Seoul Grade A office rents up 9.4% in Q1 | Real Estate Asia

Seoul Grade A office rents up 9.4% in Q1

CBD saw the highest rental growth of 4.3%. 

Net effective office rent in Seoul was KRW 137,153 per pyeong per month, up 2.4% q-o-q and 9.4% y-o-y, according to data from JLL. Due to the influence of seasonal factors, landlords tended to adjust their rents during the new-year period. 

“CBD had the highest rent growth at 4.3% q-o-q. Yeouido and Gangnam witnessed a rise of 2.5% and 1.5% q-o-q, respectively. The office cap rate remained at the same level in the quarter, at 4.5%,” the analyst said.

Here’s more from JLL:

Office investment volume in 1Q24 is estimated to be approximately KRW 3.0 trillion. The largest deal in the quarter was Arc Place, in which JLL participated as a broker. It was sold by Blackstone to Koramco REITs and Trust for approximately KRW 791.7 billion. This was also the seventh-largest office transaction since 2020.

Net absorption reflects lack of significant change

Seoul experienced a relatively subdued quarter, with net absorption of 1,623 pyeong. Notably, both the CBD and Gangnam saw negative net absorption of -1,584 pyeong and -82 pyeong, respectively. In contrast, Yeouido recorded net absorption of 3,288 pyeong. The quarter’s net absorption was primarily driven by the movement of tenants into and out of properties that had been contracted last year.

Most of the largest leasing deals this quarter occurred at TP Tower, which was completed in Yeouido in the quarter. Shinhan Financial Group, Daou Kiwoom Group, Woori Investment & Securities and Timefolio Asset Management entered into lease agreements. Even before its completion, TP Tower had garnered significant attention from prospective tenants, further solidifying its reputation in the market.

One new Grade A office building completes during the quarter

In Yeouido, TP Tower (about 42,862 pyeong) was completed in the quarter. 

The overall vacancy rate in Seoul was observed to be 3.6%, up by 208 bps q-o-q. However, it is worth noting that this increase is primarily due to tenants in TP Tower who have not yet completed their move-in. More specifically, the CBD’s vacancy rate stood at 1.7%, while Yeouido experienced a temporary surge, reaching a vacancy rate of 10.5%. The vacancy rate in Gangnam was found to be 0.3%.

Outlook: Leasing sentiment remains solid amid limited supply

Given that there are no further plans for Grade A office supply in 2024, the Grade A office vacancy rate is expected to be very low again for the time being. However, as two Grade B offices are scheduled to be supplied in the CBD, localised fluctuations may occur within specific market segments by the end of the year.

Despite the high expectations of a potential benchmark interest rate cut in 2H24, there may be some delays in the trading market; hence, the cap rate is expected to remain at a similar level until the year-end. Transactions are expected to predominantly centre around core assets located in prime areas as investors seek to capitalise on favourable market conditions and secure valuable properties.

Note: Seoul Office refers to Seoul's Grade A office market.


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