APPD Market Report Article

Taipei

May 26, 2024

Jessy Yang, Head of Research, Taiwan

4.3%

NTD 3,708

Rents
Rising

Small- to medium-sized office demand lifts transactions

  • The uptick in demand for small and medium office spaces from tenants seeking to enhance their operational footprint, coupled with proactive adjustments in leasing strategies by firms reacting to upward rent pressure, has reshaped transaction dynamics in the market. Transactions in 1Q24 were predominantly characterised by a pronounced preference for smaller spaces.
  • Over 60% of deals involved areas with less than 200 gross ping. Additionally, the proportion of transactions for spaces less than 500 gross ping experienced a substantial surge, escalating from 81% in 4Q23 to 92% in 1Q24, spotlighting evolving market dynamics and the strategic response by industry players.

Vacancy rises as absorption momentum slows

  • In 1Q24, both a slowdown in inventory absorption and new supply drove an increase in vacancy rates. Noteworthy completions during this period included Taipei Dome in Xinyi and Yunta Gold Star in Others, totalling 16,400 ping. The market grappled with absorbing the influx of new supply, requiring a period of adjustment.
  • While the Others submarket retained the strongest absorption momentum and led the pack among all submarkets, its vacancy rate rose to 7.1%, primarily due to new supply, marking a quarterly increase of 1.5%. In Xinyi, vacancy rates also climbed from 5.0% to 8.6% for newly-released office areas.

Landlords adapt with flexible lease terms to address the market

  • Propelled by recent completions in the past two quarters aimed at bolstering rents, the Others submarket and Dunhua South demonstrated the highest quarterly growth. With a notable rent increase of up to 3.0%, Others anticipated sustained rent growth potential over the next five years, projecting a net effective rent of TWD 2,365 per ping per month.
  • Despite Xinyi’s dominance in transaction volume in 1Q24, rent growth stayed subdued at 0.4%, hinting at restricted prospects for rent escalations in the district. With vacancy rates on the rise and heightened competition from new supply across submarkets, landlords are adopting more flexible rent-free periods to entice tenants.

Outlook: Vigilance on vacancy impact

  • Despite a more cautious approach to decision-making by tenants, the tech industry, as the key driver of the economy, is poised to continue leading transaction volumes into the foreseeable future. Displaying robust growth, it is expected to remain the primary force behind lease transactions.
  • While market demand is expected to remain resilient, vigilance will be warranted regarding the potential impact of forthcoming supply on market dynamics. Anticipated upticks in vacancy rates due to new supply by year-end notwithstanding, the enduring demand for high-quality office spaces is expected to continue shaping overall rental market trends.

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

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