Seoul’s Grade A office leasing market remains healthy despite negative absorption | Real Estate Asia

Seoul’s Grade A office leasing market remains healthy despite negative absorption

Demand in Gangnam reached record highs since Q1 2022.

In a report, JLL revealed the net absorption in Seoul’s Grade A office market recorded about -317 pyeong. Scheduled move-ins are expected to fill the temporarily vacant spaces, which had led to the negative net take-up figure. 

However, Seoul’s leasing market has remained healthy with stable occupancy. Yeouido and Gangnam recorded positive net absorption. Gangnam’s quarterly take-up stood at 8,529 pyeong, the highest since 1Q22.

Here’s more from JLL:

A notable leasing deal in the quarter was at Samsung HQ, where Shinhan Bank signed a lease for the space previously occupied by the Bank of Korea. Due to contracts involving Shinhan Bank and Samsung C&T, Samsung HQ successfully filled all vacancies. In addition, Neople, a subsidiary of Nexon, is slated to move into Autoway Tower in Gangnam.

Overall vacancy rate stays flat q-o-q, at 2.0%

No new Grade A office supply was introduced to the market in the quarter.

Seoul’s overall vacancy rate remained at 2.0% following the previous quarter. The vacancy rates in two of the three submarkets recorded a decrease. CBD’s vacancy rate showed an uptick by 152 bps, recording 3.4%. This uptick was attributable to several buildings, such as Pine Avenue and Seoul Square. Yeouido and Gangnam’s vacancy rates reached 1.2% and 1.0%, respectively.

Postponed transactions finally close during the quarter

As leasing demand in Seoul stayed strong, overall effective rent in Seoul Grade A office was KRW 131,554 per pyeong, up 1.5% q-o-q and 10.8% y-o-y. Amongst the three districts, CBD showed the steepest quarterly rent growth of 3.1%, backed by adjustments in face rents in some buildings, such as SFC and Pine Avenue. Meanwhile, the market yield remained unchanged at 4.4% in the quarter.

The office investment volume recorded around KRW 2.7 trillion in the quarter. The acquisition of an office building in Pangyo has been concluded. GIC acquired a 45.08% share of Pangyo Tech One from Naver for approximately KRW 705 billion. Additionally, the deal for Tower 8 in CBD was finally closed as DWS Asset Management sold it to Mirae Asset Global Investments for around KRW 549 billion.

Outlook: Rent growth is expected to decelerate gradually

As rents were already adjusted upward considerably in recent years, Seoul office rents are anticipated to grow, but at a slower pace. Nonetheless, landlords should continue to lift rents significantly once leases expire, as they are well-positioned to raise them given the scarcity of new office stock. As upcoming stock in 2024 is largely pre-leased, vacancy is speculated to remain tight.

Amid thin liquidity, potential buyers are looking to partner with Strategic Investors (SIs), who are seeking offices for self-use. The participation of SIs could lead to outliers in sales prices as they factor in replacement costs of offices rather than taking an investment approach.

 

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