With demand outstripping supply, the vacancy rate for Taipei's premium office space is set to fall and rental costs climb over the next two years, according to real estate services provider Jones Lang LaSalle Taiwan yesterday.

The vacancy rate for the capital's Grade A office space is expected to drop by 2 percentage points from last quarter to 13 percent during the October-to-December period as most firms have set relocation plans for the fourth quarter, said Sherry Wu (吳瑤華), the agent's director of commercial property, during a press briefing.

Office space take-up for the third quarter was modest at 2,200 pings (around 7,260m2), but the volume is expected to reach a 10,000 pings, making it the second highest quarterly absorption over the past 10 quarters.

The peak was recorded in the fourth quarter last year, when over 20,000 pings were occupied as the Taiwan Stock Exchange Corp, ABN AMRO Bank and others moved into the Taipei 101 skyscraper.

Net effective rental for Grade A office space rose last quarter by 3.5 percent from a year ago on the back of strong rental growth in the city's Xinyi District.

Because of a the lack of new supply, Wu expects that average rental costs will surge to NT$2,800 (US$84.3) per ping within two years from the current level of NT$2,270.

The next Grade A office space will come on to the market during the second half of 2008, with several other projects aiming for completion dates in 2009.

Two notable projects recently announced include a property planned at the intersection of Dunhua N Road and Nanjing E Road, as well as the Far Glory Dome project on the northern fringe of the Xinyi District.

The two are expected to add an additional 20,000 ping to the premium office space market by 2009, Wu said.

For last quarter, the Xinyi district still reported the highest monthly rental at NT$2,420, compared with Dunhua N Road at NT$2,250 and Dunhua S Road at NT$2,230, the tallies showed.

Rental growth will continue to gather speed as a consequence of limited new supply. Institutional landlords have also stated they will introduce rental hikes on lease renewals.

This trend will be underpinned by the fact that quality buildings in the Xinyi district attract tenants at the expense of older properties in less desirable areas of the city.

This will be reinforced by a number of retail, hotel and office projects as well as an MRT line currently in the pipeline in this bustling downtown area, the firm said.

Meanwhile, Jones Lang LaSalle's managing director Tony Chao (趙正義) yesterday said Stuart Robert, the firm's Asia-Pacific chief operating officer based in Singapore, will double as chairman of the Taiwan branch to fill the vacancy left by Calvin Wang (王治平), who died of liver cancer last month.
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