South Korean property investment markets to remain subdued till year-end

Investors are still highly selective.

South Korea’s total investment volume year-to-date in the office and logistics sectors stands at c.KRW7.5 trillion, based on preliminary data. The figure, attributable to 83% in offices and 17% in logistics, represents only 39% of the peak volume recorded during the same period in 2021. Despite the subdued volumes, unit pricing has remained relatively stable, particularly for offices. 

Notably, analysis of buyers in the office sector reveals domestic entities, such as the National Credit Union (Shinhyub) acquisition of Tower 8 for KRW549.0 billion. In contrast, offshore investors have shown greater interest in the logistics sector, including LOGOS. 

There was a notable lack of activity across several real estate sectors, however, including logistics, retail, and hospitality. Recently-closed and ongoing hotel transactions, such as New Kukje, are anticipated to undergo conversion to office space. The logistics sector is facing significant challenges, characterised by pricing pressures stemming from imbalances in supply and demand, and uncertainties surrounding leasing demand, particularly in cold and frozen storage. 

The outlook for Korea’s investment markets remains clouded until the end of the year, as investors, both domestic and foreign, continue to be selective. Despite the growing number of sellers eager to introduce new deals to the market, driven by challenges in refinancing due to rising capital costs and global portfolio mandates aiming to reduce office holdings, there is a limited pool of institutions with readily available capital. 

Aside from the exceptional performance of the office sector, which currently boasts near-zero vacancies, overall investment activity is similar to the declining trend globally. Investors are exercising caution, and there are many market assets up for sale, with more institutions seeking to sell than there are buyers. Only prime assets are likely to attract potential buyers, and even in these cases, adjustments to pricing expectations may be necessary to successfully close deals.