Building Investment

The State Tower Namsan building in Seoul's popular Myeongdong district.
The State Tower Namsan building in Seoul's popular Myeongdong district.

 

A large number of office buildings in Seoul remain vacant, but prices of premium buildings are skyrocketing.

According to real estate company RE/MAX Korea on August 18, the sale price of the State Tower Namsan is 26.23 million won (US$25,750) per 3.3 m2, or pyeong, which is the highest among office buildings in Seoul. The Abu Dhabi Investment Authority (ADIA), the largest sovereign fund in the Middle East, was selected as a preferred bidder for the sale. The proceeds from the sales of the building amount to 530 billion won (US$520 million).

In the second quarter of this year, the State Oil Fund of Azerbaijan (SOFAZ) purchased Pine Avenue Tower A in Seoul for US$447.5 million. The price of this building also reached 24 million won (US$23,555) per 3.3 m2. It shows that those recently-traded prices surpassed those of premium buildings in downtown Seoul and Gangnam, which are usually sold for 20 million to 22 million won (US$19,634 to 21,595) per 3.3 m2.

With the price of these premium buildings soaring, the price of office buildings in Seoul is also on the rise on average. According to RE/MAX Korea, the average price of 200 office buildings in downtown Seoul increased from 15.37 million won (US$15,085) in Q2 2010 to 15.81 million won (US$15,520) in Q2 2014 per 3.3 m2.

The real estate firm explains that the reason for an increase in the price of office buildings despite a rise in vacancy is attributable to a strong preference for safe assets. Institutional investors and overseas funds consider office buildings to be a place for safe investment, under the circumstances that there is a lack of places to invest stemming from a slump in the real estate market and the low-interest rate trend.

Jang Jin-taek, director of RE/MAX Korea, said, “While going through the 1997-98 Korean Financial Crisis and the 2008 global economic crisis, investors apparently started to believe that building prices would not fall in the long term.”

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