APPD Market Report Article


December 1, 2021


KRW 98,583


Net absorption for all core districts increased during the quarter

  • Seoul’s net absorption was about 40,300 pyung, recording a positive value for the sixth consecutive quarter. By district, the CBD recorded 13,400 pyung, Yeouido 8,200 pyung and Gangnam 18,700 pyung. Center Field, a newly completed building in Gangnam with a GFA of 51,200 pyung, offered new leasable space, which facilitated strong net take-up in 2H21.
  • Notable deals included Woongjin (4,100 pyung), Lotte Card (1,100 pyung) and Kyobo Life Insurance (600 pyung) which moved into newly added K Square City in the CBD. In Gangnam, tenants such as Krafton (5,100 pyung), Npixel (3,300 pyung) and Ceragem (2,200 pyung) joined Center Field. In Yeouido, Azbil (900 pyung) moved into KT Tower, while Ebroad Casting (900 pyung) signed a lease with Parc 1 Tower.

Vacancy rates drop in all three submarkets

  • In 3Q21, K Square City (GFA 12,600 pyung) was newly added to the CBD Grade A basket. No new buildings were introduced in Gangnam and Yeouido.
  • Overall Grade A vacancy rate in Seoul was about 10.8%, down 155bps from the previous quarter. The vacancy rate in all three districts fell. Even the vacancy rate of the CBD decreased slightly, by 31 bps to 12.1%, despite the new supply addition. Yeouido recorded 15.7% vacancy, down 173 bps. Gangnam’s vacancy rate fell by 288 bps from the previous quarter, to 5.7%.

Investment volume in 3Q21 recorded at KRW 3.5 trillion

  • Overall effective rent in Seoul Grade A office was KRW 97,608 per pyung per month, up 0.8% q-o-q and 3.7% y-o-y. Effective rent rose in all three districts. Among them, Yeouido rents hiked the most, increasing by 3.3% q-o-q and 5.5% y-o-y, largely attributable to strong take-up in IFC buildings which led to a reduction of rental incentives.
  • In 3Q21, the volume of office investment exceeded KRW 3.9 trillion, a figure that continues to strengthen. The acquisition of SK Seorin Building was concluded in the quarter. SK Group previously sold this building 15 years ago and repurchased it to use it as its headquarters and include it in its REIT portfolio. Seoul’s cap rate is 3.8%, down 10 bps from the previous quarter.

Outlook: Despite healthy investment appetite, deal volume may fall

  • Upon recent injections of new buildings throughout Seoul, the vacancy rate soared, reaching 15.4% in 1Q21. Since then, vacancy rates have continued to contract on the back of brisk leasing demand. In the next 12 months, the vacancy rate could further decrease, posting a single-digit figure as there are still scheduled leases.
  • Korea’s benchmark interest rate rose 25 bps to 0.75%, after maintaining an all-time low rate of 0.5% for a 14-month streak. The benchmark interest rate is poised to hike further by end-2021, which would act as a headwind. While investment sentiment stays robust, overall transaction volume could decline as there are few deals in the market as AMCs need to maintain the AUM level.

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

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