Taipei troubled by tight office space supply over the next 12 months

The new leasable supply was nearly fully pre-committed in 4Q21.

Taipei’s overall office market remains tight as limited supply is expected to persist over the next 12 months. 

JLL notes that most of the demand could only renew their existing leases until new projects were released. The new leasable supply was nearly fully pre-committed in the quarter. Market momentum has continued to slow.

Here’s more from JLL:

The Taipei Grade A office market vacancy rate dropped 40 bps to 2.0% in 4Q21. The vacancy rate in Xinyi has been consistently edging downward to reach a historical low of 1.5%. Grade A office space in Xinyi District is still favoured by enterprises, with almost no vacant space.

The low vacancy rate drives demand for new supply in advance

Net absorption returned to positive territory in the quarter, at around 12,900 ping, which was mainly attributed to the take-up in the new completions. Furthermore, leasing demand remained strong across the market. Most of the buildings are fully occupied which is challenging for tenants which are looking to relocate or expand.

The demand from tech, manufacturing, and finance industries have sought pre-commitment opportunities in the office leasing market. Besides, some tenants who couldn’t find enough contiguous office space have turned to urban fringe areas such as Nankang or Neihu.

Overall rents increase by 2.3% y-o-y

The surge in rents can be attributed to solid demand and limited supply. In addition, due to the vacancy rate being already at an extremely low 2.0%, most landlords have tended to postpone leasing deals if the new asking rent is lower than expected.

Furthermore, a new market condition is emerging whereby pre-commitments in new leasable supply have no such discounts offered like they may have been in previous quarters.

Outlook: Rental growth to be fuelled by the meager vacancy rate

The limited availability of stock is likely to worsen since some of the new leasable supply has been adjusted to self-use. For example, the Cathay insurance office building (around 10,000 ping) scheduled for 2024 was adjusted to self-use in 2021. In addition, a new building in the Non Core CBD to be completed in 2022, with more than 30,000 ping, has also been fully adjusted to self-use.

Insurers are actively participating in the investment market. Strong demand continues to push up the office capital value in recent quarters. More and more insurers are considering office investment opportunities above the policy required rate of 2.1%. The capital value is likely to be pushed up more rapidly with the steadily growing demand.

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