Seoul's Grade A office market unfazed by COVID-19

The city's CBD saw the strongest net absorption on the back of robust leasing activities.

Overall net absorption in Seoul was 23,300 pyung in 4Q20. The CBD and Yeouido submarkets saw positive net absorption, while Gangnam’s figure turned negative. Despite the prolonged COVID-19 situation, Seoul’s Grade A office market did not seem to be greatly affected. The CBD submarket observed the strongest net absorption among the three submarkets, on the back of strong leasing activities.

JLL reveals notable deals in the CBD included Woongjin Food (900 pyung) which moved into State Tower Namsan and Hanon Systems (300 pyung) which moved into Ferrum Tower. In Yeouido, Bank Salad (2,200 pyung) moved into Parc 1 Tower 1. Net absorption in Gangnam decreased by -2,800 pyung q-o-q in 4Q20 due to departures of CJ E&M from Parnas Tower and OURHOME from Meritz Tower.

HJ Tower and Yeouido Post Tower come online

In Gangnam, HJ Tower (GFA 9,100 pyung) was added and Yeouido Post Tower (GFA 18,900 pyung) was newly completed in Yeouido. Yeouido Post Office has already signed leasing deals with multiple tenants and is expected to fill up quickly.

Driven by the introduction of new buildings, overall vacancy was recorded at 14.4% in 4Q20, up marginally by 4 bps q-o-q. CBD vacancy went down to 13.1% from 14.9%, with large take-ups seen in Donuimun D-Tower which completed in 2Q20. Yeouido and Gangnam vacancy rates rose slightly, as expected, taking time to stabilise occupancy in new completions.

Grade A office buildings continue to defy COVID-19

Rents in the overall market recorded KRW 93,175 per pyung per month, down -0.6% q-o-q and up 1.9% y-o-y. CBD rents increased 0.6% q-o-q while rents in Yeouido and Gangnam decreased -1.4% and -0.9%, respectively, over the quarter. Seoul’s overall market yield compressed by 11 bps on the back of a strong performance in the investment market.

Investment sentiment in 4Q20 weakened on q-o-q basis, posting around KRW 4.2 trillion. The most prominent transaction in the quarter was Parc 1 Tower 2; NH Investment & Securities Co. and ARA Asset Management purchased the asset for about KRW 1.95 trillion. The year’s total investment volume reached an all-time high of about KRW 16.6 trillion, slightly up from the previous year.

Outlook: Sentiment remains healthy amid good market conditions

In spite of the economic downturn from COVID-19, the Grade A office investment market held up relatively well, propped up by robust leasing demand. In 2021, new supply additions are expected in the CBD and Gangnam submarkets, which may stimulate additional relocations and expansions from tenants.

Backed by low interest rates and strong liquidity, investment sentiment for Grade A office buildings is expected to remain robust. With trickier accounting standards and tax laws, additional large domestic conglomerates may adopt asset-light strategies and sell properties.

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