Skip Ribbon Commands
Skip to main content

News Release


Jones Lang LaSalle’s survey of the Taipei Grade A Office market over Q2 2009

Jones Lang LaSalle’s survey of the Taipei Grade A Office market over the second quarter 2009 revealed the following highlights:
• The overall vacancy rate climbed to 13.8% as the recently completed Walsin Lihwa building brought nearly 17,000 ping (55,000 sqm) of space to the Grade A market.

• Net absorption for the quarter was ¬3,600 ping (¬11,800 sqm) as occupiers surrendered more space than they absorbed for the second consecutive quarter. The negative take¬up registered during 2Q09 was less than a third of the space returned during the previous quarter, but brought the 1H09 total to ¬17,800 ping (¬58,800 sqm).

• Average rental rates rise a further 1.09% to NTD 2,485 per ping per month. The correction came on the back of a 3.2% drop in rentals for Non¬core CBD. The only sub¬market demonstrating at the same level to the downward rental trend was Dunhua North.

• We suspect the lack of concluded lease agreements over 2Q09 conceals the true rental adjustment that the market is experiencing. Accordingly, we anticipate steeper drops as lease agreements come up for renewal over the remainder of 2009.

• During the three quarters since the onset of the financial crisis, the cumulative rental correction for Taipei’s Grade A office market has been ¬4.09%. The area exhibiting the largest fall to date has been Non¬core CBD, where average rents have declined 7.06%. Dunhua North has been the least affected, where rents have retracted 2.79%.

• Dunhua North has also outperformed the other sub¬markets at containing a rising vacancy rate through tenant retention. The district’s vacancy has maintained to 5.0% since the beginning of the financial crisis. 
Summary of 2009 Q2 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
+ 7.4 %
Dunhua North
+ 0.83 %
Dunhua South
+ 2.05 %
Non­core CBD
+ 0.879%
Average for Taipei
+3.85 %
Outlook for the Taipei office market:

• We anticipate our earlier forecast for vacancy to reach 20% should still prove to be accurate as corporate occupiers continue to return space. If we factor in the new supply that is slated to enter the market over 2H09, vacancy will hit 15% even after making allowances for space that has been pre¬leased or reserved for the owner’s use.

• Negative net absorption for the year should come to 32,000 ping (99,100 sqm), which is the equivalent of a good year’s positive take¬up. It is worth noting that the worst downturn on record in 2001 witnessed negative net absorption of 21,900 ping (72,400 sqm).

• Average rental rates may not be as adversely affected as we earlier thought owing to optimism over progress in cross¬strait relations. Regarding our 1Q09 prediction of a 15%– 20% retrenchment, the risk is leaning towards 15%.

• There is an apparent divergence between how landlords view the economy and their tenant’s balance sheets, which has made lease negotiations problematic. The landlords have factored in the perceived benefits of an improved economy, while tenants continue to see their revenues sharply down from in the past.

• The range of forecasts from private¬sector economists for 2009 economic expansion ranges from ¬2.9% to ¬11%, with most predicting a fall of between ¬6% and ¬7%. Previously, the worst year on record was ¬2.2% in 2001, indicating the severity of the current downturn.

• Exports are down 35.1% for the first 5 months of 2009 compared to the same period last year and will continue to be a drag on the economy. As the external sector often accounts for 60%–70% of economic output for the island, this will flow through to other sectors. Mainland
tourists will cushion some of the drop in consumption, but 1 million Chinese tourists can not replace the 10 million Taiwanese that are taking a very cautious view on spending.

• Although we do see encouraging developments from warming relations with China— particularly the signing of ECFA—we would caution against expectations of too much, to fast with regard to the office market. What should not be forgotten amongst all the excitement is that, fundamentally speaking, Taiwan’s economy is still in terrible shape and the office market can not retain its health until the economy does?
• To take a pragmatic view on cross strait progress, we do not anticipate any discernable increase in the demand for office space from Mainland occupiers to materialize until 2H10. If we were to break it down on a step-by-step basis, there needs to be an MOU (memorandum of understanding) signed, followed by approval from the Executive Yuan, followed by ECFA (economic cooperation framework agreement). Only then will Chinese companies to start seriously evaluating taking office space in Taiwan. Furthermore, it will take more time for the details to be ironed out than most people realise.

• Corporate occupiers will continue to reduce headcount as mergers and acquisitions (M&As), nationalization and reduced corporate spending take their toll.

Sherry Wu made the following comments:

“What we have noticed with regard to this downturn in comparison to others is that even those companies that have in the past exclusively resided in the CBD are considering the city¬fringe as a possible location—particularly Neihu. My experience has been that multinationals are extremely quick to react to changing conditions—often ahead of the curve in many instances—whereas some local companies can sometimes be a bit slower. MNCs are currently faced with containing costs no matter what, which is usually a directive handed down from the head office. This means cutting headcount, staying in lower ¬end accommodation when travelling, top executives flying economy and relocating to the city fringe.”

“It is because we are seeing more MNCs—evaluating relocation to the city fringe, that we have revised downward our full¬ year forecast for Grade A office take-up. We had been calling for negative 17,800 ping in the first quarter, but we now suspect the figure will be closer to minus 32,000 ping owing to MNC migration from the CBD to the periphery.”
 “In terms of the city fringe locations, Neihu continues to be the first choice of many occupiers. Among the positive attributes the area has to offer occupiers are an MRT that will start revenue service on the 4th of July and a continuing problem of oversupply, which has suppressed rental growth.
The excess space has created competition between Neihu’s landlords at a time that many companies are reducing space requirements, or at the very least, being very conservative with expansion plans. Even the additional demand coming from movement out of the CBD is not sufficient to meet supply. Wende, for example, has seen its achievable rent fall below NTD 900 per ping per month, and Xihu’s achievable rent has dropped below NTD 1,200 per ping per month. Conversely, most landlords in Neihu have priced in the long term benefits of better relations with China, with the expectation that their property is worth more. This has resulted in rental yields that are sometimes below 3%, which is usually lower than the cost of debt.”