Rental rates for office space drop

A sagging economy has led to increased vacancies in office buildings around Taipei and a drop in average monthly rental prices for the first time in three years, according to a report by real estate firm Colliers Jardine.

The vacancy rate for the first quarter among rental offices in Taiwan's capital city jumped from 2.32 percent to 5.92 percent while rental prices fell 1.31 percent to NT$2,257 per ping in the first quarter -- which officials have said will record economic growth of barely 3 percent -- according to the report.

Borling Huang (黃伯鈴), director of Colliers Jardine Taiwan, was quoted as saying "tightening of capital and rising unemployment had had a serious impact on the property mark ... and shrunk demand for office rental space."

In particular, new supply in the first quarter with the completion of four new office buildings providing an additional 37,000 pings combined with reduced demand due to flagging investor confidence had led to the increase in office vacancies, according to the report.

As most of the new office space is concentrated in the Hsin Yi Business District, the vacancy rate there has soared to 16.66 percent from 3.22 percent in the previous quarter, according to the report.

Indeed, "the overall poor performance of Taiwan's economy has forced businesses to reign in their expansion plans and seek ways to economize either via layoffs or through mergers leading to reduced demand for office space," said the report.

However, while in the past companies had sought to relocate out of the expensive central business district in a bid to cut overheads, a trend appears to be emerging whereby companies are cutting better deals with their landlords, according to one observer.

According to Andrew Liu (劉學龍), director of CB Richard Ellis in Taiwan, "increasingly more corporations are renegotiating their leases and trying to restructure their office space usage instead of simply relocating to try and control their budgets."

Under the current circumstances, this tactic appears to be working.

According to the report, the room for negotiation -- or the percentage difference between the asking price and actual price -- increased from 5.38 percent to 6.74 percent in the first quarter.

However, the current economic downturn has forced some companies to seek cheaper locations, said Liu, with some IT firms and dotcoms relocating their Internet data centers to the Neihu Phase Six Light Industrial Park (內湖六期輕工業園區), where land goes for NT$1,371 per ping.

Comparatively, office space in the hugely popular Tunhwa South Road District goes for NT$2,398 per ping and even NT$2,015 per ping in the very passe Western District.

According to Huang "rental prices will continue to fall over the remainder of the year due largely to an oversupply of office space in the neighborhood of 40,000 pings." Indeed, demand for new office space in 2001 has shrunk to 25,000 pings versus the 45,000 pings sought last year.

But Huang said prices may begin to climb again early next year, when oversupply will have dissipated.