Seoul’s office space market to remain strong despite dampening factors

Despite the slowing economy and pessimistic growth outlook, Seoul’s commercial real estate market is expected to maintain its momentum throughout 2019-2020, according to key global real-estate service providers here.

Both CBRE Korea and JLL Korea said in their recent quarterly real estate reports that the vacancy rate for Seoul’s grade A offices would remain in the single digit as of the third quarter this year.

CBRE’s figure came to 8.9 percent, down 1.5 percentage point on-quarter, marking a single digit for the first time since 2014. JLL Korea set the corresponding figure at 9.6 percent, up slightly from the previous quarter but still more or less the lowest level since 2012.

“(Seoul’s) office space market will prolong its boom, on the back of the lowered interest rate, abundant liquidity and the supply of new quality buildings,” JLL Korea said in its Korea Property Digest.

Earlier this month, the Bank of Korea lowered its policy rate to the lowest, 1.25 percent -- its second monetary easing action in response to growing external uncertainties and the slowing economy.

Pointing out that the sluggish economy could discourage businesses from relocating or expanding their offices, the company suggested that the total net gross area of offices may decline slightly on-year over the next 12 months.

But considering the constant demand for newly supplied buildings and persistent relocating needs of conglomerates, the city’s downtown zone -- the Central Business District, or CBD -- is likely to remain popular, especially as the Gangnam Business District is running out of available space, it analyzed.

The financially packed Yeouido Business District, while expecting steady demand for a while, is likely to see downside pressure on lease fees due to the completion of Parc One in the latter half of 2020.

CBRE, the world’s largest commercial real estate service and investment firm, estimated that Korea’s commercial real estate transactions for the third quarter totaled 3.6 trillion won ($3.01 billion). Of the amount, some 2.3 trillion won came from office space deals, mostly in the downtown CBD.

A representative item was the Booyoung Eulji Building, which local builder Booyoung Group successfully sold to Douzone ICT Group for 456 billion won.

City Square, a large-sized office building completed in the second quarter, was acquired by Hangang Asset Management in the third quarter at 239 billion won.

“The commercial real estate market has remained lively throughout the third quarter, with the accumulated investment volume standing at around 11 trillion won (as of end-September),” said Don Lim, CEO of CBRE Korea.

“In light of the latest market turnout, we expect this year’s total investment volume (for commercial space) to surpass the 13 trillion won mark.”

By Bae Hyun-jung (tellme@heraldcorp.com)