Slight Rent Increases
The transaction volume of Seoul’s commercial real estate investment market increased by 50.2% quarter-on-quarter (q-o-q) in the fourth quarter of 2017.
CBRE Korea, a global commercial real estate service company, announced today that the commercial real estate transaction volume in Seoul reached 2.59 trillion won in the fourth quarter of 2017 according to its “CBRE Korea’s Q4 2017 MarketView” report released today. Due to stable occupier demand, the average rent of effective Grade A office buildings in Seoul increased slightly, indicating that some landlords in the Gangnam business district), central business district) and Yeouido business district reduced incentives. Leasing activity also picked up in YBD after landlords of prime assets offered attractive incentives, which improved the competitiveness of their properties compared to other Grade A offices.
Darren Krakowiak, CBRE Korea Managing Director said, "The commercial real estate investment market has been strong in both the size and number of transactions in the past quarter, with additional major transactions scheduled for the first half of this year.”
The commercial real estate market in the fourth quarter of last year by sector breaks down as follows:
Office
Average effective Grade A office rents in Seoul increased by 0.55% q-o-q to KRW 20,836 per sq. m. Stable occupier demand in the GBD and CBD prompted the landlords of several buildings to reduce incentives, which drove the increase in net effective rents. Especially, following three stagnant quarters, leasing activity picked up significantly in YBD after landlords of prime assets offered attractive incentives, which improved the competitiveness of their properties compared to other Grade A offices. Three IFC Building in YBD, which has recorded long-term high vacancy since its opening, secured several local and foreign tenants, including a law firm and several financial companies, during the quarter.
Retail
The increase in the minimum wage effective January 1, 2018 is expected to influence the retail market this year. CBRE Research understands that many retailers are considering reducing the number of new hires, as well as closing underperforming stores, to save costs. Meanwhile, growth in the cosmetics sector had been severely hampered by a clampdown on Chinese group tours to Korea, however, recent months have seen relations between China and Korea improve and signs of a recovery in tourism arrivals. While this recovery is still at a nascent stage, selected cosmetic retailers are planning expansion in anticipation of a full recovery.
Industrial
Logistics space remained keenly sought after in Q4 2017, with the third-party logistics (3PLs), manufacturing and e-commerce sectors expanding continuously. Demand was led by 3PLs, which continue to secure additional space after signing new clients, and manufacturers, particularly furniture and cosmetics firms, which have been expanding and consolidating. New Grade A logistics supply in Greater Seoul in Q4 2017 totaled 204,000 sq. m. New stock included Iljuk Logistics Centre located in Anseong; Gachang Logistics Park in Icheon; Dohwa Logistics Centre in Incheon; and Siksa-dong Logistics Centre in Ilsan. The new additions brought total Grade A logistics supply additions for 2017 to 625,680 sq. m.
Investment
The investment market enjoyed a strong finish to 2017 with both transaction volume and the number of deals surging on a quarterly basis. Transaction volume increased by 50.2% q-o-q to KRW 2.59 trillion while the number of completed transactions rose to 41. Transaction activity is expected to pick up in the coming months, with three major Grade A office asset deals—The-K Twin Tower, Pacific Tower, and Centropolis—expected to be closed in H1 2018. The-K Twin Tower (83,878 sq. m. GFA), which is expected to break the record for the highest unit price for a commercial property asset in Korea. The asset’s preferred bidder, Samsung SRA Asset Management, is reported to have submitted a bid of approximately KRW 700 billion, equivalent to just over KRW 28 million per pyeong (3.3 sq. m.).