Korea's Q2 Commercial Real Estate Market Enhanced by Major Transactions

Investment Market Spikes as Major Office Deals Confirmed While Leasing Remains Stable, Foreign F&B Brands Continue to Drive Leasing Demand

Seoul, July 20, 2017 – Seoul’s commercial property sector performed robustly in the second quarter, driven by a surge in major investments in office space, a stable office leasing environment, and increasing drives for F&B brands in the retail and expansionary demands for industrial space, according to CBRE Korea’s Q2 2017 MarketView report.

Investment

The investment market turned more active in Q2 2017. The completion of the number of office deals pushed up real estate transaction volume by 97.5% quarter-on-quarter to KRW 1.7 trillion in Q2 2017.

Strong demand for stable assets with relatively low vacancy risks is constantly being witnessed in, with a representative example being the Yuanta Building change hands for over KRW 7.7 million per sq.m., higher than the average capital value of KRW 7.4 million for Grade A office buildings in the CBD.

Also, during the quarter, the transfer of ownership of Signature Tower, a Grade A office, was completed at a below average price of KRW 7.3 million per sq.m. due to expected substantial vacancy risks of several anchor tenants.

Office

Average effective rents in the Grade A Seoul office market increased by 0.38% quarter-on-quarter from KRW 20,634 per sq.m. to KRW 20,713 per sq.m. in Q2 2017. Both face and effective rents grew at a similar rate due to the same level of incentives offered.

n addition, Seoul average Grade A office vacancy rate rose by 1.08pp to 11.35% in Q2 2017. Despite new office buildings exceeding 90% occupancy, CBD vacancy rose by 1.78pp due to relocations from older buildings such as Pine Avenue A. The average vacancy of Grade A office also increased in the GBD following the relocation of Kolon FnC and in the YBD, most tenant movement occurred within the district, which limited any change in vacancy.

Retail

Foreign F&B brands continued to drive leasing demand in Q2 2017. A part of a placemaking strategy, major local retailers and landlords are also introducing well-known foreign F&B brands to the market for their new outlets and shopping malls.

The Seoul station area is attracting attention with the opening of the Seoullo 7017 in last May. Areas in the vicinity of the station including Namdaemun Market have benefited from an increase foot traffic. The Seoul Metropolitan Government reported the total visitor count to the area exceeded 2 million in just one month.

Darren Krakowiak, Managing Director, CBRE Korea, said, “Other landlords in the area with the potential to have a dedicated elevated connection to Seoullo 7017 are reviewing the opportunity.”

Industrial

A total of four new Grade A logistics centers were completed in the Greater Seoul area in Q2 2017. These included SKYBOX and SKYBOX 2 (GFA 35,400 sq.m. and 50,200 sq.m.) of IGIS Asset Management, located within the Ara Canal logistics complex. Other new completions included MQ Baekam logistics center (GFA 44,327 sq.m.), which was pre-purchased by Deutsche Asset Management and Logiport Incheon (GFA 43,000 sq.m.), pre-purchased by LaSalle Investment, was completed in Icheon.

In addition, Deutsche Asset Management acquired KRW 78.6 billion worth of Anpyeong DPL logistics center (GFA 62,071 sq.m.) in Icheon while IGIS Asset Management pre-purchased Yangji multicomplex logistics center for KRW 400 billion.