Taipei to see 20,000 ping of new office stock in 2023

Two office projects were postponed to 2024.

The overall office vacancy rate of Taipei as of 1Q23 has increased to 2.7%, which is 10 basis points higher than the previous quarter. JLL says although the vacancy rate is rising, it is still relatively low since it is below 3%. 

The vacancy rates in the submarkets Xinyi and Dunhua S. are both still not greater than 2%, indicating that the office space in core areas is still short in supply.

Here’s more from JLL:

Two projects, namely the Taipei Dome in Xinyi and the Huang Hsiang Taipei Main Station Building in the Others submarket, which were scheduled to be completed by 2023, are expected to be postponed to 2024. As a result, the total office units that were anticipated to be available in Taipei in 2023 have been reduced from the initial 45,000 ping to 20,000 ping.

The challenging economy slows down leasing activity

The challenging economic environment has delayed the decision-making process of many companies concerning the allocation of office space. Moreover, affected by new work styles such as “remote” and “work-from-home”, many companies have also re-examined their office space allocation strategies. Some enterprises have shown signs of adjusting their office space in the quarter.

Legislative Yuan passed the “Climate Change Response Law” in 1Q23, which would become the standard for carbon-related regulations in the future. Based on this law, Taiwan is about to introduce a carbon emission fee as soon as 2024. Therefore, the demand for green-certified buildings is likely to increase, and potentially become a long-term trend for the office sector.

NER breaks record high to hit NTD 2,803 per ping, per month

Despite the deceleration in leasing momentum, rent in Taipei has continued to increase. This is possibly due to the stronger bargaining power of landlords regarding the new leases. The net effective rent (NER) of prime offices in Taipei has reached NTD 2,803 per ping, per month. Notably, Xinyi District was the most significant contributor to rent growth, with a y-o-y increase of 2.8%.

Office market rents have remained resilient despite the slowdown in leasing activities. The upward trend is expected to persist until new supply is released into the market. Currently, landlords hold the bargaining advantage due to the shortage of supply. Since 20,000 ping of new supply will be released in 2H23, further observation is needed to determine if the current trend will continue.

Outlook: Challenging environment amid economic uncertainties

The office market is facing fluctuations due to macroeconomic uncertainties in 2023. The central bank has raised the discount rate by 12.5 basis points in 1Q23, bringing the current rate to 1.875%. Additionally, it has also revised the forecast GDP growth rate downward to 2.21%, indicating a slowdown in economic activities. Therefore, the office market may encounter some challenges in 2023.

The negative absorption volume witnessed in 1Q23 indicates that the office market may also encounter some challenges. However, because office spaces are currently in short supply, the market does not show any signs of a downward trend in demand. Further observation of the demand trend is needed, with regard to absorption volume, after new supply is released to the market in 2H23.

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