Seoul office demand hits annual high in Q4

Net absorption was at 24,200 pyeong during the quarter.

According to a JLL report, Seoul achieved its highest quarterly net absorption of approximately 24,200 pyeong throughout 2023, aided by the contribution of Samsung HQ. The vacancies were filled by the move-ins of Shinhan Bank and Samsung C&T. 

“All three districts showed positive values. CBD and Yeouido exhibited the highest quarterly net take-up throughout the year, recording 15,100 and 4,300 pyeong, respectively,” the report added.

Here’s more from JLL:

The notable leasing deals in the quarter were largely attributed to the newly completed building in Yeouido, Anchor 1. The building had garnered attention even before its completion due to the limited leasable space. Yuanta Securities signed a lease contract for about 6,400 pyeong of the building. KSFC and Eugene Group also signed leases for two floors at Anchor 1, for about 1,300 pyeong.

Overall vacancy rate falls once again into the 1% range

While CBD and Gangnam did not welcome any new buildings, Anchor 1, an office and residential mix building, was introduced in Yeouido. The building will house domestic financial companies, such as Yuanta Securities, which plans to move in once fit-out is completed.

Seoul’s vacancy rate has dropped into the 1% range again, recording 1.5% after two quarters. This was attributed to the planned move-ins of previously signed contracts. Both CBD and Gangnam saw a decrease in their vacancy rates, recording 1.5% and 0.3%, respectively. Yeouido’s vacancy rate experienced an increase, mainly due to the vacancies in newly-listed supply in the quarter.

Gangnam witnesses the sale of two prime assets in 4Q23

Amid strong market fundamentals, overall effective rent in Seoul Grade A office reached KRW 133,888 per pyeong, up 1.8% q-o-q and 10.3% y-o-y. Among the three submarkets, Yeouido saw the steepest rent growth of 2.4% q-o-q, backed by adjustments in face rents in some buildings, such as HI Investment Securities Building and IFC. Market yield went up 10 bps, reaching 4.5% in the quarter.

The office investment volume reached around KRW 2.4 trillion in the quarter. KB Asset Management purchased Samsung SDS Tower from Ryukyoung PSG AM for KRW 850 billion. In addition, KORAMCO expanded its portfolio by acquiring MajeStar City Tower 1 for KRW 520 billion from IGIS Asset Management in the quarter, while Tower 2 was already included in its existing portfolio.

Outlook: Interest rates may fall, but investment sentiment recovery lags

Domestic investors, expected to lead the market in 2024, are hampered by negative leverage, while foreign investors with dry powder await price adjustments before actively engaging in sales. As it seems, in 2023 only selective assets are expected to be transacted amid exhausted blind funds, along with the possibility of postponed closure due to price gaps between buyers and sellers.

Continuing economic uncertainty has led to numerous listings in search of new owners. Local asset management companies actively seek partnerships with strategic investors (SIs) in need of office spaces for self-use, to beat competitive pricing in bids. Yet, involving SIs may skew sales prices due to their distinct investment approach, making it challenging to gauge overall market improvement.

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