Weaker Demand in 2015 Push up Office Vacancy; Conglomerates Move to CBD as Public Institutions Exit; Free Trade Agreements Bring Internationals
Seoul, February 2, 2015 – CBRE today launches the 2015 Seoul Office Market: Tenant Profile and DemandOutlook report—the first by the firm—helping to give a picture of the composition of Seoul’s office market. The report was compiled by surveying 323 Grade A and B buildings across Seoul’s three major business districts—Central Business District (CBD), Gangnam Business District (GBD), and Yeouido Business District (YBD).The survey found that office leasing demand in Seoul is expected to diminish in 2015 due to weaker demand from a number of key sectors.
“In the financial sector, the tightening of regulations; prolonged low interest rate environment; and tech finance revolution will result in a period of corporate restructuring among banks, asset management companies and securities houses. This trend will result in reduced requirements for office space and translate into weaker office leasing demand,” said Justin Kim, Director of Research and Consulting, CBRE Korea.
“Leasing demand from firms in heavy industries such as construction, shipbuilding, marine transport and steel is also forecasted to weaken due to the overall decline in product demand. These industries expect to go through a wave of corporate restructuring in the coming year. In addition, Seoul also expects to see public institutions exiting core business districts and relocate their major headquarters to surrounding provinces, contributing to the surge in Seoul office vacancy,” Kim adds.
Changes such as these are resulting in composition shifts in some of Seoul’s districts, and are particularly noticeable in Seoul’s CBD. The composition of tenants in this district is changing, especially with the ongoing relocation of several major public institutions moving out from the CBD to areas outside Seoul as part of the government’s ‘Co-existent Development’ initiative. Consequently, CBRE expects the CBD’s symbolic identity as an administrative hub to slowly diminish.
At the same time, however, the CBD has seen a number of Chaebols and other large companies move into the area. In recent years, Hyundai Engineering and Hyundai Amco have moved from Mokdong and Yangjae-dong, respectively, to Hyundai Gyedong, whilst large construction companies such as GS and Daelim have also moved into the CBD. The increased presence of conglomerates and other large corporations in the CBD will further help solidify its standing as the preferred location for major firms.
Domestic Firms Drive Demand but Internationals Increasing
Looking beyond the CBD to the broader market, the survey found that domestic firms are driving demand, accounting for 82% of overall total occupied Grade A and B office space. Leasing demand from legal firms is expected to continue to improve following the government’s recent roll out of a series of Free Trade Agreements with China, Vietnam and New Zealand. Free Trade Agreements with the US and the EU have also resulted in the gradual lifting of entry barriers for foreign law firms. Activity from foreign manufacturing firms is also expected to pick up and will contribute to office leasing demand in Seoul, although this will be insufficient to offset the overall weaker demand from other industries.
“While domestic companies dominate the Seoul office market—with MNCs comprising just 20% of occupied space—the impact of MNCs cannot be underestimated, particularly given the positive effect they have on the local office market. MNCs typically prefer prime buildings and tend to help increase the building quality and reputation, making them the preferred tenants of most landlords,” said Kim.
Findings also revealed that of the three major business districts in Seoul, the YBD—with a heavy concentration of membership organizations, personal services companies and domestic financial firms—has the highest concentration of domestic companies at 88.5%, compared to the CBD and the GBD with 81.8% and 76.4%, respectively. On the other hand, the GBD—with the highest concentration of foreign companies at 23.6%—is a more traditional hub for manufacturing companies; many foreign companies in this sector prefer the area due to its easy accessibility to the highway connecting Seoul with the main port of Busan.
The percentage of foreign companies in Grade A buildings is slightly higher than Grade B buildings across all major business districts, which is in line with the general trend among foreign multinational companies to lease space in higher quality buildings.
The report also reveals that the financial sector continues to dominate, occupying the largest proportion of space of any sector at 33.2%, which is to be expected given the large number of financial companies in the CBD, GBD and YBD. The manufacturing sector follows as the second largest occupier at 16.4%.
“The CBD has long been the main hub for international and domestic financial sector companies, however, in the YBD, companies in the financial sector dwarf other industries, occupying more than half of Grade A and B office space in this district. The YBD is often referred to as Seoul’s equivalent of Wall Street and is home to a large number of domestic financial corporations,” said Kim.
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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 (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
