, Korea

Seoul’s Q1 office leasing activity “outstanding”: JLL

Net absorption has been positive for the past eight quarters.

In 1Q22, JLL says net absorption in Seoul’s Grade A office property market reached 47,400 pyeong, remaining in positive territory for an eight-quarter streak. 

“Considering that the quarterly average net take-up for the past ten years was a meagre 15,400 pyeong, 1Q22 leasing activity was outstanding. The large lease signing in newer buildings as well as spill-over effect from Gangnam and Pangyo contributed to the substantial take-up,” the analyst says.

Here’s more from JLL:

Yeouido marked the highest take-up with 24,823 pyeong on the back of large-scale leases in Parc 1 Towers. CBD’s and Gangnam’s net absorption reached 15,600 pyeong and 7,000 pyeong, respectively. Gangnam’s figure was comparably lower due to lack of leasable space in the submarket.

All three submarket vacancy rates post single-digit figures

No new office buildings were delivered to the market in the quarter.

Seoul’s vacancy rate contracted from 8.0% to 5.5% q-o-q, which is approaching the natural vacancy rate level. By district, the vacancy rate of CBD was 8.8%. Gangnam’s vacancy rate was only 0.4%, almost fully occupied. Yeouido’s vacancy rate plummeted rapidly, recording 7.3%. Considering the vacancy reading was 22.7% exactly a year ago, this submarket’s occupancy has stabilised quickly.

Net effective rents continue to rise amid bullish leasing demand

In 1Q22, Seoul’s net effective rent was KRW 102,592 per pyeong, up 2.2% q-o-q and 6.0% y-o-y. The strong rent growth was attributable to improved occupancy as well as healthy market sentiment. In particular, Gangnam witnessed the strongest rent growth in Seoul, posting KRW 117,330 per pyeong, up 3.3% q-o-q. Meanwhile, the market yield remained unchanged at 3.9%.

The office investment volume recorded around KRW 3.4 trillion. The biggest transaction deal in this quarter was Alpharium Tower in Pangyo, where ARA Asset Management sold to Mastern Investment Management for about KRW 1.02 trillion. Gangnam P Tower was acquired by Koramco REITs & Trust from Hangang Asset Management for KRW 400 billion.

Outlook: Market to remain unabated, backed by healthy demand

No new office supply is scheduled in 2022, and the vacancy rate is likely to remain stable. Hence, net absorption is also expected to be positive, although it will be less than 2021’s volume. This is not due to eroded market sentiment, but rather due to lack of leasable space. Given the landlord-favourable market conditions, rents are anticipated to sustain their positive trajectory.

In January, the Bank of Korea lifted the benchmark interest rate to 1.25%, and is likely to raise it again. Amid rising borrowing costs, office cap rates may be pressured to rise despite healthy investment sentiment. The number of Prime office deals are becoming scarce, which could lead to contraction of transaction volume.


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


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