level of the Global Financial Crisis and in 2009. In the fourth quarter, transactions recorded NTD17.49 billion. Offices had the largest stake of 54%, then industrial of 26%, followed by retail of 23%. It is worth noting that high net worth individuals are growing in this market. In addition, their preferences for such investment are three to four star hotels and street front retail, ranging from NTD 20 million to 2 billion.

 

 

Sherry Wu (National Director) made the following comments:

 

The total take-up this year, of over 7,000 ping, turned out to be better than expected due to the fast economic recovery. In October, the unemployment rate of 4.73%hits a two-year low which helped the absorption of the Grade A office market. Global Insight forecasts a growth of 10% in GDP by the end of 2010, and another 4.5% growth in 2011. Therefore, we are optimistic about the future of the grade A leasing market. 

 

A positive overall take-up was illustrated in the fourth quarter. Among all the four submarkets, Xinyi was the only district that recorded a negative take-up due to some decentralisation by IT companies. Dunhua North had the largest positive take-up of 1,131 due to the newer buildings in this district and the expansion of some IT companies.

 

Although the overall achievable rent showed an increased, the overall effective rent demonstrated a drop due to the increase of rent free period this quarter. Instead of lowering their rental rates, landlords increased their rent free period to secure more tenants.

 

Outlook for the 2011 market, we believe that a further relaxation on the Chinese free and independent travel (FIT) regulations will be implemented, and this will be of help to our development of hotel and retail markets. The signing of ECFA will encourage more Foreign and Chinese corporations, even overseas Taiwanese enterprises to establish business in Taiwan. Therefore, we anticipate seeing the growing rental rate together with the correction of vacancy rate.