What you need to know about ‘knowledge industry centres’ in South Korea

There are nearly 35m sqm of these apartment-type factories as of August 2021.

A Knowledge Industry Centre (“KIC”), previously known as an apartment-type factory, is a mixed-use building primarily occupied by manufacturing and IT companies and their supporting facilities. 

Historically, Savills says the development of KICs, typically built on low-cost land suitable for business facilities, has been spurred by acquisition and property tax reductions provided by the government. 

As of August 2021, KIC stock totaled 34.9 million sq m, with over 81% concentrated in Seoul and Gyeonggi Province at 11.9 million sq m and 16.4 million sq m, respectively. 

Here’s more from Savills:

In Seoul, six districts including Geumcheon, Guro, Yeongdeungpo, Seongdong, Songpa, and Gangseo account for 97% of the supply of KICs with two districts, Geumcheon and Guro, accounting for 42% and 18%, respectively. Supply in Gyeonggi Province is more widely distributed with Seongnam having the most supply, followed by Bucheon, Anyang, Yongin, and Hwaseong. Over the past five years, supply in Seoul has grown at a CAGR of 5%, while Gyeonggi saw a sharp rise in supply of 13%, on average. 

KICs have grown as a preferred asset class among individual investors rather than institutional investors as pre-selling by unit and unit ownership became possible. A low interest rate environment since 2017 and an aggressive residential property tax policy have also driven some spillover demand from the residential to the KIC market. While the price of KICs rose at a CAGR of 9% during 2018- 2020, prices rose by 20% in 2021 on a par with the surge in apartment prices. 

However, we think further price growth will be muted due to extensive new supply in Gyeonggi Province, staggering employment figures in the respective tenant markets, and rising interest rates with the possibility of additional rate hikes. 

We note leasing markets are changing as employment in SMEs, the primary tenants of KICs, has recently increased in Gangseo, Songpa, and Seongdong, but has fallen in Geumcheon and Guro. In Gyeonggi Province, SME employment figures fell in Bucheon, Anyang, and Siheung, all of which had considerable new supply, while employment rose in Seongnam, Yongin, and Hwaseong. 

Seoul is expected to see a 21% increase in stock over the next three years, rising at a similar pace to the last five years. On the other hand, Gyeonggi stock is expected to increase by 57% over the next three years, raising the risk of increased vacancy. In addition, considerable new supply outside the traditional KIC districts is expected to increase competition for tenants.