Seoul's prime office vacancy rates decline, whilst rents increase in Q2
Vacancy rates stood at 6.9%, and rents inched up 1.6% YoY.
Savills notes that the significant supply additions due in the second half of the year are expected to add upward pressure on vacancy rates.
There were no new prime offices delivered in Q2/2020 due to delays in completions, and the Seoul prime office vacancy rate fell 0.6 ppt quarter-on-quarter to 6.9%.
On the move-in of tenants who had settled contracts prior to the COVID-19 outbreak, Seoul prime office occupancy rose, and face rents remained largely unchanged compared to the previous quarter.
Here’s more from Savills:
SUPPLY
There were no new prime offices delivered in Q2/2020, as the completion of SG Tower (Former Namdaemunro-5-ga Urban Renewal Project) which had been targeted for June 2020, was delayed to the next quarter. In addition to SG Tower in CBD, the development pipeline for the remainder of the year consists of three projects in YBD (Parc.1, KB Financial Town, and Yeouido Post Tower), and one in GBD (HJ Tower). In terms of office GFA, supply in 2020 is forecast at 125,000 sq m in CBD, 42,000 sq m in GBD, and 513,000 sq m in YBD.
DEMAND AND VACANCY RATES
Leasing demand for Seoul prime offices was positive across all districts, totaling 35,700 sq m in Q2/2020 for the quarter. In CBD, Citibank completed its progressive relocation to Citibank Center and Young City after the sale of its HQ, but overall net absorption came in at 700 sq m on the back of upgrade demand from tenants such as Lotte Card to Concordian and SSG.com to Centropolis. GBD recorded 23,600 sq m of net absorption as the Korea Intellectual Property Service Center left vacant by bkl was taken-up by Fintech firms. The figure was 11,400 sq m for YBD, with new organizations and a flight to quality the primary sources of demand.
The vacancy rate for Q2/2020 stood at 6.9%, down 0.6 ppt QoQ. CBD’s vacancy rate was the same as last quarter at 9.7%, as most of the movement was limited to within the district. GBD was down 1.1 ppt QoQ to 2.7%, on the back of activity from Fintech and IT companies. Vacancy in YBD tightened to 7.6% from 8.4% last quarter, a drop of 0.8 ppt, on lettings to numerous financial firms who opted for prime space from previously occupying secondary buildings.
RENT
Average Seoul prime office rents for Q2/2020 were KRW100,700/3.3 sq m, up 1.6% YoY. By district, CBD was up by 1.0% YoY, GBD by 2.2% YoY and YBD 2.3% YoY. Rents remained largely unchanged compared to the previous quarter, as most contracts were settled prior to the COVID-19 outbreak and no new supply came to market.
The average maintenance fee was KRW41,700/3.3 sq m, up 1.5% YoY. In line with rental changes, the rate of increase was highest in YBD at 1.8% YoY, followed by GBD at 1.7% YoY and CBD at 1.3% YoY.
OUTLOOK With most notable leases having been signed earlier this year, current market metrics are likely to be lagging actual occupier demand. For example, while the co-working space operator Spaces signed for a new branch opening with Autoway Tower back in Q4/2019, the lease was only reflected in vacancy rates upon its move-in two quarters later. Even in the third quarter, there will be some move-in activity from contracts finalized prior to the outbreak, such as the relocation of foreign financial firms to Centropolis in CBD.
While take-up in YBD held up well during the first half of the year thanks to upgraders and new sources of demand – Seoul CityFinancial Services Commission settling into One IFC for example – the significant supply that will be added within the year will pose a challenge and add upward pressure on vacancy rates. Moreover, marketing rents for Yeouido Post Tower, expected in December of 2020, are KRW54,200/pyeong for mid-level floors. Despite being a brandnew development, this is only two-thirds of the average face rent for YBD, which for Q2/2020 was KRW82,600/pyeong, and thus is expected to be quickly taken up. Overall market conditions are anticipated to remain tight with rental adjustments and aggressive tenant marketing especially in YBD for some period until the new supply situation stabilizes.
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