,Korea

Seoul sees robust office occupier demand, investment sentiment in Q2

All major submarkets in the city recorded positive net absorption during the quarter.

Seoul’s Grade A office market saw 56,400 pyung of net absorption in the second quarter of 2021, signalling strong occupier demand in all three submarkets. Notably, JLL said net absorption in Yeouido and Gangnam was recorded at 24,800 pyung and 27,300 pyung, respectively, largely attributable to leases in newly added buildings.

“Among notable deals, E-chon accounting firm moved to Yeouido Post Tower taking up 1,800 pyung. MTN and Eusu Holding equally occupied about 600 pyung of the building. In Gangnam, Center Field welcomed new tenants such as Krafton (about 4,100 pyung) and Shinsegae Property (about 3,400 pyung). In the CBD, D Tower signed with MH Power Systems Korea (about 700 pyung).”

Here’s more from JLL:

Vacancy rates drop in all three submarkets

ICON Cheonggye (GFA 18,300 sqm) was newly added to the CBD Grade B basket during the quarter.

Overall vacancy rate of Grade A office tumbled to 12.3%, down 299 bps from the previous quarter. CBD’s vacancy rate fell 57 bps q-o-q to 12.2%. In Yeouido, the vacancy rate sharply contracted to 17.4% on a quarterly basis, down 523 bps. The vacancy rate in Gangnam fell from 12.8% to 8.6% q-o-q, underpinned by strong leasing activity in the newly completed Center Field building.

Investment volume in 2Q21 recorded at KRW 4.9 trillion

Seoul’s overall effective rents posted KRW 96,839 per pyung, increasing by 0.2% q-o-q and 3.2% y-o-y. By district, rents in CBD and Gangnam marginally decreased -0.1% and -0.6%, q-o-q respectively, as rent-free periods expanded slightly. On the contrary, Yeouido’s rent increased 1.8% on q-o-q basis as buildings with improved occupancy reduced tenant incentives.

Overall investment sentiment remained upbeat, exceeding KRW 4.9 trillion on the back of strong investor appetite. Seoul’s market yield compressed by 8 bps q-o-q. The most prominent transaction concluded in the quarter was the sale of shares in Lotte World Tower for about KRW 1.39 trillion. Another large deal was H square in Pangyo, where Koramco Asset Trust sold to KOREIT for KRW 694 billion.

Outlook: Office investment sentiment is expected to remain robust

The recent influx of new supply encouraged tenants to upgrade to newer buildings. In addition, the Grade A office market has shown resilience to economic downturn, boasting strong demand. Given the aforementioned factors, net absorption is expected to stay in positive territory. Nonetheless, vacancy could remain in double-digits as it would take some time to absorb the space in new buildings.

Despite concerns over a potential rise in interest rates, investment sentiment is expected to stay healthy on the back of abundant liquidity. However, lack of prime office deals could lead to a lower transaction volume overall. Hence, investors could also start looking into Grade B assets as well. Additionally, eased travel curbs could bring foreign capital into the market.

 

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

 

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