CBRE: ‘Despite COVID-19, commercial real estate transaction volume reaches record 17.5 trillion won in 2020’

- Local buyers account for more than 90% of investment volume over the year
- Investor demand for core office buildings and logistics facilities expected to remain solid

March 3, 2021 (Seoul, Korea) – CBRE, a global commercial real estate services company, announced that according to its 2020 Q4 Marketview report, investment volume in Greater Seoul reached 5.37 trillion won in Q4 2020, bringing the full-year total to 17.5 trillion won, a record high. The figure surpassed the previous record set in 2019 of about 16 trillion won.

Don Lim, Managing Director of CBRE Korea, said, “Despite the pandemic, investment volume increased compare to last year. Cross-border investment inevitably declined due to pandemic-related obstacles such as travel restrictions and an inability to perform site inspections. However, this was more than offset by active purchasing by local buyers, which accounted for more than 90% of investment volume over the year.”

Office, logistics and retail volumes recorded similar or higher levels than in 2019, while deals for hotels declined significantly. Nine major logistics investment deals totaling 710 billion won were closed in Q4 2020, bringing full-year transaction volume to 2.34 trillion won, a similar figure to 2019. The number of logistics deals rose by 50% to 27 in 2020.

Claire Choi, Head of Research at CBRE Korea, explained, “In Q4 2020, the average yield for Seoul Grade A offices was 4.4%, while the average yield of prime logistics centers in Greater Seoul stood at 5.7%. With the pandemic expected to continue in 2021, investor demand for core office buildings and logistics facilities will remain solid, leading to additional compression in average yield.”

Office
Q4 2020 saw the completion of Samil Building and Yeouido Post Office Building, which brought full-year Grade A new supply to 717,000 sq.m. in 2020. Despite the addition of new supply, average vacancy remained unchanged from the previous quarter. Leasing activity was driven by domestic companies with those in the manufacturing and financial industries especially prominent. But vacancy in Yeouido Business District (YBD) – in which 60% of new office supply in 2020 was located – rose by just 1% q-o-q. Strong leading demand continued to provide support to average effective rents.

Retail
Due to COVID-19, occupancy and sales of offline retail operations such as duty-free, department stores and small- and medium-sized properties declined sharply in 2020. However, online retail sales remain upbeat. The projected 2020 online sales total of 160 trillion won would represent 43% of total retail sales. Retail operations were negatively impacted during the Christmas period due to the introduction of restrictions to contain a resurgence in COVID-19 infections. On the other hand, demand for luxury goods and home furnishing has held up well despite the pandemic. The development of large shopping malls and outlets is shifting to the outskirts of the metropolitan area to cater to demand for lower density and conveniently located retail environments. New additions in Q4 2020 included Hyundai Premium Outlet Namyangju Space1 and Shinsegae Starfield Anseong.

Logistics
Four new Grade A logistics properties providing a total of 222,000 sq.m. came on stream in Q4 2020. Full year new supply totaled a record high 1.75 million won. Robust demand from e-commerce platforms and third-party logistics (3PL) providers helped pull down logistics vacancy to 3.2% in H2 2020, a 2.5%pt drop from H1 2020. Rents increased by 1.2% in H2 compared to H1 due to the addition of new supply with higher asking rents. The y-o-y rent increase was 0.6%.

Investment
Investment volume reached 5.37 trillion won in Q4 2020, bringing the full-year total to a record 17.5 trillion won. Major transactions completed in YBD and Gangnam Business District (GBD) included Parc One Tower 2, the Pinnacle Gangnam, Platinum Tower and WeWork Tower. Transactions for retail properties accounted for 17% of total investment volume in Q4 amid steady purchases of small- and medium-sized properties by individuals and corporates. In the logistics sector, nine transactions were completed in Q4, mainly by local institutional investors.

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