The business process of reshoring or the bringing back production and manufacturing in to the home country or the country of origin of a company from foreign shores has resulted in overcrowding of the office space market in Taiwan.
Analysts said that it is likely that the rents for offices in the densely populated capital of Taipei will keep increasing because of the uncertainty surrounding the speedy resolution of the trade war between the ongoing trade war United States and China.
According to Tony Chao, managing director at Jones Lang LaSalle Taiwan, the vacancy rates at the take-up rate of Grade A office space has dropped to 3 per cent from about 10 per cent just three years ago.
“The main reason is because there’s been a limited supply of new buildings,” Tony Chao, managing director at property consultancy Jones Lang LaSalle Taiwan, said in a television interview,
According to Chao, it is likely that there will be a further drop in the vacancy rate in 2020 to an average of about 1 per cent.
There are many tenants renting properties that are more than 20-years-old have been looking for newer places which has resulted in constraining of the availability of Grade A office space, according to Chao.
Production and manufacturing units have been set up in Mainland China for tears by Taiwanese companies. However in recent years, such companies have been shifting such manufacturing units back to Taiwan because of rising costs in China in addition to incentives offered by Taiwanese government. This was a trend even before the start of the US –China trade war.
Further reshoring was caused by the bilateral trade fight and the US imposed tariffs on products imported from China which impacted the bottom line of Taiwanese companies with production units in China,
Chao said that even though the property boom in Taiwan was not primarily because of the firms coming home from China, it did create a shortage of supply of property.
This home coming of Taiwanese businesses to avoid the US tariffs is partly responsible for the resilience shown by the Taiwanese economy this year despite the U.S.-China trade war.
Jones Lang LaSalle in its third quarter report this year noted that there has been a 5 per cent drop by the second quarter of 2019 in the total net take-up rate in the global leasing industry in contrast to the strong demand for Taiwanese real estate. The consultancy firm noted that the negative market sentiment and the effect of the U.S.-China trade dispute has been instrumental in the depressed global demand for property this year.
However the office property rental in Taiwan is still undervalued as the current levels are still lower than the average price in 2000, Chao pointed out.
(Adapted from CNBC.com)