Conditions in the the Taipei office market are expected to deteriorate, with the vacancy rate predicted to increase by more than 10 percent in coming months as the market struggles to absorb an oversupply, according to industry reports.
According to a report by Colliers International, commercial real-estate development in 1999 and 2000 when conditions where more favorable, led to the present glut in supply.
Colliers says the market is not able to absorb the new supply -- of which 41 percent is in the Hsinyi District. The vacancy rate in Taipei was 8.91 percent in the first quarter, and it is expected to increase by 10 percent during the remainder of the year.
According to Derek Huang (
"Demand will not be as high as they expect in that area," Huang said.
"Although the Taiwanese economy seems to be moving from the slowdown to a rebound, is not recovering as fast as earlier anticipated. Enterprises are still holding a conservative attitude and have postponed their office expansion plans," the report said.
Huang said demand will remain weak despite the stronger performance of the local stock market -- which has risen in value since Jan. 1 by 8.3 percent off lows last year -- adding that companies are taking advantage of increased supply to negotiate lower rental prices.
Lower rental prices resulted in a contraction of room for negotiation on rentals -- the difference between asking price and actual price -- from 8.36 percent to 7.75 percent, according to the Colliers report.
The city's office vacancy rate increased only slightly. Overall average rental prices for Taipei's office market fell by 2.2 percent over the previous quarter, with average effective rental prices falling to NT$2,062 per ping, according to Colliers.
Buying activity is also likely to pick up during the next two years as banks begin to more actively dispose of their non-performing loans -- which are largely collateralized with real estate -- pulling retail prices down further, said Huang.
"First Commercial Bank disposed of a bunch of NPLs. We expect AMCs in the near future to dump these properties into the market which will drop the market value even further," Huang said.
However, any large-scale buy up of real estate -- regardless of the low prices -- by local or foreign conglomerates is likely some way off as rental yields still remain paltry compared to markets elsewhere in the region.
According to the Colliers report, average yield for this year will remain at 6.04 percent -- the same as last year -- and will rise slightly to 6.14 percent next year.
By comparison, rental yields in cities such as as Beijing and Shanghai range between 14 percent and 17 percent.
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