CBRE Korea Records Highest Ever Annual Increase in Seoul Office Rents in 2023

-Office nominal rents rise 8.8%, effective rents up 15% in 2023, continuing upward trend
-Limited office supply and intensifying leasing competition lead to a decrease in rent-free incentives

February 19, 2024 (Seoul) – According to the ‘Seoul Figures Q4 2023 Report' published by CBRE, a global commercial real estate services company, the average nominal rent for offices in Seoul increased by 8.8% year-on-year in 2023, marking the highest increase ever recorded.

The average effective rent for offices in 2023 also showed a high growth rate of 15.1%, continuing the upward trend of office rents in Seoul. Notably, rents were driven up in areas of Yeouido, where there had been no long-term vacancies, and across major business districts, rent-free periods were reduced due to limited supply and intensifying leasing competition. Meanwhile, the aggressive increase in nominal rents by landlords continued as the scope of additional incentives gradually decreased.

Looking at Q4 2023, the average nominal rent for offices increased 1.6% from the previous quarter to 34,472 KRW per square meter, and the average effective rent increased 2.6% to 32,156 KRW per square meter. The vacancy rate fell 0.2% from the previous quarter to 1.5%. By district, the Gangnam Business District(GBD) had the lowest rate at 0.7%, followed by the Central Business District(CBD) at 1.1% and the Yeouido Business District(YBD) at 3.6%.

In Q4 2023, significant leasing transactions in Seoul's office market included Samsung C&T's integrated relocation and FTQ (Flight-to-quality) lease agreements with SM Core and Korea Polyacetal in the CBD, which accounted for 61% of all leasing transactions in the quarter. In the GBD, the GT Tower relocation and lease agreements with Nota and Ace Equity at the Parnas Tower confirmed the robust demand in this district. In the YBD, domestic software developer t’order Inc. completed its move into Park One Tower 2, while Daeryun Law Firm expanded its office space and Meritz Asset Management signed a lease agreement to move into the IFC, continuing leasing activity in the area.

The total transaction volume in Seoul's commercial real estate market in 2023 was 14.8 trillion KRW, a 20% decrease from the previous year as transaction volumes decreased across all sectors excluding logistics. The logistics market's 2023 transaction volume increased about 50% from the previous year to 4.7 trillion KRW, the largest ever, but liquidity constraints due to high interest rates led to declines in transaction volumes in the office and retail markets.

The size of the Seoul commercial real estate investment market in Q4 2023 was 3.4 trillion KRW, with office assets accounting for approximately 2.2 trillion KRW, or 62% of the total. The logistics market had a transaction volume of around 858.2 billion KRW in Q4, while retail was slightly down from the previous quarter at 422 billion KRW.

Claire Choi, Director of CBRE Research Korea, said, "The commercial real estate market in 2023 was somewhat contracted due to ongoing liquidity constraints from high interest rates and the continued gap in expected prices between sellers and buyers. However, with expectations for lower interest rates in 2024, we expect positive changes to begin, including robust market demand in the domestic office market, the gradually recovering retail market, and the stabilizing logistics market."