CBRE Korea releases Seoul MarketView Q1 2019 report - ‘Investment market remains active amid steady leasing activity’

April 25, 2019 (Seoul, Korea) – CBRE Korea, a global commercial real estate service company, announced that commercial real estate transaction volume stood at 3.1 trillion won in Q1 2019, a decline of 5% q-o-q, according to CBRE Korea’s Q1 Marketview report. Office transactions comprised 84% of the total.

Don Lim, Managing Director of CBRE Korea, remarked, “Abundant liquidity and robust investment demand, together with stable Grade A office leasing, resulted in a steady flow of office deals. The lack of high-quality stock available for sale resulted in intense competition among investors.”

Claire Choi, Head of Research at CBRE Korea, said, “Six new Grade A logistics assets were completed in the Greater Seoul area in Q1, which is equivalent to 43% of the new supply scheduled for this year, but pre-leasing has been slow as major anchor tenants have recently secured major logistics spaces. Lifestyle retailers continued to perform well.”

Office

Grade A office leasing momentum in Seoul’s major business districts remained stable in Q1 2019. Steady net absorption and the absence of new supply ensured overall vacancy fell to 10.3%, a decline of 0.8%pt q-o-q. Demand was strongest in the Gangnam Business District (GBD), where new buildings such as N Tower and Luceen Tower completed in H2 2018 continued to secure tenants. Vacancy in the Yeouido Business District (YBD) declined in prime office buildings including Two and Three IFC. Although a number of domestic companies relocated in the area, steady leasing activity in the Central Business District (CBD) failed to bring down the vacancy rate because of the addition of a new 100% vacant asset.

Retail

Retail sales for Q4 2018, the most recent period for which data is available, totaled 94.7 trillion won, an increase of 4.2% q-o-q and 3.4% y-o-y. Duty-free sales recorded the strongest y-o-y growth of 23.1%. Online sales, comprising internet and mobile, registered 11.6% q-o-q and 22.8% y-o-y growth in Q4 2018. The portion of mobile sales was 62.2%, the highest figure for two years. Additionally, lifestyle retailers continued to perform well, and department stores are joining the lifestyle trend by allocating additional space.

Industrial

Six new Grade A logistics assets were completed in the Greater Seoul area in Icheon, Yongin, Gimpo, Gunpo and Goyang in Q1 2019. However, pre-leasing in these new projects has been slow as major anchor tenants have recently secured major logistics spaces and are reducing new lease contracts. More developers are focusing on ascertaining the optimal configuration of dry, cold and frozen space in logistics facilities. Several major tenants are securing customized assets by primarily looking into those assets that are willing to accept various requirements from the development stage. In addition, the absence of any major logistics transactions in Q1 2019 ensured average prime logistics yields remained unchanged.

Investment

Commercial real estate transaction volume stood at 3.1 trillion won in Q1 2019, a slight decline of 5% q-o-q. Office transactions comprised 84% of the total. The largest Grade A office deal involved Seoul Square in CBD, which was sold for approximately 980 billion won. Investors displayed robust demand for space in the GBD, where leasing demand is strongest, but investment options remained limited and no Grade A assets were transacted during the quarter. Additionally, average effective yields for Seoul Grade A office market were stable at 4.7% in Q1 2019.

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