What’s driving Taipei’s 2.4% office rental growth in Q2?

The Grade A sector in Xinyi District played a key role.

According to a JLL report, while office rents in Taipei are still increasing, the growth rate has slowed due to uncertainty in the economic environment. This has led companies to be more cautious in their decisions regarding space allocation, which has contributed to the slower growth in rents. 

Whether rent growth can continue in the future will depend on the absorption of new supply after it has been released.

Here’s more from JLL:

The main driving force behind rent growth (+2.4% YoY) in 2Q23 still comes from the leasing of Grade A office space in the Xinyi District. Due to the tight vacancy, the submarket remained landlord-favourable in the quarter, so there was limited room for rent negotiations for high-quality office space, which is the source of rent growth momentum.

Current supply fails to meet demand for quality space

Currently, the vacant spaces on the market are relatively scattered, and when a complete floor is released, companies in need of office space can quickly absorb the newly-released space in its entirety, indicating that current rental demand has not yet been met. The demand for high-quality space is still stable, which is a positive signal for the market.

Companies are eagerly pursuing net-zero emissions. In addition to green building certifications, providing green electricity has gradually become an integral part of a complete green leasing contract. This trend can be seen in the Xinyi submarket, where 45% of the office space currently provides both green building certification and green electricity, and the proportion is still growing.

The vacancy rate remains at 2.7%, the same as 1Q23

Over the past four years, the vacancy rate in Taipei has consistently remained within a consolidated range of 3%. Furthermore, some vacant spaces from 1Q23 have already been taken up by new tenants in 2Q23, indicating that high-quality vacant spaces are still in short supply in the market. Until new supply is released, tenants will likely continue to struggle as they seek appropriate spaces.

The Sunny Bank Headquarters project has added 6,100 ping of office space to the Others submarket. However, as the entire building is occupied by Sunny Bank for their own use, it will not be available to the market. As a result, the supply of Grade A office space in Taipei remains limited. Upcoming new supply includes Fubon A25, with 20,000 ping of available space.

Outlook: Green leasing to become the trend of the office rental market

There is a growing trend towards green leasing, and companies are increasingly looking for office spaces that not only have green building certifications but also provide green electricity. Both green building certification and access to green electricity will be important factors in the office rental market to satisfy green lease contracts in the near future.

The absorption of supply is an indicator of the growth of market rents and the strength of demand. In the next five years, when a large amount of supply is scheduled to be released, the ability to meet tenants’ demands for hardware/software equipment and ESG standards will become key factors affecting the office market situation.

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