APPD Market Report Article
TaipeiFebruary 28, 2023
Josh Hsu, Head of Research, Taiwan
Demand for prime office space stays strong due to limited supply
- With the government’s aim to achieve net-zero emission by 2030, demand for prime office spaces which meet ESG standards is soaring. Currently, the supply of green buildings is insufficient in Taipei, making it difficult for tenants to find a suitable space to lease, until new supply comes online.
- Total prime office space in Taipei recorded nearly 730,000 ping, of which the floor area of buildings over 30 years old exceeds 200,000 ping, accounting for more than 27% of the total supply. Office buildings in non-core areas are older than half of all the offices in Taipei. Tenants based in these buildings would likely need to upgrade in the near future.
New supply to be released from 2023
- The overall vacancy rate as of 4Q22 remains at a healthy 2.6%. The vacancy rate has been below 3% for four consecutive years in Taipei, indicating that high quality offices in the city are in short supply. Nevertheless, it is estimated that new supply would be released into the market from 2023, when tenants would have more options for leasing.
- More than 45,000 ping of office space will be added to stock in Taipei CBD in 2023. Moreover, almost 89,000 ping (GFA) of new supply will complete from 2024 to 2026. Considering the substantial upcoming new supply, net absorption figures in the coming years will be key to determining if demand for prime office space continues to be strong.
NER hits a record high of NTD 2,797 per ping per month
- By the end of 2022, the average net effective rent (NER) of high-quality office buildings had reached a record high of NTD 2,797 per ping per month. In addition, net effective rents in Xinyi District exceeded NTD 3,300 per ping per month, becoming the largest contributor to rental growth. With a y-o-y increase of 3.31%, it is expected that the momentum of rental growth will continue.
- Investors have been targeting properties with stable rental income, especially high quality office spaces. Due to economic uncertainty from interest rate hikes and inflation, investors are favouring a more defensive investment strategy, thus eyeing commercial real estate properties to include in their portfolio.
Outlook: Challenging market environment due to uncertainty
- Macroeconomic uncertainty expected in 2023 has made the Taipei office market somewhat challenging. The central bank has forecasted GDP growth to be below 3% in 2023, indicating slowing economic activity. However, rigid demand for high-quality office buildings continues, hence net absorption by the end of 2023 is likely to be positive. The market is anticipated to be volatile with no clear trend.
- The vacancy rate should increase in 2023 due to new supply entering the market, easing demand for green-certified buildings slightly. Tenants would have more options for office spaces compared to the previous three years. The demand for green buildings is set to continue in the following years due to the target of net-zero carbon emissions by 2030.