Seoul office transaction volume nearly doubles in Q1 2024

Transactions grew from KRW1.4 trillion to KRW2.51 trillion.

According to a recent Savills report, the office transaction volume in Seoul in Q1/2024 reached KRW2.51 trillion, reflecting a 1.75-fold increase from the figure of KRW1.4 trillion recorded during the same period last year. 

This accounted for approximately 27% of the total transaction volume in 2023, which amounted to KRW 9.3 trillion. 

Here’s more from Savills:

In CBD, IGIS AMC acquired MetroTower near Seoul Station for KRW415.5 billion (KRW33.39 million/py) from Anda AMC, along with the adjacent Seoullo Tower for KRW309.9 billion (KRW36.73 million/py). Despite challenges in the capital funding since initially signing the sales contract back in 2022, the deal was finally completed this quarter following successful fundraising from various local investors during the second half of 2023. 

IGIS AMC intends to redevelop the two buildings into a prime office with GFA of c. 39,000 py, with the objective to establish a large prime office complex in the area, together with the Millennium Seoul Hilton Hotel Redevelopment Project commenced in Q1/2022.

In Susong-dong, Jongno-gu, Shinhan Seobu T&DREITs purchased Gwanghwamun G-Tower from IGIS AMC for KRW 142.7 billion (KRW 27.50 million/py). This property consists of 51% hotel space and 49% office/retail space,with the hotel being master-leased to Hotel Shilla until December 2030. The office portion is occupied by stable tenants from public institutions and financial industries. 

In GBD, KORAMCO REITs & Trust completed the purchase of Arc Place from Blackstone for a total consideration of KRW791.6 billion (KRW41.72 million/py). Originally completed in 1998, Arc Place was acquired and remodeled by Blackstone in 2016 and is leased to high-quality tenants such as Viva Republica, Lotte Capital, and Dyson Korea. The deal was finalized six months after initially selecting the preferred bidder, at a price adjusted downward from the initial bid price of KRW42.50 million/py. 

Alleman purchased T412 from Hanwha AMC for KRW 327.7 billion (KRW 41.05 million/py). Situated in Teheran-ro near Seolleung Station, the asset garnered interest from various strategic investors during its bidding process. The buyer announced plans to occupy the building as its new headquarters. Currently, the building is fully occupied with no vacancy. 

Sigma Tower in the Jamsil area was sold to Aberdeen Standard Investments, managed under a real estate fund by RIFA AMC, for KRW165.0 billion (KRW19.61 million/py). The building consists of both residential and commercial space, with HL REITs AMC selling the office space spanning 8,414 py. 

Situated just a one minute walk from the subway station as well as the Jamsil Metropolitan Transit Center, the asset boasts excellent public accessibility throughout the Seoul Metropolitan Area. It has been reported that RIFA AMCwill enhance asset value through environmental improvements to the underground lobby and parking facilities. 

The prime office cap. rate for Q1/2024 is estimated at high-4%, based on face rents, marking a 20 bps increase QoQ, while the effective cap. rate, considering leasing concessions, rose by 10 bps QoQ to low-4%. Despite a 44 bps decrease in the average yield on five-year Treasury bonds compared to Q4/2023, transactions closed during the first quarter were negotiated before the decline in interest rates was reflected. Consequently, there is a wider spread, with the return on five-year Treasury bonds showing approximately 150bps QoQ. 

At the end of March 2024, several assets, including The Exchange Seoul, Jeong-dong Building, City Square, and Hi Investment & Securities Building, are available for sale on the market.Investors are listing their assets for sale ahead of the large-scale new supply pipeline in 2026 to rebalance their office allocations, despite price adjustments, though deals may take longer to close due to extended funding periods. 

Nevertheless,with expectations of a rate cut in Korea in the second half of the year, the office investment market is anticipated to pick up. Strategic investors are projected to maintain interest in the office investment market, with transaction volume to rise in 2024, particularly for stable assets, or price-adjusted assets leased to blue-chip tenants.