Taiwan Weathers the Global Market Cold Front

Several major global economic and political factors – namely, the U.S.-China trade dispute, Brexit, the protests in Hong Kong, as well as volatile oil and commodity prices – cast a shadow in the past year over global demand, trade, and industrial production. In Taiwan, the presidential election and cross-Strait relationship added uncertainty, potentially dampening the economic outlook. 

Despite the various concerns, however, the domestic leasing and investment market showed robust growth in 2019. New market entrants signing leases and tenants relocating in order to upgrade or expand have heightened leasing demand and fostered rent growth. The investment market has thrived, with developers acquiring land parcels, businesses purchasing self-use real estate for operations, domestic insurers engaging in investments, and local corporations buying hotels. The total land investment volume even set a new historical record.


Jones Lang LaSalle (JLL) divides offices into three major classes: Grade A, Grade B, and industrial office buildings on the city’s fringe. Grade A and Grade B offices tend to be located within major business districts in Taipei City. But building characteristics – such as the building façade, floor area, ceiling height, tenant type, and management, etc. – are also taken into account when defining classes. The city fringe largely consists of industrial offices in the Neihu and Nangang districts.

The Taipei Grade A office market consists mainly of four submarkets: Xinyi, Dunhua North, Dunhua South, and Non-Core Central Business District (See Fig. 1). Each submarket has distinguishable characteristics and is therefore attractive to different types of corporate tenants. As most Grade A buildings are reaching full occupancy, lease transactions in recent quarters have been small to mid-scale. Quarterly demand in terms of net absorption (also referred to as net take-up) was recorded at 5,498 ping/18,171 sqm in 4Q19. Among the four submarkets, Xinyi and Non-Core CBDs are nearly full. 

Therefore, tenants have focused their inquiries on space surrendered from previous relocations in Dunhua North and South. The annual net take-up in 2019 was 29,642 ping, a decrease of roughly 50% year-on-year from the supply peak in 2018 (Fig. 2). The overall vacancy rate dropped 4 percentage points (PPS) to 2.1% on an annual basis, reaching a historical low. 

Due to the lack of ample vacancies, many corporate tenants have postponed their relocation plans to await available stocks or acquire self-occupied units/buildings. The majority of the demand in 2019 came mainly from the tech, biotech/pharmaceutical, retail, co-working, and finance industries. 

Rent growth continued to be fueled by low supply and newly signed leases. As JLL forecasted at the beginning of 2019, the annual rent growth reached around 3%. The average rent at year-end was recorded at NT$2,806 per ping/month, an increase of 2.9% year-on-year (Fig. 3).

As vacancies became scarce, most building owners also lowered the rental incentives in terms of the rent-free period. The decrease was significant, dropping from 0.8 to 0.7 months/year, and it is likely to decrease further as the vacancy rate continues to dip and there is no additional supply in the next four to five years.

The strong office demand spills over to other grades of offices as Grade As continue being filled up. The JLL market survey also indicated that tenant relocations pushed the vacancy of industrial offices in the city fringe, i.e. Neihu and Nankang, to drop annually by 0.2 percentage points to 3.3%. Since most building owners retained the same rent level, the average rent edged up only moderately by 0.2% y-o-y to NT$1,416 per ping/month.

Plans call for up to 150,000 ping of new supply to enter the industrial office pipeline in the city fringe. This area is likely to attract tech and gaming companies, new start-ups, and firms intending to establish data centers or back offices. 

Grade B offices experienced the same trend as industrial offices. For the first half of 2019, tenants were drawn to the Grade A market, while the surrendered Grade B space started to see demand in the second half. The vacancy rate decreased 1 percentage point to 3% at year-end. The average rent edged up by a mere 0.2% to NT$1,774 per ping/month as building owners with vacancies offered compatible prices to attract leases.

Future Outlook: JLL’s latest Global Market Perspective discovered that the effects of various global trade and geopolitical concerns are gradually being reflected in the real estate market. Since business sentiment around the globe generally tends to be more cautious and conservative, many companies have postponed their relocation or expansion plans. Leasing demand recorded a drop of 4% year-on-year in 3Q19. 

This trend is forecast to continue, with global volumes expected to end the year down around 5% in 2019, with a further slowing of 5-10% anticipated in 2020. The upcoming large global office supply influx is likely to boost vacancies and dampen rent growth. The aggregate rental growth for prime offices across major markets is seen as remaining positive, ending 2019 at around 2.8%. As supply options increase globally in 2020, growth is expected to moderate further to around 1.5%.

Domestically, following the office supply and demand peak in 2018, the leasing market has moderated, with new leases mostly committed to small- to mid-sized units. Demand remains robust, largely supported by new market entrants’ demand for space and current tenants’ intention to upgrade their buildings and/or areas/amenities. However, the tightened office supply has forced many to delay relocation or building upgrade plans. 

Strong demand and low market vacancy have dampened rent growth. In particular, there are no large-scale prime/Grade A building additions planned for the next three years, so rent growth is likely to be more significant. The growth is projected to be around 3.5% in 2020. Office demand will still center around the finance, hi-tech/IT, gaming. and biotech/pharmaceutical industries

Upcoming industrial office building completions in the city fringes are set to reach 170,000 ping. Some demand is likely to be drawn from the Grade A market, particularly lessees in aged buildings. Moreover, businesses demanding office space have been actively seeking pre-lease opportunities in the past two years. Since there have been no new additions, some of them are beginning to inquire about pre-sales of self-use units.

Investment Market 

Investment volume amounted to NT$26.3 billion in the final quarter of 2019. Corporate purchasers and institutional investors closed deals before the end of 2019, pushing the total for the year to NT$95.8 billion. It was the second highest volume since the European debt crisis rebound in 2015. Investment activities in 2019 mostly focused on land parcels or buildings situated within major urban centers, and industrial properties acquired for self-use. 

Since the tightening of office supply, investors have been actively purchasing partial or en-bloc buildings for operations or investments. It is also worth noting that the impact of businesses’ reshoring back home is gradually being felt. Several deals were made by returning manufacturers purchasing factories or plots of land to expand production in Taiwan (Fig 4).

The major transaction types last year involved industrial facilities (48%), offices (36%) and hotels (15%). Due to the current shortage in office space supply, many have entered pre-sale deals on buildings currently under construction. The largest transaction was by a domestic financial institution buying a forthcoming office tower in the city fringe. The second and third major deals involved hotels – CitizenM Taipei in the Ximending area of Taipei and the 85 Sky tower in Kaohsiung. 

Government leasehold projects and developers’ stocked-up land parcels continued driving land transactions in the fourth quarter. Major land transactions in 4Q19 totaled NT$61.4 billion, pushing the annual volume to NT$221.3 billion to set a new historical record. The most significant transaction was the sale of the former Living Mall in Taipei CBD. The purchaser intends to redevelop the plot with four office towers. 

Other major deals were made by insurers and developers acquiring land parcels or development rights in major CBDs to develop residential or office buildings for sale and/or lease. Besides the top deals, most plots of land were purchased by businesses seeking to develop self-occupied headquarters or manufacturing facilities.

JLL’s records indicate that domestic insurers invested NT$39.1 billion in real estate in 2019. The top 10 insurers have only allocated 10-20% of the available funds in real estate investment. The available funds permitted by the Financial Supervisory Commission for insurers to invest in real estate reached NT$6.1 trillion, a year-on-year increase of 11%. 

Since domestic funds are abundant but there is only a limited supply on the market of investable properties with ideal returns, institutional investors –besides remaining observant for direct property acquisitions – have also been keeping an eye on land development projects, leaseholds, foreign properties, public infrastructure, or alternative property niches such as logistics, industrial, or medical buildings.

Future Outlook 

JLL’s latest Global Market Perspective showed that the slowdown in the global economy is starting to filter through to real estate market activity, with a slight moderation in investment and leasing volumes expected, albeit from record levels. The capital available for deployment into real estate is near an all-time high, and investors continue to target the sector, although their greater caution and selectivity indicate that global investment activity is likely to be marginally lower for the full year. 

The third quarter saw an uptick in activity in global real estate markets as year-on-year sales transaction activity rose by 13% to US$205 billion, bringing activity through the end of 3Q19 to US$550 billion, which is 1% better than the same period the year before. Political and economic uncertainties remain prominent, with issues such as Brexit and the U.S.-China trade tensions still unresolved. In this environment, final figures are expected to show investment in global commercial real estate in 2019 to have moderated by about 0-5% to roughly US$750 billion. 

On the domestic front, the lack of office supply, aging buildings and businesses returning home from China have affected the real estate market. Supply shortage has driven corporate occupiers and/or investors to actively seek pre-lease or pre-sale opportunities, engaging in developments on freehold or leasehold lands. 

Moreover, since properties with ideal locations and decent returns are scarce, domestic investors will remain active in seeking and grasping investable opportunities. Local insurers have been actively acquiring and seeking both strata or en-bloc deals. Additionally, we have also seen domestic insurers acquiring land parcels to develop offices both in and outside the Taipei CBD.

Abundant funds have also driven investors to look into alternative property sectors, public projects, joint-venture developments, foreclosure auctions, and cross-border properties. We anticipate that the market momentum is likely to be sustained not only by institutional investors but also by businesses reshoring operations back to Taiwan as a result of the trade dispute between the U.S. and China. 

Governments at all levels in Taiwan have also been working on the simplification and improvement of the urban renewal application and review process. After all, urban renewal is imminent and vital, especially for major municipal centers, as it not only quenches the thirst for supply but also improves the safety and well-being of occupants and dwellers, as well as rejuvenating the urban image.

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