Korea Q4 Commercial Market Increased By Major Transactions

Transaction Volumes Surge as Foreign Investors Complete Several Major Acquisitions

Seoul, January 10, 2017 – CBRE Korea launches its Q4 2016 local MarketView report that analyzes the Seoul commercial real estate market, covering the investment, office, retail, and industrial sectors.

Investment

Foreign investors continued to demonstrate a strong appetite for value-added and opportunistic office building deals. Major purchases by offshore buyers included Brookfield’s acquisition of the IFC portfolio consisting of three office buildings, one retail podium, and the Conrad Hotel, which marked the largest-ever property transaction recorded in Korea; the largest of the three office towers at IFC contains more than 60% vacancy.

The completion of several major office deals pushed up real estate transaction volume by 113.4% quarter-on-quarter to an impressive KRW 5.5 trillion in Q4 2016.

Key transactional highlights from Q4 included the acquisition of Booyoung Euljiro Building, the IFC complex in Yeouido, and Capital Tower. These three deals boosted the average price of Grade A buildings in Seoul from the previous quarter’s KRW 6,395,801 per sq.m. to KRW 6,633,333 per sq.m.

CBRE Research expects limited transaction opportunities in 2017 and forecasts 2017’s transaction will be less than previous years given the record breaking transaction volume witnessed in 2016.

Office

With an increase in vacant space in the CBD, the average vacancy rate in the Seoul Grade A office market raised by 0.45% quarter-on-quarter in Q4 2016, reaching 10.6% while the average effective Grade A office rent in Seoul decreased by 1.8% quarter-on-quarter from KRW 20,906 per sq.m.to KRW 20,574 per sq. m. in Q4 2016.

Darren Krakowiak, Managing Director, CBRE Korea, said, “The tenant retention strategy of Seoul landlords, which includes high incentives, resulted in the decrease in rent. With attractive benefits being offered by landlords, net absorption registered at 64,715 sq.m. and the accumulative net absorption for 2016 stood 233,399 sq.m. CBD also witnessed the strongest leasing demand with 146,141 sq.m., particularly for space in buildings that are relatively new”.

Industrial

Statistics Korea data showed that mobile shopping transaction volume represented an increase of 43% quarter-on-quarter. As the robust growth of online retail is intensifying competition among local retailers battling to secure market share, online-exclusive logistics of many local retailers have been increasingly introduced to the market.

One notable transaction during the quarter was the purchase of the recently completed Sungkwang Logistics Center by KB REITs for approximately KRW 56 billion. The cap rate on the transaction was reported at around 6.9%, which is below the average Grade A logistics yield.

Deals involving Grade A logistics centers were limited this quarter but several transactions are in the pipeline.