CBRE KOREA LAUNCHES Q2 2016 LOCAL MARKETVIEW

Transaction Volume Drops, but Increase in Deals Expected in Coming Quarters; Departure of Major Conglomerates from the GBD Leads to Increased Vacancy

Seoul, July 18, 2016 – CBRE Korea launches its Q2 2016 local MarketView report which analyzes the Korean commercial real estate market, covering the investment, office, retail and industrial sectors.

 

Investment

Commercial real estate transaction volume declined 35% q-o-q in Q2 2016 to approximately KRW 1.125 trillion. However, the period saw a notable increase in the number of office buildings made available for sale, as some large corporations continued to restructure their real estate holdings in the still challenging economic environment.
 
One notable transaction from the quarter was the purchase of the Nara Building in the Gangnam Business District by Koramco for KRW 208.4 billion from M&G Real Estate. Another significant deal was the sale of Limkwang Building in Seodaemun district—NH Life Insurance paid IGIS Asset Management KRW 314.7 billion for the property. CBRE acted exclusively on behalf of the seller on this transaction.
 

Darren Krakowiak, Managing Director, CBRE Korea, said: "Several Grade A office transactions are expected to close in the next few months which is likely to lead to an increase in transaction volumes in the second half of 2016. In particular, last week‘s announcement of Canadian-based alternative asset manager Brookfield as the preferred bidder of IFC, and the sellers‘ intention to close the transaction before years-end, will result in a large spike in investment activity in Q4. This deal represents a huge vote of confidence in the Seoul office market by a sophisticated global real estate investor."

 

Office

Average face rents in the Grade A Seoul office market increased by just 0.1% quarter-on-quarter while net absorption turned slightly negative – meaning more tenants moved out of space than moved into space in Seoul‘s three major business districts. Although there were several new leases in various buildings across the three main districts—Central Business District (CBD), Gangnam Business District (GBD), Yeouido Business District (YBD)—the departure of major conglomerates such as Samsung Electronics and Samsung C&T, from the GBD to Suwon and Pangyo, caused the overall decrease in net absorption.
 
In Q2, average office vacancy increased by 0.2% q-o-q to 9.7%, however, the quarter did see several higher grade buildings, Center 1 and Tower 8 in the GBD sign lease agreements with tenants.
 
"Leasing activity was mixed this quarter, with some tenants moving out of the main business districts, but there was also positive leasing demand from other local corporations," commented Mr. Krakowiak. "Vacancy is expected to increase further in Q3 due to the completion of Parnas Tower at Samseong station in Gangnam, although the new prime building – which is attracting significant interest from a range of domestic and foreign occupiers from the technology sector – will have a positive impact on leasing activity by the end of the year."
 
 

Retail

The prolonged economic slowdown continued to negatively influence the retail sector in Q2 2016, with several foreign retailers leaving the Korean market. These included British accessories retailer, Accessorize, which opted to leave the country after ten years of active operations in major retail districts, whilst imported family restaurant brand Outback Steakhouse is currently attempting to dispose of its business in Korea.
 
As major local retailers such as Lotte, Shinsegae and Hyundai encountered declines in sales from their department stores and hypermarkets, they began to launch discount warehouse stores, usually selling a wide variety of foods and goods in bulk to offer customers cheaper prices. "This is an interesting development from the established retail players to respond to changes in consumer behavior", noted Mr. Krakowiak, "and it follows the recent expansion of duty free stores across Seoul to capitalize on Korea‘s influx of high-spending tourists. With more outlet malls popping up in Greater Seoul, and the opening of Starfield Hanam coming in September, the retail sector continues to evolve significantly – it‘s exciting to observe".
 
However, in contrast to other parts of the sector, luxury retailers exhibited expansionary demand in Korea this quarter, targeting the increasing number of international tourists, particularly Chinese visitors, who retain a strong appetite for high-priced goods. These included French luxury house Kenzo which has opened its flagship store in Cheongdam-dong to attract more Chinese tourists.
 
 

Logistics

The continued growth of online retail is intensifying delivery competition among e-commerce providers, resulting in strong leasing and purchasing demand for logistics centers in locations that are suited to servicing the Seoul metropolitan area. Strong investor demand for logistics assets, combined with the lack of opportunities, have been driving an increase of direct developments and pre-sale transactions.

"Although there were few transactions in prime logistics assets in the first half of 2016, investment demand for prime logistics assets is expected to continue, including from local investors," said Mr Krakowiak. "Our market-leading Industrial and Logistics Team is currently handling a number of large deals which are expected to close soon, reflecting the increasing demand for assets in this emerging sector by institutional investors".
 
 
 
 

Disclaimer:

Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
 

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.​

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