Seoul office transaction volume grows 1.6x in Q3

The total transaction value for the first nine months of the year is already 81% of 2023 totals.

The total transaction volume for the Seoul office investment market in Q3/2024 reached KRW4.0 trillion according to a Savills report, an increase of approximately four times compared to the previous quarter and 1.6 times YoY, driven by the inclusion of The Asset, the largest commercial real estate transaction of the year. 

The cumulative transaction volume for the year up to Q3/2024 amounts to KRW7.6 trillion, about 81% of 2023's total volume. 

Here’s more from Savills:

The significant rebound in transaction volume is attributed to the closure of transactions for both high-quality and previously delayed office assets, along with an increased integration of stable office assets into major listed REITs. As funds approach maturity and long-term investors seek to realize profits, the market's liquidity is expected to gradually recover to pre-pandemic levels. 

However, the liquidity in the investment market remains insufficient relative to the available assets, leading to transactions primarily involving high-quality or value-add properties. Listings with significant price discrepancies between buyers and sellers have led to delays or withdrawals in the market. 

With expected transactions including Jeongdong Building, Mirae Asset Securities Headquarters in Yeouido, The Exchange Seoul, Center Place, Koreit Tower, D Tower Donuimun, and Center Point Gangnam in Q4/2024, 2024's office transaction volume is projected to exceed 2023's total of KRW9.3 trillion. 

Shinhan REITs Management purchased City Square near City Hall Station for KRW428.1 billion (KRW 37 million/py) from Hagang Asset Management. City Square has maintained a 100% occupancy rate since its completion, with tenants including Seoul City Hall's Seosomun Second Office and Yido. Additionally, Shinhan REITs Management acquired Fast Five Tower in Da-dong from K REITs Asset Management for KRW119.3 billion (KRW26.11 million/py) through public auction. 

This asset is located near City Hall Station and Euljiro 1-ga Station, fully occupied by Fast Five. Shinhan REITs Management is reportedly considering expansion and redevelopment possibilities after the lease contract with Fast Five ends. 

KORAMCO REITs & Trust sold Icon Samsung (formerly Golden Tower) to Singapore's Capitaland Investment Management for KRW440.8 billion (approximately KRW36 million/py). This asset was the last property of the “Cokrep NPS No. 1 REITs,” formed by the National Pension Service and KORAMCO REITs & Trust. Despite delays in closing the transaction due to funding issues, the deal was finalized after signing an MOU with Capitaland Investment Management a year later. 

Hana Asset Trust’s REIT acquired Hana Financial Group's Gangnam office from Hana Alternative Investment Management for KRW281.9 billion (KRW38 million/py). This asset is strategically located between Gangnam and Yeoksam Stations and serves as headquarters for Hana Capital, Hana Savings Bank, and Hana Asset Trust. The sale previously fell through in October last year due to a price discrepancy between the buyer and seller, resulting in a withdrawal of the sale. 

Hanwha REITs purchased the Hanwha Building in Janggyo-dong from Hanwha Life Insurance for KRW808.0 billion (approximately KRW 36 million/py), adding a new asset to its portfolio. This property, located near Euljiro 1-ga Station, underwent a complete remodeling in 2019 and is currently occupied by Hanwha Group affiliates like Hanwha Systems. Hanwha REITs aims to diversify its portfolio and expand its asset base by acquiring additional real estate held by Hanwha Group. 

Samsung SRA Asset Management purchased Samsung Fire & Marine Insurance Headquarters, known as The Asset, in Seocho from KORAMCO Reits & Trust for KRW1,104.2 billion. This marks the largest commercial real estate transaction of the year. 

The asset, located at the intersection of Gangnam-daero and Teheran-ro, connects directly to Gangnam Station and is regarded as a trophy asset. The bidding attracted strategic, financial, and overseas investors, concluding at KRW45 million per pyeong, with Samsung Fire & Marine and Samsung Life participating as strategic investors. 

As of Q3/2024, the nominal cap rate for Seoul's prime office market is estimated in the mid-to-high 4% range, while the effective cap rate based on actual rents is around 4%. Expectations for interest rate cuts have caused the yield on 5-year government bonds to decrease by 53 bps compared to the previous quarter, widening the spread between cap rates and bond yields to approximately 180 bps. 

Although the rate of rent increases has slightly slowed since last quarter, it continues to show an upward trend, with premium assets like The Asset trading at higher values, suggesting stable cap rates similar to the previous quarter.