Which office submarket in Seoul showed the most robust leasing demand?

Net absorption in Yeouido increased the most in Q1.

According to JLL, overall net absorption in Seoul was recorded at 33,500 pyung in 1Q21. Net absorption in all three submarkets remained in positive territory in 1Q21. In particular, net absorption in Yeouido increased the most. As a large portion of the high-quality newly added space was absorbed, the submarket demonstrated the most robust demand amongst the three submarkets.

Notably, Shinhan Bank (1,800 pyung) expanded within Booyoung Taepyungro Building. In Gangnam, Danggeun Market (2,900 pyung) moved to Kyobo Tower from Mirim Building. In Yeouido, Hi Investment & Securities (5,100 pyung) relocated to KTB Building, and KTB Securities (5,100 pyung) moved from KTB building to Yeouido Post Tower.

Here’s more from JLL:

Center Field and Hankook Tire Building come online in the quarter

Center Field (GFA 51,200 pyung) was newly completed in the Gangnam submarket, and Hankook Tire Building was added after remodelling. No new supply was added in the CBD and Yeouido submarkets.

The overall vacancy rate was recorded at 14.9% in the quarter, slightly up 54 bps q-o-q due to the introduction of new additions. The CBD vacancy rate fell from 13.1% to 12.8%. In Yeouido, vacancy notably dropped from 26.9% to 20.9% on the back of buoyant leasing activity in Yeouido Post Tower and Parc 1 Tower which are newly completed buildings. Gangnam’s vacancy rate surged from 5.4% to 12.8%.

Backed by strong demand, overall rents see an uptick

Rents in the overall market recorded KRW 96,216 per pyung per month, up 3.2% q-o-q and 4.0% y-o-y. Compared to 4Q20, rents in all three submarkets rose. By district, rents in the CBD increased by 1.0%, in Yeouido they increased by 1.7%, and Gangnam’s rent increased by 6.4% over the quarter, respectively. Seoul’s overall market yield compressed by 12 bps on the back of strong investor sentiment.

However , investor sentiment in 1Q21 weakened on a q-o-q basis, posting around KRW 1.6 trillion. The quarter’s most prominent transaction was Pine Avenue B; Shinhan Bank purchased the asset from Koramco Asset Trust for about KRW 620 billion. In addition, IGIS Asset Management acquired Doosan Building in Gangnam from Doosan construction for about KRW 236 billion.

Outlook: The bipolarisation effect in core assets persists

Similar to 2020, the Grade A office market showed robust demand for leasing amid the economic downturn caused by COVID-19. Since there are new buildings to be added to the CBD in 2H21, excess supply could act as a headwind. However, it is predicted that the healthy leasing demand will continue throughout the year as there are still pending expansion and relocation needs from tenants.

Backed by low interest rates and affluent liquidity, investor sentiment for Grade A office buildings will likely remain robust. On the other hand, due to the high economic volatility, the preference for quality assets with income stability and in good locations is expected to persist.

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