Myeongdong retail vacancy rate surges to 42.1% as Zara exits

Vacancy rates in Seoul increased during Q3.

The vacancy rates of shopping malls and high streets in Seoul rose marginally, recording 3.4% and 27.9%, respectively. 

According to a JLL report, Noon Square has maintained a vacancy rate of 34.0% for four consecutive quarters, whereas the rates of COEX Mall and Time Stream decreased by 80 bps and 94 bps, respectively. The vacancy rate of Myeongdong recorded 42.1%, surging by 1,569 bps q-o-q as a result of Zara’s exit.

Rents in shopping malls remain high

Both shopping malls and high street rents went up 1.2% and 0.5% q-o-q, respectively. Shopping mall rents in particular, stayed in positive territory. Rents in Gangnam high streets observed upticks, up 1.0% from the previous quarter, Garosu-gil high streets also witnessed an improvement of 0.5%, and rents in other districts’ high streets stayed flat q-o-q.

Market yields for both shopping malls and high streets expanded q-o-q, reaching 5.5% and 5.2% respectively. A notable deal in the quarter was the purchase of Homeplus Haeundae Branch by Istern Investment & Development, SK Ecoplant, and NH Investment & Securities consortium, from MBK Partners for KRW 405 billion. Homeplus is expected to renew their lease after completion of the redevelopment.

Outlook: Investor interest is likely to shift away from retail assets

Amid market difficulties, new strategies to attract Gen Z consumers will continue to be key for offline retailers to adapt to the post-pandemic era. Floating population numbers may increase after the lifting of the on-arrival COVID-19 test requirement. Given weak consumer sentiment, a full recovery of offline retail sales will likely take time. Inflationary pressure may pose a challenge as well.

Overall retail transaction volume may observe a downward trend due to lacklustre investment sentiment. Few deals are likely to be concluded, barring retail assets with great redevelopment potential. Given the lack of dry powder due to liquidity issues, investors are likely to stay away from retail properties.

Note: Seoul Retail refers to Seoul's prime retail market.