CBRE: ‘Total transaction volume to reach 17 trillion won this year, roughly on par with last year’

- Abundant liquidity and low interest rates point to active investment climate
- Korean companies seeking to improve financial structure and free up capital expected to enter sale leaseback deals

February 24, 2021 (Seoul, Korea) – CBRE, a global commercial real estate services company, announced that according to its Korea Real Estate Market Outlook report, with several major Grade A office buildings and logistics centers expected to change hands in 2021, Korean commercial real estate investment volume is expected to reach 17 trillion won, roughly on par with last year.

“Foreign investors are increasingly drawn to the Korean capital owing to the country’s relatively successful containment of the pandemic, and Seoul was named in the top three most attractive markets, according to CBRE’s 2021 Asia Pacific Investor Intentions Survey,” said Don Lim, Managing Director of CBRE Korea. “We predict that investors will be active in the market this year based on abundant liquidity and low interest rates.”

Despite COVID-19, Korea’s transaction volume went up in 2020, in contrast to most markets in the APAC region. “Furthermore, Korean buyers will retain a strong appetite for overseas real estate, which inevitably declined in 2020 due to pandemic-related obstacles, particularly for the purposes of portfolio diversification,” added Lim.

CBRE foresees several trends coming from the prolonged COVID-19 pandemic. Korean companies seeking to improve their financial structure and free up capital are expected to contemplate sale leaseback deals in 2021 a movement that will provide investors with opportunities to acquire stabilized office assets. Insurance companies will be especially amendable to sale leasebacks. In the hotel sector, transactions are expected to begin to recover and some domestic developers will consider converting hotels, depending on their locational appeal and development potential.

“The yield gap between offices in core locations and properties in outer areas will broaden in 2021, with yields for prime office assets in the Central Business District (CBD) and Gangnam Business District (GBD) expected to fall further,” said Claire Choi, Head of Research at CBRE Korea. “Since the onset of the pandemic, Grade A logistics prices have risen steadily amid robust investor demand for properties in Greater Seoul. This has led to a continued decline in average yields for logistics assets, resulting in some prime assets recently transacted at a yield of mid-4%. With investment in logistics expected to accelerate further in 2021, additional yield compression for Greater Seoul prime logistics centers is inevitable.”

Office
Around 213,000 sq.m of new Grade A office supply will be completed in Seoul this year, equivalent to 70% of the average annual supply over the past 10 years. An absence of new supply is set to alleviate pressure on vacancies and allow a recovery in effective rents. As companies evaluate the impact of the pandemic on their office requirements, a bifurcation of demand for large and small office space will emerge.

Retail
It is expected that retail rents will decline slightly in 2021 amid continued pandemic-related economic headwinds. Overall effective rents are forecast to fall by 2-3%. Retail leasing demand is expected to be directed into opening experiential stores, many of which are likely to require larger floor areas to allow for social distancing. It is also predicted that stronger demand for retail space catering to nearby residential catchments will appear as more shoppers opt to stay closer to home.

Logistics
A record high 2.0 million sq.m of new logistics space is scheduled to come onstream in 2021, the bulk added mainly in the southern region of Greater Seoul, such as in Icheon, Yongin and Anseong, as well as in Incheon, which will take 40% of this year’s total supply. New supply will lead to slightly higher vacancy numbers, but overall vacancy is forecasted to remain at around 5% except for areas with a particularly high volumes of new stock, such as Incheon. E-commerce platforms and third-party logistics (3PL) outfits, which occupy three-quarters of Grade A logistics space in the Greater Seoul area, remain key demand drivers in the market. The expansion of same-day e-commerce delivery and growth of 3PLs will drive demand for transfer center properties. Other key trends include stronger demand and higher values for distribution centers near residential locations.

Investment
With several major Grade A office buildings and logistics centers expected to change hands in 2021, total transaction volume is expected to reach 17 trillion won, roughly on par with last year. Office transactions in the pipeline include the SK Seorin Building, Samil Building, Pine Avenue Tower B, Metro Tower, Samsung Fire Yeoksam Building and Yeouido Finance Tower. Logistics centers are expected to witness a significant increase in transaction activity in 2021. Buying activity will be underpinned by the advance purchases of new supply. Major logistics deals in 2021 are likely to include Mirae Asset’s logistics portfolio, Incheon Dohwa Logistics Center, Gimpo Logisfield and Dongwon Giheung Logistics.

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