Korea Q3 Commercial Market Boosted by Major Transactions

Investment Turnover Spikes as Major Office Deals Confirmed While Leasing Remains Stable

Seoul, October 21, 2016 – Seoul’s commercial property sector performed robustly in the third quarter, driven by a surge in major investments in office space, a stable office leasing environment, and supportive fundamentals in the retail and industrial rental space, according to CBRE Korea’s Q3 2016 MarketView report.

Investment

The completion of several marquee office deals pushed up real estate transaction volume by 129% quarter-on-quarter to KRW 2.575 trillion in Q3 2016. According to CBRE Research, the top five investments deals accounted for 57.1% of total turnover.

Key transactional highlights across the third quarter included the acquisition of the fully occupied Centerpoint Gwanghwamun in the Seoul CBD by Koramco for KRW 307 billion from Master Investment Management. The transaction was also notable due to the KRW 7.9 million per sq.m. closing price, which set a new record for CBD office investment in the Seoul market.

During the quarter, local investors demonstrated a strong preference for core and core plus assets providing stable income streams. Foreign investors opted instead for value added or opportunistic deals, assuming a shorter investment period with higher risks and higher returns.

Office

Average face rents in the Grade A Seoul office market increased by 0.8% quarter-on-quarter. The completion of a sizable volume of new supply ensured that Seoul remained a tenant-driven market over the quarter.

Other highlights included Samsung headquarters building, which had a large volume of vacant space available due to the relocation of its subsidiaries in the previous quarter, leasing around 15,000 sq. m. to the Bank of Korea, which is in the process of remodeling its headquarter building.

Retail

Two major conglomerates, Shinsegae and Lotte, launched new multipurpose malls over the quarter in Greater Seoul to counter oversaturation in the department store and hypermarket segment, and meet evolving consumer preferences.

Shinsegae recently opened Starfield Hanam mall and plans to open five more Starfield malls by 2020. Lotte also announced plans to combine its existing Lotte World Mall and Lotte World Tower to create the biggest shopping mall complex in Seoul.

Industrial

GIC’s completion of the presales agreement for the Hyundai Logistics Center in Icheon, Gyeonggi province helped drive volume in the industrial leasing market. This asset is located in close proximity to leading Korean e-commerce provider Coupang’s logistics center. Hyundai Logistics has reportedly signed a 15-year lease for the asset, which is forecast to provide a relatively stable yield of above 7%.

The robust investment demand for logistics centers and the lack of investable assets resulted in the further appreciation of the value of prime grade assets and an increase in direct developments and pre-sale transactions.