APPD Market Report Article

Seoul

August 26, 2022

Veronica Shim, Head of Research, Korea

-3.2%

KRW 1,576,341

Decline
Slowing

Consumer sentiment falls sharply

  • The consumer sentiment index recorded 103.8 in April and 102.6 in May, and dropped below 100 in June for the first time since February 2021, recording 96.4. Retail sales posted 0.4% in April and rose slightly to 0.7% in May y-o-y. Same-department store sales surged, recording 15.1% in April and 15.9% in May.
  • In April, the government lifted all social distancing measures after two years. On the back of lifted measures, the sales of all product categories observed upticks, which were further aided by spending sprees from pandemic-weary consumers. The number of Chinese tourists visiting in May recorded at 12,253 amid stringent lockdown measures in China.

No change to shopping mall vacancy; high street vacancy declines

  • No retail assets were newly added to the JLL basket in 2Q22.
  • The vacancy rates of prime shopping malls stayed similar q-o-q. Parnas and COEX Mall’s vacancies climbed 61 bps and 37 bps, respectively, q-o-q. IFC Mall and Lotte World Mall’s vacant spaces dropped by 42 bps and 22 bps, respectively. The vacancy rates for high streets also tightened 427 bps q-o-q. Gangnam recorded the largest decrease, down 1,060 bps, while Garosugil’s soared 225 bps.

Market yields for both shopping malls and high streets expand

  • Driven by the lifting of social distancing measures, both shopping malls and high street rents rose 0.7% and 0.6% q-o-q, respectively. Among them, Gangnam high street rents climbed the most, by 1.0% q-o-q. Rents in Garosugil and Cheongdam climbed by 0.5%, while other high street rents remained flat q-o-q.
  • Investment yields for both shopping malls and high streets in the quarter increased by 15 bps q-o-q, recording 5.3% and 4.7%, respectively. The most notable deal in the quarter was the Lotte Mall Gwangmyeong branch, which was sold by Lotte Shopping for KRW 324 billion to Kiwoom Asset Management. Kiwoom Asset Management purchased the property as its first underlying asset for a REIT.

Outlook: Offline retail exhibits signs of revival

  • After the lifting of travel restrictions, offline retail sales are expected to increase to some extent on the back of pent-up consumer spending. Therefore, offline retail is anticipated to gradually regain momentum. However the retail market will likely still be volatile as consumer sentiment is expected to remain low.
  • More sellers are anticipated to try to dispose of assets; however, there is unlikely to be many transacted deals due to the pricing gap between vendors’ and purchasers’ expectations, causing deal failures. Furthermore, the retail transaction volume will likely remain subdued except for properties that can be converted to other asset types, such as residential or industrial assets.

Note: Seoul Retail refers to Seoul's prime retail market.

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