Seoul, August 20, 2015 – CBRE today launches its latest report, The Decentralization of the Seoul Office Market, which reveals that a number of new and emerging business districts have begun to see stronger leasing demand, supported by government-led initiatives to promote growth in cities around Seoul. The report was compiled by researching Seoul’s three major business districts—Central Business District (CBD), Gangnam Business District (GBD), and Yeouido Business District (YBD)—and emerging districts such as Sangam Digital Media City (DMC), Pangyo Techno Valley, Songdo Business District, and Jamsil, Munjung and Yongsan districts.
Major Office Districts in Seoul
Source: CBRE Research, August 2015
Driven by restructuring issues, cost controls and having to adjust to a weaker economic growth, domestic conglomerates—which account for a significant portion of Seoul’s leasing demand—have been steadily relocating out of the three main business districts in recent years. Many companies have been taking advantage of government subsidies and incentives to move into newly formed districts.
“Authorities have provided companies with tax incentives and other benefits to create research and development, and IT-focused clusters in areas such as Pangyo Technology Valley and Sangam DMC, a move which has prompted a number of companies to relocate from the original three business districts,” said Justin Kim, Director of Research and Consulting, CBRE Korea.
Another government-led driver of the decentralization trend—first proposed in 2003 and expected to be completed in 2017—has been the initiative to relocate numerous government institutions, affiliates, subsidiaries and corporations away from Seoul to metropolitan areas across the country. To date, nearly 110 government-related institutions have been relocated from the CBD and GBD.
Mr. Kim adds, “with the planning and construction of new transportation infrastructure by the Greater Seoul metropolitan council, which covers Seoul, Gyeonggi and Incheon, this has also helped facilitate the decentralization trend in the office leasing market.”
Emerging Submarkets Expand into New Business Districts
With the government set to provide incentives and tax breaks, the wave of relocations from the major three business districts by conglomerates is set to gather pace in certain emerging hubs:
- Sangam DMC: Originally developed to enhance the media and entertainment (M&E) sector, overall vacancy has steadily declined in recent years, supported by the relocation of media companies such as MBC from YBD, and YTN, JTBC and TV Chosun from the CBD. Factors such as lower construction costs and prospects of an improved working environment have contributed to these moves.
- Pangyo Techno Valley: Formed in 2009 to promote an advanced technology and innovation cluster focusing on information technology, biotechnology, culture technology and nanotechnology, this district is becoming a preferred location for rapidly expanding IT companies requiring large spaces for their corporate headquarters. IT and venture capital companies such as Nexon, NC Soft, Neowiz Game, Daum Kakao and KG Inicis have been moving into their own headquarters buildings, pushing down overall vacancy in the district.
- Songdo Business District: Originally designed to serve as South Korea’s international business district providing tax breaks to multinational companies, this hub has attracted several global organizations such as the Green Climate Fund Headquarters and the World Bank. Domestic companies such as POSCO, Daewoo International, Kolon Industries and Celtrion have also relocated their headquarters to this district.
- Jamsil, Munjung and Yongsan Districts: Jamsil is another up-and-coming business district, attracting companies such as Samsung SDS and Dongyang Networks. The Munjung district is an emerging hub for the legal sector and has also been earmarked as a knowledge industrial center, which should help attract conglomerates to the area. The emergence of Yongsan is set to exert further pressure on Seoul’s established business districts, boosted by LG Uplus’ presence and Amore Pacific’s expected relocation in 2017.
Even though Sangam DMC and Pangyo Techno Valley are now well-established alternative business districts, these areas are still only permitted to host companies operating in the M&E and technology sectors. Landlords will therefore find it challenging to attract tenants from the three major business districts in the short-term. However, as these limitations are gradually relaxed and removed, these two districts and other new areas will see stronger demand as more companies seek cheaper and better office space outside the main business districts.
CBRE recommends tenants to take advantage of the flight-to-quality opportunities as more Grade A office buildings will become available at lower rents in the emerging business districts. For landlords, owners need to adopt a more flexible attitude towards leasing negotiations and incentives in order to attract new tenants in what is a very competitive market.
“Landlords in established business districts should be prepared to compete with those in emerging areas. As infrastructure and transportation networks to these new business areas are improved, the decentralization trend will exert an even stronger influence over the Seoul office leasing market. The government’s continued effort to promote the growth and development of new districts will also support the wave of relocations by South Korean conglomerates,” said Mr. Kim.
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