APPD Market Report Article

Seoul

May 31, 2022

0.2%

KRW 29,420

Growth
Slowing

The majority of leasing activity takes place in new centres

  • Overall net absorption in SCA posted 76,100 pyung. Given the lack of available stock in the market, leasing activity was slow in the quarter. A lot of large-scale leases occurred in newly completed centres, which signed deals with 3PL and e-commerce tenants. These tenants agreed to occupy a large space of around GFA 10,000 pyung. Among them, some signed long-term leases of 5-10 years.
  • Sein TNL Logistics Center signed an expansion contract (about 900 pyung) with a 3PL tenant in the West submarket. The new centres in the South-east sealed deals with 3PL tenants. Another newly built centre in the West submarket, Incheon Complex Logistics Center, was able to secure an e-commerce tenant who will occupy the dry portion.

Five new centres come on stream in the South-east and the West

  • In the South-east, Namsa Logistics Park (GFA 16,611 pyung, dry) was completed in Yongin. Dorip-ri Logistics Center (GFA 11,200 pyung, mixed), Jaseok-ri Logsitics Center 1 (GFA 14,900 pyung, mixed) and MQ Icheon Baeksa Logistics Center (GFA 13,800 pyung, mixed) were introduced in Icheon. In the West sub-market, Incheon Complex Logistics Center (GFA 49,800 pyung, mixed) came on stream.
  • Overall vacancy rate rose to 2.7% from 1.7% q-o-q. The Central and North submarkets’ vacancy rates remained unchanged. The South submarket’s vacancy rate was slightly down. The South-east’s and the West’s vacancy rates hiked marginally, attributable to an injection of new supply. For newly completed centres, dry spaces were mostly occupied while the cold space was partially vacant.

SCA rents rise slightly over the quarter

  • Overall net effective rent recorded KRW 29,420 per pyeong, up 0.2% q-o-q. All submarket rents, except the West submarket, increased in the quarter. The West’s rents decreased -1.3% q-o-q, attributable to the newly completed centre. The new centre was constructed in Incheon city, which tends to have lower rents compared to other cities, dragging down the submarket’s rent.
  • Overall transaction volume marked around KRW 1.4 trillion. The most prominent transaction was Yangji Logistics Center − Rifa Asset Management (Invesco) pre-purchased this asset from Yangji Logistics for about KRW 262 billion. In addition, KOREIT acquired Rich Complex Logistics Center 1 and 2 from Rich Development for a total of about KRW 158 billion.

Outlook: The supply of new centres may be delayed to some extent

  • Around 1.4 million pyung of new stock is expected to be added in 2022. However, there could be some construction delays as a result of supply shortage of construction materials as well as rapidly rising construction costs. Furthermore, some developers are re-examining the proportion of dry and cold storage, which could postpone construction to some degree.
  • The polarisation of centre types has set in, which will increase disparity between dry and cold centres. Dry storage is speculated to remain unabated despite large-scale supply in the pipeline, underpinned by bullish demand. On the contrary, cold centres are likely to require more time to fill. Hence, the rent discrepancies between the dry and the cold could shrink as well.

Note: Seoul Industrial refers to Seoul Capital Area's prime logistics market.

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