Seoul office transaction volumes drop 30% to KRW9.3t in Q4 | Real Estate Asia

Seoul office transaction volumes drop 30% to KRW9.3t in Q4

Withdrawn deals increased due to a mismatch in bid-ask prices.

According to a Savills report, in Q4/2023, transaction volumes in Seoul’s prime office market was KRW2.0 trillion, down approximately 26% YoY, with annual volume registering KRW9.3 trillion, a 30% decrease from the previous year figure of KRW13.4 trillion. 

“Despite more sellers eager to sell, there was a rise in withdrawn deals due to bid-ask price differentials or delays in closing caused by funding issues post-preferred bidder selection. Additionally, there were a few deals where sellers adjusted prices considering investors' higher return expectations or where preferred bidders were replaced,” the report said.

Here’s more from Savills:

KB AMC acquired Samsung SDS Jamsil Tower from Ryukyung PSG AMC for KRW850.0 billion (KRW28.23 million/pyeong). In a challenging investment environment and stricter lending conditions, KB AMC secured funds through the KB Core Blind Fund, which is backed by KB Financial affiliates. The asset encompasses a GFA of 99,537 sq m (30,109 pyeong), is considered stable with a 10-year long-term master lease to Samsung SDS until mid-2034. 

IGIS AMC sold Majestar City Tower1, located in Seocho-gu, to a consortium of KORAMCO REITS & Trust and NH Investment & Securities for KRW520.0 billion (KRW36.90 million/ pyeong), which is reportedly about KRW5.6 billion less than the initially agreed price of KRW525.6 billion. 

After initial negotiations fell through, IGIS AMC selected the KORAMCONH consortium as the second-highest bidder to successfully complete the deal. The buyer purchased through the KOCREF NO.66 REIT and also announced plans to occupy some office space. The tower is currently leased for longer than five years to reputable IT bluechip companies, including Krafton and Nexon Games. 

KCLAVIS AMC completed a strata transaction of HSBC Building in CBD with Shinhan REITs Management for KRW181.0 billion (KRW24.12 million/pyeong). The decision to sell was made in light of the fund's maturity in November 2023, and Shinhan REITs Management was selected as the preferred bidder for its readily available capital. The lower floors (1-8F), serve as HSBC Bank headquarters, while the upper floors (9-19F), part of the current transaction, are fully occupied by high-credit tenants such as IBK Pension Insurance, Samsung Fire & Marine Insurance, and S-Oil. 

In the emerging business district of Seongsu, Musinsa sold Musinsa Campus E1 to Mastern IMC for KRW111.5 billion (KRW35 million/pyeong) through a sale and lease back transaction. Musinsa, having initially purchased the site for KRW22.0 billion in 2019, has developed it into an office building, realising a development profit. Through this deal, Musinsa secured a dedicated office space, while Mastern IMC stable rental revenue via a 15-year long-term lease agreement. 

The Q4/2023 Seoul prime office cap. rate based on face rents is estimated to be slightly above mid-4%, up an additional 10 bps QoQ due to liquidity concerns in the financial markets. The average 5-year Treasury yield was 3.8% for a spread of approximately 80 bps, while the estimated effective cap rate is around low-4% due to the rise in gross rents. 

The office investment market recorded a peak transaction volume of KRW14.9 trillion in 2021 on abundant liquidity, driving a decline in office cap rates. However, the Base Rate increased sharply from 1.25% to 3.25% in 2022, weakening investor sentiment. Strong leasing market indicators limited the losses in prices, while there was little activity due to valuation discrepancies between buyers and sellers. 

In 2023, increased interest costs, lack of investor capital, and strict loan conditions contributed to heightened uncertainty, leading to a 30% decrease in office investment volume. Also, there was a surge in volume allocated to strategic investors and share deals that leverage lower borrowing rates. 

Recently, with the increase in new deals and the release of assets rescinding preferred bidders, assets available for sale are gradually accumulating. Investor sentiment is projected to improve in 2H/2024, driven by lower interest rates and reduced volatility in the financial markets.


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